Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (May 2010)
53 slides from Fortum Oyj's investor presentation, May 2010
Slide 1: A leading power and heat company in the Nordic area
FORTUM A leading power and heat company in the Nordic area Investor/Analyst material May 2010
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: Content
Content Fortum today European power markets Russia Financials and outlook
Slide 4: Our geographical presence today
Our geographical presence today Nr 1 Heat Nordic countries Nr 1 Distribution Generation 48.1 TWh Electricity sales 54.9 TWh Nr 2 Electricity Heat sales 18.0 TWh sales Distribution cust. 1.6 million Nr 3 Power Electricity cust. 1.2 million Russia generation TGC-1 (~25%) Power generation ~6 TWh Heat s
Slide 5: Capital returns
Capital returns Dividend per share EUR 1.35 1.26 Total ~ 6,853 MEUR 1.12 1.00 1.00* • Dividend 2009 EUR 1.00 per 0.58 0.53 share, in total ~EUR 0.9 billion 0.58 0.54 • Dividend policy of 50-60% 0.42 payout of previous year's 0.77 0.31 0.73 0.58 0.23 0.26 results on the average 0.13 0.18 1998 1999 20
Slide 6: Fortum's strategic route
Fortum’s strategic route Separation of Länsivoima Länsivoima Elnova oil businesses 45% → 65% →100% 50% → 100% E.ON Finland 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Neste IVO Divestment of Lenenergo Birka Energi Stora Birka Energi Gullspång Østfold shares 50% Fortum Kraft 50%
Slide 7: Organisational structure as of October 2009
Organisational structure as of 1 October 2009 President and CEO Staff Functions Business Divisions Tapio Kuula Power (Espoo) Finance Executive Vice President Executive Vice President and Matti Ruotsala Chief Financial Officer Juha Laaksonen Heat (Stockholm) Corporate Relations Executive Vice Preside
Slide 8: A leading Nordic power and heat company
A leading Nordic power and heat company • Leading power and heat company in Nordic countries • Listed at the Helsinki Stock Exchange 1998 • Approximately 90,000 shareholders • Among the most traded shares in Helsinki stock exchange • Market cap ~17 billion euros Households 7.1% Financial and insuran
Slide 9: Fortum in the Nordic electricity value chain
Fortum in the Nordic electricity value chain Fortum Markets Large Nordic Nordic customers wholesale wholesale Fortum market Small market Power customers Nord Pool and bilateral Other retail companies Deregulated Regulated Transmission and system Fortum services Distribution 9
Slide 10: Fortum mid-sized European power generation player, Global #4 in heat
Fortum mid-sized European power generation player, Global #4 in heat Power generation Heat production Largest producers in Europe and Russia, 2008 TWh Largest global producers, 2008 TWh EDF *) IES E.ON Gazprom Enel **) Dalkia RWE+Essent Fortum Gazprom Vattenfall Vattenfall+Nuon RAO ES East Rosenergo
Slide 11: Fortum's European power and heat production
Fortum's European power and heat production Fortum's European Fortum's European power generation in 2009 heat production in 2009 Hydro power 45% Biomass fuels 22% Coal 22% Other 2% Natural gas Peat 1% Other 7% Biomass 2% 20% Natural gas 3% Coal 4% Peat 4% Oil 5% Waste 6% Nuclear power 43% Heat pumps
Slide 12: Fortum's carbon exposure among the lowest in Europe
Fortum's carbon exposure among the lowest in Europe g CO2/kWh electricity, 2008 1200 1000 800 600 Average 350 g/kWh 400 200 41 0 GDF Suez Europe Dong Energy Enel Union Fenosa Nuon Scottish&Southern EDP CEZ Vattenfall E.ON Statkraft British Energy Verbund RWE Fortum Iberdrola Drax EDF DEI PVO Source:
Slide 13: Fortum's investment programme
Fortum’s investment programme – Nordic region, Poland and Baltic countries Project Electricity, MW Heat, MW Commissioned Olkiluoto 3, Finland 400 2012 Swedish nuclear upgrades 260 by 2013 - Forsmark 3 upgrade (to be decided) 30 post 2013 Refurbishing of hydro power 20-30 annually Częstochowa, Poland
Slide 14: European power markets
Fortum today European power markets Russia Financials and outlook
Slide 15: Key EU objectives by 2020
Key EU objectives by 2020 • Minimum reduction of EU • Implementation of CO2 emissions 20% (2020) internal energy markets • Renewables 20% (2020) • Energy efficiency +20% • Development of CO2 (2020) capture and storage Competitiveness Sustainability • Increased resources for technology development Se
Slide 16: New capacity, except nuclear, will require over 60 EUR/MWh power price
New capacity, except nuclear, will require over 60 EUR/MWh power price EUR/MWh EUR/MWh 110 110 CO2 cost 100 100 Other costs ( variation) 90 90 80 80 70 70 60 Futures 60 50 28 April 2010 50 40 40 30 30 20 20 10 10 0 0 1995 -97 -99 -01 -03 -05 -07 -09 -11 -13 -15 Coal Gas Nuclear Hydro Wind Clean coal
Slide 17: Market coupling milestones
Market coupling milestones • Market coupling between Netherlands (APX), Belgium (Belpex) and France (Powernext) since 2006 2011 • Market coupling Germany (EPEX Spot) – Denmark (Nord Pool) started on 9 November 2009. Baltic Cable (Germany – Sweden) and NorNed (Norway – NL) will possibly be included l
Slide 18: Current transmission capacity from Nordic area to Continental Europe is ~4000 MW
Current transmission capacity from Nordic area to Continental Europe is ~4000 MW Transmission Countries capacity MW From Nordel To Nordel Denmark - Germany 2 100 1 550 Sweden - Germany 600 600 Sweden - Poland 600 600 Norway - Netherlands 700 700 350 Total 4 000 3 450 700 • Theoretical maximum in tra
Slide 19: Nordic and Continental markets are integrating
Nordic and Continental markets are integrating – interconnection capacity could double by 2020 1400 MW link to the UK could connect offshore New interconnections could wind, too; North Seas Countries’ Offshore Grid double the capacity to over Initiative launched for supergrid development 8000 MW by
Slide 20: Nordic water reservoirs below normal
Nordic water reservoirs below normal 120 100 reservoir content (TWh) 80 60 40 20 2003 2008 2009 2010 reference level 0 Q1 Q2 Q3 Q4 Source: Nord Pool 20
Slide 21: Demand picking up
Demand picking up Russia Urals Chelyabinsk Denmark Tyumen Sweden Norway Finland Russia Nordic area 15 % 15 % 10 % 10 % 5% 5% 0% 0% -5 % -5 % -10 % -10 % Q2 2009 vs Q2 2008 Q2 2009 vs Q2 2008 -15 % Q3 2009 vs Q3 2008 -15 % Q3 2009 vs Q3 2008 Q4 2009 vs Q4 2008 Q4 2009 vs Q4 2008 Q1 2010 vs Q1 2009 Q1
Slide 22: 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 2010 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Nord Pool 22
Slide 23: Nord Pool year forwards
Nord Pool year forwards €/MWh Year 07 Year 08 Year 09 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 28 April 2010 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2007 2008 2009 2010 23
Slide 24: Wholesale prices for electricity
Wholesale prices for electricity EUR/MWh Spot prices Forward prices 110 100 90 80 70 Dutch 60 German 50 40 Nordic 30 Russian* 20 10 22 April 2010 0 2007 2008 2009 2010 2011 * Including capacity tariff estimate. E.g 9.4 €/MWh for 2009 and 2010. Source: , ATS 24
Slide 25: Fuel and CO2 allowance prices
Fuel and CO2 allowance prices Crude oil price (ICE Brent) CO2 price (NP EUA) 160 35 140 30 120 25 EUR / tCO2 USD / bbl 100 20 80 60 15 40 10 20 5 0 2006 2007 2008 2009 2010 2011 0 2006 2007 2008 2009 2010 2011 Coal price (ICE Rotterdam) Gas price (ICE NBP) 240 100 200 80 GBp / therm 160 60 USD / t 1
Slide 26: Nordic power generation mix
Nordic power generation mix 160 Total Nordic generation 398 TWh in 2008 140 TWh % 120 Fossil fuels 54 13 100 TWh/a Nuclear 83 21 80 Waste 4 1 60 Biomass 20 5 40 Wind 10 3 20 Hydro * 226 57 0 Denmark Norway Sweden Finland Net import in 2008: -1.5 TWh *) Source: Nordel Normal annual Nordic hydro gener
Slide 27: Still a highly fragmented Nordic power market
Still a highly fragmented Nordic power market Power generation Electricity distribution Electricity retail 398 TWh 14 million customers 14 million customers >350 companies ~500 companies ~350 companies Fortum Fortum Vattenfall Others Others Others Vattenfall Vattenfall 30% Dong Energy E.ON Fortum 50
Slide 28: Russia
Fortum today European power markets Russia Financials and outlook
Slide 29: Russia is the World's 4th largest power market
Russia is the World’s 4th largest power market TWh 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 il a y ce c a a n na a S K az an di di pa si ad re U U an hi or In us Ko Br m Ja an C Fr N er R C h G ut So Data 2008 based on gross output. Source: BP Statistical Review of World Energy June 200
Slide 30: Fortum - a major player in Russia
Fortum - a major player in Russia OAO Fortum (former TGC-10) • Majority of the Russian territorial generating company OAO Fortum in the Urals region • OAO Fortum operates in the heart of Russia’s oil and gas producing region TGC -1 • OAO Fortum’s power generation ~16 TWh/a and heat generation ~26 TW
Slide 31: 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 32: Power market liberalisation – two markets
Power market liberalisation – two markets Generator’s costs Fixed Variable (maintenance, servicing, (fuel) construction and upgrade of generating units) Capacity market Electricity day ahead (spot) wholesale market • Capacity payment is the intended mechanism for earning a (reasonable) return on inv
Slide 33: Power market liberalisation – wholesale market 100% liberalised
Power market liberalisation – wholesale power market will be 100% liberalised in 8 months Share of liberalised trade for existing capacity • Further liberalisation of energy 100 % 100 % 90 % 100 % market increased to 60% in 80 % 80 % January 2010 70 % 60 % • 80% in 1 July 2010 60 % 50 % 50 % • 100%
Slide 34: Day ahead wholesale market prices
Day ahead wholesale market prices – increase driven by recovering demand and gas price Day ahead market prices for Urals (weekly average) • Demand back to pre-crisis levels in the overall Russia, 30 EUR/MWh Chelyabinsk and Tyumen regions 25 • Regulated gas price 24% 20 higher than the average in 200
Slide 35: Power market liberalisation – Capacity market
Power market liberalisation – Capacity market • Long term rules and price parameters approved • All kinds of capacity participate in capacity auctions • “Old” capacity (pre 2007) and new capacity priced differently – Old capacity is priced by capacity auctions; first auction for 2011 in October 2010
Slide 36: New capacity will receive clearly higher payments than the old
New capacity will receive clearly higher payments than the old Estimated capacity price for new capacity*, RUB/MW/month Gas condensing (CCGT) Coal condensing Region >250 MW 150-250 MW <150 MW >225 MW <225 MW South 500,000 617,000 771,000 1,048,000 1,130,000 Center 524,000 647,000 810,000 1,100,000 1
Slide 37: Capacity payments currently ~1/3 of total revenues for Fortum Russia
Capacity payments currently ~1/3 of total revenues for Fortum Russia Achieved total power price, Russia Division* • Last twelve months, Fortum EUR/MWh 30 Russia’s revenues were 25 24 equally split between three 25 22 22 21 21 components 21 18 6 20 9 • Regulated power sales not 9 7 8 7 relevant post
Slide 38: Efficiency improvement programme on track in Russia
Efficiency improvement programme on track in Russia: ~100 MEUR EBIT effect in 2011 • Purchasing • Portfolio Management and Trading (PMT) • Heat regulation • Heat - technical and business improvements • Generation - technical improvements • Others • The programme started in April 2008 • After two yea
Slide 39: Improvement through all key earnings drivers targeted
Improvement through all key earnings drivers targeted Development of Heat business Potential margin increase (power price vs. gas price) Increased income from new volume sold Increased income from new capacity (higher payments for new capacity) Efficiency improvement programme New capacity and volum
Slide 40: Over 80% increase in power generation capacity by 2015
Over 80% increase in power generation capacity by 2015 through the investment programme Power generation capacity (MW) Plant Fuel type Existing Planned Total MW Tyumen CHP-2 Gas 755 450 (Condensing) 1,205 6,000 Tyumen CHP-1, Q3/2010 Gas 472 190 (CHP/Condensing) 662 5,000 Tobolsk CHP, Q3/2010 Gas 452
Slide 41: Financials and outlook
Fortum today European power markets Russia Financials and outlook
Slide 42: Income statement
Income statement MEUR I/2010 I/2009 2009 LTM Sales 1 947 1 632 5 435 5 750 Expenses -1 223 -1 033 -3 653 -3 843 Operating profit 724 599 1 782 1 907 Share of profit of associates and jv's 16 -33 21 70 Financial expenses, net -27 -32 -167 -162 Profit before taxes 713 534 1 636 1 815 Income tax expens
Slide 43: Comparable and reported operating profit
Comparable and reported operating profit Operating profit I/2010 Operating profit I/2009 Operating profit 2009 Comparable Reported Comparable Reported Comparable Reported Power 424 467 415 432 1 454 1 363 Heat 132 159 114 115 231 252 Distribution 102 113 81 81 262 263 Electricity Sales -13 -29 -2 -2
Slide 44: Cash flow statement
Cash flow statement MEUR I/2010 I/2009 2009 LTM Operating profit before depreciations 861 721 2 292 2 432 Non-cash flow items and divesting activities -67 1 46 -22 Financial items and fx gains/losses -177 139 146 -170 Taxes -82 -14 -239 -307 Funds from operations (FFO) 535 847 2 245 1 933 Change in
Slide 45: 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 45
Slide 46: Key ratios
Key ratios Key ratios MEUR LTM 2009 2008 in Q1 ‘10 EBITDA 2 432 2 292 2 478 Net cash flow from operations 1 963 2 264 2 002 Interest-bearing net debt 5 679 5 969 6 179 Equity 8 465 8 491 8 411 Balance sheet total 21 318 19 841 20 278 Net debt/EBITDA 2.3 2.6 2.5 Return on capital employed (%) 12.3 12
Slide 47: Capital expenditures, 2010 vs. 2009
Capital expenditures, 2010 vs. 2009 EUR million 1600 • Original plan and guidance: 1400 Capex – EUR 0.8-1.2 billion for the planned for 2009 next 4-5 years 1200 – 2009 and 2010 likely to be Planned for closer to the upper end of 1000 2009, not realised the range 800 • 2009 capex was EUR 862 215 285
Slide 48: Capital expenditures post 2010
Capital expenditures post 2010 • Annual capital expenditures Estimated annual Capex 2011-2013 EUR 0.8-1.2 billion Maintenance ~ EUR 300–500 m • Maintenance/productivity EUR 300–500 million p.a. • Growth in Nordic and Baltic rim countries EUR 200-400 million p.a. Growth ~ EUR 200–400 m • Investments
Slide 49: Debt maturity profile
Debt maturity profile 1250 MEUR 2010 980 1000 2011 645 2012 525 750 2013 560 2014 1,172 500 2015 322 2016 858 2017 220 250 2018 78 2019 799 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020+ 2020+ 1,018 Bonds Financial institutions Other long-term debt CPs Other short-term debt per 31 March,
Slide 50: Liquidity at the end of Q1/2010
Liquidity at the end of Q1/2010 MEUR Available Outstanding Total amount SHORT TERM FINANCING Commercial Paper Programmes Finnish CP Programme 364 136 500 SEK 5.000 M Swedish CP Programme 241 274 515 604 410 1 015 LIQUID FUNDS AND COMMITTED CREDIT LINES Committed Credit Lines Short Term 214 0 214 Lon
Slide 51: Hedging of Power division's Nordic sales
Hedging of Power division's Nordic sales Status at the end of March 2010 (Status at the end of Dec 2009) Hedge ratio Hedge price rest of 2010 ~ 75% ~ EUR 44 per MWh (~70%) (~ EUR 44 per MWh) 2011 ~ 45% ~ EUR 43 per MWh (~40%) (~ EUR 42 per MWh) Q3/2010 Q4/2010 2011 Current forward quotations at Nord
Slide 52: A strong platform for future
A strong platform for future • The market driven production company – growing in Power, #4 in Heat globally • The fundamental drivers for the European power markets still in place: the need for new capacity, market integration, CO2 mitigation • Carbon exposure among the lowest among European power u
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