Hello, and welcome to all of you to Fortum's webcasted news conference for analysts, investors, and media today on our fourth quarter and full year 2019 results. Please note that this event is being recorded, and we will post a replay of the webcast later on the website. My name is Ingela Ulfves, and I'm heading the IR team. With me here also, Måns and Rauno from the IR team. Our CEO Pekka Lundmark and CFO Markus Rauramo will present the full year and quarterly results today to you, after which we will open up the Q&A session, starting with the audience here with us at the headquarters in Espoo, and then take questions from the teleconference participants. Please note that you're also able to ask questions on the online chat. With these words, I welcome Pekka to start the presentation.
Thank you very much, Ingela. Good morning to all of you, dear investors and dear representatives of media. We have today presented a strong set of numbers. We improved our result in the fourth quarter in all segments compared to the fourth quarter of 2018. Since this is now a full-year report, I will mainly focus on the full-year numbers, and a little bit later then I will comment the details of the Q4. Full-year first, the market showed some weakness towards the end of the year. Despite the volatility on the market, and the fact that the Nordic power price was actually, on full-year basis, down 12%, we were able to deliver a pretty strong performance. Our achieved power price in 2018 was up 6%, EUR 36.80.
Comparable operating profit increased by more than EUR 200 million -EUR 1.2 billion, mainly driven by a clear result improvement in the generation segment, but also supported by improved results in Russia and in the Consumer Solutions business. In addition to this, our share of profits from associated companies and joint ventures increased to almost EUR 750 million, largely thanks to our share in Uniper. Our focus on cash flow measures, together with the strong results in 2019, increased our cash flow to more than EUR 2 billion at year-end. Maintaining strong cash flow and consistent deleveraging is also central to our credit rating. Our key objective is to have a solid investment-grade rating of at least BBB to preserve financial flexibility and good access to capital markets also after the Uniper transaction has been closed.
Based on these results, 2019, our financial position and the outlook for the coming years, Fortum's board of directors is proposing a dividend of EUR 1.10 per share for the calendar year 2019. With an earnings per share of EUR 1.67, this proposal corresponds to a payout ratio of 66%, which is clearly within the 50%-80% range of our dividend policy. EPS EUR 1.67, for the sake of clarity, I do want to emphasize that that also includes certain non-operating results associated with the Uniper result. Those effect was approximately EUR 0.44.
If you want to calculate a fully comparable EPS without Uniper non-operating results, and then also eliminating the effect of items affecting comparability on the Fortum side, you would, in a way, get a clean EBIT improvement from EUR 0.80 per share in 2018 to EUR 1.30 in 2019, which, of course, is a very good improvement that we are proud of. On the strategy execution side, we made consistent and systematic progress during 2019. We focused on operational excellence in all our operations, and as said, improved our financial results substantially in most of the businesses. We performed a strategic review of parts of our district heating business, which resulted in the divestment of Joensuu District Heating Plant at a good multiple.
Price was EUR 530 million. We will book a tax-exempt capital gain of EUR 430 million for this transaction in our Q1 numbers this year. We also continue to build solar and wind power and commissioned new solar capacity in India. In accordance with our capital recycling strategy, we announced a transaction to divest 80% of our wind assets in the Nordics in order to be able to rotate this capital into new renewables projects, and this way build more with the same amount of equity. This deal is expected to close during the first quarter this year. Consequently, we did achieve our financial targets. We had 10% return on capital employed. Again, for the sake of honesty, that also includes the non-operational items from Uniper, but reported ROCE is 10%.
When it comes to the net debt EBITDA target of around 2.5, I'm pleased to report that also that when taken into account now the divestment of Joensuu and the wind transaction once completed, will be achieved. Everything else unchanged, of course. Net debt to EBITDA was 3 x at the end of the year, and then adding these two transactions, we would mathematically get to 2.5. We have today announced that we will initiate a strategic review of our district heating and cooling businesses in Poland, the Baltics, and in Järvenpää in Finland. Based on the initial assessment, these heating and cooling businesses have been identified as operations that could provide higher growth and value potential with an alternative ownership structure. This is something that we will come back to later on. There are no decisions made at this time.
I do want to emphasize that district heating continues to be strategic to Fortum also going forward. Our district heating operations in Espoo, Stockholm, Oslo, or in Russia are not part of this review. In October, our Uniper investment took a leap forward with our agreement to buy an additional stake in excess of 20% in the company. In December, we received approval for closing the transaction from the United States, and subject to certain conditions from the Russian Government Commission. This decision was made in November. The clarification of these conditions in Russia is somewhat delayed due to the recent change of the Russian government. However, we are still confident that we will achieve closing of this transaction during the first quarter 2020.
As announced previously, with closing, we will seek adequate board representation in the supervisory board, Uniper reflecting our ownership, and this naturally includes the chairmanship position as well. As the majority owner, Fortum will focus on cooperation and strategic alignment with Uniper. Our two companies are already well-positioned to drive forward the European energy transition. Together, both companies can benefit from a further aligned strategic focus to enable a carbon-neutral Europe by 2050. During the transition, Europeans expect that their energy companies execute an ambitious climate policy while continuing to provide electricity and heat at all times, and at an affordable cost. The German government's recently announced Coal Exit Law reflects these requirements, and coal-fired generation will be phased out in steps by the end of 2038 at the latest.
We have continued our decarbonization efforts on the Fortum side during the year, and will continue to do so also in the future. We have therefore decided to tighten our climate target for specific CO2 emissions by 10% to 180 grams of CO2 per produced KWh applicable to Fortum's standalone fleet for the year 2020. We are building continuously more solar and wind power while also utilizing our so-called capital recycling business model, as I described earlier, to release cash. This enables us to invest more with a limited equity exposure. Another major effort is the commitment to carbon-neutral district heating here in our hometown, Espoo. We announced actually last week that we will accelerate our goal to discontinue the use of coal in district heating here in Espoo already in 2025, four years earlier than earlier planned.
Other examples are the sustainable decommissioning of the 1 GW Inkoo coal-fired power plant here in Finland, where we show a recycling rate of 92% of the material. We are placing the Meripori coal-fired power plant into the Finnish national peak load reserve capacity system from July 2020. On top of this, last week, there were announcements from Fortum's associated companies in Naantali in Finland to shut down coal-fired units after this heating season, and very importantly, an announcement from our jointly owned company in Stockholm Exergi, to decommission its last coal-fired unit after this heating season. This means that Stockholm district heating will be 100% renewable, and we are quite proud of this achievement since we are talking about one of the largest district heating networks in the whole world. It will be 100% renewable after this heating season.
When acquiring the additional Uniper stake and when our ownership increases to approximately 70% or slightly over, it will mean that we will consolidate Uniper into our numbers. Here you can see that what the effect will be to our generation profile. The first observation here is that our CO2-free generation will increase by approximately 60% to over 70 TWh per year. For comparison, just a couple of examples. Verbund's CO2-free generation in 2018 was about 30 TWh, and Ørsted, both great renewables companies, produced about 15 TWh of CO2-free electricity. We will now, after the Uniper transaction, will go over 70 TWh. This will make us really a very large renewables and CO2-free electricity producer. The consolidated gas-fired power generation will increase a lot, as you can see here.
As we have discussed several times, gas will be an essential fuel in decarbonization of energy as it ensures flexibility in the energy system in combination with intermittent renewables. Over the long term, it is also absolutely clear that gas needs to become green. Electrolysis technology, hydrogen, power-to-gas are all things that are being discussed a lot, and not only discussed, a lot is already being done in this respect, not only in Fortum, but perhaps even more so on the Uniper side. Gas will be an important transition fuel, but it also needs to become green in the long term. The share of coal-fired capacity you see on the graph, that will be reduced over time. You may have noted Uniper's recent announcement to shut down 1.5 GW in 2022 and 1.4 GW in 2025.
The remaining of the European coal capacities are expected to phase out based on national plans. This is how it will look like. If I zoom into the German plans specifically, first of all, we welcome Uniper's decision to close down these old hard coal-fired power plants in Germany. They announced that they will shut down all their old hard coal-fired power plants in the next few years. This decision is clearly in line with Fortum's ambition to decrease the environmental impacts and CO2 emissions of power generation, and it is also consistent with the German government's Coal Exit Act that was introduced by the cabinet last week. Assuming approval of the law, first auctions for hard coal are expected to be held in 2020.
These power plants that Uniper announced to be shut down were commissioned between years 1968 and 1992, so we are talking about fairly old power plants. We stand for a strategy of decarbonization, and this strategy also applies to our investments, including Uniper. We support Uniper's decision to close down the company's old units as the new coal-fired CHP plant, Datteln 4, is taken into use. Here comes the key thing. As long as coal has to be used for security of supply in Germany, especially while they are shutting down not only coal but also nuclear in two years' time, as long as coal is needed for security of supply, we share Uniper's view that it does make sense to use it in the most efficient, most modern, newest, and cleanest units, and rather shut down old, even more polluting units.
This is particularly true as the German government has confirmed that Datteln 4 will not change the coal phase-out date and will not lead to any additional CO2 emissions on the national level. Uniper has also stated that once the closures are completed and Datteln 4 is running, the CO2 emissions of the company's German coal fleet will reduce by approximately 40% by 2025. I move on to our core business, which is, of course, very much driven by hydropower here in the Nordics and the hydrology situation that always affects the volumes. As you may remember, most of the year 2019, which is the orange color here on this graph, we were moving pretty close to the long-term average, which is the dotted gray line.
The end of the year was a little bit drier. During the beginning of 2020, which is the light green color here on this graph, as you have seen, the hydro reservoirs have actually increased very quickly. This is because of the weather. It has been very rainy, and this deficit that we had has actually now turned into a surplus. The latest figure is about six TWh surplus in Nordic water reservoirs. This is, of course, one of the reasons why there has clearly been weakness in the power price for the coming quarters. Commodity prices have also been fairly weak. Here you see two graphs. The dotted line was the forwards one quarter ago, and now the solid gray line is the current forwards. As you can see, first of all, gas price has been weak. That's the lower of these two graphs.
The reason here is strong supply of LNG. Global LNG supply increased by 50 BCM during 2019, most of that has been absorbed by Europe, since Europe has the most flexible demand and also very high storages, or big storages. Currently, storage levels are actually record high in Europe. Coal price has also been weak. It has been affected by weakening global macroeconomy, increasing Chinese domestic coal production, and increasing electricity production from nuclear and renewables. All this has been affecting demand for coal, and that way also pushing down prices. CO2 price has held up quite well. It peaked around EUR 30, but clearly the Market Stability Reserve, which was started in the beginning of 2019, has supported the price. The interesting thing is that when we talk about coal phase-out, the emission trading system is now clearly delivering.
The use of coal for power declined in Europe by slightly over 20% last year. This is to a very large extent, thanks to the ETS system. We have used so much time in Brussels and in other instances to do everything that we can, that this system would be further strengthened, and we are pleased to see that it seems to be a key element in the new commission's new European Green Deal. This is now pushing out gradually coal from the market. This switch away from coal last year in Europe actually eliminated approximately 80 million tons of CO2 emissions just during one year. Now the risk for hard Brexit is removed. That is now supporting the CO2 price.
There may be some near-term weakness because of the fact that the 2019 allowances, U.K. allowances, which were about 50 million tons, were not auctioned last year due to the Brexit uncertainty. Now they will be auctioned this year together with the 2020 allowances. This will increase the supply temporarily during 2020. MSR continues to remove a significant amount of allowances, about 370 million tons, also during 2020. This will make the market much tighter during the coming years. I already mentioned that the weather has been pushing down the near-term power prices in the Nordic region. It's actually a combination of many things. Warm, wet, windy weather with weak commodities. Six times W in the headline, but it is really a combination of several factors.
Warm weather, wet weather, windy weather, and when the commodities have been weak, and the result of this combination, you can see there is quite a significant drop in power prices, especially for the first, second, and third quarters of this year. Now I can say that, fortunately, we are already 75% hedged for this year at EUR 34 per year. That will have a significant supporting effect to our result this year, despite this short-term weakness on the price. Here you see the achieved prices in graphical format. I already mentioned that on full year basis, we were able to achieve in Nordics an achieved price, which was 6% higher than in 2018. In Russia, the achieved price for the full year 2019 was up 7%, 1% in RUB, and then 8% in coming as a result from Forex.
Quickly, couple of comments on each division before Markus continues. First, generation. This was driven by a combination of volumes and then higher achieved price. Hydro volumes recovered from the very low level in 2018. Hydro volume in the full year 2019 was 20.3 TWh . It's still below long-term average of 21 TWh . Now, of course, hydrology has improved, so that means that we can expect higher volumes this year. Another factor on full-year basis was that nuclear load factor was at the highest level in our history, and particularly Loviisa unit number 1 set a new production record. Overall, the divisional result was really good. Comparable return on net assets for the full year 2019 was 12.8%. City Solutions division has had their share of challenges. Q3 result, as you remember, was very weak.
It's recovered nicely during the Q4, still full-year result did not quite meet our targets. We are looking at EUR 121 million comparable operating profit. We have to remember though, that in 2018 there was a one-time sales gain of EUR 26 million from the sale of a solar stake in India. 4.7% comparable return on net assets is, of course, below our target level. Consumer Solutions, another excellent quarter and also a great year. We now have nine consecutive quarters behind us in Consumer Solutions with the EBITDA improvement. This is a combination of several things. First of all, we have the Hafslund transaction with the synergies that we have been implementing. Our target was to achieve synergies of EUR 10 million by the end of 2020, now I'm pleased to report that this target has now already been achieved one year ahead of time.
This is only one part of it. The other part is the active development of the product and service portfolio and the introduction of new services, which has also then supported the sales margin. Excellent improvement. Full-year comparable operating profit from EUR 53 million to EUR 79 million. Finally, the Russia segment, also good result. The full-year result is all-time high for us in Russia. Full-year comparable EBITDA EUR 469 million, and then after depreciation, full-year comparable operating profit EUR 316 million. Also there, like in the Generation Division, an excellent comparable return on net assets of 12.3%. Now I will finish here. I will ask Markus to continue, and then after that, we are ready for questions.
Thank you, Pekka. To summarize first the fourth quarter. The Q4 result improved by 20% from EUR 333 million to EUR 398 million. Happy to say that all divisions improved. Generation was up EUR 51 million on the back of higher hydro and nuclear volumes. Great performance, great availability throughout the whole year, and higher achieved power prices. City Solution up EUR 16 million, driven by the one-time effects, better performance in Norway, heating and cooling. Consumer Solutions benefited from higher sales margins, and Russia result improved on the back of positive FX impact and improved result in the heat business. The full-year cumulative result improved by a good EUR 204 million. Generation was up EUR 166 million, with increased volumes and better prices. Consumer Solutions up EUR 26 million on back of higher sales margins, active development of the product and service offering, which I'm really happy about.
Great work on Consumer Solutions on product development and sales. Russia division improved with EUR 45 million, with higher electricity margins, lower bad debt provisions, and positive foreign exchange. City Solution's result was EUR 14 million lower. The main impact between the years was coming from having the mentioned EUR 26 million profit from selling the majority of our solar business ownership in 2018. This was partly offset by improvements in the Norwegian heating and cooling business and one-time effects. Other costs increased, that was driven by the increased spend, mostly in business technology, including our internal and external ventures. I will move over to the main points in our key financials and lift up a couple of key items there. Our sales comparable EBITDA and comparable operating profit improved on a full-year basis if we look at the top line on the right-hand side.
Comparable EBITDA and comparable operating profit improved also in the fourth quarter on a year-on-year basis. The big move was in the share of profit from associates totaling EUR 744 million when you go down the lines. That includes EUR 632 million of Uniper results. Going further down, the EPS on the full-year basis of EUR 1.67 includes - EUR 0.07 of items affecting comparability and EUR 0.71 of Uniper result. The net cash from operating activities on the last line for the full year was very strong at EUR 2.015 billion. All in all, I would say that we had a very strong set of numbers when we look at the key financials. A couple of observations on income statement and cash flow. On the income statement, I focus mostly on the full year.
Comparable operating profit improved from EUR 987 million to EUR 1.191 billion, if you look at the middle of the chart on the right-hand side. In 2018, items affecting comparability were positive. They included EUR 106 million of sales gains and EUR 98 million of positive fair value changes. On the other hand, in 2019, the negative EUR 81 million consisted mostly of negative fair value changes. Share of profits from associates increased by EUR 700 million, and that was again, mostly driven by the Uniper result. Finance costs were stable at around EUR 130 million.
There are some moving parts, plusses and minuses, but all in all stable. Taxes were somewhat higher driven by increased profit and also including withholding tax on Russian dividends that we are taking from Russia. Good to remember that when you look at the profit before income tax, the share of profit from associates is net of tax.
The EUR 744 million already includes the tax impact. On the last line, total is a strong profit for the period of EUR 1.5 billion for the year. Moving on to the cash flow statement. Main items there, again focusing on the cumulative 2019 numbers. EBITDA increased to a healthy number of EUR 1.76 billion. Going down the lines, paid financials, tax, and others were stable compared to previous year. We received EUR 239 million dividends from associated companies, the biggest contributor there being Uniper. Settlements from the futures were now positive for the full year, EUR 356 million compared to last year's negative number, big change there. This resulted in the net cash from operating activities for the full year of EUR 2,015 million. Very strong.
Going further down, CapEx was EUR 695 million, and that's including sizable investments in solar and wind, where we also announced this year, in 2019, the capital recycling transaction for Nordic wind. The collateral arrangement we did earlier in 2019 was the main contributor to the change in cash collaterals change being positive EUR 311 million, this brings us a strong cash flow before financing of EUR 1.6 billion. The only other point I'd highlight here is the impact of the Uniper share acquisition in 2018, which is most of the EUR 4 billion item for that year. Moving on to our long-term financial targets. When it comes to our financial targets, the development is very positive. EBITDA up, net debt down, this resulted in year-end comparable net debt to EBITDA at 3.0 x.
When we include the Joensuu divestment and wind divestment, everything else being alike, we would be at our target of 2.5. ROCE reached our long-term target of 10%. Liquidity is very strong. At year-end, we had liquid funds of EUR 1.4 billion and undrawn committed credit facilities in excess of EUR 10 billion. Average cost of debt continues to decrease. We have a good maturity profile with no bond maturities in 2020. I elaborate a little bit more on our rating target. Our key objective is to have an investment-grade rating of at least BBB flat. This is to ensure financial flexibility and good access to capital also post the closing of the Uniper transaction. We have a good dialogue with the rating agencies. We expect that the credit watches mentioned also on this slide would be resolved at some point after the closing of the transaction.
We have been de-leveraging, as you can see from the graph, our balance sheet in a very determined way, coming from a net debt to EBITDA number of 3.6 down to 3.3, and now 3.0 at year-end. Again, when adjusting for Joensuu and Nordic wind, you can see the illustrative graph. We have reached our target of being around 2.5. We will continue to manage our portfolio actively, as you have seen, to keep strategic focus and maintain financial strength. Finally, going to outlook. We expect that Nordic electricity demand will grow at 0.5% per year on average. Hedges are at good levels. We are hedged 75% for this year at EUR 34 per MWh , and for 2021, we are hedged 40% at EUR 33. Of course, again, the point with the hedging is to have the predictability and forecastability for the near-term cash flows.
Our CapEx is estimated for this year to be around EUR 700 million. That's including maintenance investment of EUR 300 million and EUR 200 million of investments into renewables, solar and wind, that can be subject to capital recycling. I'm very happy to say that we have progressed well on the Hafslund transaction synergies. In Consumer Solutions, we achieved our target of EUR 10 million ahead of schedule, and we continue to expect in City Solution that we achieve synergies of EUR 5 million-EUR 10 million fully by the end of this year. On the tax side, we expect that all the taxes in Sweden for hydro will be EUR 15 million lower this year compared to last year. This is for my part, and now I think we are ready for questions.
Thank you, Pekka, and thank you, Markus. Yes, as said, we are now ready for the Q&A session. We will start with the questions here among the audience in Espoo. If you have any questions, then raise your hand and we will hand you a microphone. After that, we take some questions from the chat before then moving on to the teleconference participants and their questions. Please go ahead.
Yes. Hi, Artem Beletski from SEB. Three questions from my side. First starting with your divestment at quite high multiples and doing further strategic review on other district heating assets . Would you consider to do similar assessment, for example, to some of your hydro assets, which presumably might be non-core or basically not as synergetic as your portfolio? Is it possible, or is it completely off the table? The second question is relating to Uniper, and Pekka, you commented that you support shutdowns relating to coal in Germany. How do you view Uniper's new target of cutting CO2 emissions by 40% within the next five years? The last one is a more mechanical one relating to this abnormal hydro situation, and does this new hedge rate of 75% reflect in basically likely much better hydro availability what we'll see in 2020?
You are right that the Joensuu multiple, of course, was good. I think 26.5 or something like that is the correct number. When it comes to the potential assessment of hydro, highly unlikely. Hydro is clearly a core part of our business, and one of the key attractions to us in Uniper is also the substantial hydro portfolio they have both in Sweden and Germany. -40% is Uniper's announced CO2 reduction target by 2025. We can only say that we support their decarbonization. We cannot make statements on their behalf, as a significant owner, we support this path. Of course, as an owner, in discussions that we have had with them, we have made it very clear to them that we expect all our portfolio companies to present ambitious climate targets. I can only say that they are clearly acting on this one.
For the hedging, the hedging ratios are then reflecting our forecasted production at the time of giving the forecast.
Okay. Very clear. Thank you.
Any further questions here among the audience? If not, Måns, questions from the chat, please, if we have any.
Yes. We have one question from Alex Lang from UBS regarding the achieved power price and the strong achieved power price in the fourth quarter. Looking at the fourth quarter, it seems particularly strong in terms of this optimization spread. The question is then, is this something that is just happened now during the fourth quarter or something we can expect also for the future?
Of course, both physical and financial optimization is part of the normal operations that we are doing every day, how well we will succeed in this remains to be seen. Since we do not give guidance on the achieved power price in relation to market price, it is unfortunately impossible to answer this question in more detail. We are pleased. The teams have done a good job in optimization, that observation is absolutely correct.
Okay. We have a further question from Anne Kauranen at Reuters. A question to Pekka Lundmark. Have you seen any change or development in Uniper's attitude towards the intention to gain control of the company?
We have good and constructive discussions with Uniper, and we are discussing many topics including sustainability and CO2 reductions, as I mentioned. We are now focusing on getting the transaction closed so that we get to over 70%. We want to get represented properly on the supervisory board. Then after that, our expectation is to start really a deep discussion as to how we achieve strategic alignment between two companies. I have no reason to believe that the new Uniper management would not have a very constructive approach in these discussions.
We have one more question then regarding the net debt to EBITDA 2.5 target that was achieved when you correct them for the Joensuu and wind transactions. Does this figure also include the potential debt impact from the acquisition of 20% of Uniper?
No.
Very good. With these questions from the audience and the chat then operator, we are now ready for the questions from the teleconference participants. Please go ahead.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad. The first question comes from the line of Wanda Serwinowska from Credit Suisse. Please go ahead.
Good morning. Good afternoon. Wanda Serwinowska, Credit Suisse. Two questions from me. The first one is on the Consumer Solutions. During the Q3 results, you said that you're looking at potential corrective measures. When we remove the EUR 26 million capital gain from Q3 2018 and also reported some positive one-offs in Q4 2019, the underlying clean EBIT is flattish. Are you happy with it, or should we expect you to work towards a higher profitability? The second question is on your leverage targets. Currently, you look at 2.5 x net financial debt to EBITDA. Once you start fully consolidating Uniper in a couple of months' time, would you consider looking at economic net debt, given the size of the provisions of Uniper, and what target you will be setting? Thank you very much.
It's an absolutely correct observation that in a way Consumer Solutions EBIT year-over-year is flattish as I think you put it. Clear answer to your question is that no, we are not happy with this level. Of course, part of this is market weakness, but there were also operational issues that we are looking at. Q4 was already much better than Q3, so there is improvement, but on a full-year basis, we are clearly not happy.
When it comes to the key financial targets, I think it's clear that both the business and financial risk profile of a combined company is different than two companies alone. After the closing of the transaction, then we will have to look together what are the right measures, what are the right targets. What I can say is that for Fortum and for the combined entity, good access to capital at the right cost in all conditions is very important. We have now stated explicitly that BBB flat rating is our target, and then we will look at what are then the financial indicators that are commensurate with this type of a rating outcome. We will come back to that after the transaction closes during the year.
Can I have one quick follow-up?
Okay.
When you talk to the rating agencies, is there any leverage target mentioned? I don't expect you to answer that question now, the exact number. When you discuss your future leverage with the rating agencies, is there any economic net debt to EBITDA that is a maximum that the rating agency will be happy with?
Yeah, the rating agencies, they're.
The discussions.
Yes. We actually have very good discussions with all of the three rating agencies on an ongoing basis. They look at different measures. I think one of the most important ones is the FFO net debt, which we are of course all the time simulating what it would be. Our 2.5x was roughly commensurate, in our understanding with the BBB flat rating. Whilst there isn't maybe explicit guidance on what the net debt EBITDA level should be, the agencies have been clear about the FFO net debt, and we think we are in line with those indicators. Of course, it's a factor then also of the business risk and decisions, portfolio structure and the recent transactions that we have done, coal closures and so on. They continuously impact the financial ratios and the business risk profile of the separate companies and potential combined company.
Can we expect an updated leverage target from you guys? From you as the CFO of Fortum. Once the transaction is closed 2.5 x net financial debt to EBITDA, it's less relevant than economic net debt to EBITDA. Can we expect some update from you? Once the transaction is closed.
Yes. At an appropriate point, we will come back to that. I think it's easy to say that when the requirement for Uniper is higher than for Fortum, we have a lower expected FFO net debt. One can assume that for the combined company, the target will be somewhere between those numbers that the companies on a standalone basis have had earlier.
Thank you very much.
The next question comes from the line of Lueder Schumacher from Société Générale. Please go ahead.
Good morning. A few questions from my side. The first one is on the operating cash flow, which, Markus, you mentioned a few times was very strong. How sustainable is that, bearing in mind we have this huge swing factor and change in settlements for future? How should we think about that number for 2020? Not only for the operating side, but just this change in settlements for future. What is this number likely to be in 2020? Just to clarify from your previous answer, when you said 3.5 x FFO net debt, is that for the combined entity or is this for Fortum standalone before fully consolidating Uniper? This review of the heating business, is this largely balance sheet-driven to ensure that you can actually get this BBB flat rating?
Perhaps also opportunistic given the rather high exit multiple you got for the heating business you sold in December.
With regards to the operating cash flow, you're absolutely correct that there's a very large swing factor. It was, if you compare the two ends, EUR 800 million, that unfortunately one cannot forecast. It's dependent on the market prices. Even on the short-term basis the swings can be quite big on the cash flow. That's also one reason why we need good liquidity. We need good access to capital. We need to have capital reserves, and we take that into account when we think about our key figures. I think the best answer for the rating agencies is actually to look at their reports. It's not as simple as that there would be only one number. Again, it's a factor of the business risk and the financial risk.
I think there is clear guidance on what the combined entity's strength should be after the closing of the transaction. We are of course working on all fronts to be commensurate with the BBB flat rating as we now state also that it is an important target for us.
If I comment the heating business question, it's actually two different things that is driving this. Absolutely, the balance sheet is one factor there, and we were pleased to see that it was possible to divest an asset like Joensuu at a multiple that is close to 30. There is another aspect also, and that is the fact that Uniper and Fortum combined portfolio is extremely wide, and as part of any good strategic review, you always need to think about that which things to focus on and which things not to focus on.
Okay. Thank you. Just maybe one follow-up question. Is there a timeline for when you expect the approval to come from Russia?
We have said that we continue to target to close the transaction during the first quarter. The Government Commission in Russia decided already in November that we will be granted a permission to buy this additional 20%. What we are talking about now is the clarification of the conditions that how certain things will be done in practice, and those clarifications must be discussed before we can actually implement the closing. There, as I said, unfortunately the Russian government change came just in the middle of these discussions, and that has now caused a certain delay. This does not change our assessment that we continue to believe that we'll close during the first quarter.
Okay. Thank you. Very clear.
The next question comes from the line of Elchin Mammadov from Bloomberg Intelligence. Please go ahead.
Hi there. I have three questions, please. First one on Russia. How do you expect the earnings to develop this year and next? Are there any meaningful expires of CSA contracts in 2020 and 2021? That's the first one. Second one is on Uniper. When do you think you'll be ready to quantify synergies for the Uniper deal? Last one is on your CapEx. Obviously, it's higher than consensus and higher than your 2019 number. Where would that incremental additional investment go? Is it renewables? If so, is it going to be focused on Russia, Nordics or some other region? Thanks a lot.
If Markus takes the first question, I will start from the two other ones. When it comes to the CapEx and the EUR 700 million, as we said, the additional EUR 200 million which was highlighted, that's going into renewables, into solar and wind. That will be subject to what we call the capital recycling model, where we recycle part of the investment into new projects so that we can then maximize the new capacity being built with a certain amount of equity. It is focused on Nordics, Russia, and India. The synergy question. It is too early to say when we can announce a synergy target. We are now focusing on closing.
We want to have detailed discussions on strategic alignment with Uniper so that whatever synergy target we would set, that it would not only be based on our own outside-in estimates, because that's the only thing we have access to currently. Also in a more detailed strategic discussion, where we then also get the comments from the Uniper side. Once all this is done, it will be time to discuss the synergies in more detail.
Okay. When it comes to the Russian earnings, everything else being alike, we have now added further information regarding the CSA payments into our quarterly release. I refer to the setup of CSA. There's first, for the whole 10-year period, there are certain level of payments for the first six years, and then increasing for years 7 - 10. This will now open up even more in the quarterly report. What we have is that at the end of this year, for two units, the 10-year CSA ends. In the beginning of next year, three units are entering the higher CSA payment. At the same time, the units that are not subject to the CSA payments, they participate in the competitive capacity selection, CCS auctions.
As you can read from our material, I won't go to the detailed numbers now. You can see that basically year- after- year, the CCS payments have been increasing. We have units dropping out eventually of the CSA, some coming to the higher, and then CCS prices going up. Then the earnings are a result partly of these factors.
Thanks a lot. Thank you.
The next question comes from the line of Sofia Savvantidou from Exane. Please go ahead.
Hi, yes, good morning. Sofia Savvantidou from Exane. Thank you for taking my questions. A few from me as well. Just coming back to the item about Russia granting approvals for the increase in the Uniper stake. What makes you confident that we will get this by the end of the first quarter? Sort of say, is this your expectation of when the situation on the government will be resolved, or is it just irrelevant from when that happens? Secondly, do you have any color on what those conditions could actually be? Just for me to understand a bit of the sequence of events, sort of will the deal close once you know these conditions? What happens if these conditions are not eventually met? Just trying to understand a bit the risks on execution on that.
The second question on Consumer Solutions from me. Obviously, very good result on delivering the synergies ahead of time. If I look at the financial performance of the division, it's still more or less in line with what people would have thought at the beginning of the year. Maybe that means that the underlying market is still weak or is weakening. Any thoughts on implementing more synergies or more cost-cutting in the future, or sort of how should we be thinking of the development of Consumer Solutions? A technical question on the strategic review of the heating activities. If you actually dispose of them, what would be the pro forma comparable return on net assets of that business? If we exclude these assets, what return on assets do the rest of the portfolio in City Solution's achieve?
Thank you.
Okay. Thank you, Sofia. If I start with the Russia question, what makes us confident? Obviously, we are in, I would say, daily discussions with the authorities about the conditions and the very thing that you actually pointed out in your question, the sequence of events. Unfortunately, this is something that I will not be able to discuss today. We will inform the market about the conditions and the sequence of events once everything has been agreed with the Russian authorities. When it comes to the Consumer Solutions, I'm not here and now going to announce any new higher synergy target because it will be more and more difficult to define separately that what is synergy and what is not synergy, because the organizations are now fairly integrated.
What I can say though is that our appetite for result improvement in the Consumer Solutions business is definitely not yet met. We are continuing with product development, introducing new products. Our goal is to continue to push cost to serve the customer down, then very importantly, typical to this whole market that this business is pretty high churn of customers. We've been able to achieve this substantial result improvement without really being able to substantially address the churn issue, which is typical to the whole market. This is one of our key goals going forward, that we will find ways to reduce churn. If and hopefully when we are able to do that will have a strong supporting effect to the result.
When it comes to the strategic review of the mentioned assets, at this stage, this is an assessment. There is no decision to go any direction with the process. We will do the assessment. Of course, in the meantime, we are working continuously to improve the performance of the business on all fronts. I am happy to say that the whole Consumer Solutions division works with numerous initiatives to improve their performance.
Okay. Thank you both. Once again, ladies and gentlemen, if you do have a question, please press zero one on your telephone keypad. Due to time constraints, could we ask you to kindly limit your questions to two per person? The next question comes from the line of Markku Järvinen from Handelsbanken. Please go ahead.
Yes, good morning. It's Markku Järvinen from Handelsbanken. I had a couple of questions. First of all, if you indeed get the clearance from Russia and close the deal in Q1, do you now have a clear view how you will report Uniper in 2020?
Yes. The answer is yes. Uniper will be consolidated as a group company in the Fortum numbers. We will have line-by-line consolidation.
from Q1 or Q2 or.
Yeah.
lag effect.
From the closing of the transaction. There will need to be a clawback also on the not yet included part of result.
Okay, good. Thank you. My second question is on the potential divestment of the additional district heating assets. You said that the assets in Espoo, Oslo, Stockholm, Russia, district heating remain strategic. Is it then your decision or your clear view that you will never sell these assets and you see that the highest growth and value potential is within Fortum's ownership?
I think that in business, it's best never to say never if you really talk about things being permanent because nothing in this world is permanent. I really meant what I said when I said that this review is not about these particular assets. Strategy review has to be constant. Now, as I said, we will start, hopefully when we close a thorough strategy review with Uniper that will then lead to the next decisions about what to focus on and what not to focus on. This announcement today is not meant to be interpreted in any particular way when it comes to the assets in Espoo, Oslo, and Stockholm.
Okay. Thank you.
The next question comes from the line of Ajay Patel from Goldman Sachs. Please go ahead.
Morning. A couple of questions, please. Firstly, I just wanted to understand the Finnish district heating disposal. The 26.5x EBITDA multiple that you talked about. Was that the EBITDA normalized or was it a funny EBITDA of any sort? Is there something about the profit stream in terms of its growth profile that may sort of indicate why such a multiple we paid? In connection to that, how does the sort of profit stream of this type of asset compare to the ones that you're putting under strategic review at the moment? The last question is just on leverage again. The strategic review that you announced today, does that get you a decent way of rightsizing the debt or bringing down the leverage to your targets?
Do the recent EUR 6 or so fall in power prices mean that we're going to have to see quite a few additional announcements to attain that 2.5x leverage target? Thank you.
Okay. I can take that question. Joensuu is a growing city. It's a very vibrant city in its area. The assets are well invested, so the assets are in good shape. Performance has been good and steady. It's also well located within the procurement area for the biomass. It is an attractive asset. The district heating connections continue to grow and churn is very low. This was an attractive asset from a buyer's and owner's perspective. The EBITDA represents, in my view, quite a clean number, and I think the expectation is with these fundamentals that there is potential for growth. When it comes to the question about financial leverage target and potential strategic reviews, we are actually at the target right now. With the Joensuu divestment and wind transaction, we are at 2.5. We are comfortably now where we want to be.
When it comes then to how things look after the closing of the Uniper transaction, again, our target is to have financials commensurate with the BBB flat rating. We will return to the financial indicators in due course after the closing.
Thanks.
Thank you. The last question comes from the line of Piotr Dzieciolowski from Citibank. Please go ahead.
Hi, good morning, everybody. I have two questions. First one is, post Uniper takeover, post consolidation, how much will you pay attention to Uniper dividends given that it all stays on your balance sheet? What's your approach towards the dividend policy, which will be announced, as I understand it, the full year, as a new one? Second, on the CSA profile, my impression previously was that you expect a significant drop for both of the companies more like in 2022. From your comments earlier, I understood you actually expect an increase of CSA payment. Can you maybe give a bit of details on what is really the delta contribution and when over the next three, four years for the combined company?
When it comes to the Uniper dividend, obviously, in German governance, management proposes dividend, and then shareholders will vote on the proposal. I would like to point out that we have made a commitment not to implement a domination agreement for two years, i.e., during 2020 or 2021. That means that we are not going to, even though we consolidate the company as a subsidiary in our numbers, it means that we will not be in a position to issue operational or other instructions to the company. That's why I'm not able to give you more color on the future treatment of dividend at this time.
Finally, for the CSA payment profile. We have almost 2.4 GW of capacities under CSA. Directionally, once the CSAs end for two units in this year, then in 2021, 2022, 2024, and 2025 the CSA, everything else being alike they will reduce. We have good disclosure on each unit when the CSA payments start, increase, and end. I think it's good to look at that, and Ingela and her team are happy to help if you need further information on that. We break out both the CCS payments and CSA payments in the quarterly information. We're happy to help further on that if needed. Thank you.
Okay. Shall I multiply it by two, given that's two companies? Do you think about it this way as well on the CSAs?
Uniper has of course, as you said, the CSA units as well. For that part their IR can help with getting the detail on those units. That information is available as well.
Okay. Thank you very much.
Thank you, Pekka. Thank you, Markus. Thank you, everyone, for participating here and for your active participation with questions. I guess we have a few questions still on the chat. We will come back to those separately. Of course, any further questions from any of you, please get in contact with the IR team, and we will be happy to help. On behalf of Fortum, I wish you all a very nice rest of the day. Thank you so much.
Thank you.
Thank you.