Teollisuuden Voima Oyj's Interim Report January–March 2015

During the first quarter of the year, Teollisuuden Voima's electricity generation at Olkiluoto 1 and Olkiluoto 2 plant units continued safely. OL2 generator failure decreased production. The Olkiluoto 3 I&C system tests in the test bay in Erlangen, Germany proceeded. According to the plant supplier, the start of regular electricity production of the OL3 plant unit would take place in late 2018. The decision-in-principle of OL4 plant unit is valid until the end of June 2015. The employee information and consultation procedure was completed.

Operating Environment

During the first quarter of the year, the use of electricity in Finland decreased by 2.1 percent compared to the corresponding period of the previous year.

The Finnish Parliament approved in March the law of amending the Nuclear Energy Act and Radiation Act. The mandate of the Radiation and Nuclear Safety Authority in Finland (STUK) will be extended, and STUK will be authorized to give binding regulations regarding safety related to the use of radiation. The nuclear safety research fee collected from the operators of nuclear facilities and waste management fee collected from those liable for waste management will be increased for a fixed period. For TVO, the fees will increase by EUR 2–4 million per year, during 2016–2020. Validity of the OL4 decision-in-principle will have an effect on the amount of the fees.

The European Commission published in February a communication on the EU Energy Union. In the communication, the Commission outlines its future work and examines in which energy policy areas more EU-level actions are needed. The importance of diversifying nuclear fuel supply to ensure security of supply is brought up in the communication. The Commission also states that nuclear energy presently produces nearly 30 percent of the EU's electricity, and that EU must ensure that Member States use the highest standards of safety and waste management.

Financial Performance

TVO operates on a cost-price principle (Mankala principle). TVO's goal is not to make profit or pay dividends. The shareholders are charged incurred costs on the price of electricity and thus in principle the profit/loss for the period under review is zero. The shareholders pay variable costs based on the volumes of energy supplied and fixed costs in proportion to their ownership, regardless of whether they have made any use of their share of the output or not. Because of the Company's operating principle, key indicators based on financial performance will not be presented.

The consolidated turnover for the period under review January 1–March 31, 2015 was EUR 79.0 (January 1–March 31, 2014: EUR 86.0) million. The amount of electricity delivered to shareholders was 3,434.7 (3,889.6) GWh. The decline in turnover was mainly due to an interruption in the power generation due to a leakage in the water-cooled generator of the OL2 plant unit.

The consolidated profit/loss was EUR 0.3 (-1.3) million.

Financing and Liquidity

TVO's financial situation has developed as planned.

TVO's liabilities (non-current and current) at the end of the period under review, excluding the loan from the Finnish State Nuclear Waste Management Fund relent to shareholders, totaled EUR 4,067.7 (December 31, 2014: 3,727.3) million, of which EUR 439.3 (439.3) million were subordinated shareholder loans. During the period under review, TVO raised a total of EUR 500.0 (545.0) million in non-current liabilities. Repayments during the period under review amounted to EUR 58.2 (479.4) million.

In January Japan Credit Rating Agency (JCR) downgraded its AA rating for TVO by one notch to a level of AA- and evaluated the Company's future outlook as stable.

In February TVO issued under its EMTN Program a EUR 500 million 10-year bond with an annual coupon of 2.125 percent.

The OL3 project's share of financing costs has been capitalized in the balance sheet.

TVO uses its right to borrow funds back from the Finnish State Nuclear Waste Management Fund within the framework of legal regulations. On March 31, 2015 the amount of the loan was EUR 1,009.1 (December 31, 2014: 982.8) million and it has been relent to the Company's A-series shareholders. On March 31, 2015 loan from the Finnish State Nuclear Waste Management Fund was increased by EUR 26.3 (51.1) million.

Nuclear Power

Olkiluoto 1 and Olkiluoto 2

The electricity production of the Olkiluoto power plant units, Olkiluoto 1 (OL1) and Olkiluoto 2 (OL2), during the period under review was 3,404 (3,825) GWh. The total load factor was 89.7 (100.0) per cent.

The plant units operated safely during the period under review. OL1's net production was 1,903 (1,903) GWh and the load factor 100.0 (100.0) %. OL2's net production was 1,501 (1,922) GWh and the load factor 79.1 (100.0) %.


Olkiluoto 1
Average electrical power MW
April 1, 2014–March 31, 2015

Olkiluoto 2
Average electrical power MW
April 1, 2014–March 31, 2015


OL2 was out of production in February nearly three weeks. On February 4, a leakage was detected in the water-cooled generator of the plant unit, and the electricity generation was interrupted. After the problem was examined by the experts of TVO and the generator supplier, TVO decided to replace the rotor of the generator. The electricity generation was restarted on February 24.

Olkiluoto 3

Olkiluoto 3 (OL3), currently under construction, was procured as a fixed-price turnkey project from the consortium (referred to as the Supplier) formed by AREVA GmbH, AREVA NP SAS and Siemens AG. The said companies belonging to the consortium are jointly and severally liable for the Plant Contract obligations. Originally commercial electricity production was scheduled to start at the end of April 2009. The completion of the project, however, has been significantly delayed. The Supplier's installation works at the plant unit and engineering have not progressed according to the Supplier's schedules.

In December 2013 the Supplier informed that they will reduce the number of subcontractors and employees at the OL3 site due to, among other things, the incomplete planning of the plant unit. For this reason, the progress of the installations at the site has been very slow.

In September 2014 TVO received additional data about the schedule for the OL3 project from the Supplier. According to the Supplier, the start of regular electricity production of the plant unit would take place in late 2018. Detailed evaluation of the received data is ongoing.

The civil construction works of the plant unit have been mainly completed, cladding works of the buildings' exterior walls will be completed later.

Pipeline installation and welding works in the emergency power generating building continued. Cabling works as well as preservation of pipelines and equipment continued. I&C system tests in the test bay in Erlangen, Germany proceeded.

The first phase of the turbine plant commissioning is completed. Preservation of the systems is ongoing. Conservation of the low-pressure turbine rotors has been completed.

During the period under review, the workforce at the site increased by more than a hundred persons and was at the end of the period under review about 900 persons. The occupational safety at the site remained at good level.

The pending disputes concerning the plant unit are described in paragraph Pending Court Cases and Disputes.

All the realized costs of the OL3 project that can be recognized in the cost of the asset have been entered as property, plant and equipment in the Group balance sheet.

Olkiluoto 4

On July 1, 2010 the Finnish Parliament approved the favorable decision-in-principle made by the Finnish Government on May 6, 2010 regarding TVO's application to construct a fourth nuclear power plant unit (Olkiluoto 4) in Olkiluoto.

On May 20, 2014 TVO submitted an application to the Government asking for a new time limit for submitting the construction license application and for decision that despite changes in the timing of the project, the construction of the OL4 plant unit is still in accordance with the overall good of society. On September 25, 2014 the Government adopted a negative decision on TVO's application. The decision-in-principle is still in force, and the deadline for submitting the construction license application is June 30, 2015.

All the realized costs of the OL4 project that can be recognized in the cost of the asset have been entered as property, plant and equipment in the Group balance sheet.

Nuclear Fuel

During the period under review, nuclear fuel purchases amounted to EUR 20.1 (13.2) million and the amount consumed to EUR 13.5 (12.4) million.

The nuclear fuel and uranium stock carrying value on March 31, 2015 was EUR 218.0 (December 31, 2014: 211.4) million.

Nuclear Waste Management

Under the Finnish Nuclear Energy Act, the Company is responsible for the measures related to nuclear waste management and the related costs. Posiva Oy, jointly owned by TVO and Fortum Power and Heat Oy, is responsible for taking care of the final disposal of TVO's spent nuclear fuel.

On February 11, 2015 The Radiation and Nuclear Safety Authority in Finland (STUK) issued to the Finnish Ministry of Employment and the Economy (MEE) a favorable statement on the safety of the final disposal facility. STUK's safety statement is required for the decision on construction license that MEE will prepare and the Government will make.

Equipment of the underground ONKALO research facility with building technology facilities and systems is completed. Raise boring of the ventilation and elevator shafts is also completed. Construction of the second phase of the elevator and entrance building as well as detailed design of the encapsulation plant and its systems have been started. Testing of the machines and equipment to be used in the final disposal has proceeded to the final disposal depth in ONKALO after completing tests in the above-ground test hall.

The liabilities in the consolidated financial statement show a provision related to nuclear waste management liability of EUR 937.0 (December 31, 2014: 930.3) million, calculated according to the international IFRS accounting principles. A corresponding amount, under assets, represents the Company's share in the Finnish State Nuclear Waste Management Fund.

In order to cover the costs of nuclear waste management, TVO makes contributions to the Finnish State Nuclear Waste Management Fund. In December 2014 MEE set TVO's liability for nuclear waste management at EUR 1,349.1 (1,317.8) million to the end of 2014 and the Company's funding target for 2015 at EUR 1,345.4 (1,310.4) million.

In March 2015 the Finnish State Nuclear Management Fund confirmed TVO's nuclear waste management fee for 2014 at EUR 20.8 (56.1) million, which was paid into the Fund on March 31, 2015 (March 31, 2014). The nuclear waste management fee for 2015 will be confirmed in March 2016.

Coal Power

Meri-Pori

The amount of electricity produced by TVO's share at the Meri-Pori coal-fired power plant on January 1–March 31, 2015 was 39.3 (70.9) GWh requiring 14.1 (26.8) thousand tons of coal and 32.4 (59.8) thousand tons of carbon dioxide emission rights.

TVO's share of Meri-Pori's production
Average electrical power MW
April 1, 2014–March 31, 2015



Acquisitions of Tangible and Intangible Assets and Shares

Investments during the period under review were EUR 60.0 (117.6) million. Investments of the parent company were EUR 59.7 (117.5) million, of which EUR 49.2 (108.6) million was allocated to the OL3 project.

TVO continued to carry out modernization projects in the existing plant units.

In May 2013 TVO signed an agreement with Wärtsilä Finland Oy for the delivery of emergency diesel generators and associated auxiliary systems to Olkiluoto. A total of nine generators will be delivered, and TVO is in charge of the construction work required for the project as well as for the connection of the diesel generators to TVO's other systems. The project will start in 2016 and is estimated to continue until 2020. The replacement of the generators will be carried out as far as possible during normal power operation at the OL1 and OL2 plant units.

In July 2014 TVO made a contract with Westinghouse Electric Sweden (WSE) for the replacement of the main circulation pumps in OL1 and OL2. The contract covers 12 main circulation pumps. The replacement of the circulation pumps will take place on a turnkey basis. WSE will be responsible for installing the pumps and manufacturing of special tools as well as for design and engineering of the pumps in collaboration with their manufacturer. TVO will be responsible for organizing support services during the installation phase as specified in the contract. The main circulation pumps will be replaced during the annual outages in 2016–2018.

During the period under review, emission rights were acquired worth 0.3 (0.3) million. The Company's need for carbon dioxide emission rights for the period under review will be covered by acquired emission rights.

Pending Court Cases and Disputes

TVO submitted in 2012 a claim and defense in the International Chamber of Commerce (ICC) arbitration proceedings concerning the delay and the ensuing costs incurred at the Olkiluoto 3 project. The quantification estimate of TVO's costs and losses updated in October 2014 is approximately EUR 2.3 billion until the end of 2018, which according to the schedule submitted by the OL3 Supplier in September 2014, is the estimated start of the regular electricity production of OL3.

The proceedings were initiated in December 2008 by the OL3 Supplier. The updated quantification which the Supplier submitted in October 2014 and corrected in November 2014 brings the total amount claimed by the Supplier for events occurring during the construction period ending June 2011 to approximately EUR 3.4 billion. Among other things, this sum includes over EUR 1.2 billion in respect of penalty interest (calculated until October 2014) and payments allegedly delayed by TVO under the plant contract, as well as approximately EUR 150 million of alleged lost profit. TVO has considered the Supplier's previously submitted claims being without merit. TVO will scrutinize the new material which has been submitted, and respond to it in due course.

The companies belonging to the Plant Supplier Consortium (AREVA GmbH, AREVA NP SAS and Siemens) are jointly and severally liable for the Plant Contract obligations.

The arbitration proceedings may continue for several years, and the claimed amounts may be updated.

TVO has not recorded any receivables or provisions on the basis of claims presented in the arbitration proceedings.

Personnel

The total number of personnel in the Group at the end of the period under review was 821 (December 31, 2014: 809, March 31, 2014: 855). The number of permanent employees in the Group at the end of the period under review was 772 (December 31, 2014: 754, March 31, 2014: 768).

The employee information and consultation procedure initiated by TVO early January 2015 was completed at the end of February. The procedure was related to restructuring of the Company's functions and improving cost efficiency to ensure the Company's competitiveness in the challenging power generation market. The aim was to achieve annual cost savings of EUR 15 million. Prior to the negotiations, the need for personnel reduction was estimated to be 110 man-years at the most. Based on the employee information and consultation procedure, the personnel decreased by 42 persons, of which 11 were made redundant. In addition, personnel reductions will be realized through various voluntary arrangements so that the total number of reductions will be approximately 100 man-years. The personnel reductions are estimated to be completed in full by the end of the year. The information and consultation procedure covered nearly all of the Company's personnel, approximately 700 persons.

Annual General Meeting

TVO's Annual General Meeting was held on March 20, 2015. The AGM approved the financial statements for 2014, confirmed the consolidated income statement and balance sheet, and discharged the members of the Board of Directors, the President and CEO, and the Deputy CEO from liability.

Nine of the Board members were re-elected. Markus Mannström was elected as a new member to replace Juha Taavila. At its organization meeting held on the same day as the AGM, the Board elected Lauri Virkkunen as Chairman and Matti Ruotsala as Deputy Chairman. The Board chose also from among its members the members and chairmen of the Board Committees.

Auditing

The Interim Report is unaudited.

Risks and Uncertainty Factors in the Near Future

The major risks and uncertainty factors in TVO's operations have been presented in the Report of the Board of Directors 2014.

During the period under review, no remarkable new risks connected with the Company's operation have arisen.

Assessment of Year-End Developments

Electricity production is expected to continue as in previous years. The prerequisites for nuclear power production at Olkiluoto are good. Nuclear fuel availability is guaranteed by long-term agreements.

Realization of the OL3 nuclear power plant project and preparing the plant unit for production will be continued. TVO will continue to support the Supplier to complete the project.

The Meri-Pori coal-fired power plant capacity will be used in accordance with the former principles.

Posiva is preparing to start the construction projects of the encapsulation plant and final repository after the construction license has been granted.

Events after the Period under Review

No major events have taken place after the end of the interim report period.

April 24, 2015

Teollisuuden Voima Oyj
Board of Directors

For more information, please contact:
Jarmo Tanhua, President and CEO, tel. +358 2 8381 2000
Anja Ussa, Senior Vice President, Finance, tel. +358 2 8381 6100