Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Day (November 2005)
45 slides from Fortum Oyj's investor day presentation, Nov 29, 2005
Slide 1: Capital Markets Day 2005
Capital Markets Day 2005 Fortum Corporation 29 November 2005
Slide 2: Capital Markets Day 2005 - Agenda
Capital Markets Day 2005 - Agenda Registration and coffee 08.30 - 09.00 Fortum in the Nordic and European electricity markets, Mikael Lilius, President and CEO 09.00 - 10.00 Financial update, Juha Laaksonen, CFO 10.00 - 10.45 Fortum's strategy in Russia, Tapio Kuula, SVP 10.45 - 11.30 Q&A 11.30 - 11
Slide 3: Fortum in the Nordic and European electricity markets
Fortum in the Nordic and European electricity markets Mikael Lilius President and CEO, Fortum Corporation Capital Markets Day 29 November 2005
Slide 4: 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 5: Contents
Contents • Fortum today • Key developments in industry environment • Fortum going forward 3
Slide 6: Fortum today
• Fortum today • Key developments in industry environment • Fortum going forward 4
Slide 7: Fortum – focus on power and heat
Fortum – focus on power and heat • A pure power and heat company following separation of oil operations • Operations throughout the entire power and heat energy chain • Geographical focus on the Nordic, NW Russian and Baltic Rim markets 5
Slide 8: Operations throughout the entire power and heat energy chain
Operations throughout the entire power and heat energy chain • One of Europe’s most efficient generators with a 14% Generation market share of Nordic consumption Portfolio Mgmt • Best-in-class physical and financial market operations & Trading • Efficient operation and maintenance services for Servi
Slide 9: Presence in focus market areas
Presence in focus market areas Nordic Generation 52.8 TWh Distribution cust. 1.4 mill. Electricity sales 41.4 TWh Electricity cust. 1.2 mill. Heat sales 19.8 TWh NW Russia Generation ~4.7 TWh Heat production ~8.9 TWh Poland Baltic countries Heat sales 1.3 TWh Heat sales 3.9 TWh Distribution cust. 22
Slide 10: A versatile generation portfolio
A versatile generation portfolio Fortum’s Nordic power generation 38% 54.4 TWh in 2004 of generated electricity uses renewable water- and biomass- Hydro power 35% based energy sources Other 2% Natural gas 1% Biomass 2% Peat 2% 83% of electricity generation is Coal 11% carbon dioxide-free Certified N
Slide 11: Major focusing during 2000 – 2005
Major focusing during 2000 – 2005 Acquisitions Separation Transmission of Oil Engineering Power Plant Divestments Norway Stora Enso Engineering Oil E&P Generation EPV EUR Elnova Espoon Sähkö Hafslund Østfold EUR 7 billion Länsivoima Divestment of Fredrikstads Energi 6 billion Acquisition Lenenergo o
Slide 12: A leading Nordic power and heat company
A leading Nordic power and heat company Nr 1 Nr 2 Distribution Power generation Heat Electricity sales 10
Slide 13: Excellent share performance
Excellent share performance (85% of Share price Market value Neste Oil market Index EUR billion value of 6.4) 450 13.1 400 13.4 Fortum 11.8 350 300 -3.3 250 6.9 200 5.3 150 4.0 Dow Jones 600 3.4 100 50 0 1/01 1/02 1/03 1/04 1/05 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Mar Neste as Oil 24 Nov 2000 2001
Slide 14: Strong dividend growth
Strong dividend growth Dividend per share 0.58 EUR Total 1,669 MEUR 0.42 Fortum aims at paying a dividend 0.31 that corresponds to 0.23 0.26 an average payout 0.18 ratio of 50% to 60% 1999 2000 2001 2002 2003 2004 12
Slide 15: Recent developments
Recent developments Nordic • Continuation of offer for City of Espoo's shares in E.ON Finland until 31 December 2005 Russia • Initiation of TGC-1 operation in NW Russia on 1 October 2005 • Acquisition of 24.8% of the shares in Kolenergo • Co-operation agreement with RAO UES, Integrated Energy System
Slide 16: Key developments in industry environment
• Fortum today • Key developments in industry environment • Fortum going forward 14
Slide 17: Towards an open European power market
Towards an open European power market 1990's 2000 - 2010 - EU Directive: Market liberalisation, i.e., free choice of supplier • Market-based development EU Commission Integration of national power • Increased competition strategy: markets through regional • Increased efficiency markets into one Euro
Slide 18: EU strategy – integration through wholesale market development
EU strategy – integration through wholesale market development From harmonised regional ... to an integrated European markets ... market Nordisk marknad SB/IRL marknad (2005?) Baltisk marknad (2008?) Östeuropeisk marnad (2005-2008?) Västeuroepisk marknad (2005-2008?) Sydosteuropeisk marknad (2005-20
Slide 19: EU integration moving forward
EU integration moving forward Integration requires • Investments in interconnection capacity • Market-based utilisation of cross-border interconnections Development of cross-border trade New interconnection capacity through increased use of market proposed by the Commission coupling (implicit auctio
Slide 20: Nordic market becoming more integrated into Europe
Nordic market becoming more integrated into Europe • Nord Pool has introduced a spot Present +100 50 market area "KONTEK" to facilitate Under construction 70 60 Planned market coupling on the Kontek cable Discussed 800 1500 +200 500 • NorNed (Norway-the Netherlands) by 2008 500 + 200 550 • Estlink (
Slide 21: Nordic and continental European integration – benefits
Nordic and continental European integration – benefits Nordic electricity exchange with Spot prices in Nordics, Germany and Poland Germany and Poland 80 600 Current maximum import capacity Monthly average price EUR/MWh 400 60 Import 200 GWh / week 40 0 -200 20 -400 Export Nord d Pool EEX Polish PX C
Slide 22: Forwards
Forwards Yearly moving average spot price Forwards EUR/MWh EUR/MWh 70 60 50 40 German Spot German futures 30 Nord Pool System Nord Pool futures 20 Dutch Spot 10 Spanish Spot Nov 18, 2005 Russian Spot 0 2001 2002 2003 2004 2005 2006 2007 Source: Reuters, OMEL, ATS 20
Slide 23: New capacity will be needed
New capacity will be needed Demand and capacity development in the • Electricity demand is expected Nordic market to increase by around 55 TWh TWh 2004 - 2020 500 • Committed plans of new 400 capacity around 20 TWh 300 • Consistent long term energy policy required to support 200 investments in new c
Slide 24: New capacity will require an EUR 35+ price
New capacity will require an EUR 35+ price EUR/MWh 80 Fuel costs, excl. CO2 costs EUR/MWh 70 Fixed costs 60 60 50 50 40 40 30 30 Forwards 20 18 Nov 2005 20 10 10 0 0 -94 -96 -98 -00 -02 -04 -06 -08 Source: Nord Pool, Fortum Coal Gas Nuclear Hydro Wind Source: NEA & IEA "Projected Cost of Generating
Slide 25: Futures indicate continued high fuel prices and CO2 allowance prices
Futures indicate continued high fuel prices and CO2 allowance prices Oil price Gas price 70 85 75 GBp / therm 60 USD / bbl 65 50 55 40 45 Increasing, also pushing the 35 30 gas prices 25 CO2 prices 20 15 increased 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 sharply due to gas prices Coal price
Slide 26: Hydrology and CO2 price are the key drivers for electricity price
Hydrology and CO2 price are the key drivers for electricity price in the Nordic market Hydro power production in Norway and Sweden 7000 • Due to increased inflows in weekly production [GWh / week] 2003 2004 2005 6000 2005, hydro power production 5000 has been higher than the two 4000 previous years
Slide 27: Summary on industry environment development
Summary on industry environment development • Europe is moving towards an open and integrated power market - Fortum promotes this development • European integration will mean gradually increasing price convergence as physical interconnections and cross-border trading evolve • Nordic market is the be
Slide 28: Fortum going forward
• Fortum today • Key developments in industry environment • Fortum going forward 26
Slide 29: Fortum's strategy
Fortum's strategy Fortum focuses on the Nordic and Baltic Rim markets as a platform for profitable growth Become the Become the leading energy supplier power and heat of choice company Benchmark business performance 27
Slide 30: Key issues in going forward
Key issues in going forward • Growth • Becoming the energy supplier of choice • Promoting market-driven development of the electricity market • Continued focus on performance – targeting world class 28
Slide 31: Growth
Growth • Organic growth • Participation in further Nordic consolidation • Leveraging Russian and Baltic Rim growth opportunities 29
Slide 32: Organic growth in all businesses a target
Organic growth in all businesses a target • By 2010 Fortum invests in ~800 MW new power generation • Capacity increases in nuclear in Sweden, ~250 MW • OL3 nuclear unit in Finland, 400 MW • Refurbishing of existing hydro assets, ~150 MW • Bio-CHP and waste-to-energy • Heat B2B development • Leveragi
Slide 33: Still a highly fragmented Nordic power market
Still a highly fragmented Nordic power market Generation Distribution Retail 379 TWh 14 million customers 14 million customers > 350 companies >500 companies ~450 companies Fortum Fortum Fortum others others others E.ON Vattenfall Vattenfall 31% Vattenfall E.ON 54% 55% Hafslund Norsk Hydro Hafslund
Slide 34: Nordic restructurings ongoing
Nordic restructurings ongoing Recent events • Acquisition of Danish power assets by DONG and Vattenfall • Statkraft acquisition of E.ON Sverige's generation assets in Sweden and Finland • E.ON's offer for minority stakeholders' shares in E.ON Sverige • Fortum's offer for City of Espoo's shares in E.
Slide 35: Leveraging Fortum's position as the only foreign strategic investor in Russia
Leveraging Fortum's position as the only foreign strategic investor in the Russian power sector Fortum is today well-appreciated • Participation in NW Russia restructuring • Service co-operation in enhancing operations of the TGCs • Participation in St Petersburg area district heating upgrading and
Slide 36: Growth platforms established in Poland and the Baltics
Growth platforms established in Poland and the Baltics • Baltic countries – Strong Heat market position in Estonia – Growth platform for Heat established in Lithuania – Power distribution in Estonia • Poland – Strong Heat growth platform established – Ongoing privatisation of district heating provid
Slide 37: Becoming the energy supplier of choice
Becoming the energy supplier of choice • Driving customer focus and sales culture • Creating best experience in all customer interfaces 35
Slide 38: Efficient organisation focusing on key processes
Efficient organisation focusing on key processes Markets Distribution • Offerings - • Reliable and safe customer solutions distribution of power development • Operational and • Efficient power investment efficiency procurement and of the grid risk management Customer Services • Excellent customer se
Slide 39: Market driven development of the electricity market
Market driven development of the electricity market • Supporting and driving further Nordic harmonisation • Supporting Nordic infrastructure development and TSO co-operation 37
Slide 40: Common rules for one market – Nordic harmonisation
Common rules for one market – still some way to go in Nordic harmonisation Areas that call for harmonisation measures • Treatment of industry actors – ownership restrictions – differences in taxation treatment of utilities – unequal requirements on legal unbundling • Nordic infrastructure developmen
Slide 41: Government proposals for taxation changes
Government proposals for taxation changes • Nuclear capacity tax – In Sweden; nuclear capacity tax from current SEK 5 514/MW (thermal effect) to SEK 10 200/MW (thermal effect), i.e., an 85% increase • Property tax on hydro – In Sweden; from the current 0.5% to 1.2% on permanent basis and an addition
Slide 42: Performance – target world class
Performance – target world class • Ensuring performance excellence in key areas • Delivering on stretched targets 40
Slide 43: Performance excellence in key areas
Performance excellence in key areas • Plant availability • Customer service • Risk management • Purchasing • Operational efficiency • Safety 41
Slide 44: Fortum Group's current financial targets
Fortum Group's current financial targets • ROE >12% • ROCE >12% • Normal CAPEX <depreciation • Gearing <100% 42
Slide 45: Fortum is well-positioned for the future
Fortum is well-positioned for the future • Strong market positions in the Nordic market • Firm growth platforms established in NW Russia, Poland and the Baltic countries • Opportunities for strengthening presence in the consolidating Nordic and developing Russian, Polish and Baltic markets • Solid f