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Fortum Proprietary Trading Head Leaves as Utility Shuts Unit

Dan Lindstroem, Fortum Oyj’s head of proprietary trading, left Finland’s biggest utility after cost cuts prompted staff reductions in energy trading.

Lindstroem, who was based in Stockholm, left the company last month, before Fortum merged its asset-backed trading and proprietary trading units into a trading and portfolio optimization business on Feb. 15, Toni Kekkinen, head of the new unit, said today by telephone.

“This will not affect trading itself, and we will continue to buy and sell energy commodities to the same extent as before,” Kekkinen said from Stockholm. Fortum will “focus on asset-backed trading, resulting in an unspecified number of cuts to trading staff in Stockholm and Finland.”

Fortum started a cost-cutting program that seeks to improve cash flow by more than 1 billion euros ($1.3 billion) over the next two years after “unacceptable” earnings that missed analyst estimates for a third consecutive quarter, Chief Executive Officer Tapio Kuula said when presenting third-quarter earnings in October. Fourth-quarter sales rose 10 percent to 1.83 billion euros, beating a mean forecast for 1.72 billion euros, according to 15 analyst estimates compiled by Bloomberg.

“An increased focus on asset-backed trading is good news, since a power company’s main tasks should be to produce electricity at the cheapest possible cost and to hedge sales to ensure a stable cash flow, and not to trade speculatively without backing assets,” Juha Kinnunen, founder and chief executive officer of Inderes Oy, a Helsinki-based equity research company said today by phone.

Power Sales

Fortum has hedged 70 percent of electricity sales at 45 euros a megawatt-hour for this year and 35 percent of 2014 power sales at 43 euros a megawatt-hour on Dec. 31, the company said in a Jan. 31 earnings statement.

The average Nordic power price for delivery around the clock fell 34 percent last year to a five-year low of 31.20 euros a megawatt-hour on the Nord Pool Spot exchange, after Europe’s debt crisis hurt energy-intensive businesses such as paper and metal producers. At the same time, the average surplus of water in reservoirs and as snowpack reached 12 terawatt-hours, the highest level since 2007, according to Markedskraft AS. The region meets more than half its power needs by running water through turbines.

“Fortum’s hedging policy has been conservative, and quite successful, since they have shielded themselves from price crashes on the Nordic market,triggered by a water glut,” Kinnunen said. “Proprietary trading has been limited in scale, and I’d be surprised if it had brought in any significant earnings,’ Kinnunen said.

The company doesn’t disclose financial details about trading operations and earnings from proprietary trading were insignificant compared with the company’s total profit, Pauliina Vuosio, a company spokesman in Espoo, Finland, said today by phone.

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