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Fortum Plans to Spin Off Oil Operations

September 9, 2003

HELSINKI, Finland (AP) _ Nordic power group Fortum said Tuesday it will spin off its oil business into a separate, publicly-listed company.

The move to separate its oil refining and marketing operations should be completed by 2006, and will create 100 new jobs mostly in Finland, the company said.

The as-yet unnamed company, to be listed on the Helsinki Stock Exchange, will include all of Fortum’s oil refining, marketing, shipping and production assets and operations. The company said the shares would be made available in a public offering.

Fortum’s oil-related segments accounted for sales of euro7.5 billion, or more than 67 percent of Fortum’s overall net sales of euro11.1 billion in 2002. Profits for the segment were euro472 million in 2002. It has 4,387 workers.

Its electricity distribution and power, heat and gas sales earned euro839 million on sales of euro3.5 billion in 2002. It counts approximately 3,900 workers.

Fortum also said it will spend euro500 million ($554 million) to upgrade its refinery in the southern Finnish town of Porvoo, including production of sulphur-free diesel, using more crude oil from neighboring Russia.

Although its production capacity will remain unchanged, the investment is expected to streamline production and improve margins, the energy group said.

``We have improved profitability markedly. Now we can take advantage of new opportunities in both industries,″ chief executive Mikael Lilius said. ``Today’s decisions will allow us to continue to develop Fortum as the leading utility company in the Nordic region.″

Investors pushed shares of Fortum up 5.8 percent to euro7.78 ($8.62) in trading on the Helsinki Stock Exchange.

Vesa Engdahl, an analyst with FIM Securities in Helsinki, said the spinoff made sense.

``I believe that as separate companies under separate leadership, efficiency in the oil refining operations will improve,″ he said.

The Finnish government, which holds 61 percent of Fortum, also welcomed the move.

``The strategic aim of Fortum’s oil refining business has been to develop it into one of the Baltic region’s leading companies,″ said Finnish Trade and Industry Minister Mauri Pekkarinen. ``Today’s decision speeds the process of achieving that goal.″

Several years ago, the Finnish power concern embarked on an aggressive drive to divest from noncore operations and bought into other smaller, regional power companies. It also slashed jobs _ by more than 1,000 _ and said it would make significant synergy gains.

Fortum generates electricity for 1.3 million customers in Estonia, Finland, Germany and Sweden. It is the second biggest power company in the Nordic and Baltic region after Sweden’s state-owned Vattenfall.

Formed in 1998 when state-owned Neste merged with IVO, Fortum employs 14,000 workers.

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On the Net:

Fortum site: http://www.fortum.fi

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