Teollisuuden Voima Oyj's Interim Report January–June 2014

​Stock Exchange Release July 17, 2014

TVO Interim Report January - June 2014 (pdf)

During the first half of the year, Teollisuuden Voima's electricity generation at Olkiluoto 1 and Olkiluoto 2 plant units continued safely and reliably. In the Olkiluoto 3 plant unit under construction, the reactor containment pressure and leak-tightness tests have been completed successfully. Design and testing of the instrumentation and control (I&C) systems continued. TVO filed an application to the Finnish Government asking for an extension to the period of validity of the decision-in-principle of the Olkiluoto 4 plant unit and a new time limit for submitting the construction license application.

Operating Environment

During the first five months of the year, the use of electricity in Finland decreased by 2.4 percent compared to the corresponding period of the previous year.

The Finnish Government withdrew introduction of the new power plant tax ("windfall profit tax") in June. The tax adopted by Parliament in December 2013 did not come into force since it was still pending in the European Commission.

The European Commission released in May a communication on EU's energy security strategy. The main message in the communication is that security of energy is vital for the European citizens and for the European economy. This communication together with the European Commission's January communication on the framework for climate and energy targets up to 2030 is material for the new European Parliament and Commission.

In May, the EU Member States reached a compromise on the European Commission proposal for amending the nuclear safety directive. The final adoption by the Council will likely take place in July.

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–June 30, 2014 was EUR 169.2 (January 1–June 30, 2013: EUR 194.9) million. The amount of electricity delivered to shareholders was 7,183.0 (7,651.6) GWh. The decline in turnover was mainly due to the lower electricity supply of the Meri-Pori coal-fired power plant compared to the previous year.

The consolidated profit/loss was EUR -0.8 (31.2) million. An updated cost estimate based on the new nuclear waste management technical plan and schedule and changes of the provision regarding nuclear waste management obligation had an effect on the profit/loss for the previous period under review. The positive profit impact of the updates and changes was mainly non-recurring.

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 3,593.4 (December 31, 2013: 3,426.6) million, of which EUR 339.3 (339.3) million were subordinated shareholder loans. During the period under review, TVO raised a total of EUR 626.0 (133.0) million in non-current liabilities. Repayments during the period under review amounted to EUR 554.5 (70.2) million.

In March 2014, Japan Credit Rating Agency (JCR) kept its AA rating for TVO but changed its outlook to negative. In May, Fitch Ratings held TVO's long-term issuer default rating (IDR) and senior unsecured rating of BBB and a short-term rating of F3 with a stable outlook, while Standard & Poor's Rating Services held its long-term BBB and a short-term A-2 corporate credit ratings for TVO but revised its outlook from stable to negative.

In June, TVO updated the Euro Medium Term Note Program (EMTN). During the first quarter of the year, TVO has issued under its EMTN Program a EUR 500 million 7-year bond with an annual coupon of 2.5 percent. The proceeds were used to buy back a bond maturing in 2016. Furthermore, during the period under review, the Company issued an 18-year EUR 45 million and a 10-year EUR 20 million private placement. Additionally, a 6-year SEK 550 million private placement was issued in the Swedish market and the proceeds were used to buy back maturing SEK denominated bonds.

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 June 30, 2014, the amount of the loan was EUR 982.8 (December 31, 2013: 931.7) million and it has been relent to the Company's A-series shareholders. On March 31, 2014 loan from the Finnish State Nuclear Waste Management Fund was increased by EUR 51.1 million (April 2, 2013: EUR 50.0 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 7,091 (7,086) GWh. The total load factor was 93.0 (92.9) per cent.

The plant units operated safely and reliably during the period under review. OL1's net production was 3,430 (3,648) GWh and the load factor 90.0 (95.7) %. OL2's net production was 3,661 (3,438) GWh and the load factor 96.0 (90.1) %.


Olkiluoto 1
Average electrical power MW
July 1, 2013–June 30, 2014

Olkiluoto 2
Average electrical power MW
July 1, 2013–June 30, 2014

Annual Outages

The annual outages of 2014 at the Olkiluoto nuclear power plant were carried out in May 11–June 9, 2014. OL1 underwent a maintenance outage that lasted more than 17 days, and OL2 had a refueling outage taking less than 8 days.

The main maintenance activities during the outage at OL1 included the replacement of low-voltage switchgears in two subsystems, piping modifications in the auxiliary feedwater system, installation of a new auxiliary transformer, and several other modification and maintenance tasks.

OL2 had a refueling outage of about one week. In addition to refueling, maintenance and repair work as well as tests were carried out, and two main seawater pumps were replaced.

Apart from TVO's own personnel, up to 800 subcontractor employees were involved in the annual outage work.

Both plant units have operated reliably after the annual outages.

Olkiluoto 3

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

Based on the progress reports received from the Supplier, TVO announced in February 2013 that the Company will prepare for the possibility that the start of the regular electricity production of the OL3 plant unit may be postponed until year 2016. In February 2014, TVO announced that it had not received the requested overall schedule update for the OL3 project from the Supplier. Therefore TVO does not provide an estimate of the start-up time of the plant unit at the moment. TVO has required the Supplier, who is in charge of the project schedule, to update the overall schedule and to provide a clarification of the measures needed to ensure proper progress to complete the plant unit. Information about the start-up date of electricity production of the OL3 plant unit is pending the finalization of the Supplier's schedule clarification.

The civil construction works of the plant unit have been mainly completed. Cladding works of the buildings' exterior walls are nearly completed. The major components of the reactor plant, such as reactor pressure vessel, pressurizer and four steam generators have been installed, and the primary coolant circuit pipeline has been welded. Pipeline welding works in the emergency power generating building continue. Commissioning of the power distribution in the reactor plant continues. Containment pressure and leak-tightness tests were completed in February. Testing of the instrumentation and control (I&C) systems in the test bay in Erlangen, Germany continues. Planning and licensing of the I&C systems continue. The first phase of the turbine plant commissioning is ongoing.

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

The workforce at the site at the end of the period under review was about 600 persons. The Supplier has reduced the number of subcontractors and work staff at the OL3 site as it announced in December 2013. The Supplier informed that it is focusing efforts on urgent and most critical design tasks of the project.

The occupational safety at the site remained at good level.

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

The bidding process aiming at the OL4 plant selection is not yet completed. Due to the delay of the completion of the OL3 project, it is not possible at the moment for TVO to make the significant decisions needed for the OL4 construction license application. 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. The current decision-in-principle is valid for 5 years from the ratification made by Parliament.

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 15.4 (16.2) million and the amount consumed to EUR 23.9 (22.9) million.

The nuclear fuel and uranium stock carrying value on June 30, 2014 was EUR 199.4 (December 31, 2013: 207.9) 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.

Equipment of the underground ONKALO research facility with technical 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 has started.

In the technology development project DOPAS, casting of the concrete sealing plug (POPLU subproject) is about to begin. The DOPAS project, partly funded by the EU, is coordinated by Posiva and its purpose is to test plugging and sealing systems for final disposal tunnels.

On May 20, 2014 Posiva filed an application with the Ministry of Employment and the Economy (MEE) concerning a supplement to the decision-in principle made in May 2010 related to the final disposal of the spent nuclear fuel of the OL4 plant unit.

The construction license application for the final disposal facility has been supplemented by additional clarifications required by the Radiation and Nuclear Safety Authority, Finland (STUK). STUK informed in June that assessing the long-term safety of the construction license application will take longer than planned. According to its estimation, STUK will be able to submit its statement on the long-term safety of the final disposal to MEE in January 2015.

The interim storage facility for spent nuclear fuel in Olkiluoto is being expanded to provide interim storage facilities for the spent fuel elements of both the existing plant units, OL1 and OL2, and OL3 under construction. With the expansion TVO will double the capacity of the existing fuel pools. The expansion is scheduled to be taken into use in 2014.

The liabilities in the consolidated financial statement show a provision related to nuclear waste management liability of EUR 909.6 (December 31, 2013: 897.9) 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 2013, MEE set TVO's liability for nuclear waste management at EUR 1,317.8 (1,242.3) million to the end of 2013 and the Company's funding target for 2014 at EUR 1,310.4 (1,242.3) million.

In March 2014, the Finnish State Nuclear Management Fund confirmed TVO's nuclear waste management fee for 2013 at EUR 56.1 (43.1) million, which was paid into the Fund on March 31, 2014 (April 2, 2013). The nuclear waste management fee for 2014 will be confirmed in March 2015.

Coal Power

Meri-Pori

The amount of electricity produced by TVO's share at the Meri-Pori coal-fired power plant on January 1–June 30, 2014 was 105.1 (583.4) GWh requiring 39.8 (204.1) thousand tons of coal and 89.2 (473.1) thousand tons of carbon dioxide emission rights.

TVO's share of Meri-Pori's production
Average electrical power MW
July1, 2013–June 30, 2014



Acquisitions of Tangible and Intangible Assets and Shares

Investments during the period under review were EUR 181.8 (175.1) million. Investments of the parent company were EUR 182.4 (141.2) million, of which EUR 162.2 (118.8) million was allocated to the OL3 project.

TVO signed in May 2013 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 total investment of the replacement project is more than EUR 100 million. 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.

Carbon dioxide emission rights acquired for the Company's share of the Meri-Pori coal-fired power plant have been relinquished to the Energy Market authority worth EUR 2.7 (0.9) million. During the period under review, emission rights have been acquired worth EUR 0.5 (2.2) 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 was approximately EUR 1.8 billion which included TVO's actual claim and an estimated part until August 2014.

The proceedings were initiated in December 2008 by the OL3 Supplier. The monetary claim the Supplier updated in 2013 is in total approximately EUR 2.7 billion. The updated quantification is until the end of June 2011, and the sum includes approximately EUR 70 million of payments delayed by TVO under the plant contract as well as approximately EUR 700 million of penalty interest and approximately EUR 120 million of alleged loss of profit. TVO has considered and found the earlier claim by the Supplier to be without merit, scrutinizes the updated claim and will respond to it in due course.

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 933 (December 31, 2013: 857, June 30, 2013: 982). The number of permanent employees at the end of the period under review was 765 (December 31, 2013: 767, June 30, 2013: 768).

The Board of Directors of TVO appointed Marjo Mustonen as Senior Vice President, Nuclear Safety and Member of the Management Group of the Company. Marjo Mustonen also chairs the Safety Committee of the Company and continues as the responsible director for construction of OL3. The former Senior Vice President for Nuclear Safety, Esa Mannola, continues in the Company as Corporate Adviser. The appointments came into effect as from the beginning of 2014.

Annual General Meeting

TVO's Annual General Meeting was held on March 27, 2014. The AGM approved the financial statements for the year 2013, confirmed the consolidated income statement and balance sheet and discharged the members of the Board of Directors and the President and CEO from liability.

All Board members were re-elected. At its organization meeting held on the same day as the AGM, the Board elected Matti Ruotsala as Chairman and Lauri Virkkunen 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 2013.

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 use will be continued.

TVO estimates that a decision on the new deadline for the submission of the construction license application of the OL4 plant unit will be available during 2014.

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.

July 16, 2014

Teollisuuden Voima Oyj
Board of Directors

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