Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (November 2007)
56 slides from Fortum Oyj's investor presentation, November 2007
Slide 1: A leading energy company in the Nordic area
- a leading energy company in the Nordic area Presentation for investors November 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) 25,0 2,00 1,71 20,0 16,8 17,7 20,0 15,1 20,0 1,50 15,0 13,5 14,4 1,22 15,0 1,01 1,00 10,0 10,0 0,50 5,0 5,0 0,0 0,00 0,0 2005 2006 LTM 2005 2006 LTM 2005 2006 LTM ROCE (%) Dividend, (EUR) Net debt/EBITDA 18,0 16,1 1,50 1,2
Slide 8: Growing capital returns
Growing capital returns Dividend per share EUR • Dividend of EUR 1.26 per share, in total over EUR 1.1 1.26 billion 1.12 Total ~ 3,775 MEUR • Mandate for repurchasing of 0.53 the company’s own shares; 0.54 0.58 maximum EUR 300 million 0.42 • Dividend policy of 50 - 60% 0.73** 0.31 0.58* 0.23 0.26 0.
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 30,000 4,000 1 800 500+ TWh 25,000 1 710 1 300 ~10 000 3,000 TWh 1 600 1 520 20,000 TWh 15,000 2,000 1 400 1 420 10,000 1 200 1,000 5,000 1 000 0 0 20041 2010E 2020E 2000 2005 2010E2015E 2020E 2000 2005 2010
Slide 11: ...also in the Nordic market
...also in the Nordic market Demand and capacity development in the Retiring capacity Committed new capacity Nordic market ~ 30 TWh ~ 40 TWh Old CHP Wind TWh Cond. 500 Nuclear 400 80 TWh CHP (incl. upgrades ) Old condense capacity Hydro 300 (mainly coal) 200 • Electricity demand is expected to incre
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 Futures 70 1 November 2007 70 60 60 50 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:
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 70 Under construction (MW) 60 • Estlink (Estonia - Finland) taken into commercial operation Planned (MW) in January 2007 800 Discuss
Slide 16: The Nordic market place in 2010
The Nordic market place in 2010 98% 82% Six new cables: Market coupling: • Fenno-Skan 2 • Nordic+Kontek • South-middle • TLC (NL-BE-FR) Sweden (2012-13) • Nordic-TLC Market Market • Nea-Järpströmmen • Nordic-Germany at least at least • Skagerrak • Germany-TLC 250 TWh/a 285 TWh/a • Store Bält • NorNe
Slide 17: One market – one price
One market – one price The most efficient single commodity market in the world Target TLC market coupling ¾price convergence ¾better utilisation of cross-border capacity 17
Slide 18: 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 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 20 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 After the inve
Slide 20: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 20
Slide 21: Russian power markets are attractive
Russian power markets are attractive Russian power generation TWh > 4,000 (bln kWh) 2 500 2 000 1 500 1 000 500 0 In a Fr ny er a Br e c N sil Ja a R an C dia S K si G nad di c n U U a a an hi p us or m C a • 4th largest in the world • Strong growth • Potential for efficiency improvement • Reform of
Slide 22: Substantial need for new capacity
Substantial need for new capacity Russian power demand forecast TWh (bln kWh) • Power generation investment is expected to 1,800 1,710 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 23: Power sector reform impacts industry structure
Power sector reform impacts industry structure Regulated monopolies Competitive businesses State-controlled companies Privatised companies Private owner- <25% <25% 48% 48% <49% up to up to up to ship 100% 100% 100% System Federal Holding Holdings of 1 hydro 6 thermal 14 operator Grid of IDCs guarant
Slide 24: 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 25: Fortum's current holdings in Russia
Fortum's current holdings in Russia TGC-1 • ~25% ownership • 6,250 MW capacity – electricity ~24 TWh – heat ~25 TWh Invested MEUR ~ 240 Market capitalisation MEUR ~ 900 (Fortum's share) 25
Slide 26: Major production volume under sale
Major production volume under sale Indicative time schedule 2006 2007 2008 Q4 Q1 Q2 Q3 Q4 Q1 Q2 The new structure in generation WGCs ownership WGC 1 WGC 2 By share of production WGC 3 Rosenergoatom 11% WGC 4 6 thermal WGC 5 WGCs 24% WGC 6 Other standalone co's TGCs and stations 20% TGC 1 TGC 2 TGC 3
Slide 27: Major growth opportunity in power generation
Major growth opportunity in power generation • WGCs – large scale power generation, with big generation units and only limited heat generation TWh Power generation 60 – capacities 8,500 - 9,000 MW 50 – power generation volumes 30 - 50 TWh/a 40 – new investment programs 1,900 - 3,100 30 MW, bringing
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 Q3 2007 2006 2005 Sales 4 413 4 491 3 877 Operating profit 1 782 1 455 1 347 Cash flow from operations 1 417 1 151 1 271 Interest-bearing net debt 4 456 4 345 3 158 Balance sheet total 17 669 16 839 15 130 Net debt/EBITDA 2.0 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 Source: Nord Pool 31
Slide 32: Wholesale price for electricity
Wholesale price for electricity System Price Forward Curv e 17.10.2007 90 80 70 60 EUR / MWh 50 40 30 20 10 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 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 November 1, 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 Q3 Q4 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 October 2007 (Status at the beginning of July 2007) Hedge ratio Hedge price Rest of 2007 ~ 85% ~ EUR 41 per MWh (~80%) (~ EUR 40 per MWh) Calendar year 2008 ~ 65% ~ EUR 44 per MWh (~50%) (~ EUR 43 per MWh) Calendar year 2009 ~ 20%
Slide 35: Fortum is well positioned for the future
Fortum is well positioned for the future • Focus on the Nordic and Baltic areas, Poland and Russia • Good hedging positions • Flexible and climate-benign production portfolio • Strong financial position • Attractive opportunities in Russia 35
Slide 36: Supplementary material
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 36
Slide 37: We want to be leading in sustainability
We want to be leading in sustainability Vision To be the benchmark power and heat company excelling in sustainability "Our energy improves life for present and future generations" Fortum focuses on the Nordic and Baltic Rim markets as a platform for profitable growth Strategy Core Purpose Become the
Slide 38: 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 39: 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 39
Slide 40: 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 >450 companies Fortum Fortum Vattenfall Others Others Others Vattenfall Vattenfall 29% E.ON E.ON Fortum 51% 54% D
Slide 41: 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 35 • Improving the market by increasing 2008 2007 market transparency 30 – information available to all market 25 participants at the same time 20 – common procedures -
Slide 42: Russian power industry reform
Russian power industry reform A Nordic/Western analogy Key steps in the reform Unbundling of businesses by type "Power industry law" approved of activity Restructuring of regional energos (P&H Competitive Regulated companies) businesses monopolies Formation of new companies Generation Tran
Slide 43: 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 44: 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 45: Strong financial performance in Q1-Q3/2007
Strong financial performance in Q1-Q3/2007 • Comparable operating profit EUR 1,048 (997) million, + 5% • Earnings per share EUR 1.33 (0.83), + 60% • Net cash from operating activities EUR 1,325 (1,059) million M EUR III/2007 III/2006 I-III/2007 I-III/2006 2006 LTM Power Generation 184 195 730 696 98
Slide 46: Income statement
Income statement MEUR III/2007 III/2006 I-III/2007 I-III/2006 2006 LTM Sales 860 946 3 159 3 237 4 4914 413 Expenses -350 -730 -1 832 -2 237 -3 036 -2 631 Operating profit 510 216 1 327 1 000 1 455 1 782 Share of profit of associates and joint ventures 6 10 223 51 69 241 Financial expenses, net -45
Slide 47: Cash flow statement
Cash flow statement MEUR III/2007 III/2006 I-III/2007 I-III/2006 2006 LTM Operating profit before depreciations 623 332 1 663 1 311 1 884 2 236 Non-cash flow items and divesting activities -263 2 -268 -21 -92 -339 Financial items and taxes -89 -63 -231 -233 -463 -461 Funds from operations (FFO) 271
Slide 48: Balance sheet
Balance sheet MEUR Sep 30 Jun 30 Dec 31 2007 2007 2006 Non-current assets 15 690 15 227 15 103 Current assets 1 979 2 224 1 736 ASSETS 17 669 17 451 16 839 Total equity, 8 493 8 014 8 161 of which minority interest 274 278 253 Interest-bearing liabilities 5 271 5 489 4 502 Non-interest bearing liabi
Slide 49: 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 20 10 17 October 2007 0 2005 2006 2007 2008 2009 Source: 49
Slide 50: Sustainability: even stricter CO2 targets
Sustainability: even stricter CO2 targets gCO2/kWh 1.100 Source: PWC and Enerpresse 2006, Fortum 1.000 900 800 700 600 500 400 300 200 107 Fortum's 38 new target 100 <80 gCO2/kWh 0 Scottish&Southern CEZ Essent Endesa Helsingin Energia Edison Union Fenosa Vattenfall Electrabel E.ON Energi E2 Enel Els
Slide 51: 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 ~26 billion euros Households 4.8% Financial and insurance institution
Slide 52: Fortum's Nordic power generation
Fortum's Nordic power generation Fortum's Nordic power generation Fortum's Nordic power generation in 2006 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 fuels Biomass fuels 25% 24% Heat pumps, Heat 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) Installed capacity of which hydro • Companies combined TGC-1 6,248 MW 2,874 MW on a territorial basis TGC-2 2,583 MW from regional energos' TGC-3 10,677 MW generation assets TGC-4 3,324 MW 1 TGC-5 2,467 MW • TGCs may include also TGC-6 3,140 MW heat assets 2 T
Slide 55: Thermal and hydro wholesale generation companies
Thermal and hydro wholesale generation companies Thermal WGCs: • Each company will include WGC-1 9,531 MW WGC-2 8,695 MW power plants across the WGC-3 8,497 MW Russian Federation WGC-4 8,630 MW WGC-5 8,672 MW • The size of thermal WGCs WGC-6 9,052 MW about 9,000 MW each, 53,077 MW the hydro WGC roug
Slide 56: © Fortum
© Fortum