"Corporate acquisitions support the growth targets of Fortum's Heat business. We use Invest for Excel® for our valuations."
Background
Fortum Heat provides district heating, steam for industrial
processes, electricity and industrial cooling for its customers in the
Nordic countries, the Baltic countries and Poland.
Fortum Heat business unit has an active growth strategy prioritising
the Baltic countries and Poland. Fortum Termest is one of the leading
heat companies in Estonia. Termest has more than 50 corporate customers
and the company's business of heat supplying for small and medium-sized
industrial companies is growing. Fortum Heat is also an active player
in the heat market in Poland. Fortum DZT S.A. is a district heating
company that produces and distributes heat to 22 cities in
South-Western and Central Poland.
In December 2004 Fortum acquired another district heating company,
Fortum Częstochowa S.A. that sells 780 GWh of heat per year. Expansion
has also resulted in ownership of AB Fortum Värme in Sweden, partnered
by the City of Stockholm with a 50% financial stake. Fortum Värme
delivers district heating and cooling, power and gas to industries and
private customers in Sweden.
Instead of "personal" applications, investment calculations are now made in a uniform way.
Mr Matti Savolainen, Development Manager, Fortum Heat: "We looked for a
tool to improve the way we make our own calculations. We have reviewed
several solutions including Invest for Excel®. It suited our needs best
and was reasonably priced. Our own various Excel templates were useful
as well, but they would have needed tuning. We have decided to
implement Invest for Excel®."
Implementation
Calculations are made for determining the value of power and heat
plants, district heating networks and energy companies. Also
reinvestments need detailed financial studies for various economic
purposes. Invest for Excel® served well both purposes. Implementation of
the software was smooth and free of problems. Invest for Excel was
first used by project analysts, who made profitability calculations for
persons in charge of investment projects.
Then, the investment team verifies the calculations and provides
templates for the project managers, who develop the calculations
further and also use them for volatility estimations. The same tool
added value in providing uniform concept of calculation at several
stages of development.
Training
MS: "First we had training sessions with Datapartner. Then we
organised our internal training sessions. Use of the software has been
fairly easy, especially for those familiar with Excel, and others have
picked it up quickly as well."
"The user manuals can be accessed in electronic form if needed. I have
not resorted to the helpline much, since the few questions I had, have
been resolved quickly by e-mail."
Effects
The decision-makers find it easier to estimate calculations based on
a uniform model. MS: "Invest for Excel® saves time compared to the
previous complex Excel constructions. The calculations are more
reliable now, since only minimal tuning is required. This has increased
confidence in our calculations."
Datapartner works towards satisfaction of the customers. Mr Savolainen
and other users in Fortum have expressed some requirements that were
implemented in the software.
Corporate acquisitions support growth targets in Poland
Director Timo Jokinen at Fortum Heat uses the software together with
Polish colleagues. Mr Jokinen considers it a great advantage that the
same media is used for all calculations. Investment often means
corporate acquisition.
The calculations for acquisitions, on a general level, are made with
Invest for Excel. TJ: "Invest for Excel was introduced very conveniently
at Fortum Heat when we were acquiring a Polish state-owned district
heating company of 600 people operating in Częstochowa and in five
smaller cities. The turnover of the company amounts to about 22 million
euro."
"Financial arrangements were one of the key points in the calculations.
Privatisation involves commitment to transform investment into
modernisation. This is not necessarily based on state-of-the-art
technology if this cannot be utilised to full capacity. For example,
additional pumps may not be needed after all but their acquisition
still results in an increase in the maintenance costs. The increase in
value must be higher than the incremental costs, even if the new
technology is financed by the World Bank, for instance."
Profitability calculations for corporate acquisitions must take into
account the change in the operating practices when a new owner takes
charge.
Controllability and profitability of the systems
Controllability and profitability of the investment remain the key
indicators in its evaluation. However, all investments exceeding 100
000 Euro that are calculated with Invest for Excel® take into account
occupational safety of the workers and environmental effects.
Controllability means having real-time information about the state of
the process. The control system uses key performance indicators on
every step of the process - starting from method of production &
delivery, heat loss to financing and invoicing. Profitability can be
increased by improving the input-output ratio, for example. The aim is
to reduce the consumption of power by a technical improvement or to
achieve savings in the operating and maintenance costs.
Through marginal calculations, Invest for Excel provides information
whether profitability increases or not. One of the investments types
calculated with Invest for Excel is the expansion of the district
heating network by adding new units, i.e. villages and towns.
All major investments and valuations at Fortum Heat have been put through Invest for Excel since 2003 up till now.
Copyright 2003 Datapartner Oy Last update in 2005. All rights reserved.
