Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (February 2007)
50 slides from Fortum Oyj's investor presentation, February 2007
Slide 1: A leading energy company in the Nordic area
- a leading energy company in the Nordic area Presentation for investors February 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 • Nordic power market • 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 53.5 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: 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 market customers Deregulated Regulated Transmission and system Distribution services Independent TSO Independent DSO
Slide 7: 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 8: 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 9: Strong dividend growth
Strong dividend growth Dividend per share EUR 1.26 1.12 Fortum's aim is to pay a Total ~ 3,775 MEUR dividend corresponding to 0.53 0.54 an average payout ratio of 0.58 0.42 50% to 60% 0.73*** 0.31 0.58* 0.26 0.13 0.18 0.23 1998 1999 2000 2001 2002 2003 2004 2005 2006** * from continuing operations *
Slide 10: Agenda
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 10
Slide 11: 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 12: Nordic market becoming more integrated into Europe
Nordic market becoming more integrated into Europe +100 • Nord Pool introduced in 2005 a German Present (MW) 50 Under construction (MW) 70 spot market area "KONTEK" to enhance 60 Planned (MW) the Nordic-German trade Discussed (MW) 800 1500 +200 • Direct market coupling between Nord Pool and the Germ
Slide 13: 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 14: 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 ~300-400+ TWh 15 000 1 500 before 2020 10 000 (lately, also higher estimates 1 000 presented) 5 000 500 0 0 20041 2010E 2020E 2000
Slide 15: ...also in the Nordic market
...also in the Nordic market Demand and capacity development in the Nordic market TWh • Electricity demand is expected to 500 increase by around 50 TWh by 2020 compared to 2005 400 80 TWh • Estimated retirement approx. 30 TWh 300 200 • Total need for investments roughly 100 80 TWh 0 – approximately
Slide 16: 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 ( 60 60 variation) Futures 50 29 Jan 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 17: Increasing use of energy will impact emissions dramatically
Increasing use of energy will impact emissions dramatically Greenhouse gases Energy related CO2 emissions Energy emissions 65% estimated to grow 55% by 2030 Mill. tonnes CO2 2004 2030 Power generation 10,587 17,680 Industry 4,742 7,255 Other emissions 35% Transport 5,289 8,246 Resid. & services 3,29
Slide 18: Fortum's accelerated investment programme
Fortum's accelerated investment programme • Olkiluoto 3 • Swedish nuclear • Suomenoja Total • Värtan ~ 1,500 MW • Refurbishing of existing hydro assets • Peak load gas turbine Value of the investment programme around EUR 2,800* million of which 90% CO2-free In addition • Automated meter management (
Slide 19: 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 with normal utilisation 20 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Slide 20: 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 21: Nordic water reservoirs
Nordic water reservoirs 120 100 reservoir content (TWh) 80 60 40 20 1996 2000 2005 2006 2007 reference level 0 1 5 9 13 17 21 25 29 33 37 41 45 49 week Source: Nord Pool 21
Slide 22: Development of the European Emission Trading System
Development of the European Emission Trading System Future challenges • EU committed to emission trading ETS price 2005-2006 €/tCO2 35 • Improving the market by increasing 2008 2007 market transparency 30 – information available to all 25 market participants at the same 20 time 15 – common procedure
Slide 23: Wholesale price for electricity
Wholesale price for electricity EUR/MWh Spot price 100 90 80 70 60 50 40 Nordic 30 20 10 0 2004 2005 2006 Source: 23
Slide 24: Agenda
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 24
Slide 25: 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 1200 Low • Need for huge investments 1000 • Need for efficiency 800 improvement 600 • Strong growth potential 400 200 0 1990 1995
Slide 26: 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 27: Fortum's current operations in Russia
Fortum's current operations in Russia TGC-1 • ~25% stake in Territorial Generating • Electricity production capacity Company No. 1(TGC-1) ~6,070 MW (of which hydro 2,874 MW) – based on the stake in St. Petersburg • Production volume of Generating Company (Lenenergo generation) electricity ~22 TWh an
Slide 28: Agenda
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 28
Slide 29: Another good year for Fortum
Another good year for Fortum • Strong financial performance • Fortum Espoo integrated • Investment programme accelerated • Good progress in Russia – TGC-1 ownership increased to over 25% • Markets' customer flow continued to develop positively during 2006 29
Slide 30: Strong financial performance
Strong financial performance • From continuing operations – comparable operating profit EUR 1,437 (1,334) million , + 8% – earnings per share EUR 1.22 (1.01), + 21% – net cash from operating activities EUR 1,151 (1,271) million • The key financial targets exceeded • Fortum’s net debt to EBITDA 2.3 a
Slide 31: Comparable operating profit
Comparable operating profit MEUR IV/2006 IV/2005 2006 2005 Power Generation 289 297 985 854 Heat 95 97 253 253 Distribution 77 76 250 244 Markets -8 8 -4 30 Other -13 -18 -47 -47 Comparable operating profit 440 460 1 437 1 334 Non-recurring items 38 10 61 30 Other items effecting comparability -23 4
Slide 32: Comparable and reported operating profit
Comparable and reported operating profit Operating profit 2006 Operating profit 2005 Comparable Reported Diff. Comparable Reported Diff. Power Generation 985 980 5 854 825 29 Heat 253 264 -11 253 269 -16 Distribution 250 252 -2 244 251 -7 Markets -4 -6 2 30 32 -2 Other -47 -35 -12 -47 -30 -17 Total
Slide 33: Income statement
Income statement MEUR 2006 2005 Sales 4 491 3 877 Expenses -3 036 -2 530 Operating profit 1 455 1 347 Share of profit of associates and joint ventures 69 55 Financial expenses, net -103 -135 Profit before taxes 1 421 1 267 Income tax expense -301 -331 Profit for the period from continuing operations
Slide 34: Cash flow statement
Cash flow statement MEUR 2006 2005 Operating profit before depreciations, continuing operations 1 884 1 754 Non-cash flow items and divesting activities -92 15 Financial items and taxes -463 -405 Funds from operations, continuing operations (FFO) 1 329 1 364 Change in working capital -178 -93 Net ca
Slide 35: Balance sheet
Balance sheet MEUR Dec 31 Dec 31 2006 2005 Non-current assets 15 103 13 075 Current assets 1 736 2 055 ASSETS 16 839 15 130 Total equity 8 161 7 411 of which minority interest 253 260 Interest-bearing liabilities 4 502 3 946 Non-interest bearing liabilities 4 176 3 773 EQUITY AND LIABILITIES 16 839
Slide 36: 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 January 29, 2007 0 2004 2005 2006 2007 2008 2009 Source: 36
Slide 37: 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 January 29, 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 2004 2005 2006 2007 37
Slide 38: Hedging of Power Generation's Nordic sales
Hedging of Power Generation's Nordic sales Status at the beginning of January 2007: Hedge ratio Hedge price Calendar year ~ 65 % ~ EUR 42 per MWh 2007 Calendar year ~ 35 % ~ EUR 42 per MWh 2008 38
Slide 39: 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 39
Slide 40: Supplementary material
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 40
Slide 41: A huge foreseen increase in energy demand...
A huge foreseen increase in energy demand... Primary energy demand until 2030 • By 2030, globally, it is estimated that Mtoe* – demand for primary Other RES +420% 2004 energy grows 50% + Biomass 2015 and waste +40% 2030 – demand for power Hydro +69% more or less doubles Nuclear +21% – power sector s
Slide 42: Carbon exposure – European power companies
0 200 400 600 800 1000 1200 g/kWh 42 DEI Europe Drax RWE Energi E2 EDP Union Fenosa Source: PWC and Enerpresse 2005 CEZ Edison Endesa Scottish&Southern Essent ENEL Carbon exposure – European power companies E.ON Elsam Vattenfall Electrabel Helsinki PVO Iberdrola Verbund Fortum British Energy EDF Sta
Slide 43: The climate challenge requires actions
The climate challenge requires actions A price for emissions • Investments in climate benign generation, carbon exposure to be retained among the lowest in Europe • Participation in carbon funds • Joint implementation (JI) agreements in Russia • Future energy technologies • Increasing energy efficie
Slide 44: Fortum facts
Fortum facts 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 generation support
Slide 45: Fortum provides leadership in core businesses
Fortum provides leadership in core businesses Businesses Power Generation Heat Distribution Markets Revenues €2,439m €1,268m €753m €1,912m Operating profit €985m (66%) €253m (17%) €250m (17%) €-4m (-0%) (comparable) Portfolio Business unit Generation Management Service Heat/Värme Distribution Market
Slide 46: 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 47: Power and heat production in Fortum
Power and heat production in Fortum Fortum’s Nordic power generation Fortum’s Nordic heat production Hydro power 37% Coal 20% Biomass fuels 25% Heat pumps, Other 2% electricity 15% Peat 2% Biomass 3% Other 12% Coal 10% Oil 8% Waste 6% Nuclear power 46% Natural gas 7% Peat 7% 53.5 TWh in 2006 21.3 TW
Slide 48: 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, 2004 model for the next 5-year and 2005 tariffs period starting in 2007. Regulation Rate of return, Yardstick, e
Slide 49: 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 3.6 TWh electricity 8 GWh • Production capacity Operations of Fortum Heat heat plants 106 CHP 1 • Personnel: 988 • Energy sales in Estonia heat 0.9 TWh; gas 19 GWh • Energy sales in Lithuani
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