Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (June 2007)
56 slides from Fortum Oyj's investor presentation, June 2007
Slide 1: A leading energy company in the Nordic area
- a leading energy company in the Nordic area Presentation for investors June 2007
Slide 2: Disclaimer
Disclaimer This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Fortum shares. Past performance is no guide to future performance, and persons needing advice should consult an independent financial adviser. 2
Slide 3: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 3
Slide 4: Fortum's strategy
Fortum's strategy Fortum focuses on the Nordic and Baltic Rim markets as a platform for profitable growth Become the leading Become the power and heat energy supplier company of choice Benchmark business performance 4
Slide 5: Presence in focus market areas
Presence in focus market areas Nordic Generation 53.2 TWh Electricity sales 60.2 TWh Distribution cust. 1.6 mill. Electricity cust. 1.3 mill. NW Russia Heat sales 20.1 TWh (in associated companies) Power generation ~6 TWh Heat production ~7 TWh Baltic countries Heat sales 1.0 TWh Distribution cust.
Slide 6: Fortum Business structure
Fortum Business structure Fortum Markets Fortum's comparable Large operating profit in 2006 Nordic Nordic customers EUR 1,437 million Fortum wholesale wholesale market Small Power market customers Generation Nord Pool and Markets 0% bilateral Other retail companies Deregulated Distribution 17% Regul
Slide 7: Strong financial position
Strong financial position ROE (%) EPS, cont. (eur) Total assets (EUR billion) 20 1.50 1.41 20.0 17.7 18.4 16.8 1.22 18 15.1 1.01 15.0 1.00 16 14.4 10.0 14 0.50 13.5 12 5.0 10 0.00 0.0 2005 2006 LTM 2005 2006 LTM 2005 2006 LTM ROCE (%) Dividend, (eur) Net debt/EBITDA 16 1.50 4 15.3 1.26 1.25 1.12 3 1
Slide 8: Growing capital returns
Growing capital returns Dividend per share EUR • Dividend of EUR 1.26 per share, in total over EUR 1.26 1.1 billion 1.12 Total ~ 3,775 MEUR • Mandate for repurchasing 0.53 of the company’s own 0.54 0.58 shares; maximum EUR 0.42 300 million 0.73** 0.31 0.58* 0.26 0.13 0.18 0.23 • Dividend policy of 5
Slide 9: Fortum's share holder value increase EUR 25.6 billion
Fortum's share holder value increase EUR 25.6 billion Total EUR 28.7 billion Total dividends EUR 6.9 billion Neste Oil shares as dividends EUR 3.3 billion Cash dividends EUR 3.6 billion Market cap 21.8 billion Market cap EUR 3.1 billion Sep 2000 May 28, 2007 9
Slide 10: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 10
Slide 11: Huge need for new capacity...
Huge need for new capacity... Globally ... ... European wide ... ... and in Russia TWh TWh 30 000 3 500 25 000 ~10 000 3 000 900 20 000 TWh 2 500 TWh Demand growth 2 000 ~300-500 TWh 15 000 1 500 by 2015 10 000 1 000 5 000 500 0 0 20041 2010E 2020E 2000 2005 2010E2015E2020E Existing/remaining capaci
Slide 12: ...also in the Nordic market
...also in the Nordic market Retiring capacity Committed new capacity Demand and capacity development in ~ 30 TWh ~ 40 TWh the Nordic market Old CHP Wind TWh Cond. 500 Nuclear CHP 80 TWh (incl. 400 upgrades ) Old condense capacity Hydro (mainly coal) 300 • Electricity demand is expected to increase
Slide 13: New capacity will require an EUR 40+ power price
New capacity will require an EUR 40+ power price EUR/MWh EUR/MWh 80 80 CO2 cost 15 €/ton Fuel costs 70 70 Fixed costs ( variation) 60 60 Futures 50 4 June 2007 50 40 40 30 30 20 20 10 10 0 0 1995 -97 -99 -01 -03 -05 -07 -09 -11 Coal Gas Nuclear Hydro Wind Clean coal Source: Nord Pool Source: IEA "Wo
Slide 14: Towards a functioning European power market
Towards a functioning European power market Tomorrow – Today – European regional Nordic Yesterday – national 2010 - 2000 - 1990's Directives: Benefiting Market liberalisation • Market-based development • Increased competition customers and Strategy: Market integration • Increased efficiency societie
Slide 15: Nordic market becoming more integrated into Europe
Nordic market becoming more integrated into Europe • Nord Pool introduced in 2005 a German spot Present (MW) +100 50 market area "KONTEK" to enhance the Under construction (MW) 70 60 Nordic-German trade Planned (MW) 800 • Direct market coupling between Nord Pool Discussed (MW) 1500+200 and the Germa
Slide 16: Nordic markets – closely integrated by 2010
Nordic markets – closely integrated by 2010 Five new projects: 33% • Fenno-Skan 2 of time • South-middle Sweden Nordic power market • Nea-Järpströmmen – the situation today • Skagerrak • Store Bält Market at least 390 TWh/a • Reducing of bottlenecks 75% of time Nordic power market Homogenous price a
Slide 17: European wide integration to follow
European wide integration to follow European power market 7% Market coupling: of time – the situation today • Nordic +kontek • TLC (NL-BE-FR) Market at least 1,300 TWh/a • Nordic-TLC • Nordic-Germany • Germany-TLC x% • Bigger market of time • More efficient use of production capacity European power
Slide 18: Key EU objectives by 2020
Key EU objectives by 2020 • Implementation of internal • Minimum reduction of energy markets EU CO2 emissions • Energy efficiency +20% 20% (2020) (2020) Competitiveness Environment • Renewables 20% • Increased resources for (2020) technology development • Development of CO2 capture and storage Secur
Slide 19: Fortum's investment programme
Fortum's investment programme • Olkiluoto 3, Finland, nuclear • Swedish nuclear • Suomenoja, Finland (CHP) • Värtan, Sweden (bio CHP) Total • Järvenpää, Finland (bio CHP) ~ 1,300 MW • Brista, Sweden (waste CHP) • Refurbishing of existing hydro assets • Wind power, Sweden Value of the investment prog
Slide 20: Continued increase in CO2-free power production
Continued increase in CO2 -free power production TWh Fortum's power production 60 • ~9 TWh increase in 50 CO2 -free production* • ~10 TWh increase in 40 total production* * compared to 2006 30 20 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 After the inve
Slide 21: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 21
Slide 22: Russian power markets are attractive
Russian power markets are attractive Russian power generation TWh > 4,000 (bln kWh) 2,000 • 4th largest in the world • Strong growth 1,500 • Potential for efficiency improvement 1,000 • Reform offers opportunities 500 0 C S K a a N zil R pan Ja na c Br e In a er da Fr any di C di c si U U a an hi G
Slide 23: Substantial need for new capacity
Substantial need for new capacity Russian power demand forecast TWh (bln kWh) • Power generation investment is 1,800 1,710 expected to total € 90 billion by 2011: 1,600 Demand growth 500+ TWh • nuclear € 40 billion (10,000 MW) 1,520 before year 2020 • thermal € 40 billion (42,000 MW) 1,400 1,420 • a
Slide 24: Power sector reform impacts industry structure
Power sector reform impacts industry structure RAO UES restructuring Regulated monopolies Competitive businesses State-controlled companies Privatised companies Share of private 0% <25% 48% 48% <49% 65 -100% 75 -100% ownership System Federal Holding Holdings of 1 hydro 6 thermal 14 operator Grid of
Slide 25: Fortum's current ownership in Russia
Fortum's current ownership in Russia • Over 25% stake in Territorial WGC-5 Generating Company No.1 • Electricity production capacity 8,660 MW (TGC-1) • Annual generation (2006) • ~1/3 stake in other companies • electricity ~ 40 TWh spun off companies • Four power stations in economically attractive
Slide 26: Gas price is an important factor affecting electricity price
Gas price is an important factor affecting electricity price Russian power generation Electricity price and typical 991 TWh in 20061 marginal costs for gas-fired power plant2 Oil 2% 60 Electricity price Nuclear 50 16% CO2 cost Gas Price EUR/MWh (156 TWh) 46% 40 (455 TWh) 30 Hydro Gas cost 20 18% (17
Slide 27: RAO UES to release ownership in generation companies
RAO UES to release ownership in generation companies (WGCs and TGCs) Indicative time schedule 2006 2007 2008 Q4 Q1 Q2 Q3 Q4 Q1 Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec Jan WGCs WGC 1 The new structure in generation WGC 2 ownership WGC 3 WGC 4 Rosenergoatom 11% WGC 5 6 thermal WGCs 24
Slide 28: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 28
Slide 29: Current Fortum Group financial targets
Current Fortum Group financial targets Return on capital employed 12% Return on shareholder's equity 14% Net debt/EBITDA 3.0 - 3.5 29
Slide 30: Key financials
Key financials MEUR (Continuing operations) LTM in Q1 2007 2006 2005 Sales 4 488 4 491 3 877 Operating profit 1 473 1 455 1 347 Cash flow from operations 1 345 1 151 1 271 Interest-bearing net debt 3 932 4 345 3 158 Balance sheet total 17 739 16 839 15 130 Net debt/EBITDA 2.1 2.3 1.8 Return on capit
Slide 31: Nordic water reservoirs
Nordic water reservoirs 120 100 reservoir content (TWh) 80 60 40 20 1996 2000 2006 2007 reference level 0 1 5 9 13 17 21 25 29 33 37 41 45 49 week Source: Nord Pool 31
Slide 32: Wholesale price for electricity
Wholesale price for electricity EUR/MWh 80 Nord Pool spot price 70 60 50 40 30 20 10 0 2004 2005 2006 2007 Source: Nord Pool 32
Slide 33: Nord Pool year forwards
Nord Pool year forwards Year 05 Year 06 Year 07 Year 08 Year 09 Year 10 Year 11 Year 12 €/MWh June 4, 2007 60 58 56 54 52 50 48 46 44 42 40 38 36 34 32 30 28 26 24 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 2006 2007 33
Slide 34: Hedging of Power Generation's Nordic sales
Hedging of Power Generation's Nordic sales Status at the beginning of April 2007: Hedge ratio Hedge price Rest of 2007 ~ 70 % ~ EUR 40 per MWh Calendar year ~ 40 % ~ EUR 42 per MWh 2008 34
Slide 35: Fortum is well positioned
Fortum is well positioned • Continued focus on the Nordic and Baltic Rim countries • Competitive corporate and cost structure • Flexible and climate-benign production portfolio • Strong financial position • Promising opportunities in Russia 35
Slide 36: Supplementary material
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 36
Slide 37: Capital structure
Capital structure • Fortum wants to have a prudent and efficient capital structure, which at the same time allows the implementation of its strategy • Target: Net debt / EBITDA between 3.0 - 3.5 • Capital expenditure, acquisitions and capital returns are ways to move towards the target • Dividend po
Slide 38: Nordic capacity structure
Nordic capacity structure Total 91 300 MW (31 Dec 2005) MW 35 000 30 000 25 000 Wind power Gas turbines, etc. 20 000 Condensing power 15 000 CHP, industry CHP, district heating 10 000 1) Nuclear power Hydro power 5 000 0 Denmark Norway Sweden Finland 1) incl. power plants producing 100% of condensin
Slide 39: Still a highly fragmented Nordic power market
Still a highly fragmented Nordic power market Power generation Electricity distribution Electricity retail 383 TWh 14 million customers 14 million customers >350 companies ~500 companies >450 companies Fortum Fortum Vattenfall Vattenfall Others Vattenfall Others Others E.ON 28% Fortum 51% E.ON 54% D
Slide 40: Development of the European Emission Trading System
Development of the European Emission Trading System Future challenges • EU committed to emission trading ETS price 2005-2007 €/CO2 • Improving the market by increasing 35 2008 2007 market transparency 30 – information available to all 25 market participants at the same 20 time 15 – common procedures
Slide 41: Russian power industry reform
Russian power industry reform A Nordic/Western analogy Key steps in the reform Unbundling of businesses by "Power industry law" approved type of activity Restructuring of regional energos (P&H Competitive Regulated companies) businesses monopolies Formation of new companies Generation Tran
Slide 42: Russian power industry reform has progressed well
Russian power industry reform has progressed well Key steps in the reform Time "Power industry law" approved 2003 Establishment of Russian power exchange (ATS) 2001 Launch of the free-trade sector of the wholesale market in European & Urals 2003 in Siberia 2005 Launch of balancing power segment 2006
Slide 43: Reform – Planned key events for 2007-2008
Reform – Planned key events for 2007-2008 Structural reform • Completion of the Structural reform • RAO UES to release ownership from generation assets – Share placements and sales of stakes in WGCs and TGCs – Completion of the first spin-offs of RAO UES – Distribution of RAO UES’ assets to its shar
Slide 44: Strong financial performance in Q1/2007
Strong financial performance in Q1/2007 • Comparable operating profit EUR 512 (486) million , + 5% • Earnings per share EUR 0.59 (0.39), + 51% • Net cash from operating activities EUR 497 (303) million • Fortum’s net debt decreased to EUR 3,932 (4,345 at year end) million • A gain from the Hafslund
Slide 45: Comparable operating profit
Comparable operating profit MEUR I/2007 I/2006 2006 LTM Power Generation 328 293 985 1 020 Heat 137 126 253 264 Distribution 78 81 250 247 Markets -14 0 -4 -18 Other -17 -14 -47 -50 Comparable operating profit 512 486 1 437 1 463 Non-recurring items 1 0 61 62 Other items effecting comparability -23
Slide 46: Income statement
Income statement MEUR Q1/2007 Q1/2006 Sales 1 340 1 343 Expenses -850 -871 Operating profit 490 472 Share of profit of associates and joint ventures 202 35 Financial expenses, net -31 -15 Profit before taxes 661 492 Income tax expense -109 -120 Net profit for the period 552 372 Of which minority int
Slide 47: Cash flow statement
Cash flow statement MEUR I/2007 I/2006 2006 Operating profit before depreciations 602 570 1 884 Non-cash flow items and divesting activities 1 24 -92 Financial items and taxes -156 -110 -463 Funds from operations (FFO) 447 484 1 329 Change in working capital 50 -181 -178 Total cash from operating ac
Slide 48: Balance sheet
Balance sheet MEUR Mar 31 Dec 31 2007 2006 Non-current assets 14 958 15 103 Current assets 2 781 1 736 ASSETS 17 739 16 839 Total equity 7 594 8 161 of which minority interest 271 253 Interest-bearing liabilities 4 999 4 502 Non-interest bearing liabilities 5 146 4 176 EQUITY AND LIABILITIES 17 739
Slide 49: Wholesale prices for electricity
Wholesale prices for electricity EUR/MWh Spot prices Forward 100 prices 90 80 70 UK 60 German 50 40 Nordic 30 20 10 30 May 2007 0 2005 2006 2007 2008 2009 Source: 49
Slide 50: Fortum's carbon exposure among the lowest in Europe
1,000 1,100 0 100 200 300 400 500 600 700 800 900 DEI 50 Europe Drax RWE gCO2/kWh, 2005 EDP Source: PWC ja Enerpresse 2006, Fortum Energi E2 Edison Endesa CEZ Union Fenosa Enel Scottish&SOuthern E.ON Essent Elsam Vattenfall Electrabel Helsingin Energia Iberdrola PVO Verbund British Energy EDF Fortum
Slide 51: A leading Nordic power and heat company
A leading Nordic power and heat company • Leading power and heat company in Nordic • Founded and listed at the Helsinki Stock Exchange 1998 • More than 50,000 shareholders • Among the most traded shares in Helsinki stock exchange • Market cap ~20 billion euros Households 5.0% Financial and insurance
Slide 52: Fortum's Nordic power generation
Fortum's Nordic power generation Fortum's Nordic power Fortum's Nordic power generation in 2006 generation in 2005 Hydro power 37% Hydro power 42% Other 2% Other 2% Peat 2% Peat 1% Biomass 3% Biomass 2% Coal 3% Coal 10% Nuclear power 46% Nuclear power 50% Total generation 53.2 TWh Total generation 5
Slide 53: Fortum's Nordic heat production
Fortum's Nordic heat production Fortum's Nordic heat production Fortum's Nordic heat production in 2006 in 2005 Coal 20% Coal 17% Biomass Biomass fuels 25% fuels 24% Heat Heat pumps, pumps, electricity electricity 15% 16% Other 12% Other 11% Waste 6% Oil 8% Waste 6% Oil 10% Peat 7% Natural gas 7% Pe
Slide 54: Territorial generation companies (TGCs)
Territorial generation companies (TGCs) Production capacity of which hydro TGC-1 5,750 MW 2,874 MW • Companies combined TGC-2 2,459 MW on a territorial basis TGC-3 10,578 MW TGC-4 3,459 MW from regional 1 TGC-5 2,473 MW energos' generation TGC-6 3,125 MW assets 2 TGC-7 6,823 MW 90 MW TGC-8 3,868 MW
Slide 55: Thermal and hydro wholesale generation companies (WGCs)
Thermal and hydro wholesale generation companies (WGCs) Thermal WGCs: WGC-1 8,736 MW • Each company will WGC-2 8,695 MW WGC-3 8,497 MW include power plants WGC-4 8,570 MW across the Russian WGC-5 8,663 MW WGC-6 9,042 MW Federation 52,203 MW Hydro WGC: 22,024 MW • The size of thermal Rosenergoatom WG
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