Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (November 2006)
47 slides from Fortum Oyj's investor presentation, November 2006
Slide 1: A leading energy company in the Nordic area
- a leading energy company in the Nordic area Presentation for investors November 2006
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 • Nordic power market • Russia • Financials / outlook • Supplementary material 3
Slide 4: Fortum investment highlights
Fortum investment highlights Fortum is a leading Nordic Power & Heat (“P&H”) company Focus entirely on power and heat following the spinn-off of the downstream oil business in 2005 Geographical focus on the Baltic rim area: Nordic countries, Poland, Baltic countries, NW Russia Strong cash ge
Slide 5: Fortum provides leadership in core businesses
Fortum provides leadership in core businesses Businesses Power Generation Heat Distribution Markets Revenues €2,370m €1,212m €739m €1,774m Operating profit €993m (66%) €255m (17%) €249m (16%) €12m (1%) (comparable) Portfolio Business unit Generation Management Service Heat/Värme Distribution Markets
Slide 6: 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 6
Slide 7: Presence in focus market areas
Presence in focus market areas Nordic Generation 51.2 TWh Electricity sales 58.2 TWh Distribution cust. 1.6 mill. Electricity cust. 1.3 mill. NW Russia Heat sales 19.4 TWh (in associated companies) Power generation ~6 TWh Heat production ~7 TWh Baltic countries Heat sales 1.2 TWh Distribution cust.
Slide 8: Market Structure - Business Value Chain
Market Structure - Business Value Chain Nordic Large Nordic wholesale customers wholesale Generation market market Nord Pool and Retail Retail Small Retail bilateral companies market customers market Deregulated Regulated Transmission and system Distribution services Independent TSO Independent DSO
Slide 9: Fortum Business structure
Fortum Business structure Fortum Markets Fortum's operating Large profit in 2005 Nordic Nordic customers EUR 1,334 million Fortum wholesale wholesale market Small Power market customers Generation Nord Pool and Markets 2 % bilateral Other retail companies Deregulated Distribution 18 % Regulated Powe
Slide 10: Strong dividend growth
Strong dividend growth Dividend per share EUR Fortum's aim is to pay a 1.12 dividend corresponding to Total ~ 2,750 MEUR an average payout ratio of 0.54 0.58 50% to 60% 0.42 0.31 0.58 0.23 0.26 0.13 0.18 1998 1999 2000 2001 2002 2003 2004 2005* * 0.58 from continuing operations 10
Slide 11: Agenda
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 11
Slide 12: Towards a functioning European power market
Towards a functioning European power market Tomorrow Today - European - regional Nordic Yesterday - national 2010 - 2000 - 1990s Directives: Benefiting Market liberalisation • Market-based development • Increased competition customers and Strategy: Market integration • Increased efficiency societies
Slide 13: Nordic market becoming more integrated into Europe
Nordic market becoming more integrated into Europe Present Under construction +100 70 50 Planned 60 • In 2005, Nord Pool introduced a Discussed 1500 800 spot market area "KONTEK" to +200 facilitate market coupling on the 500 Kontek cable + 200 550 100 • NorNed (Norway - The Netherlands) +800 350 130
Slide 14: Still a highly fragmented Nordic power market
Still a highly fragmented Nordic power market Generation Distribution Retail 395 TWh 14 million customers 14 million customers > 350 companies ~ 500 companies > 450 companies Vattenfall Fortum Fortum others others others Vattenfall Dong Energy 29% Vattenfall E.ON Fortum 51% 53% E.ON Helsinki BKK Don
Slide 15: New capacity will be needed ...
New capacity will be needed ... ... in Nordic countries ... ... in the UK and ... and in Russia Germany ... TWh 600 TWh 400 ~180 TWh Demand growth 500 200 ~300-400+ TWh 400 ~50 TWh before 2020 0 300 2005 2010 2020 200 100 TWh 0 600 Source: Ministry of Energy; Russian Energy 2005 2010 2020 ~170 TWh S
Slide 16: ... also in Nordic countries
... also in Nordic countries Demand and capacity development in • Electricity demand is expected to the Nordic market increase around 50 TWh by 2020 TWh 500 • Committed plans of new capacity approx. 30-35 TWh 400 300 • Additionally: – Possible closures of current 200 capacity may take away up to 10
Slide 17: New capacity will require a price
New capacity will require a price EUR/MWh EUR/MWh 80 80 Fuel costs, excl. CO2 costs 70 70 Fixed costs ( variation *) 60 60 50 50 40 40 30 30 Futures 30 October 20 2006 20 10 10 0 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 Coal Gas Nuclear Hydro Wind Source: NEA & IEA "Projected Cost of Generatin
Slide 18: 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 19: Power and heat production in Fortum
Power and heat production in Fortum Fortum’s Nordic power generation Fortum’s Nordic heat production Hydro power 42% Coal 17% Biomass fuels 24% Heat pumps, Other 2% electricity Peat 1% 16% Biomass 2% Other 11% Coal 3% Waste 6% Oil 10% Nuclear power 50% Peat 7% Natural gas 9% 51.2 TWh in 2005 20.6 TW
Slide 20: Investments in organic growth
Investments in organic growth • Olkiluoto 3 • Swedish nuclear Total • Suomenoja ~ 1,200 MW • Värtan • Refurbishing of existing hydro assets Value of the investment program around EUR 2,700* million In addition • Automated meter management (EUR 240 million) • Security of supply in distribution (EUR 7
Slide 21: The schedule for projects
The schedule for projects Högdalen CHP OL 1&2 Done ~100 MW Forsmark 1&2 Refurbishing of hydro Automation at Loviisa OL 3 Ongoing ~1,200 MW Värtan CHP Suomenoja CHP Refurbishing of hydro Swedish nuclear 2002 2003 2004 2005 2006 2007 2008 2009 2010 .... 2015 21
Slide 22: Spot history and forwards in Europe
Spot history and forwards in Europe Yearly moving average spot price Forwards EUR/MWh EUR/MWh 100 90 80 UK 70 60 German 50 40 Nord Pool 30 Dutch 20 10 Spanish October 27, 2006 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Reuters, OMEL 22
Slide 23: Development of the European Emission Trading System
Development of the European Emission Trading System Future challenges ETS Prices 2004-2006 • EU committed to emission trading €/tCO2 35 • Improving the market by increasing market transparency 30 – information available to all 25 market participants at the same 20 time 15 – common procedures - harmo
Slide 24: Nordic water reservoirs
Nordic water reservoirs 120 100 reservoir content (TWh) 80 60 40 20 1996 2000 2003 2005 2006 reference level 0 1 5 9 13 17 21 25 29 33 37 41 45 49 week Source: Nord Pool 24
Slide 25: Nord Pool year forwards
Nord Pool year forwards €/MWh Year 05 Year 06 Year 07 Year 08 Year 09 Year 10 Year 11 October 27, 2006 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 2004 2005 2006 25
Slide 26: Agenda
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 26
Slide 27: Russia is an emerging opportunity
From a western industry actor's perspective Russia is an emerging opportunity Russian Energy Strategy Electricity production, TWh • Power and heat sector reform 1400 High Low • Need for huge investments 1200 1000 • Need for efficiency 800 improvement 600 • Strong growth potential 400 200 0 1990 1995
Slide 28: 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 29: Fortum's current operations in Russia
Fortum's current operations in Russia • A ~1/3 stake in companies spun-off from OAO Lenenergo, the largest utility company in northwest Russia; • Operation & maintenance services • Electricity imports • Nuclear fuel and coal imports 29
Slide 30: TGC-1 operating as of October 2005
TGC-1 operating as of 1 October 2005 Installed Territorial Generating Company TGC-1 capacity • Production capacity ~ 6,070 MW, (MW) of which hydro 2,874 MW • Third largest territorial generation Sweden company in Russia 33,200 • Started operation on 1 October 2005 Norway based on a leasing model Fin
Slide 31: Agenda
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 31
Slide 32: Comparable operating profit
Comparable operating profit MEUR I-III/2006 I-III/2005 2005 LTM Power Generation 696 557 854 993 Heat 158 156 253 255 Distribution 173 168 244 249 Markets 4 22 30 12 Other -34 -29 -47 -52 Comparable operating profit 997 874 1 334 1 457 Non-recurring items 23 20 30 33 Other items effecting comparabil
Slide 33: Comparable and reported operating profit
Comparable and reported operating profit Operating profit III/2006 Operating profit III/2005 Comparable Reported Diff. Comparable Reported Diff. Power Generation 195 184 11 161 181 -20 Heat -3 -15 12 12 13 -1 Distribution 39 42 -3 47 48 -1 Markets 2 6 -4 7 7 0 Other -8 -1 -7 -7 -9 2 Total 225 216 9
Slide 34: Income statement
Income statement MEUR I-III/2006 I-III/2005 Sales 3 237 2 765 Expenses -2 237 -1 892 Operating profit 1 000 873 Share of profit of associates and joint ventures 51 28 Financial expenses, net -78 -100 Profit before taxes 973 801 Income tax expense -214 -206 Profit for the period from continuing opera
Slide 35: Cash flow statement
Cash flow statement MEUR I-III/2006 I-III/2005 2005 Operating profit before depreciations, continuing operations 1 311 1 178 1 754 Non-cash flow items and divesting activities -21 -13 15 Financial items and taxes -233 -288 -405 Funds from operations, continuing operations (FFO) 1 057 877 1 364 Chang
Slide 36: Balance sheet
Balance sheet MEUR Sept 30 Dec 31 2006 2005 Non-current assets 14 632 13 075 Current assets 2 272 2 055 ASSETS 16 904 15 130 Total equity 7 246 7 411 of which minority interest 223 260 Interest-bearing liabilities 4 970 3 946 Non-interest bearing liabilities 4 688 3 773 EQUITY AND LIABILITIES 16 904
Slide 37: Wholesale prices for electricity
Wholesale prices for electricity EUR/MWh Spot prices Forward prices 100 90 80 70 UK 60 German 50 40 Nordic 30 20 10 October 27, 2006 0 2004 2005 2006 2007 2008 2009 Source: 37
Slide 38: Nord Pool year forwards
Nord Pool year forwards €/MWh Year 05 Year 06 Year 07 Year 08 Year 09 Year 10 Year 11 October 27, 2006 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 2004 2005 2006 38
Slide 39: Hedging of Power Generation's Nordic sales
Hedging of Power Generation's Nordic sales Status at the beginning of October 2006: Hedge ratio Hedge price October to ~ 90 % ~ EUR 37 per MWh December 2006 Calendar year ~ 75 % ~ EUR 42 per MWh 2007 Calendar year ~ 35 % ~ EUR 41 per MWh 2008 39
Slide 40: Supplementary material
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 40
Slide 41: 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 ~19 billion euros Households 4.8% Financial and insurance
Slide 42: 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 • Access to flexible funding sources is key • Dividend policy of 50 - 60% payout on the average for Fortum continuing operations' results • In the medi
Slide 43: Excellent share performance
Excellent share performance Share price Market value 19.0 Index EUR billion 700 Fortum 600 13.1 500 11.8 400 -3.3 300 6.9 Dow Jones 600 5.3 200 Utilities Index 4.0 3.4 100 2001 2002 2003 2004 2005 2006 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Mar Neste Oil 30 Oct 2000 2001 2002 2003 2004 as 2005 divide
Slide 44: Distribution regulation differ country by country
Distribution regulation differ country by country Finland Sweden Norway New model for New regulatory model is The regulator has proposed a Status period 2005 - 2007 being applied to 2003 and model for the next 5-year 2004 tariffs period starting in 2007. Regulation Rate of return, Yardstick, ex-post
Slide 45: Fortum in Poland and the Baltic countries
Fortum in Poland and the Baltic countries • District heat to 30 cities and towns • Energy sales district heat 3.9 TWh electricity 19 GWh • Own production 0.9 TWh Operations of Fortum Heat heat plants 96 Wrocław CHP 1 Płock • Personnel: 1,200 • Energy sales in Estonia heat 1.2 TWh; gas 80 GWh • Energ
Slide 46: Fortum Espoo
Fortum Espoo 2005 Generation 1.0 TWh Electricity sales 2.7 TWh Electricity distribution 2.6 TWh Heat sales 2.5 TWh Distribution customers 161,500 Electricity customers 167,500 M€ Q1/05 Q2/05 Q3/05 Q4/05 2005 Sales 77 48 40 69 234 EBITDA 30 25 8 29 92 EBIT 23 18 1 22 64 According to E.ON Finland acco
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