Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (September 2007)
58 slides from Fortum Oyj's investor presentation, September 2007
Slide 1: A leading energy company in the Nordic area
- a leading energy company in the Nordic area Presentation for investors September 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) 20 1.50 1.42 20.0 16.8 17.5 17.3 1.22 18 15.1 1.01 15.0 1.00 16 14.4 10.0 14 0.50 13.5 12 5.0 10 0.00 0.0 2005 2006 LTM 2005 2006 LTM 2005 2006 LTM ROCE (%) Dividend, (EUR) Net debt/EBITDA 16 1.50 4 1.26 1.25 1.12 14.1 3 1
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 30 000 3 500 25 000 ~10 000 3 000 900 20 000 TWh 2 500 TWh Demand growth 2 000 ~300-500 TWh 15 000 1 500 by 2015 10 000 1 000 5 000 500 0 0 20041 2010E 2020E 2000 2005 2010E 2015E 2020E Existing/remaining capa
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 29 August 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: Nordic market becoming more integrated into Europe
Nordic market becoming more integrated into Europe • Nord Pool introduced in 2005 a German spot Present (MW) 50 market area "KONTEK" to enhance the Nordic- Under construction (MW) 70 60 German trade Planned (MW) 800 • Direct market coupling between Nord Pool and Discussed (MW) 1500 +200 the German E
Slide 15: 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 16: One market – one price
One market – one price The most efficient single commodity market in the world TLC market coupling Target ¾price convergence ¾better utilisation of cross-border capacity 16
Slide 17: 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 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 RAO UES restructuring Regulated monopolies Competitive businesses State-controlled companies Privatised companies Share of private 0% <25% 48% 48% <49% 65 -100% 75 -100% ownership System Federal Holding Holdings of 1 hydro 6 thermal 14 operator Grid of
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 TGC-1 St. Petersburg • ~25% ownership Moscow • 6,250 MW capacity Konakovo 2,400 MW – electricity ~24 TWh Reftino 3,800 MW – heat ~25 TWh Sredneuralsk 1,170 MW Nevinomyssk 1,290 MW WGC-5 • ~1% ownership • 8,660 MW capacity – electricity ~40 TWh Invested MEUR
Slide 26: Focus on growth in generation
Focus on growth in generation • TGC-1 has decided on a share issue aiming at • The target is to increasing the share capital by about EUR 930 million maintain the • The new capital will be used to finance increase in current, slightly over TGC-1 electricity production capacity by 50% or over 25% sta
Slide 27: Sale of Lenenergo stake
Sale of Lenenergo stake Agreement on sale of Lenenergo stake 17 Aug 2007 • Fortum has decided to sell its stake - slightly over 1/3 of shares - in JSC Lenenergo for approximately EUR 295 million • The buyers are VTB Bank, I.D.E. Electricity Distribution Investments 1 Ltd and the Russian energy compa
Slide 28: 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 29: 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 30: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 30
Slide 31: 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 31
Slide 32: Key financials
Key financials MEUR (Continuing operations) LTM in Q2 2007 2006 2005 Sales 4 499 4 491 3 877 Operating profit 1 488 1 455 1 347 Cash flow from operations 1 435 1 151 1 271 Interest-bearing net debt 4 610 4 345 3 158 Balance sheet total 17 451 16 839 15 130 Net debt/EBITDA 2.4 2.3 1.8 Return on capit
Slide 33: 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 week Source: Nord Pool 33
Slide 34: Wholesale price for electricity
Wholesale price for electricity Source: Nord Pool 34
Slide 35: 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 August 27, 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 2004 2005 2006 2007 35
Slide 36: Hedging of Power Generation's Nordic sales
Hedging of Power Generation's Nordic sales Status at the beginning of July 2007: (Status at the beginning of April 2007:) Hedge ratio Hedge price Rest of 2007 ~ 80% ~ EUR 40 per MWh (~70%) (~ EUR 40 per MWh) Calendar year ~ 50% ~ EUR 43 per MWh 2008 (~40%) (~ EUR 42 per MWh) 36
Slide 37: Fortum is well positioned
Fortum is well positioned • 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 37
Slide 38: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 38
Slide 39: 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 40: 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 41: 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 41
Slide 42: 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 43: 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 44: 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 45: 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 46: 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 47: Strong financial performance in Q1-Q2/2007
Strong financial performance in Q1-Q2/2007 • Comparable operating profit EUR 810 (772) million, + 5% • Earnings per share EUR 0.85 (0.64), + 33% • Net cash from operating activities EUR 1,070 (786) million • Fortum’s net debt increased to EUR 4,610 (4,345 at year end) million MEUR II/2007 II/2006 I-
Slide 48: Income statement
Income statement MEUR II/2007 II/2006 I-II/2007 I-II/2006 2006 LTM Sales 959 948 2 299 2 291 4 4914 499 Expenses -632 -636 -1 482 -1 507 -3 036 -3 011 Operating profit 327 312 817 784 1 455 1 488 Share of profit of associates and joint ventures 15 6 217 41 69 245 Financial expenses, net -41 -31 -72
Slide 49: Cash flow statement
Cash flow statement MEUR II/2007 II/2006 I-II/2007 I-II/2006 2006 LTM Operating profit before depreciations 438 409 1 040 979 1 884 1 945 Non-cash flow items and divesting activities -6 -47 -5 -23 -92 -74 Financial items and taxes 14 -60 -142 -170 -463 -435 Funds from operations (FFO) 446 302 893 78
Slide 50: Balance sheet
Balance sheet MEUR Jun 30 Mar 31 Dec 31 2007 2007 2006 Non-current assets 15 227 14 958 15 103 Current assets 2 224 2 781 1 736 ASSETS 17 451 17 739 16 839 Total equity 8 014 7 594 8 161 of which minority interest 278 271 253 Interest-bearing liabilities 5 489 4 999 4 502 Non-interest bearing liabil
Slide 51: 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 27 August 2007 0 2005 2006 2007 2008 2009 Source: 51
Slide 52: 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 Edison Endesa Union Fenosa E.ON Vattenfall Electrabel Helsingin Energia Energi E2 Enel Els
Slide 53: 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 ~21 billion euros Households 4.9% Financial and insurance
Slide 54: 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 55: 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 56: 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 57: 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 58: Fortum
@ Fortum