Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Non-Deal Roadshow (February 2005)
52 slides from Fortum Oyj's roadshow presentation, February 2005
Slide 1: A leading energy company in the Nordic area
A leading energy company in the Nordic area Investor Meetings February, 2005
Slide 2: Fortum's strategy
Fortum's strategy Fortum focuses on the Nordic energy market as a platform for long-term profitable growth Create the Become the Strengthen leading energy supplier position as the power and heat of choice leading clean company fuels refining company Excel in business performance 2
Slide 3: Consistent delivery of strategy
Consistent delivery of strategy Restructuring worth 9 billion 2000 - Strengthened position in the Nordic market z increased hydro and nuclear power generation z strengthened position in electricity distribution and retail z foothold in Norway and NW Russia Disposal of non-core businesses z power and
Slide 4: Becoming the leading Nordic energy company
Becoming the leading Nordic energy company Power and Heat Oil #1 #1 Clean fuels Heat refining Oil retail Distribution in Finland #2 Sales of #2 electricity Wholesale* Power generation * One of the two biggest wholesalers 4
Slide 5: Financial Statements 2004
© Fortum Financial Statements 2004
Slide 6: Year 2004 - Significant performance improvement
Year 2004 - Significant performance improvement z Operating profit EUR 1,790 (1,360) million, excluding non- recurring items z Earnings per share EUR 1.44 (0.91) z Net cash from operating activities EUR 1,748 (1,577) million z Net debt EUR 4,896 (5,626) million Return on capital employed 15.6% (11.4
Slide 7: Further strategic steps
Focus on the Nordic area Further strategic steps 24 July 2003 z Plan to separate the oil businesses through a share dividend (85%) and a sale of shares (15%) in spring 2005 – Subject to the approval by the Annual General Meeting z Decision to use the call option to buy E.ON Finland shares owned by E
Slide 8: Strong financial track record
Strong financial track record Earnings per share Operating profit EUR 1.44 EUR million 1914 CAGR: 29% CAGR: 22% 0.91 1420 0.79 1289 0.55 0.57 906 914 0.41 705 1999 2000 2001 2002 2003 2004 1999 2000 2001 2002 2003 2004 8
Slide 9: Strong financial track record, cont'd
Strong financial track record, cont'd Target 12% 17.6 ROE ROCE 15.6 % % 12.3 11.4 10.5 11.1 8.6 9.4 8.3 8.4 8.7 7.7 1999 2000 2001 2002 2003 2004 1999 2000 2001 2002 2003 2004 9
Slide 10: Strong financing capacity
Strong financing capacity Gearing 1 Net cash from operating activities % MEUR 1748 114 115 1577 Target 100% 1351 88 85 1145 79 64 524 424 2 2 2 1999 2000 2001 2002 2003 2004 1999 2000 2001 2002 2003 2004 1. Gearing (%) defined as interest-bearing net debt / (shareholder’s equity + minority interests
Slide 11: Outlook for power and heat businesses
Outlook for power and heat businesses 3 February 2005 z Annual Nordic electricity consumption predicted to increase by about 1% over the next years z Improved operational efficiency in Fortum z Lower electricity prices in the forward market for 2005 z Good position considering possible impacts of em
Slide 12: Outlook for oil businesses
Outlook for oil businesses 3 February 2005 z The January oil refining reference margin at the level of USD 1.5/bbl z In 2004, Fortum's premium margin was clearly higher than the longer-term average of some USD 2/bbl and is expected to remain at the levels of previous years z The next, five week majo
Slide 13: Good dividend payer
Good dividend payer Dividend per share EUR z Consistent increase in CAGR: 26% 0.58* dividends paid z Historical average 0.42 payout ratio 43% 0.31 0.26 z New dividend policy 0.23 0.18 for Fortum after the separation of Neste Oil 1999 2000 2001 2002 2003 2004 * Proposal to the Annual General Meeting
Slide 14: Dividend policy
Dividend policy Fortum Corporation's dividend policy following the separation of the oil businesses states that the company aims at paying a dividend which corresponds to a payout ratio of 50% to 60% on the average 14
Slide 15: The way forward
The way forward
Slide 16: Structural development is key to retaining a shaper position
Structural development is key to retaining a shaper position Power & Heat, Markets z Consolidation will z Maintain the Nordic focus continue z Pursue the value creative z Proactive moves will be consolidator and shaper role required for retaining a z Capture the Russian growth leadership position op
Slide 17: The Nordic market – a forerunner
The Nordic market – a forerunner Nordic market GB/IRL market (2005?) Baltic market (2008?) E. European market (2005-2008?) W. European market (2005-2008?) SE Europe market (2005-2008?) Italian zonal market (2004?) Iberian market (2005?) * European Commission strategy paper 2003 • The Nordic market i
Slide 18: A large and fragmented Nordic market
A large and fragmented Nordic market Generation, 2003 British Energy others 375 TWh E.ON RWE Scottish&Southern EdF Fortum others others Vattenfall RWE Steag 363 TWh E.ON Vattenfall Elsam Statkraft 560 TWh EnBW EON (2002) Source: Eurelectric, Fortum, Company data 18
Slide 19: A competitive market - hundreds of actors
A competitive market - hundreds of actors 2003 Top 5 players’ market share Generation Distribution Retail 363 TWh 14 million customers 14 million customers Fortum Fortum Fortum others others others Vattenfall Vattenfall Vattenfall E.ON 45% E.ON Hafslund 64% Hafslund 68% Nesa E.ON Nesa Elsam Statkraf
Slide 20: Today only limited interconnection capacity
Today only limited interconnection capacity Regional integrated market Power flows to and from the with limited import capacities Nordic market GWh, 2003 200 – 17 TWh net power imports to the Nordic countries in 2003 – only ~5% of Nordic demand 11,500 can currently be met by imports due to limited i
Slide 21: New capacity will be required
New capacity will be required Nordic supply/demand TWh/year z Replacement of ageing 500 capacity Demand z Increasing demand 400 86 TWh, of which Wind power 25 TWh z In order to ensure Renewable 11 TWh 300 Natural gas 28 TWh – long term supply security – highest efficiency 200 100 Stable and predicta
Slide 22: Price signals guide new capacity investments
Price signals guide new capacity investments €/MWh 60 60 z Investments are made on 50 50 rational financial basis 40 40 z New capacity requires a long-term price of 30-35 30 30 €/MWh 20 20 Forwards z Price signals are 30.12.2004 necessary for generators' 10 10 decisions on new capacity 00 -94 -94 -9
Slide 23: Normally the lowest power prices in Europe
Normally the lowest power prices in Europe Annual rolling average Futures EUR/MWh EUR/MWh 50 40 30 20 10 Latest data 10 January 2005 0 2000 2001 2002 2003 2004 2005 2006 2007 Nord Pool System Germany Spot EEX UK Spot NL Spot APX Spain Spot 23
Slide 24: Fortum is well-positioned for CO2 emissions
Fortum is well-positioned for CO2 emissions Carbon exposure – power companies kgCO2/MWh, 2002 1000 z Large share of 800 hydro and nuclear production 600 z Organisational capability for CO2 400 trading in place 200 0 Fortum Endesa Vattenfall E.ON Iberdrola PVO EDF Verbund ENEL Southern Scottish& Brit
Slide 25: Russia is an emerging opportunity
Russia is an emerging opportunity z Power and heat sector reform z Strong growth potential z Need for investments z Low valuations z Efficiency improvement potential 25
Slide 26: Lenenergo – a strong foothold in NW Russia
Lenenergo – a strong foothold in NW Russia Population in key • Largest utility in north- western Russia geographical markets Million • 10 thermal and 6 hydro plants • Power generation capacity ~3,250 MW and production ~22.4 TWh/a 3 • Heat generation capacity ~13,900 MW and 1 2 production ~26.9 TWh/a
Slide 27: TGC1 – significant generation under reform
TGC1 – significant generation under reform NW Russia TGC1 Capacity total 6 096 MW* MW (of which hydro 3197 MW) z Kolenergo 1 928 Sweden Norway 27 500 23 000 z Karelenergo Finland 13 400 915 z Lenenergo 3 253 Denmark 7 900 * Capacity to be finally included in TGCs may be different. NW Russia total ge
Slide 28: Oil separation
Not for release, publication or distribution in the United States of America Oil separation z As a result of strong operating performance in both Power & Heat and Oil, the separation of Fortum Oil (which will be renamed to Neste Oil) is to be implemented through a combination of: – Distribution of 8
Slide 29: Increasing importance of Russian crude
Increasing importance of Russian crude Transportation flows Historical Mt/a Now z Declining North Sea production z Increasing volumes of crude oil and feedstocks from Russia z 1 z 1 0 z 50 0 z 5 z 5 02.08.2002
Slide 30: Oil Refining
Oil Refining Fortum´s 2004 Refining margins USD/bbl z International reference margin USD 8 4.5 (2.7)/bbl, up by 67% 7 z Premium margin clearly higher than 6 the average USD 2/bbl in the last 5 few years 4 z 2% increase in sales volumes 3 z Inventory gains of EUR 74 (13) million due to the increasing
Slide 31: Transaction Structure Overview
Not for release, publication or distribution in the United States of America Transaction Structure Overview Step 1: Dividend Distribution Step 2: Sale of the Remaining Shares Fortum’s current shareholders Finnish State Other Fortum Finnish State Other Fortum New Neste Oil shareholders shareholders S
Slide 32: The Best Outcome for Fortum
Not for release, publication or distribution in the United States of America The Best Outcome for Fortum z Dividend distribution will leave Fortum with ample financial strength to implement its utility consolidation strategy: – Fortum has had strong operating performance over the past 12 months, fur
Slide 33: Some dates to remember
Not for release, publication or distribution in the United States of America Some dates to remember Detailed terms of Neste Oil Oy shares distribution z In connection with the invitation to the Annual General Meeting by mid-March Dividend distribution decision z The Annual General Meeting, March 31
Slide 34: Good platform
Good platform z Structures in place z Well performing businesses z Strong cash flow and financing capacity z Well prepared for market changes Good platform for going forward for two independent companies 34
Slide 35: 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. 35
Slide 36: Supplementary material
— “eZ aEL | Supplementary material Fortum
Slide 37: Income statement
Income statement MEUR 2004 2003 Net sales 11 665 11 392 Expenses -9 751 -9 972 Operating profit 1 914 1 420 Financial expenses, net -259 -236 Profit before taxes 1 655 1 184 Income taxes total -397 -325 Minority interests -31 -90 Net profit for the period 1 227 769 EPS (EUR) 1.44 0.91 Return on capi
Slide 38: Operating profit
Operating profit MEUR 2004 2003 Power Generation 725 603 Heat 226 173 Distribution 258 247 Markets 26 35 Oil Refining 573 281 Oil Retail 48 44 Shipping and Oil other 107 79 Other -49 -42 Fortum Group 1 914 1 420 38
Slide 39: Balance sheet
Balance sheet MEUR Dec 31 Dec 31 2004 2003 Fixed assets and other long-term investments 14 598 14 172 Current assets 2 106 2 390 ASSETS 16 704 16 562 Shareholders' equity 7 394 6 406 Minority interests 261 232 Interest-bearing liabilities 5 042 6 065 Interest-free liabilities 4 007 3 859 EQUITY AND
Slide 40: Cash flow statement
Cash flow statement MEUR Dec 31 Dec 31 2004 2003 Net cash from operating activities 1 748 1 577 Capital expenditures -651 -550 Acquisition of shares -182 -570 Proceeds from sales of fixed assets 89 142 Proceeds from sales of shares 23 1 227 Change in other investments -17 -67 Cash flow before financ
Slide 41: Water & snow reservoirs in Norway & Sweden
Water & snow reservoirs in Norway & Sweden week 4/2005 Water & snow reservoirs in Norw ay & Sw eden, w eek 4/2005 120 110 reservoir content [TWh] 100 90 80 70 60 50 1 5 9 13 17 21 25 29 33 37 41 45 49 53 1996 2000 2003 2004 2005 reference level 41
Slide 42: Nordpool system spot price (EUR)
Nordpool system spot price (EUR) week 4/2005 42
Slide 43: Nordic power market prices (EUR)
Nordic power market prices (EUR) week 4/2005 43
Slide 44: Nordpool year forwards (EUR)
Nordpool year forwards (EUR) week 4/2005 NordPool Year Forwards (EUR) Year 05 Year 06 Year 07 Year 08 34 Closing Prices 2.2.2005 : 32 year 2006 : 26.20 EUR/MWh year 2007 : 26.82 EUR/MWh year 2008 : 27.15 EUR/MWh 30 EUR/MWh 28 26 24 02/01/04 02/02/04 02/03/04 02/04/04 02/05/04 02/06/04 02/07/04 02/08
Slide 45: CO2 emission allowance trading (EUETS)
CO2 emission allowance trading (EUETS) Volume, ktCO2/month 16000 14000 12000 10000 8000 6000 4000 2000 0 1/1 /05 1/12 /04 1/11 /04 2005 1/10 /04 1/9 /04 45 1/8 /04 1/7 /04 1/6 /04 1/5 /04 2006 EUETS 1/4 /04 1/3 /04 1/2 /04 1/1 /04 1/12 /03 2007 1/11 /03 1/10 /03 1/9 /03 1/8 /03 1/7 /03 1/6 /03 1/5 /
Slide 46: Crude oil price
Crude oil price USD/bbl 55 50 45 40 35 30 25 20 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2003 2004 Brent dated 46
Slide 47: Refining margin in North West Europe
Refining margin in North West Europe 10 8 6 4 2 0 -2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Average complex Brent refinery in North West Europe Product prices: cargoes NWE FOB 47
Slide 48: Oil refining margins
Oil refining margins* USD/bbl 10 8 6 4 2 0 -2 -4 -6 1/04 2/04 3/04 4/04 5/04 6/04 7/04 8/04 9/04 10/04 11/04 12/04 1/05 2/05 Complex Hydroskimming *) Reference margins for North West European refineries for Brent crude oil calculated by Fortum 48
Slide 49: Urals vs. Brent price differential
Urals vs. Brent price differential USD/bbl Urals NWE CIF vs. Brent Dated FOB, 2.1.2004 - 1.2.2005 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 2.10.2004 2 . 1 1 .2 0 0 4 2.12.2004 2.2.2004 2 .3 .2004 2 .5 .2004 2 .7 .2004 2.9.2004 2.1.2005 2.1.2004 2.4.2004 2.6.2004 2.8.2004 U ra ls N W E B re n t D a te d 49
Slide 50: Quotation of Fortum shares, HEX portfolio and Dow Jones utilities index
Quotation of Fortum shares, HEX portfolio and Dow Jones utilities index weekly averages 2001-2005 (5.1.2001 = 100) 350 300 250 200 150 100 50 0 5.1.01 5.7.01 5.1.02 5.7.02 5.1.03 5.7.03 5.1.04 5.7.04 5.1.05 Fortum HEX Portfolio Index DJ STOXX 600 Utilities Index 50
Slide 51: Number of Fortum shares traded
Number of Fortum shares traded (millions shares/day, weekly average) 7.2.05 5 14 M 7.3 M 4 3 2 1 0 12/98 6/99 12/99 6/00 12/00 6/01 12/01 6/02 12/02 6/03 12/03 6/04 12/04 51
Slide 52: Shareholders as of 31 December 2004
Shareholders as of 31 December 2004 Households 5.3% Financial and insurance institutions 2.0% Other Finnish investors 8.2% International investors 25.2% Finnish State 59.3% Market capitalisation EUR 11.8 billion More than 50,000 shareholders Listed on the Helsinki Stock Exchange 52