Fortum Corporation Interim Report January - June 2004

Fortum Corporation Interim Report January - June 2004

A very strong first six months for Fortum - operating profit hits EUR 1 billion

The first half-year in brief • Operating profit EUR 1,005 million (+32%), excluding non-recurring items +22% • Earnings per share EUR 0.76 (+55%) • Net debt EUR 5,293 million (EUR -333 million since end of 2003), gearing decreased to 76% • Preparations to list the oil businesses continued

Key figures II/04 II/03 I-II/04 I-II/03 2003 Last 12 months (LTM) Net sales, EUR million 2,830 2,435 5,653 6,028 11,392 11,017 Operating profit, EUR million 443 286 1,005 761 1,420 1,664 - excluding non-recurring items, EUR 379 272 908 743 1,360 1,525 million Profit before taxes, EUR million 376 216 863 626 1,184 1,421 Earnings per share, EUR 0.38 0.17 0.76 0.49 0.91 1.19 Shareholders’ equity per share, EUR 7.89 7.13 7.55 Capital employed 12,447 13,077 12,704 (at end of period), EUR million Interest-bearing net debt 5,293 4,502 5,626 (at end of period), EUR million *) Investments, EUR million 278 761 1,136 653 Net cash from operating activities, 1,043 1,060 1,577 EUR million Return on capital employed, % 16.1 12.1 11.4 13.3 Return on shareholders’ equity, % *) 19.4 11.9 12.3 14.7 Gearing, % *) 76 60 85 Average number of employees 13,097 13,272 13,343 Average number of shares, 1,000s 849,698 845,823 846,831 848,021 *) the figures for the full year 2003 and for January - June 2004 include the impact of the redemption of the preference shares worth EUR 1.2 billion issued by Fortum Capital Ltd

During the first half of the year, Fortum´s financial performance improved significantly compared to the first half of 2003. The operating results throughout the Group in both the power and heat and the oil businesses were higher than during the corresponding period last year.

The good results were due to operational efficiency: utilisation of the flexible power production portfolio, successful hedging, good availability at production units, a high- value oil product slate as well as an improved cost structure. In the second quarter, high oil refining margins and inventory gains had a positive impact on the results.

Cash flow continued to be at the same good level as last year. However, the figure for the first half of 2003 included exceptionally high realised foreign exchange gains arising from

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extensive financing restructuring. The balance sheet was further strengthened and gearing decreased to 76% from the 2003 year end. At the end of the second quarter, net debt was at the same level as in the first quarter, despite the dividend payment of EUR 357 million.

Preparations to list the oil businesses continued. Fortum strengthened its position in the Russian electricity company, OAO Lenenergo.

The first half of the year was characterised by relatively stable Nord Pool power prices, although the average was 29% lower than during the corresponding period in 2003. The international oil refining reference margin was strong, the average level being 62% higher than a year ago.

In order to improve the transparency of its financial reporting, Fortum has adopted a new reporting structure. The number of reporting segments has been increased from four to seven. The new segments include the following business units (names of the business units in brackets after the segment name): Power Generation (Generation, Portfolio Management and Trading, Service); Heat (Heat, Värme); Distribution (Distribution); Markets (Markets); Oil Refining (Oil Refining, Components); Oil Retail (Oil Retail); Shipping and other Oil (Shipping, other oil operations including SeverTEK). In addition, the segment Other includes for example Group administration and shared service functions.

Net sales and results

April - June During the second quarter, the Nord Pool electricity price stayed approximately at the same level as during the first quarter of 2004 and the second quarter of 2003. The international oil refining reference margin was very strong during the second quarter, exceeding the level of the first quarter of 2004 and the second quarter of 2003. The price of crude oil continued to increase.

Group net sales stood at EUR 2,830 (EUR 2,435 million in April-June 2003). The increase was mainly attributable to higher prices and increased volumes for oil products.

Group operating profit totalled EUR 443 (286) million. Operating profit excluding non- recurring items stood at EUR 379 (272) million. The net amount of non-recurring items was EUR 64 (14) million, mainly consisting of inventory gains arising from the increase in the price of crude oil. The high oil refining margin had a positive impact on the results of Oil Refining, whereas, typically for the season, the results for the power and heat businesses were lower than in the first quarter.

January - June

Group net sales stood at EUR 5,653 million (EUR 6,028 million in January-June 2003). The main reasons for the decrease were the lower market prices for electricity, the Group's exit from gas trading and a weakened US dollar.

Group operating profit totalled EUR 1,005 (761) million. Operating profit excluding non- recurring items was EUR 908 (743) million. The net amount of non-recurring items was EUR 97 (18) million, including a one-time compensation of EUR 29 million from parties in the new nuclear power unit relating to the existing nuclear infrastructure, and inventory

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gains of EUR 59 million (losses of EUR 14 million) resulting from the increase in the price of crude oil.

The results for Power Generation were up on the corresponding period last year, despite lower market prices for electricity. This was mainly due to Fortum's flexible production portfolio, successful hedging and internal efficiency improvements.

The results for the Heat segment improved mainly because of a rise in Fortum Värme's results during the first quarter. This was due to a better fuel mix and good power plant availability.

The results for Distribution, a regulated business, remained stable.

Markets experienced a substantial improvement in its results compared to last year. The main enablers were better risk management, improved business processes and cost reductions.

The results for Oil Refining reached a record high level due to strong oil refining margins, higher volumes and a considerable amount of inventory gains. However, a weaker US dollar than a year ago had a negative effect on the results. The results were further boosted by a favourable product slate, competitive feedstocks and excellent availability at the refineries.

The results for the Oil Retail segment remained at the level of the corresponding period last year. The sales volumes of traffic fuels slightly increased, whereas the corresponding margins slightly decreased.

The Shipping and other Oil segment enjoyed high freight rates, especially for crude oil, during the first quarter. However, a weaker US dollar than a year ago had a negative impact on the results. The start of crude production had a positive impact on the result.

The Group's profit before taxes was EUR 863 (626) million.

The Group´s net financial expenses were EUR 142 (135) million. This includes the interest cost attributable to the debt assumed when redeeming the preference shares issued by Fortum Capital Ltd as well as approximately EUR 10 million representing the net present value of the interest rate differential relating to the prepayment of the private placement bonds issued in the United States in 1992.

Minority interests accounted for EUR 20 (47) million. The decrease is mainly due to the redemption of Fortum Capital's preference shares, accounted for as minority interests before the redemption. The figure for 2004 is mainly attributable to Fortum Värme Holding, in which the City of Stockholm has a 50% economic interest.

Taxes for the period totalled EUR 194 (167) million. The tax rate according to the income statement was 22.5% (26.7%). Taxes for the period include a decrease in deferred tax liabilities of EUR 43 million due to the change in the Finnish income tax rate from 29% to 26% which takes effect from the beginning of the 2005 tax year. The tax rate would have been 27.4% excluding the above-mentioned decrease.

Net profit for the period was EUR 649 (412) million. Earnings per share were EUR 0.76 (0.49). Return on capital employed was 16.1% (12.1%) and return on shareholders´ equity was 19.4% (11.9%).

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POWER AND HEAT SEGMENTS

Fortum's power and heat businesses are divided into four reporting segments. Power is generated in Fortum's own and partly-owned power plants by the Power Generation segment and in combined heat and power (CHP) plants by the Heat segment. Power Generation sells electricity to the markets through the Nordic electricity exchange, Nord Pool. Fortum's distribution and regional network transmissions are reported in the Distribution segment. The Markets segment buys its electricity through Nord Pool and sells the electricity to private and business customers. Heat sells steam and district heat mainly to industrial and municipal customers as well as real estate companies, and the power it produces directly to end-customers and to Nord Pool.

Market conditions

According to preliminary statistics, the Nordic countries consumed 200 (198) TWh of electricity during the first half of the year, which was 1% more than the consumption during the first half of the previous year.

During the second quarter, the average spot price for electricity on the Nordic power exchange, Nord Pool, was EUR 29.5 (28.6) per megawatt-hour. The price was about 3% higher than the corresponding figure in 2003 and also 3% higher compared to the first quarter of 2004.

During the first half of 2004, the average spot price for electricity was EUR 29.1 (40.9), 29% lower than the corresponding figure in 2003. The prices in the forward market have been increasing since March.

Poor snow accumulation during winter and an early snow melting resulted in a short inflow peak in the beginning of May. The spot price decreased for a few weeks but recovered fast and reached a higher level than during last winter. During the second quarter, the water reservoir deficit increased by 2 TWh.

At the beginning of July, the water reservoirs were about 16 TWh below the average and at the same level as in 2003.

Total power and heat generation figures

Fortum's total power and heat generation figures are presented below. In addition, the segment reviews include the respective figures by segment.

Fortum´s own power generation in the Nordic countries during the first half of the year was 27.4 (26.7) TWh, 14% (14%) of Nordic electricity consumption.

Fortum's total power and heat II/04 II/03 I-II/04 I-II/03 2003 LTM generation, TWh Power generation 12.6 12.6 28.0 28.2 53.2 53.0 Heat generation 4.7 5.9 14.0 14.8 25.9 25.1

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Fortum's own power generation II/04 II/03 I-II/04 I-II/03 2003 LTM by source, TWh, total in the Nordic countries Hydropower 3.9 4.3 8.6 8.4 16.9 17.1 Nuclear power 6.5 6.0 13.5 12.7 23.8 24.6 Thermal power 1.8 1.6 5.3 5.6 10.5 10.2 Total 12.2 11.9 27.4 26.7 51.2 51.9

Share of own production, %, II/04 II/03 I-II/04 I-II/03 2003 LTM total in the Nordic countries Hydropower 32 36 32 31 33 33 Nuclear power 53 50 49 48 46 47 Thermal power 15 14 19 21 21 20 Total 100 100 100 100 100 100

Total electricity and heat sales figures

Fortum's total electricity and heat sales figures are presented below. In addition, the segment reviews include the respective figures by segment.

Fortum´s total electricity sales volumes amounted to 31.5 (32.2) TWh. Sales volumes in the Nordic countries stayed unchanged and were at 30.7 (30.6) TWh representing approximately 15% (15%) of Nordic electricity consumption during the first half of the year.

The average price of electricity sold by Fortum in the Nordic countries during the second quarter was 10% higher than the corresponding figure last year, and 4% higher compared to the first quarter of 2004. During the first half-year, the average price of electricity sold by Fortum in the Nordic countries was 6% lower than the corresponding figure last year.

Fortum's total electricity and II/04 II/03 I-II/04 I-II/03 2003 LTM heat sales, EUR million Electricity sales 446 428 1,012 1,094 2,038 1,956 Heat sales 158 165 444 433 775 786

Fortum's total electricity sales II/04 II/03 I-II/04 I-II/03 2003 LTM by area, TWh Sweden 5.9 6.4 14.0 15.2 28.3 27.1 Finland 7.1 6.6 15.6 15.1 29.1 29.6 Other countries 0.8 1.2 1.9 1.9 3.6 3.6 Total 13.8 14.2 31.5 32.2 61.0 60.3

Fortum's total heat sales by II/04 II/03 I-II/04 I-II/03 2003 LTM area, TWh Sweden 1.6 1.7 5.6 5.7 9.5 9.4 Finland 2.2 2.3 5.7 5.8 10.3 10.2 Other countries 0.7 1.4 1.9 2.2 3.9 3.6 Total 4.5 5.4 13.2 13.7 23.7 23.2

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SEGMENT REVIEWS - POWER

Power Generation

The business area comprises power generation and sales in the Nordic countries and the provision of operation and maintenance services in the Nordic area and selected international markets.

EUR million II/04 II/03 I-II/04 I-II/03 2003 LTM Net sales 488 573 1,052 1,533 2,681 2,200 - electricity sales 381 385 851 1,057 1,871 1,665 - other sales 107 188 201 476 810 535 Operating profit 138 116 366 328 603 641 - excluding non-recurring items 140 116 344 329 599 614 Net assets (at end of period) 6,188 6,276 6,391 Return on net assets, % 11.7 10.3 9.5 10.2

The segment's power generation during the second quarter amounted to 11.5 (10.9) TWh in the Nordic countries. The increase is mainly due to better availability of nuclear power, which compensated for the lower levels of hydro power generation.

In January - June, the segment's power generation in the Nordic countries was 24.8 (24.2) TWh, of which about 8.6 (8.4) TWh or 35% (35%) was hydropower-based, 13.5 (12.7) TWh or 54% (52%) nuclear power-based and 2.7 (3.1) TWh or 11% (13%) thermal power-based.

Power generation by area, TWh II/04 II/03 I-II/04 I-II/03 2003 LTM Sweden 5.8 5.7 12.8 12.7 24.6 24.7 Finland 5.7 5.2 12.0 11.5 22.2 22.7 Other countries 0.3 0.7 0.6 1.5 2.0 1.1 Total 11.8 11.6 25.4 25.7 48.8 48.5

Fortum Service signed a six-year asset management contract in Scotland.

Heat

The business area comprises heat generation and sales in the Nordic countries and other parts of the Baltic Rim. Fortum is the leading heat producer in the region. The segment also generates power in the combined heat and power plants (CHP) and sells it to end-customers mainly by long-term contracts as well as to Nord Pool. In Sweden, Fortum owns the company AB Fortum Värme samägt med Stockholms stad, in which the City of Stockholm has a 50% economic interest.

EUR million II/04 II/03 I-II/04 I-II/03 2003 LTM Net sales 195 182 556 540 964 980 - heat sales 150 143 428 401 728 755 - electricity sales 27 25 90 108 167 149 - other sales 18 14 38 31 69 76 Operating profit 27 22 134 99 173 208 - excluding non-recurring items 27 22 134 99 176 211 Net assets (at end of period) 2,393 2,302 2,466 Return on net assets, % 11.0 8.5 7.3 8.7

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The segment's heat sales during the second quarter amounted to 4.1 (4.2) TWh, most of which is generated in the Nordic countries. During the first half of the year, heat sales totalled 12.3 (12.0) TWh. This shows the significance of the cold seasons - the first and last quarters of the year - to the heat business.

During the first half of the year, Fortum secured a number of heat contracts with Finnish business-to-business customers.

In Sweden, the construction of a new waste incineration boiler in the Högdalen combined heat and power plant as well as the district heating distribution system investment in Akalla-Upplands Väsby progressed as planned. Fortum continued to enhance its waste- to-energy projects in Finland.

Heat sales by area, TWh II/04 II/03 I-II/04 I-II/03 2003 LTM Sweden 1.6 1.7 5.6 5.7 9.5 9.4 Finland 2.2 2.3 5.7 5.8 10.3 10.2 Other countries 0.3 0.2 1.0 0.5 1.3 1.8 Total 4.1 4.2 12.3 12.0 21.1 21.4

Electricity sales, TWh II/04 II/03 I-II/04 I-II/03 2003 LTM Total 0.9 0.8 2.7 2.6 4.5 4.6

Distribution

Fortum owns and operates distribution and regional networks and distributes electricity to a total of 1.4 million customers in Sweden, Finland, Norway and Estonia.

EUR million II/04 II/03 I-II/04 I-II/03 2003 LTM Net sales 157 160 363 359 688 692 - distribution network transmission 131 129 305 294 569 580 - regional network transmission 20 21 45 48 88 85 - other sales 6 10 13 17 31 27 Operating profit 54 61 141 142 247 246 - excluding non-recurring items 54 41 141 121 227 247 Net assets (at end of period) 3,103 3,046 3,129 Return on net assets, % 9.1 9.0 7.9 7.9

During January - June, the volume of distribution and regional network transmissions totalled 11.6 (11.4) TWh and 9.6 (11.1) TWh respectively.

Electricity transmissions via the regional distribution network to customers outside the Group totalled 8.0 (8.3) TWh in Sweden and 1.6 (2.8) TWh in Finland.

The first steps were taken as part of a larger plan to reduce the risk of outages in western Sweden. Investments in the area have been doubled. In Sweden, the first employees to qualify for the new service function of Customer Service Technician received their certificates in May. The concept is part of Fortum's overall customer orientation strategy and is applied in Sweden, Finland and Norway.

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Volume of distributed II/04 II/03 I-II/04 I-II/03 2003 LTM electricity by area, TWh Sweden 2.9 3.2 7.1 7.8 14.2 13.5 Finland 1.2 1.3 3.2 3.3 6.2 6.1 Norway 0.5 0.3 1.2 0.3 1.3 2.2 Other countries 0.0 0.0 0.1 0.0 0.2 0.3 Total 4.6 4.8 11.6 11.4 21.9 22.1

Number of electricity distribution 30.6.2004 30.6.2003 2003 customers by area, 1,000s Sweden 860 850 855 Finland 400 395 400 Other countries 115 115 115 Total 1,375 1,360 1,370

Markets

The Markets segment focuses on the retail sale of electricity to a total of 1.1 million private and business customers as well as to other electricity retailers in Sweden, Finland and Norway.

EUR million II/04 II/03 I-II/04 I-II/03 2003 LTM Net sales 303 332 722 890 1,634 1,466 Operating profit 5 12 15 5 35 45 - excluding non-recurring items 5 12 15 5 35 45 Net assets (at end of period) 177 124 23 Return on net assets, % 25.2 12.7 55.2 41.8

Oil product sales have been transferred from Markets to the Oil Retail segment.

Average retail electricity prices on the Nordic market decreased slightly in the January - March period but recovered during the April - June period. Retail prices are now marginally below the levels for the second quarter of 2003. Also Fortum reduced its retail prices during the spring period.

During the second quarter, the segment's electricity sales totalled 9.6 (11.0) TWh with sales for the first half of the year standing at 22.4 (24.5) TWh. The decline was mainly due to a lower industrial utilisation rate and a warmer winter than the year before.

In Sweden and in Norway, the competition on the electricity market was strong, with increasing customer turnover between operators. Actions were started to improve business processes in Norway. Fortum launched new products for both its private and business customers which are based on specific customer expectations. The new Customer Service Unit, formed in cooperation with Fortum Distribution at the beginning of the year, has improved customer relations and increased customer satisfaction.

OIL SEGMENTS

Fortum's oil operations are divided into three reporting segments. Oil Refining manufactures and sells gasolines, diesel fuels, light and heavy fuel oils, aviation fuels, base oils, lubricants, gasoline components and LPG. Oil Retail operates an extensive

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retail sales network. The Shipping and other Oil segment has a tanker fleet for crude oil and product transports, and includes oil production.

Market conditions

During the second quarter, the international refining margin in north-western Europe (Brent Complex) was USD 6.3 (2.1) /bbl.

During the first half of the year, the international refining margin was significantly higher than during the corresponding period last year. The reference margin used by Fortum averaged USD 4.7 (2.9) /bbl. Fortum’s premium margin continued to average USD 2/bbl higher than the international margin.

Crude oil prices remained high throughout the period under review. The price peaked at the beginning of June at about USD 42/bbl. The price of Brent crude oil averaged USD 33.7 (28.8) per barrel. In January-June, inventory gains were EUR 59 million (losses of EUR 14 million).

The refining margins and shipping freights are priced in U.S. dollars and therefore the weakening of this currency will have an impact on the profitability of the Oil Refining and Shipping and other Oil segments.

SEGMENT REVIEWS - OIL

Oil Refining

The activities of Oil Refining cover the refining of oil and marketing of oil products. The main products are traffic fuels and heating oils. Fortum is the leading producer of clean traffic fuels in the Nordic area.

EUR million II/04 II/03 I-II/04 I-II/03 2003 LTM Net sales 1,635 1,265 2,938 2,962 5,693 5,669 Operating profit 187 51 280 135 281 426 - excluding non-recurring items 132 68 215 149 267 333 Net assets (at end of period) 1,111 1,075 1,003 Return on net assets, % 52.2 24.5 26.2 39.8

Fortum refined a total of 6.7 (6.4) million tonnes of crude oil and other feedstocks. In Finland, oil product sales totalled about 4.1 (3.8) million tonnes. Exports accounted for a total of 2.7 (2.6) million tonnes.

Work on the EUR 500 million investment to increase the sulphur-free diesel production capacity of the Porvoo refinery continued as planned during the first half of the year.

Fortum will increase the production of a synthetic type of EHVI base oil by 30,000 tonnes at the Porvoo refinery. EHVI is used as a raw material for lubricants. The extended production will commence in autumn 2005, after which annual production will amount to some 250,000 tonnes.

In May, Fortum started manufacturing of ETBE (ethyl tertiary butyl ether), containing bioethanol, at the Porvoo refinery.

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The production and sale of ethanol gasoline, which began in autumn 2002, is to continue in Finland for the time being.

Deliveries of oil products II/04 II/03 I-II/04 I-II/03 2003 LTM produced by Fortum – by product group (1,000 t) Gasoline 1,166 972 2,142 2,060 4,434 4,516 Diesel 1,080 1,110 1,972 1,905 3,886 3,953 Aviation fuel 171 131 322 251 611 682 Light fuel oil 341 296 738 719 1,474 1,493 Heavy fuel oil 229 295 658 682 1,314 1,290 Other 511 446 885 788 1,672 1,769 Total 3,498 3,250 6,717 6,405 13,391 13,703

Deliveries of oil products II/04 II/03 I-II/04 I-II/03 2003 LTM produced by Fortum – by area (1,000 t) Finland 2,123 1,860 4,063 3,789 7,889 8,163 Other Nordic countries 617 533 1,065 967 1,921 2,019 Baltic countries and Russia 35 21 58 29 62 91 USA and Canada 339 133 695 517 1,252 1,430 Other countries 384 703 836 1,103 2,267 2,000 Total 3,498 3,250 6,717 6,405 13,391 13,703

Oil Retail

Oil Retail has a network of service stations and other retail sales outlets both in Finland and in other countries in the Baltic Rim. The total number of outlets exceeds 1,000.

EUR million II/04 II/03 I-II/04 I-II/03 2003 LTM Net sales 566 521 1,097 1,107 2,203 2,193 Operating profit 20 10 26 25 44 45 - excluding non-recurring items 14 10 20 24 53 49 Net assets (at end of period) 281 285 329 Return on net assets, % 17.5 16.0 13.8 15.0

During the second quarter, retail sales of main oil products totalled 910 (903) thousand cubic metres, of which traffic fuels were 637 (612) thousand cubic metres.

During the first half of the year, retail sales of main oil products totalled 1,897 (1,908) thousand cubic metres, of which traffic fuels were 1,245 (1,183) thousand cubic metres.

The number of oil retail outlets at the end of June amounted to 887 (895) in Finland and to 160 (147) in other countries in the Baltic Rim.

In Finland, Fortum was the first company to start selling sulphur-free gasoline and diesel (sulphur content less than 10 mg/kg) in May.

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A year ago, Fortum established a joint venture with the Finnish company, Kesko, to build a nationwide retail chain selling fuel and everyday consumer goods. At the end of June, there were 25 shops in connection to Fortum's service stations.

Shipping and other Oil

Shipping operates a tanker fleet for crude oil and product transports. About 50% of the volumes carried are for third party customers. The focus is on the Baltic Sea, the North Sea and the North Atlantic. Total capacity is about 1 million dead weight tonnes. In Russia, Fortum owns an oil field jointly with the Russian company, Lukoil.

EUR million II/04 II/03 I-II/04 I-II/03 2003 LTM Net sales 78 87 179 181 308 306 Operating profit 23 19 67 46 79 100 - excluding non-recurring items 18 20 63 49 69 83 Net assets (at end of period) 168 139 133 Return on net assets, % 88.7 66.7 56.7 67.4

During the second quarter, deliveries by Shipping were 10.2 (10.2) million tonnes and during the first half of the year 20.1 (20.4) million tonnes.

During the first half of the year, the utilisation rate for Fortum´s crude and oil product fleet was high.

The freight rates remained strong during the second quarter equalling the previous year's level. However, rates were down on the first quarter, especially for the crude carriers.

In total, Fortum owns ten tankers and 19 are time-chartered. Eight tankers carry crude oil and 21 carry a range of oil products.

The fleet renewal with new product tankers proceeded as planned.

During the first half of the year, the average oil production of SeverTEK totalled approximately 26,000 barrels per day (of which Fortum’s share was 50%).

Investments and divestments

Investments in fixed assets during the first half of the year totalled EUR 278 (761) million.

Work on the EUR 500 million investment to increase the sulphur-free diesel production capacity of the Porvoo refinery continued as planned during the first half of the year. The estimated cost for 2004 is somewhat above EUR 100 million. The investment is expected to be completed by the end of 2006.

Fortum will participate in the new fifth nuclear power plant unit in Finland with a share of approximately 25%. Thus Fortum´s investment as an equity share will be EUR 180 million during 2004 - 2009, entitling it to approximately 400 MW of the plant´s capacity. During the first quarter, Fortum also provided a shareholders' loan of EUR 45 million.

The final approval for the purchase of shares in the Russian power company, OAO Lenenergo, agreed in February, was received from the Russian competition authorities in

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May. In July 2004, Fortum agreed on the acquisition of additional shares in OAO Lenenergo. As a result of the deal, Fortum’s holding in the company’s share capital will increase to 30.7% and its share of voting rights to 29.6%. This latest share transaction is also subject to the approval of the Russian competition authorities. After the completion of the deal, Fortum's investment in Lenenergo shares will be approximately EUR 150 million.

In April, the consulting company Fortum Teknik & Miljö, was sold to the Swedish ÅF Group, and the divestment of the Hungarian engineering company, ETV-Eröterv Rt, was finalised in June.

In June, Fortum and Jacobs Engineering Group Inc., based in California, USA, concluded a deal that gives Jacobs a 34% ownership position in Fortum's Neste Engineering operations. Neste Engineering will continue its operations under the name of Neste Jacobs Oy.

Financing

Fortum´s net debt decreased by EUR 333 million and stood at EUR 5,293 million (EUR 5,626 million at year end) giving a gearing ratio of 76% (85% at year end).

The Group's net financing expenses were EUR 142 (135) million. The amount includes the interest cost attributable to the debt assumed when redeeming the preference shares issued by Fortum Capital Ltd as well as approximately EUR 10 million representing the net present value of the interest rate differential relating to the prepayment of the private placement bonds issued in the United States in 1992.

Moody's credit rating was upgraded to Baa1 (stable) on 13 February 2004. Standard & Poor's long-term credit rating for Fortum Corporation was restated at BBB+ (stable).

Shares and share capital

Based on the share option schemes, a total of 981,004 Fortum shares were entered into the trade register during the first quarter.

On 1 July 2004, a total of 59,415 Fortum Corporation shares subscribed for with the share warrants relating to Fortum Corporation´s 1999 warrant bond to employees, and a total of 389,000 shares subscribed for with the share warrants relating to Fortum Corporation´s 1999 management share option scheme, were entered into the trade register. The increase in the share capital resulting from these share subscriptions was EUR 1,524,611.00. After the increase, Fortum Corporation´s share capital is EUR 2,890,890,439.60 and the total number of shares is 850,261,894.

Currently, the Board of Directors has no unused authorisations from the General Meeting of shareholders to issue convertible loans or bonds with warrants, issue new shares or acquire the company´s own shares.

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Group personnel

The average number of employees in the Group during the period from January to June was 13,097 (13,272). The number of employees at the end of the period was 13,140 (13,969). The reduction is mainly due to divestments.

Group management

Mr Timo Karttinen was appointed Senior Vice President, Corporate Development, and member of the Corporate Executive Committee as of 1 July 2004.

Outlook

The key market drivers influencing Fortum´s performance are the market price of electricity and the international oil refining margin. Other important market drivers are the price of crude oil, and the exchange rates of the US dollar and the Swedish krona. During 2005, emissions trading may become a new key market driver.

During the past five years, the volume of Fortum´s CO2-free power generation has increased from 30 TWh to 41 TWh. Its share was 78% of Fortum´s power generation in 2003. With this production portfolio, Fortum is in a good position with regard to the possible impacts of emissions trading.

According to general market information, electricity consumption in the Nordic countries is predicted to increase by about 1% a year over the next few years. During the second quarter, the average spot price for electricity was EUR 29.5 (28.6) per megawatt-hour on the Nordic electricity market. At the beginning of July, the Nordic water reservoirs were about 16 TWh below the average and at the same level as one year ago. During the first part of July, the spot price has been at the level of EUR 28 per megawatt-hour while the electricity price in the forward market for the remainder of 2004 has been in the range of EUR 32 - 35 per megawatt-hour. For the next 12 months, Fortum's hedging level for electricity sales is approximately 60%.

The oil market fundamentals are developing according to Fortum's assumptions: the consumption of clean traffic fuels is increasing and the demand for heavy fuel oil is decreasing, making the complex refineries even more competitive. In addition, Fortum’s position along the new export routes for Russian crude oil gives it a clear advantage. These developments are in line with Fortum's profitability assumptions for the ongoing Porvoo refinery upgrade investment and give a good starting point for the future listing of the oil businesses.

The oil refining reference margin in north-western Europe (Brent Complex) averaged USD 6.3 (2.1) /bbl during the second quarter. During the first half of July, the reference margin has averaged USD 7/bbl. Fortum’s premium margin is expected to remain at the strong levels of previous years. No major maintenance shutdowns are planned at the refineries during 2004.

The average price for Brent crude oil was USD 35.3 (26.0) /bbl during the second quarter. During the first half of July 2004, the price has been averaging USD 36.7/bbl while the International Petroleum Exchange’s Brent futures for the remainder of 2004 have been averaging USD 36.5/bbl. The price of crude oil has an impact on the results of Oil Refining through inventory gains and losses.

Fortum Corporation 14 (15) Domicile Espoo Business ID 1463611-4

Available tanker freight futures indicate that second-quarter rate levels will remain unchanged during the third quarter.

The refining margins and shipping freights are exposed to USD exchange rate volatility and therefore a weakened US dollar will have a negative impact on the profitability of the oil business. However, this impact is mitigated because of the forward hedging policy of the estimated US dollar sales margins.

During the second quarter, the euro exchange rates against the US dollar and the Swedish crona were on average 1.228 (1.105) and 9.164 (9.186) respectively. At the end of June, the exchange rates were 1.216 (1.143) and 9.145 (9.249) respectively.

Preparations for listing the oil businesses continued during the second quarter, aiming at readiness towards the end of the year. The timing of the planned initial public offering will depend on market conditions, however.

The third quarter of the year is usually the weakest quarter for the continuous operations of the power and heat businesses. The electricity prices in the forward market for the remainder of the year are somewhat higher than the corresponding forward prices for the remainder of 2003 in July last year.

The very strong first half-year is evidence of Fortum's operational efficiency. This, together with the current market fundamentals and the company's hedging positions further strengthen management's confidence in 2004 being a good year for Fortum.

Espoo, 28 July 2004 Fortum Corporation Board of Directors

The figures have not been audited.

Fortum will adopt the International Financial Reporting Standards (IFRS/IAS) as of 2005.

Publication of results in 2004: The Interim Report 1 January - 30 September 2004 will be published on 21 October 2004

Fortum Corporation 15 (15) Domicile Espoo Business ID 1463611-4

FORTUM GROUP JANUARY-JUNE 2004 Interim financial statements are unaudited

CONSOLIDATED INCOME STATEMENT Last twelve MEUR Q2/04 Q2/03 Q1-Q2/04 Q1-Q2/03 2003 months

Net sales 2 830 2 435 5 653 6 028 11 392 11 017 Share of profits of associated companies 17 9 27 20 41 48 Other operating income 33 63 82 76 151 157 Materials and services -1 880 -1 739 -3 753 -4 380 -8 054 -7 427 Personnel expenses -181 -175 -353 -354 -654 -653 Depreciation, amortisation and write-downs -131 -134 -252 -267 -538 -523 Other operating expenses -245 -173 -399 -362 -918 -955 Operating profit 443 286 1 005 761 1 420 1 664 Financial income and expenses -67 -70 -142 -135 -236 -243 Profit before taxes 376 216 863 626 1 184 1 421 Income taxes -47 -60 -194 -167 -325 -352 Minority interests -1 -14 -20 -47 -90 -63

Net profit for the period 328 142 649 412 769 1 006

Earnings per share, EUR 0.38 0.17 0.76 0.49 0.91 1.19 Fully diluted earnings per share, EUR 0.38 0.16 0.75 0.48 0.90 Average number of shares, 1,000 shares 849 698 845 823 846 831 848 021 Diluted adjusted average number of shares, 1 000 shares 867 907 855 935 858 732

CONSOLIDATED BALANCE SHEET June 30 June 30 Dec 31 MEUR 2004 2003 2003 ASSETS Fixed assets and other long-term investments Intangible assets 138 159 146 Property, plant and equipment 11 550 11 426 11 632 Other long-term investments 1 854 1 705 1 762 Other interest-bearing long-term investments 693 618 632 Total 14 235 13 908 14 172

Current assets Inventories 600 539 551 Trade receivables 874 871 951 Short-term receivables 335 511 449 Cash and cash equivalents 196 665 439

Total 2 005 2 586 2 390

Total 16 240 16 494 16 562

SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity Share capital 2 889 2 876 2 886 Other equity 3 820 3 151 3 520 Total 6 709 6 027 6 406 Minority interests 250 1 434 232 Provisions for liabilities and charges 200 191 207 Deferred tax liabilities 1 850 1 775 1 843 Liabilities Long term liabilities Interest-bearing 4 337 3 646 4 840 Interest free 352 335 346 Short term liabilities Interest-bearing 1 152 1 522 1 225 Interest free 1 390 1 564 1 463

Total 16 240 16 494 16 562

Equity per share, EUR 7.89 7.13 7.55 Number of shares, 1,000 shares 849 813 845 848 848 832

CHANGE IN SHAREHOLDERS' EQUITY Jan-June 30 Jan-June 30 Dec 31 MEUR 2004 2003 2003 Shareholders' equity, 1 January 6 406 5 897 5 897 Stock options exercised 2 -22 Dividend -359 -264 -264 Translation differencies 11 -18 -18 Net earnings for the period 649 412 769

Total 6 709 6 027 6 406

1 FORTUM GROUP JANUARY-JUNE 2004 Interim financial statements are unaudited

CASH FLOW STATEMENT June 30 June 30 Dec 31 MEUR 2004 2003 2003 Net cash from operating activities 1 043 1 060 1 577 Capital expenditures -248 -244 -550 Acquisition of shares -30 -503 -570 Proceeds from sales of fixed assets 29 80 142 Proceeds from sales of shares 16 1 219 1 227 Change in other investments -136 -32 -67 Cash flow before financing activities 674 1 580 1 759

Net change in loans -562 -1 204 -399 Dividends paid -359 -264 -264 Other financing items * 2 -40 -1 245 Net cash from financing activities -919 -1 508 -1 908

Net increase (+)/decrease (-) in cash and marketable securities -245 72 -149

* Includes the redemption of Fortum Capital Ltd preference shares -1 200 million euros in December 2003

KEY RATIOS June 30 June 30 Dec 31 Last twelve 2004 2003 2003 months Capital employed, MEUR 12 447 13 077 12 704 Interest-bearing net debt, MEUR* 5 293 4 502 5 626 Investments, MEUR 278 761 1 136 653 Return on capital employed, % 16.1 12.1 11.4 13.3 Return on shareholders' equity, %* 19.4 11.9 12.3 14.7 Interest coverage 7.9 5.4 5.8 7.2 FFO / interest-bearing net debt, % 1) 39.9 41.8 26.1 Gearing, % * 76 60 85 Equity-to-assets ratio, % 43 45 40 Average number of employees 13 097 13 272 13 343 1) FFO = Funds from operations * Figures include the effect of the redemption of Fortum Capital Ltd preference shares in Dec 31 2003 and June 30 2004.

NET SALES BY SEGMENTS Last twelve MEUR Q2/04 Q2/03 Q1-Q2/04 Q1-Q2/03 2003 months Power Generation 488 573 1 052 1 533 2 681 2 200 Heat 195 182 556 540 964 980 Distribution 157 160 363 359 688 692 Markets 303 332 722 890 1 634 1 466 Oil Refining 1 635 1 265 2 938 2 962 5 693 5 669 Oil Retail 566 521 1 097 1 107 2 203 2 193 Shipping and other Oil 78 87 179 181 308 306 Other 24 22 45 44 93 94 Eliminations -616 -707 -1 299 -1 588 -2 872 -2 583

Total 2 830 2 435 5 653 6 028 11 392 11 017

OPERATING PROFIT BY SEGMENTS Last twelve MEUR Q2/04 Q2/03 Q1-Q2/04 Q1-Q2/03 2003 months Power Generation 138 116 366 328 603 641 Heat 27 22 134 99 173 208 Distribution 54 61 141 142 247 246 Markets 5 12 15 53545 Oil Refining 187 51 280 135 281 426 Oil Retail 20 10 26 25 44 45 Shipping and other Oil 23 19 67 46 79 100 Other -11 -5 -24 -19 -42 -47

Total 443 286 1 005 761 1 420 1 664

2 FORTUM GROUP JANUARY-JUNE 2004 Interim financial statements are unaudited

NON-RECURRING ITEMS IN OPERATING PROFIT BY SEGMENTS Last twelve MEUR Q2/04 Q2/03 Q1-Q2/04 Q1-Q2/03 2003 months Power Generation -2 - 22 -1 4 27 Heat - - - --3-3 Distribution - 20 - 21 20 -1 Markets ------Oil Refining 55 -17 65 -14 14 93 Oil Retail 2) 6 - 6 1-9-4 Shipping and other Oil 2) 5 -1 4 -3 10 17 Other - 12 - 14 24 10

Total 64 14 97 18 60 139 2) Split between segments corrected in 2003 figures

DEPRECIATION, AMORTISATION AND WRITE-DOWNS BY SEGMENTS Last twelve MEUR Q2/04 Q2/03 Q1-Q2/04 Q1-Q2/03 2003 months Power Generation 28 29 56 60 116 112 Heat 32 28 61 56 116 121 ¨ Distribution 33 38 66 75 143 134 Markets 4 4 8 71415 Oil Refining 19 20 37 39 80 78 Oil Retail 8 7 15 15 41 41 Shipping and other Oil 3 4 5 81411 Other 4 4 4 71411

Total 131 134 252 267 538 523

INVESTMENTS BY SEGMENTS Last twelve MEUR Q2/04 Q2/03 Q1-Q2/04 Q1-Q2/03 2003 months Power Generation 47 290 62 328 386 120 Heat 27 62 50 76 158 132 Distribution 26 201 40 224 339 155 Markets - 26 2 26 28 4 Oil Refining 37 21 67 44 97 120 Oil Retail 7 8 11 13 36 34 Shipping and other Oil 24 35 40 41 71 70 Other 2 6 6 92118

Total 170 649 278 761 1 136 653

NET ASSETS BY SEGMENTS June 30 June 30 Dec 31 MEUR 2004 2003 2003 Power Generation 6 188 6 276 6 391 Heat 2 393 2 302 2 466 Distribution 3 103 3 046 3 129 Markets 177 124 23 Oil Refining 1 111 1 075 1 003 Oil Retail 281 285 329 Shipping and other Oil 168 139 133 Other 127 59 45 Eliminations -10 -10 -8 Total 13 538 13 296 13 511

RETURN ON NET ASSETS BY SEGMENTS 3) June 30 June 30 June 30 June 30 Dec 31 Dec 31 Last twelve Last twelve % 2004 2004 *) 2003 2003 *) 2003 2003 *) months months *) Power Generation 11.7 11.0 10.3 10.4 9.5 9.4 10.2 9.8 Heat 11.0 11.0 8.5 8.5 7.3 7.5 8.7 8.8 Distribution 9.1 9.1 9.0 7.7 7.9 7.2 7.9 8.0 Markets 25.2 25.2 12.7 12.7 55.2 55.2 41.8 41.8 Oil Refining 52.2 40.1 24.5 27.0 26.2 24.9 39.8 31.1 Oil Retail 2) 17.5 13.5 16.0 15.4 13.8 16.6 15.0 16.3 Shipping and other Oil 2) 88.7 83.4 66.7 71.0 56.7 49.5 67.4 55.9

*) Non-recurring items deducted from operating profit 2) December 31 2003*) figures changed due to corrections in non-recurring items. 3) Return on net assets, % = Operating profit/average net assets

3 FORTUM GROUP JANUARY-JUNE 2004 Interim financial statements are unaudited

CONTINGENT LIABILITIES June 30 June 30 Dec 31 MEUR 2004 2003 2003

Contingent liabilities

On own behalf For debt Pledges 162 512 149 Real estate mortgages 91 233 91 For other commitments Real estate mortgages 57 54 55 Pledges, company and other mortgages 3 1- Sale and leaseback 8 98 Other contingent liabilities 79 99 101

Total 400 908 404

On behalf of associated companies Pledges and real estate mortgages 11 12 12 Guarantees 442 637 562 Other contingent liabilities 182 182 182

Total 635 831 756

On behalf of others Guarantees 13 23 15 Other contingent liabilities 5 67

Total 18 29 22 Total 1 053 1 768 1 182

Operating lease liabilities Due within a year 54 61 75 Due after a year 93 121 103

Total 147 182 178

Liability for nuclear waste disposal 570 545 570 Share of reserves in the Nuclear Waste Disposal Fund -560 -535 -560

Liabilities in the balance sheet 4) 10 10 10

4) Mortgaged bearer papers as security

In addition to other contingent liabilities a guarantee has been given on behalf of Gasum Oy, which covers 75% of the natural gas commitments arising from the natural gas supply agreement between Gasum and OOO Gazexport.

4 FORTUM GROUP JANUARY-JUNE 2004 Interim financial statements are unaudited June 30 June 30 Derivatives Dec 31 2003 2004 2003 Interest and currency Contract Fair value Not recognised Contract or Fair value Not Contract or Fair value Not derivatives or as an income notional recognised notional value recognised notional value as an income as an income MEUR value Forward rate agreements 218 -1 -1 784 -1 -1 330 - - Interest rate swaps 4 012 -90 -62 6 015 8 46 4 253 -97 -69 Forward foreign exchange contracts 5) 7 280 13 9 7 599 57 46 8 396 129 49 Currency swaps 327 1 -2 530 36 10 333 -3 1 Purchased currency options 1 697 -16 -8 64 7 7 - - - Written currency options 1 718 -3 -1 29 1 1 - - -

5) Incl. also contracts used for equity hedging

Oil futures and forward Volume Fair value Not recognised Volume Fair value Not Volume Fair value Not instruments as an income recognised recognised as an income as an income

1000 bbl MEUR MEUR 1000 bbl MEUR MEUR 1000 bbl MEUR MEUR Sales contracts 16 536 -10 -10 16 589 - - 22 304 -11 -11 Purchase contracts 57 027 17 17 19 241 3 3 37 239 14 14 Purchased options 7 350 -1 -1 400 - - 150 - - Written options 5 500 1 1 600 - - 600 - -

Electricity derivatives Volume Fair value Not recognised Volume Fair value Not Volume Fair value Not as an income recognised recognised as an income as an income

TWh MEUR MEUR TWh MEUR MEUR TWh MEUR MEUR Sales contracts 70 -382 -189 77 -368 -226 58 -100 -65 Purchase contracts 40 297 100 74 337 195 50 136 101 Purchased options -- - 3-2-2--- Written options -- - 7-----

Natural gas derivatives Volume Fair value Not recognised Volume Fair value Not Volume Fair value Not as an income recognised recognised as an income as an income

Mill.th. MEUR MEUR Mill.th. MEUR MEUR Mill.th. MEUR MEUR Sales contracts -- -3 135 -38 -38 8 - - Purchase contracts -- -2 965 38 38 8 - - Purchased options -- -980 -5 -5 - - - Written options -- -1 039 7 7 - - -

The fair values of derivative contracts subject to public trading are based on market prices as of the balance sheet date. The fair values of other derivatives are based on the present value of cash flows resulting from the contracts, and, in respect of options, on evaluation models. The amounts also include unsettled closed positions. Derivative contracts are mainly used to manage the group's currency, interest rate and price risk.

5 FORTUM GROUP JANUARY-JUNE 2004 Interim financial statements are unaudited

QUARTERLY NET SALES BY SEGMENTS MEUR Q2/04 Q1/04 Q4/03 Q3/03 Q2/03 Q1/03 Power Generation 488 564 624 524 573 960 Heat 195 361 292 132 182 358 Distribution 157 206 186 143 160 199 Markets 303 419 422 322 332 558 Oil Refining 1 635 1 303 1 382 1 349 1 265 1 697 Oil Retail 566 531 553 543 521 586 Shipping and other Oil 78 101 65 62 87 94 Other 24 20 25 24 22 22 Eliminations -616 -682 -712 -572 -707 -881

Total 2 830 2 823 2 837 2 527 2 435 3 593

QUARTERLY OPERATING PROFIT BY SEGMENTS MEUR Q2/04 Q1/04 Q4/03 Q3/03 Q2/03 Q1/03 Power Generation 138 228 193 82 116 212 Heat 27 107 80 -6 22 77 Distribution 54 87 58 47 61 81 Markets 510 17 13 12 -7 Oil Refining 187 93 57 89 51 84 Oil Retail 20 6 -2 21 10 15 Shipping and other Oil 23 44 24 9 19 27 Other -11 -13 -7 -16 -5 -14

Total 443 562 420 239 286 475

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