Financial risk management

(Financial Statements 2024)

Financing and financial risks are centrally managed by the finance operations of the TVO Group in accordance with the Finance Policy approved by the Board of Directors. Compliance with the Finance Policy is monitored by the Board of Directors and the Company’s management. The SVP, Treasury is responsible for financing operations. The TVO Group is exposed to a variety of financial risks: liquidity, market and credit risk. These do not include the receivables and obligations between the Company and its owners, as the Company operates at cost-price (see note 1 General information on the Group).

The TVO Group’s guiding financial principles are to ensure access to adequate liquidity reserves and, secondly, to reduce volatility in cash flows deriving form short and medium-term fluctuations in the financial markets.

In accordance with the Finance Policy of the Company, derivative instruments are entered into only with
hedging purposes and they should qualify for hedge accounting under IFRS.

Liquidity risk

Liquidity and refinancing risk is defined as the amount by which earnings and cash flows are affected as a result of the Company not being able to secure sufficient financing. In addition to sufficient liquid assets and committed credit lines, the TVO Group aims to diminish the refinancing risk by spreading the maturity dates of its loans and different financing sources as much as possible.

In accordance with the Finance Policy of the TVO Group, the maturities and refinancing of long-term loans are planned so that no more than 25 percent of the outstanding loans mature during the next rolling 12-month period. The loans borrowed from the Finnish State Nuclear Waste Management Fund, which have been lent further to the shareholders, form an exception.

The TVO Group issues commercial papers under the Commercial Paper Program for short-term funding
purposes. There shall always exist committed credit lines with a minimum duration of 12 months for an
amount corresponding to the funding needs of the Company for the following 12 months.

In addition to long-term committed credit lines, the Company shall maintain liquid assets at an amount stated in the Finance Policy. In accordance with the Finance Policy, bank deposits, certificates of deposits, commercial papers, municipal papers, and treasury notes as well as money market funds are accepted as investments, and they are mostly for the short-term purposes with maximum duration of 12 months.

Market risk

Currency risk

TVO Group is exposed to currency risk mainly in connection with its fuel purchases. The currency of purchases of raw uranium and enrichment is frequently USD. Hedging of a currency denominated purchase is commenced when an agreement is entered into and the forecasted currency risk becomes highly probable. Both short-term and long-term loans are withdrawn mainly in euros. The loans denominated in other currencies than euros are hedged latest at the withdrawal date.

Currency swaps, forward contracts, and options can be used to hedge the currency exposure.

Interest rate risk

Interest-bearing liabilities expose the Company to interest rate risk. The objective of the Company’s interest rate risk management is to maintain the interest costs at as low level as possible and to diminish the volatility of interest costs. In accordance with the Finance Policy, the duration of the loan portfolio of the Company can vary between 36 and 48 months. At the closing date the duration was 40 months.

The average interest rate duration is managed with fixed interest rate loans, interest rate swaps, forward rate agreements as well as with interest rate caps and floors.

The average interest rate on loans and derivatives on 31 December 2024 was 2.88 % (2.62 %).

Borrowings issued at variable rates expose the TVO Group to cash flow interest rate risk. Borrowings
issued at fixed rates expose the TVO Group to fair value interest rate risk. The TVO Group shall apply hedge
accounting as far as practical. Based on the various scenarios, the TVO Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. The TVO Group also enters into fixed-to-floating interest rate swaps to hedge the fair value interest rate risk.

Credit risk

Credit risk arises from the potential failure of a counterparty to meet its contractual payment obligations. Commercial trade receivables as well as receivables from financial institutions relating to investments, deposits and derivative transactions expose the Company to credit risk. In addition to money market funds, financial institutions that meet the credit rating requirements of the Group´s Financial Policy are accepted as counterparties. Furthermore, the TVO Group has in place a master agreement (ISDA) with all derivative contract counterparties.

The loan of the Finnish State Nuclear Waste Management Fund has been loan under the same loan terms to
the company’s shareholders, however so, that Fortum Power and Heat Oy´s share is loaned to Fortum Oyj.
The loans do not have separate collateral. The nuclear waste management receivables and loans are valued
at amortised cost. The management has evaluated the on-lending agreements the creditworthiness of the
parties to be sufficient for these loans, and thus the expected credit losses of the loan receivables are immaterial and do not include a significant credit risk.

Fuel price risk

The fuel used for electricity production by the Group is uranium.

The TVO Group purchases the uranium fuel from the global markets. The purchasing process consists of four stages: purchase of uranium concentrate, conversion, enrichment and fuel fabrication. Purchasing Policy is used to guarantee the availability of fuel and to minimise price risk. This includes storage strategy and diversified long-term purchasing agreements with different suppliers.

The TVO Group has not used commodity derivatives to hedge fuel price risk.

Capital risk management

The TVO Group’s objective is to secure sufficient equity and equity-like funding that guarantees diversified funding sources.

The equity ratio of the Company varies along investment cycles. The Group aims to have a minimum equity
ratio (IFRS) of 25 percent in the long-term. When calculating the equity ratio, the loan from the Finnish State Nuclear Waste Management Fund (lent further to the shareholders) and the provision related to nuclear waste management obligation are excluded. Additionally, subordinated loans or equivalent loans from the shareholders are regarded as equity.

According to the terms of some loan agreements, the Company is committed to maintain the consolidated
equity ratio of TVO Group (IFRS) equal to or greater than 25 percent. There are no other key ratio-related
covenants in the loan agreements.

¹⁾ Equity ratio % = 100 x ((equity + loans from equity holders of the company) / (balance sheet total - provision related to nuclear waste management - loan from the Finnish State Nuclear Waste Management Fund))

²⁾ Equity ratio % = 100 x ((equity + appropriations + loans from equity holders of the company) / (balance sheet total - loan from the Finnish State Nuclear Waste Management Fund))