REPORT OF THE BOARD OF DIRECTORS 2017
OPERATING ENVIRONMENT AND MARKET DEVELOPMENT
The positive trend in the Finnish economy remained good in 2017. The key factors for the favourable economic
development included good economic growth in countries that are our trading partners and the stimulating
monetary policy in the Euro zone. In Finland the consumption of electricity in industry grew for the second
successive year and domestic demand continued at a strong level. The increase in temperature-adjusted
consumption was about 1.0%.
In 2017, electricity consumption in Finland amounted to 85.5 terawatt hours (TWh), which was 0.4 percent more
than the year before. The reason for the increase in electricity consumption is an increase of industrial activity.
Industrial electricity consumption stood at approximately 40.0 TWh, an increase of about 1.7 percent, and the
rest of the consumption at 42.5 TWh, a decrease of about 0.7 percent due to the mild winter.
A record of 23.9 percent of the electricity consumption was covered by net imports and 76.1 percent by
Finland’s own production. Even if electricity imports from Sweden decreased slightly from the previous year, the
majority of Finland’s electricity imports continued to come from Sweden (15 TWh). Imports from Russia
remained at 5.8 TWh, the same level as in the preceding year. In 2017, 80 percent of the electricity generated in
Finland (65.0 TWh) was greenhouse gas free, i.e. carbon neutral. The joint production of electricity and heat
covered 24 percent of the consumption, nuclear power 25 percent, hydroelectric power 17 percent, and coal
and other condensing power less than 4 percent. The share of wind power was 5.6 percent, i.e. 4.8 TWh, an
increase of nearly 57 percent from the previous year.
The wholesale electricity prices in Finland remained at a fairly moderate level all year, at approximately
€33/MWh. The latter part of the year was very rainy in Finland but similar to the long-term average in Sweden
and Norway. The prices of coal, oil, and emission rights increased by 30-100% during the latter six months of
2017. Although the Nordic countries do not produce much electricity with coal or oil anymore, the affect the price
of wholesale electricity in the Nordic countries and the rest of Central Europe due to increased cable
connections.
POHJOIS-KARJALAN SÄHKÖ OY’S OPERATIONS
In 2017, electricity consumption in Pohjois-Karjalan Sähkö Oy’s area of operations was 1 114 million kilowatt
hours, which was 1.9 percent lower than the year before. The decrease in consumption was due to the milder
winter temperatures than in the previous year.
The Group’s turnover in 2017 was 106.3 million euro, an increase of about 1.5 percent from the previous year.
The turnover from electricity sales was 49.6 million euro, a decrease of about 8 percent from the previous year.
The most important reason for the decrease was the end of one significant electricity sales agreement in the
middle of the year, and a winter that was clearly warmer than in the preceding year. In spite of the challenges in
the wholesale market, we succeeded in adjusting our operations in such a manner that the targets for the gross
margin on sales and operating profit in electricity sales were met.
The production volumes of our own hydropower plants amounted to 230 million kilowatt hours, an increase of
over 6 percent from the previous year. The actual production was more than 20% larger than in a normal year
and covered about one fifth of the electricity consumed in our area of operations. The modernisation project at
the Puntarinkoski power plant was completed, and production began in December. In autumn 2017 supervision
of hydropower plants was transferred to Empower IM Oy. Operational supervision of PKS Sähkönsiirto Oy will
focus solely on the operation and supervision of the electricity distribution network in the future.
Pohjois-Karjalan Sähkö Oy is a shareholder in Kymppivoima Oy, through which Pohjois-Karjalan Sähkö Oy owns
production shares in various regional power companies, such as Pohjolan Voima Oy, Etelä-Pohjanmaan Voima
Oy, and Teollisuuden Voima Plc. These production shares provided Pohjois-Karjalan Sähkö Oy with a total of
about 112 million kilowatt hours of electricity in 2017. Together with our own hydropower production, this
production volume accounted for 30 per cent of the total volume of the electricity we sold. The volume of our own
electricity production has varied from 350 to 600 million kilowatt hours, depending on the water supply situation
and the wholesale market prices of electricity.
In 2017, we sold 199 new electricity connections, which is about 17 per cent fewer than the year before. The
number of new connections sold to leisure homes decreased by 30 per cent, and the number of connections
sold to permanent residences by 8 per cent. The income from connection fees stood at 1.4 million euro. At the
end of the year, the number of metering points was 88 802.
As to electricity distribution, the year passed without major incidents until the end of November. Snow began to
accumulate on trees and power lines in December, causing faults. The situation was at its worst in the last week
of December when 16 000 customers were without power simultaneously. Faults were repaired efficiently by a
total of 250 electricity and forestry professionals who had five helicopters and ten forest machines at their
disposal. Despite prompt fault repairs, the standard compensations payable to customers in case of power
breaks of more than 12 hours amounted to about 1.8 million euro.
The construction of the weatherproof distribution network required by the Electricity Market Act proceeded as
planned during 2017. In several built-up areas, we replaced a total of 114 kilometres of medium voltage
overhead cables with underground cabling. In sparsely populated areas, we improved the security of electricity
supply in a 158 kilometre long line section by transferring medium voltage networks to road sides and by cabling
branch lines with a 1000 volt line structure. In addition, the security of supply was improved in power line
corridors in forest areas by clearing and pruning trees in a total of 540 kilometres of medium and low voltage
power line corridors. The management of adjacent forest sections as implemented in extremely good
cooperation with the Forestry Management Association and forest owners.
In late summer 2017 PKS Sähkönsiirto Oy sold the business of electrical network construction to Rejlers Finland
Oy, and the business of maintaining network planning and network data to network contracting company Enerke
Oy. The construction business comprised the construction, supervision, and safety coordination of investment
and maintenance projects for substations, power lines, and the distribution network. The business of network
planning comprises the design of the transmission and distribution network, and the maintenance of network
data. In the future, the network business will focus, in line with its strategy, on the management of the network
capital and the development of network services.
TURNOVER AND RESULT
The Group’s turnover amounted to 106.3 (2016: 104.7 and 2015: 109.1) million euro. The turnover of the parent
company was 49.7 (2016: 54.2 and 2015: 57.9) million euro. The Group’s turnover increased by 1.6 million euro
and the turnover of the parent company decreased by 4.5 million euro from the previous year. The Group’s
operating profit was 13.8 (2016: 10.8 and 2015: 11.9). The operating profit of the parent company amounted to
2.3 (2016: 2.2 and 2015: 3.0) million euro. The EBIT-% of the Group was 12.9 (2016: 10.3 and 2015: 10.9). The
corresponding figures of the parent company were 4.6 (2016: 4.1 and 2015: 5.2). The profit of the Group
amounted to 10.2 (2016: 7.6 and 2015: 9.0). The corresponding figures of the parent company were 0.8 (2016:
0.8 and 2015: 1.4) million euro. The Group’s Return on Investment (ROI) was 4.7 (2016: 3.7 and 2015: 4.6) and
the parent company’s 0.9 (2016: 0.9 and 2015: 1.7) percent. The Group’s Return on Equity (ROE) was 4.0
(2016: 3.1 and 2015: 3.8) and the parent company’s 0.6 (2016: 0.6 and 2015: 1.7) percent.
INVESTMENTS AND FINANCING
The Group’s net investments amounted to 30.4 (2016: 24.3 and 2015: 28.1) million euro. The corresponding
figures of the parent company were 34.9 (2016: 27.5 and 2015: 31.2) million euro. Of the parent company’s total
investments, the investments in distribution networks amounted to 30.7 (2016: 26.0 and 2015: 28.2) million
euro. Of the total network investments, the construction of new electricity distribution connections accounted for
3.1 million euro in substations and the rest, 26.3 million euro, was invested in the renovation of the distribution
network.
At the end of the financial year, the Group’s interest-bearing liabilities stood at 31.5 (2016: 32.8 and 2015: 34.0)
million euro. The corresponding figures of the parent company were 31.5 (2016: 32.8 and 2015: 34.0) million
euro. With the connection fees included in the shareholders’ equity, the Group’s equity ratio was 74.2 (2016:
75.1 and 2015: 73.7) and the equity ratio of the parent company 79.6 (2016: 79.5 and 2015: 77.7) percent. With
the connection fees treated as liabilities, the corresponding figures were 41.6 (2016: 41.5 and 2015: 40.5) for
the Group and 50.3 (2016: 49.4 and 2015: 47.1) percent for the parent company.
GROUP STRUCTURE
On 31 December 2017, the Pohjois-Karjalan Sähkö Group comprised the parent company Pohjois-Karjalan
Sähkö Oy and its subsidiaries Kuurnan Voima Oy (parent company holding 89%); Laurinvirta Oy, Kuurnan
Voima Oy’s fully owned subsidiary; Enerke Oy (100%); PKS Sähkönsiirto Oy (100%); and Enerke Oy’s fully
owned subsidiary SLT-Consults Oy.
SHARES AND OWNERSHIP
The company has one share series. There are no specific terms related to the shares, and all shares have an
equal right to dividends and company assets. On 31 December 2017, the ownership of the company was
divided between various owner groups as follows:
Owner entities Pcs Number of shares
ANNUAL GENERAL MEETING
The Annual General Meeting was held on 23 March 2017. The Meeting decided, in accordance with the
proposal of the Board of Directors, to distribute a dividend of 2.62 euro per share, totalling 4 585 000 euro. The
Annual General Meeting re-elected the following outgoing Board members for the following three-year term:
Jukka Kankkunen from Kitee and Pirjo Smolander from Tuusniemi.
MANAGEMENT
In compliance with the Limited Liability Companies Act, the Annual General Meeting elects the Board of
Directors of the company. In the reporting year, the Board of Directors of the company consisted of the following
members: Jukka Kankkunen, Farmer, Chairman; Pertti Turunen, Industrial Employee, Deputy Chairman; Pauli
Bau Municipal Councillor, Member; Hilkka Hiltunen, Municipal Councillor, Member; Timo Puustinen, Forestry
Advisor, Member; Pirjo Smolander, Physiotherapist, Member; Matti Timonen, Farmer, Member. The Managing
Director of the Company was Jorma Korhonen, M.Sc. (Eng.).
AUDIT
The auditor elected by the Annual General Meeting was Idman Vilén Grant Thornton Oy, Public Accountants,
with Kalle Kotka, Authorised Public Accountant, as the principal auditor.
KEY RISKS
Risks related to the electricity business
The aim of the company’s risk management is to support the efforts to achieve the business strategy goals. The
most significant business risk to be hedged is the electricity price risk. The price development in the electricity
market mainly affects the Group’s production and sales. In a short term, the factors affecting the price of
electricity in the Nordic market include water supply situation, variations in wind power supply, temperature,
emission right prices, fuel prices and export-import balance between countries.
The company hedges against electricity price risks by concluding derivative contracts related to both sales and
production. For hedging purposes, the company has an electricity sales and procurement management policy
which is monitored closely.
Financial risks
The interest bearing liabilities of the company are floating rate loans, which means that possible rises in market
rates may have a significant impact on the company’s profit performance. The company hedges against market
rate changes by means of interest rate swaps.
“Mankala” liability
Pohjois-Karjalan Sähkö Oy has an 11.3 percent holding in Kymppivoima Oy, a company that operates on a
Mankala principle (zero-profit-making company that runs its business for the benefit of its shareholders). Based
on the Mankala principle, Pohjois-Karjalan Sähkö has the right to the electricity generated by Kymppivoima in
proportion to the share series it holds in the company. Its responsibility for Kymppivoima’s electricity generation
costs, which consist of variable costs, fixed costs, depreciation and financial costs, is also based on the share
series it holds. The financial costs are affected by the interest rate derivative contracts made by Kymppivoima
Oy.
Risks related to distribution network operations
Massive storm damages to the distribution network may result in significant standard compensations to
customers if the damages are so extensive that it is not possible to repair them within a reasonable time. The
company has protected itself against this risk by keeping power line corridors clear, by thinning adjacent forests,
by making, where possible, power line corridors weatherproof, and by ensuring the availability of fault repair
capacity in such a manner that the full repair capacity of Enerke Oy together with an extensive network of
subcontractors is available when necessary. The office personnel of the network company also participate in
dealing with fault situations in accordance with proactive operating models practised in advance. The economic
effects of the standard compensation risk have also been limited by taking out an insurance policy.
PERSONNEL
In 2017, the Group had an average of 228 permanent employees (2016: 234 and 2015: 253). The number of
permanent employees was 229at the beginning and 226at the end of the financial year. In the Group, the total
wages, salaries, fees and fringe benefits paid were as follows: Board members 55 100.00 euro, Managing
Directors 530 166.74 euro and the rest of the employees 10 812 073,92 euro.
In 2017, the parent company had an average of 57 permanent employees (2016: 58 and 2015: 62). The number
of permanent employees was 57 at the beginning and 56 at the end of the financial year. In the parent
company, the total wages, salaries, fees and fringe benefits paid were as follows: Board members and
Managing Director 248 440,87 in total and the rest of the employees 2 895 191,60 euro.
ENVIRONMENT
The goal of Pohjois-Karjalan Sähkö Oy’s environmental system is to implement the Group’s environmental
objectives in the operating plans and everyday work. Apart from the Group, the company’s subcontractors and
partners also comply with these principles. Each business unit is separately responsible for planning and
implementing measures related to the environmental objectives. The implementation is reviewed annually when
the Group’s operating plans are made.
A significant project planned at Kuurna to save the landlocked salmon
In September, Kuurnan Voima Oy filed an application for a permit with the Regional State Administrative
Agency for the restoration of the Kuurna floodway as the reproduction and fry production area of the critically
endangered landlocked salmon. The floodway is one kilometre long, and it can be built into the most significant
landlocked salmon reproduction area in the entire Saimaa watery system, and Kuurnan Voima Oy wants to
contribute to the implementation of this project. A decision on the permit is expected in the spring of this year,
and the project would be completed by the end of 2019.
If the project is implemented, it would enable a natural life cycle of the landlocked salmon between the Pielinen
River and Saimaa for the first time in almost 50 years. The Kuurna floodway is part of the original reproduction
area of the landlocked salmon, and it would need a continuous water flow of approximately 35 m3/s into the
floodway to be successful. The project can be implemented thanks to the construction of a new, small
hydropower plant at the floodway, so that the flow led to the fry production area can be utilized in electricity
production. With the small plant built in the floodway, the flowing water can be used to produce electricity and
utilize water from spring floods for electricity production, such that the release of water does not cause
significant additional costs.
Pohjois-Karjalan Sähkö Oy has joined the new national energy efficiency agreement that covers the years
2017‒ 22. The energy savings achieved through the agreement will support the efforts to reduce Finland’s
greenhouse gas emissions and to achieve the national objectives for increasing the use of renewable energy.
OUTLOOK FOR 2018
Owing to a strong growth in planned depreciation due to increased investments, the company’s operating profit
for 2018 is expected to be lower than in 2017.
BOARD OF DIRECTORS’ PROPOSAL FOR THE DISPOSAL OF THE PROFIT
The unrestricted shareholders’ equity of the parent company is 40 749 082 euro, of which the profit for the
financial year is 820 659 euro. The Board of Directors proposes that the parent company pay a dividend of 2.62
euro per share, totalling 4 585 000 euro, and set aside a sum of 50 000 euro for purposes of public utility. The
rest of the distributable funds will be retained in the shareholders’ equity. No essential changes have taken
place in the company’s financial situation after the end of the financial year. The company’s liquidity is good
and, according to the Board of Directors, the proposed distribution of profits does not risk the company’s
solvency.