Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (May 2008)
48 slides from Fortum Oyj's investor presentation, May 2008
Slide 1: A leading energy company in the Nordic area
- a leading energy company in the Nordic area Presentation for investors May 2008
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, Russia 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 countries Russia – existing Generation 51.1 TWh TGC-1 (~25% minority stake*) Electricity sales 58.5 TWh Power generation ~6 TWh Heat sales 20.4 TWh Heat production ~8 TWh Distribution cust. 1.6 million Electricity cust. 1.3 million *Fortum’s share Russia – acqui
Slide 6: Fortum Business structure
Fortum Business structure Fortum Markets Fortum's comparable Large Nordic customers operating profit in 2007 Nordic Fortum wholesale wholesale EUR 1,564 million market Small Power market customers Generation Nord Pool and bilateral Other retail Markets 0% companies Deregulated Distribution Regulated
Slide 7: Strong financial position
Strong financial position ROE (%) EPS, (EUR) Total assets (EUR billion) 18,0 15,8 16,4 2,00 1,74 25,0 21,5 14,4 1,67 15,0 20,0 16,8 17,7 1,50 1,22 12,0 15,0 9,0 1,00 10,0 6,0 0,50 5,0 3,0 0,0 0,00 0,0 2006 2007 LTM 2006 2007 LTM 2006 2007 LTM ROCE (%) Dividend, (EUR) Adjusted net debt/EBITDA 18,0 1,
Slide 8: Growing capital returns
Growing capital returns Dividend per share EUR • Dividend of EUR 1.35 per share, in total ~EUR 1.2 billion 1.35 Total ~ 5,075 MEUR 1.12 1.26 • Mandate for repurchasing of the company’s own shares; 0.58 0.53 maximum EUR 300 million 0.54 0.58 • Dividend policy of 50 - 60% 0.42 payout of previous year'
Slide 9: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 9
Slide 10: Huge need for new capacity
Huge need for new capacity Globally ... ... European wide ... ... and in Russia TWh TWh TWh 2,000 30,000 4,000 700+ TWh 1 800 by 2020 1,700 25,000 1,300 ~10,000 3,000 TWh 1 600 20,000 TWh 15,000 2,000 1 400 10,000 1 200 1,000 5,000 1 000 0 0 20041 2010E 2020E 2000 2005 2010E2015E 2020E 2000 2005 201
Slide 11: ...also in the Nordic market
...also in the Nordic market Demand and capacity development in the Nordic market • Electricity demand is expected to increase by ~45 TWh by 2020 compared to 2006 TWh • Estimated retiring generation approx. 35 TWh*) 500 400 80 TWh • Total need for investments roughly 80 TWh 300 – decisions for anoth
Slide 12: New capacity will require an EUR 50+ power price
New capacity will require an EUR 50+ power price EUR/MWh EUR/MWh 110 110 CO2 cost 20 €/ton 100 100 Fuel costs 90 90 Fixed costs ( variation) 80 80 70 Futures 70 28 April 2008 60 60 50 50 40 40 30 30 20 20 10 10 0 0 1995 -97 -99 -01 -03 -05 -07 -09 -11 -13 Coal Gas Nuclear Hydro Wind Clean coal Sourc
Slide 13: 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 14: Key EU objectives by 2020
Key EU objectives by 2020 • Implementation of • Minimum reduction of EU internal energy markets CO2 emissions 20% (2020) • Energy efficiency +20% • Renewables 20% (2020) (2020) Competitiveness Sustainability • Development of CO2 • Increased resources for capture and storage technology development Se
Slide 15: Nordic market becoming more integrated into Europe
Nordic market becoming more integrated into Europe • Nord Pool introduced in 2005 a German spot market area Present (MW) 50 "KONTEK" to enhance the Nordic-German trade Under construction (MW) 70 60 • Estlink (Estonia - Finland) taken into commercial operation Planned (MW) 800 in January 2007 Discuss
Slide 16: 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 17: Continued increase in CO2-free power production
Continued increase in CO2 -free power production Fortum's Nordic power production TWh 60 • ~9 TWh increase in 50 CO2 -free production* 40 • ~10 TWh increase in 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 2007 Af
Slide 18: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 18
Slide 19: Russia is the World's 4th largest power market
Russia is the World’s 4th largest power market – and growing rapidly Russia is the 4th largest power Demand for electricity in Russia to market in the World increase 50% by 2020 *) • Base scenario: 1,700 TWh/a by 2020 > 4,000 • High scenario 2,000 TWh/a by 2020 TWh 2,500 2,200 Demand growth 700+ TWh
Slide 20: Strong regional growth outlook in electricity
Strong regional growth outlook in electricity Average annual growth in electricity Current TGC-10 capacity split by region consumption by region 2005 - 2007* Tyumen Urals without Tyumen 60% Tyumen 40% South Moscow and region Urals w/o Tyumen North-West Centre w/o Moscow TGC-10 capacity split post th
Slide 21: The acquisition of TGC-10
The acquisition of TGC-10 Fortum becomes a major player in Russia • TGC-10 operates in the heart of Russia’s oil and gas producing region • Fortum holding 76.5% at the moment • EUR 2.1 billion paid of which EUR 1.3 billion remains in the company (share issue) and will be used for planned EUR 2.2 bil
Slide 22: Significant growth in Fortum's power generation
Significant growth in Fortum’s power generation Power generation, TWh Annual power generation by largest producers 93 EDF 70 E.ON + WGC 4 Fortum 52 Enel + Endesa + WGC-5 RWE Vattenfall Electrabel Rosenergoatom Iberdrola Fortum Fortum Fortum + TGC-10 + TGC-10 with new investments Fortum+TGC-10 Hydro
Slide 23: TGC-10 will double Fortum's heat volumes
TGC-10 will double Fortum’s heat volumes TGC-10 heat generation and local network • Main heat supplier in the area, 27 TWh/a • Mainly CHP, additionally heat boilers • From networks 1/3 owned and 2/3 operated • An area with large temperature changes – cold winters, January aver. -16 °C – warm summers
Slide 24: TGC-10 is a unique investment opportunity
TGC-10 is a unique investment opportunity Platform for growth in the World’s #4 power market Argayash Chelyabinsk Tobolsk Tyumen 1 – Liberalisation to increase power prices – Significant organic growth through investment programme – Fortum has a unique competence TGC-10 base in operating in Russia A
Slide 25: TGC-10 – overview of the asset base and investment plans
TGC-10 – overview of the asset base and investment plans • A portfolio of 3,020 MW installed electricity capacity • The highest load factor of all TGCs Total boiler heat capacity 910 MW • High demand growth Moscow Nyagan • Electricity 18 TWh, Heat 27 TWh Tyumen Tobolsk • Committed investment program
Slide 26: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 26
Slide 27: 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 27
Slide 28: Key ratios
Key ratios MEUR LTM 2007 2006 in Q1 '08 Sales 4 579 4 479 4 491 Operating profit 1 966 1 847 1 455 Cash flow from operations 1 715 1 670 1 151 Interest-bearing net debt 5 228 4 466 4 345 Balance sheet total 21 491 17 674 16 839 Net debt/EBITDA* 2.4 2.2 2.3 Return on capital employed (%)* 13.1 14.0 1
Slide 29: Nordic water reservoirs
Nordic water reservoirs 120 100 reservoir content (TWh) 80 60 40 20 1996 2000 2006 2007 2008 reference level 0 1 5 9 13 17 21 25 29 33 37 41 45 49 Source: Nord Pool 29
Slide 30: Wholesale price for electricity
Wholesale price for electricity EUR/MWh Nord Pool System Price Forwards 110 100 90 80 70 60 50 40 30 20 10 28 April 2008 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 30
Slide 31: Nord Pool year forwards
Nord Pool year forwards Year 05 Year 06 Year 07 Year 08 Year 09 Year 10 Year 11 Year 12 Year 13 €/MWh April 28, 2008 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 Q3 Q4 Q1 Q2 2004 2005 2006 2007 2008 31
Slide 32: Hedging of Power Generation's Nordic sales
Hedging of Power Generation's Nordic sales Status at the beginning of April 2008 (Status at the beginning of January 2008) Hedge ratio Hedge price Rest of 2008 ~ 60% ~ EUR 45 per MWh (~70%) (~ EUR 44 per MWh) 2009 ~ 35% ~ EUR 48 per MWh (~25%) (~ EUR 46 per MWh) 32
Slide 33: Outlook
Outlook • Strong position in the Nordic countries • Growth in Poland and the Baltic countries • Opportunity in the Russian TGC-10 • Flexible and climate-benign production portfolio • Nordic capacity investment programme proceeding • Strong balance sheet • Good financial outlook 33
Slide 34: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 34
Slide 35: 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 to shareholders are the ways to move towards the t
Slide 36: Nordic capacity structure
Nordic capacity structure MW 35 000 Total Nordic capacity 92 300 MW (31 Dec 2006) 30 000 25 000 Wind power 20 000 Gas turbines, etc. Condensing power 15 000 CHP, district heating 10 000 CHP, industry Nuclear power 5 000 Hydro power 0 Denmark Norway Sweden Finland Source: Nordel 36
Slide 37: Still a highly fragmented Nordic power market
Still a highly fragmented Nordic power market Power generation Electricity distribution Electricity retail 384 TWh 14 million customers 14 million customers >350 companies ~500 companies ~350 companies Fortum Fortum Vattenfall Others Others Others Vattenfall Vattenfall 29% E.ON E.ON Fortum 51% 54% D
Slide 38: Price of EU emission allowances
Price of EU emission allowances EUR/CO2 35 2008 30 2007 25 20 15 10 5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2005 2006 2007 2008 Source: Nord Pool 38
Slide 39: Comparable operating profit
Comparable operating profit • Comparable operating profit EUR 581 (512) million, + 13% • Earnings per share EUR 0.51 (0.39 excluding non-recurring gains), + 31% – Q1 2007 included a non-recurring gain of EUR 0.20 per share • Net cash from operating activities EUR 542 (497) million M EUR I/2008 I/200
Slide 40: Income statement
Income statement MEUR I/2008 I/2007 2007 LTM Sales 1 440 1 340 4 479 4 579 Expenses -831 -850 -2 632 -2 613 Operating profit 609 490 1 847 1 966 Share of profit of associates and joint ventures 34 202 241 73 Financial expenses, net -45 -31 -154 -168 Profit before taxes 598 661 1 934 1 871 Income tax
Slide 41: Cash flow statement
Cash flow statement MEUR I/2008 I/2007 2007 LTM Operating profit before depreciations 720 602 2 298 2 416 Non-cash flow items and divesting activities -37 1 -286 -324 Financial items and taxes -122 -156 -393 -359 Funds from operations (FFO) 561 447 1 619 1 733 Change in working capital -19 50 51 -18
Slide 42: Wholesale prices for electricity
Wholesale prices for electricity EUR/MWh Spot prices Forward prices 100 90 80 70 Dutch 60 German 50 40 Nordic 30 Russian* 20 10 21 April 2008 0 2005 2006 2007 2008 2009 2010 * Including capacity tariff estimate of 10 €/MWh Source: , ATS 42
Slide 43: Fortum's carbon exposure among the lowest in Europe
Fortum´s carbon exposure among the lowest in Europe g CO2/kWh electricity 1200 2006 data 1000 800 600 400 Average 372 g/kWh 200 0 Fortum Statkraft Union Fenosa Electrabel British Energy Endesa Essent EDF Dong: Vattenfall CEZ E.ON Enel EDP DEI SSE Drax Edison PVO Iberdola RWE Verbund Source: PWC & En
Slide 44: A leading Nordic power and heat company
A leading Nordic power and heat company • Leading power and heat company in Nordic • Listed at the Helsinki Stock Exchange 1998 • More than 50,000 shareholders • Among the most traded shares in Helsinki stock exchange • Market cap ~24 billion euros Households 4.8% Financial and insurance institution
Slide 45: Fortum's Nordic power generation
Fortum's Nordic power generation Fortum's Nordic power generation Fortum's Nordic power generation in 2007 in 2006 Hydro power 39% Hydro power 37% Other 2% Natural gas 1% Other 2% Peat 1% Peat 2% Biomass 2% Biomass 3% Coal 6% Coal 10% Nuclear power 49% Nuclear power 46% Total generation 51.1 TWh Tot
Slide 46: Fortum's heat production
Fortum's heat production Fortum's total heat production Fortum's Nordic heat production in 2007 in 2007 Biomass fuels 19% Biomass fuels 22% Coal 24% Coal 24% Natural gas 19% Heat pumps, Other 9% Other 12% electricity 16% Oil 5% Peat 5% Natural gas 9% Waste 5% Heat pumps, Peat 5% Oil 6% electricity 1
Slide 47: Russian power industry reform
Russian power industry reform A Nordic/Western analogy Key steps in the reform Establishment of Russian power exchange (2001) Unbundling of businesses by type "Power industry law" approved (2003) of activity Restructuring of regional energos (P&H companies) Competitive Regulated Formation of
Slide 48: (© Fortum
(© Fortum