Gasum Annual Report 2010

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REPORT BY GASUM OY’S BOARD OF DIRECTORS 2010 OPERATING ENVIRONMENT Finnish energy consumption increased clearly on the year before in 2010. Below-average temperatures increased the need to heat buildings and industrial utilisation rates were returning to normal following the international ﬁnancial recession. Increased energy consumption could also be seen in the natural gas consumption rate, which was up around 10% year-on-year. Gasum sold a total of 44.6 TWh of natural gas in 2010. In 2010 the natural gas market was characterised by major seasonal ﬂuctuation and brief peaks in consumption caused by variation in weather conditions and price developments in the electricity market. An all-time high in hourly consumption 9,100 MWh was reached between 10:00 and 11:00 am on 8 January 2010. The year also saw natural gas imports into Finland reach a historical milestone and break the 100 billion cubic metres mark. The natural gas price increased at a moderate rate until the autumn and then took a slight downturn. In power plant usage the price competitiveness of natural gas against alternative fuels varied depending on price developments in the electricity market, with competitiveness at its lowest during the summer months. The recovery of corporate investment also boosted Gasum’s energy and heating solution markets. The development of the market for gas as a transport fuel was slowed down by the debate on fuel taxation conducted in Finland throughout the year. Many biogas projects were also awaiting the new feed-in tariff supporting renewable energy production solutions. With the limits set for emissions from shipping fuels becoming gradually stricter in the Baltic Sea area by the year 2015, shipping companies became interested in liqueﬁed natural gas (LNG) as a shipping fuel. The European Union wishes to create an integrated EU energy market. To achieve this, decisions were made by the EU in 2010 on issues including the development of natural gas transmission routes for improved functioning of the internal market.The connection that will integrate the Baltic States and Finland into the gas networks of other EU member states is one of the priority gas corridors determined by the EU, with their development prioritised in the next few years. The EU’s new Gas Security Regulation entered into force in December 2010 and established provisions that aim to secure supply of gas. Natural gas is regarded in the international energy market as playing an increasingly important role in efforts to curb climate change. New natural gas sources and production types have increased estimates of the amount of natural gas available. Gasum’s most important strategic objective for the next few years is to secure the conditions for increased use of natural gas and other energy gases as well as for the development of transmission network capacity in Finland. Gasum foresees the most signiﬁcant business growth opportunities in novel uses of natural gas and in the possibilities to develop renewable energy gases for use alongside natural gas.To realise these business opportunities Gasum needs to make considerable R&D investments and carry out organisational renewals. NET SALES, BALANCE SHEET AND RESULT The Gasum Group’s net sales for 1 January to 31 December 2010 increased and totalled €1,240.7 million (€1,064.7 million in 2009). Operating proﬁt before taxes totalled €98.4 million or 7.9% of the net sales total (€102.5 million or 9.6% of the net sales total). The increase in net sales was due to an increase in natural gas sales. Sales margins and ﬁnancial results were improved by the price development of comparison fuels used in natural gas trade and the increase in the share of short-term products in total trade in natural gas improved. During the year under review the Gasum Group’s return on equity was 17.2% (19.1%). The Group’s balance sheet total at 31 December 2010 was €827.1 million (€793.5 million) and its equity ratio 48.5% (52.4%). Other receivables reported under assets in Gasum Oy’s balance sheet include a payment of €60.8 million to Gazprom export for failing to take the minimum contracted quantity in 2009 and 2010 as required under the Take or Pay obligation related to the gas supply contract. Following negotiations between Gasum and Gazprom export, in January 2011 the contracted quantity was respeciﬁed to match new consumption forecasts, and the receivables reported can be utilised towards this. The Gasum Group’s investments totalled €39.4 million in 2010 and were targeted at new natural gas pipelines, the LNG production plant and natural gas ﬁlling stations as well as the acquisition of a site in Tolkkinen, Porvoo, for LNG functions. The Group’s cash ﬂow from operating activities was €2.7 million (€109.4 million) after interest and dividends. Liquid assets at 31 December 2010 totalled €15.1 million (€35.7 million). Interest-bearing creditors totalled €143.7 million (€48.5 million), of which €118.0 million were long-term (€6.0 million) and €25.7 million short-term (€42.5 million). DEVELOPMENT BY BUSINESS AREA In this report by the Board of Directors, the Gasum Group’s business is divided into three areas: energy sales, network operations and other business.The income statement and balance sheet presented in pages 48–49 of the ﬁnancial statements only apply to Gasum Oy’s business operations. The principles of unbundling are also detailed in that context. Energy sales The Gasum Group’s energy sales mean wholesale trade in natural gas conducted by the parent company Gasum Oy (energy trade) and retail trade in natural gas carried out by Group companies Gasum Paikallisjakelu Oy and Gaasienergia AS (energy services). Sales of heat energy and heating solutions are discussed under ‘New ventures’. Energy trade is the Gasum Group’s most important business area in terms of net sales and accounts for 63% of Gasum’s net sales. Operating proﬁt from energy trade does not depend merely on developments in natural gas sales volumes. Instead, it is also affected by trade structure and the price balance between natural gas 30 ANNUAL REPORT 2010

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