Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (March 2006)
51 slides from Fortum Oyj's investor presentation, March 2006
Slide 1: A leading energy company in the Nordic area
- a leading energy company in the Nordic area Presentation for investors March 2006
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 • Nordic power market • 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: 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 • Increased competition power strategy: markets through regional • Increased efficiency markets into one Euro
Slide 6: A leading Nordic power and heat company
A leading Nordic power and heat company Nr 1 Nr 2 Distribution Power generation Heat Electricity sales 6
Slide 7: Presence in focus market areas
Presence in focus market areas Nordic Generation 51.2 TWh Electricity sales 58.2 TWh Distribution cust. 1.4 mill. Electricity cust. 1.2 mill. NW Russia Heat sales 19.4 TWh (in associated companies) Generation ~6 TWh Heat production ~10 TWh Baltic countries Heat sales 1.2 TWh Poland Distribution cust
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 approximately Generation 14% market share of Nordic consumption Portfolio Mgmt • Best-in-class physical and financial market operations & Trading • Efficient operation and maintenance serv
Slide 9: Power and heat production in Fortum
Power and heat production in Fortum Fortum’s Nordic power generation Fortum’s Nordic heat production Hydro power 42% Coal 17% Biomass fuels 24% Heat pumps, Other 2% electricity Peat 1% 16% Biomass 2% Other 11% Coal 3% Waste 6% Oil 10% Nuclear power 50% Peat 7% Natural gas 9% 51.2 TWh in 2005 20.6 TW
Slide 10: Strong dividend growth
Strong dividend growth Dividend per share EUR Fortum aims at paying a 1.12 dividend that corresponds to Total ~ 2,750 MEUR an average payout ratio of 0.54 0.58 50% to 60% 0.42 0.31 0.58 0.23 0.26 0.13 0.18 1998 1999 2000 2001 2002 2003 2004 2005* * The Board proposal for the AGM (0.58 from continuin
Slide 11: Nordic power market
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 11
Slide 12: The wholesale market is liquid and Nordic, but retail markets are local
The wholesale market is liquid and Nordic, but retail markets are local Supply wholesale price Demand Industry Nordic wholesale Local Retail Generation Retail retail customers market (Nordpool) markets Supply retail price Demand 12
Slide 13: 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 14: New capacity will be needed
New capacity will be needed Demand and capacity development in • Electricity demand is expected to the Nordic market increase by around 55 TWh to 2020 TWh 500 • Committed plans of new capacity approx. 20 TWh 400 300 • Additionally: – effect increases in Swedish 200 nuclear may bring up to 8 TWh more
Slide 15: New capacity will require an EUR 35+ price
New capacity will require an EUR 35+ price EUR/MWh 80 Fuel costs, excl. CO2 costs 70 EUR/MWh Fixed costs ( variation) 60 60 50 50 40 40 30 30 Futures March 3, 2006 20 20 10 10 0 -94 -96 -98 -00 -02 -04 -06 -08 0 Coal Gas Nuclear Hydro Wind Source: Nord Pool Source: NEA & IEA "Projected Cost of Gener
Slide 16: Forwards
Forwards Yearly moving average spot price Forwards EUR/MWh EUR/MWh 90 80 70 UK Spot UK futures 60 50 German Spot German futures 40 Nord Pool System 30 Nord Pool futures 20 Dutch Spot 10 Spanish Spot March 3, 2006 0 2001 2002 2003 2004 2005 2006 2007 2008 Source: Reuters, OMEL, ATS 16
Slide 17: Nordic market becoming more integrated into Europe
Nordic market becoming more integrated into Europe Present +100 50 Under construction 70 60 • Nord Pool has introduced a spot Planned 1500 Discussed 800 market area "KONTEK" to facilitate +200 market coupling on the Kontek cable 500 • NorNed (Norway-the Netherlands) + 200 550 100 by 2008 +~700 350 1
Slide 18: Futures indicate continued high fuel prices and CO2 allowance prices
Futures indicate continued high fuel prices and CO2 allowance prices Oil price CO2 price 70 30 60 25 EUR / tCO2 USD / bbl 50 20 40 15 30 20 10 10 5 0 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Coal price Gas price 100 120 80 100 GBp / therm 80 USD / t 60 60 40 40 20 20 0 0 2004 2005 2006 20
Slide 19: Nordic water reservoirs
Nordic water reservoirs 120 100 reservoir content (TWh) 80 60 40 20 2000 2005 2006 reference level 0 1 5 9 13 17 21 25 29 33 37 41 45 49 53 Week 19
Slide 20: Russia
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 20
Slide 21: The large Russian power market is undergoing major change
The large Russian power market is undergoing major change • A major need for new Power generation 2003 capacity > 4,000 TWh • Big potential for 2 000 efficiency improvement 1 500 1 000 500 0 Fr a Ja a c ce il K S G dia a C ny R n as di ad n si pa U U an hi a or us In Br an m C N Source: IEA er 21
Slide 22: Development of Russian power industry – a Nordic/Western analogy
Development of Russian power industry – a Nordic/Western analogy Competitive • Generation businesses: • Sales Unbundling of businesses by type of activity Regulated • Transmission monopolies: • Distribution Market liberalisation in Pricing model reform – from tariff competitive businesses regulation
Slide 23: Key steps in the reform
Key steps in the reform • "Power industry law" approved • Restructuring of regional energos (P&H companies) • Formation of new companies • Establishment of Russian power exchange (ATS) • Launch of the free-trade sector of the wholesale market • Introduction of vested bilateral contracts for a transi
Slide 24: Reform impacts industry structure
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 guaranteeing
Slide 25: Prices of fuel and electricity in Russia are currently low
Prices of fuel and electricity in Russia are currently low Russian power generation Electricity price and typical 914 TWh in 2003 marginal costs for gas-fired power plant Oil 3% Nuclear 50 Electricity price 16% Gas 45% 40 150 TWh 407 TWh CO2 cost 30 20 Hydro Gas cost 10 17% 156 TWh 0 Russia Germany
Slide 26: Fortum has a long experience of successful co-operation
Fortum has a long experience of successful co- operation 1950 1960 1970 1980 1990 2000 Construction of hydro power Construction of North-West plants in Kola area Loviisa NPP construction CHP in St Petersburg Lenenergo shareholding Electricity import Nuclear fuel import Automation & information syste
Slide 27: Fortum's foothold in NW Russia originates from stake in Lenenergo
Fortum's strong foothold in NW Russia today originates from stake in Lenenergo • Largest utility in northwest Russia • 9 thermal and 6 hydro plants • Power generation – capacity ~3,240 MW – production ~13.4 TWh/a • Heat generation – capacity ~13,900 MW – production ~25.2 TWh/a • Personnel ~12,500 •
Slide 28: Kolenergo – northwest Russian power company
Kolenergo – northwest Russian power company Key figures of Kolenergo Hydro power generation TWh/a 6.5 Unbundled companies Companies are planned to Hydro power capacity MW 1,593 with the same shareholding be merged with territorial or Share of TGC-1's hydro capacity 55% structure as Kolenergo interre
Slide 29: TGC-1 operating as of 1 October 2005
TGC-1 operating as of 1 October 2005 Installed Territorial Generating Company TGC-1 capacity MW • Production capacity ~ 5,750 MW, of which hydro 2,874 MW • Third largest territorial generation Sweden company in Russia 33,600 • Started operation on 1 October 2005 Norway based on a leasing model Finla
Slide 30: Financials / outlook
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 30
Slide 31: An outstanding year for Fortum
An outstanding year for Fortum • Successful separation and listing of Neste Oil • Significant progress in Russia and Poland • Agreements to acquire E.ON Finland shares from the city of Espoo and E.ON Nordic • The comparable operating profit of all segments improved from 2004 31
Slide 32: Strong performance
Strong performance • EUR 1,334 (1,148) million comparable operating profit from continuing operations, up by 16% • From continuing operations – earnings per share EUR 1.01 (0.79) – net cash EUR 1,271 (1,232) million • Proposed cash dividend EUR 1.12 per share – of which EUR 0.58 per share from conti
Slide 33: Revised targets for capital structure
Revised targets for capital structure • Fortum wants to have a prudent and efficient capital structure, which at the same time allows the implementation of its strategy • The company targets a capital structure where net debt to EBITDA is in the range of 3.0 - 3.5 • In the medium term, allowing the
Slide 34: Development of power prices
Development of power prices • 1% increase in Nord Pool system area price to 29.3 EUR/MWh in 2005 • Fortum's achieved Nordic Generation power price increased by 7% to 31.2 EUR/MWh in 2005 • 17% increase in Nord Pool system area price to 32.3 EUR/MWh in Q4/2005 • Fortum's achieved Nordic Generation po
Slide 35: Comparable operating profit
Comparable operating profit MEUR IV/2005 IV/2004 2005 2004 Power Generation 297 232 854 730 Heat 97 75 253 207 Distribution 76 57 244 240 Markets 8 -1 30 23 Other -18 -14 -47 -52 Comparable operating profit 460 349 1 334 1 148 Non-recurring items 10 29 30 18 Other items effecting comparability 4 -15
Slide 36: Income statement
Income statement MEUR 2005 2004 Net sales 3 877 3 835 Expenses -2 530 -2 640 Operating profit 1 347 1 195 Share of profit of associates and joint ventures 55 12 Financial expenses, net -135 -245 Profit before taxes 1 267 962 Income tax expense -331 -259 Profit for the period from continuing operatio
Slide 37: Cash flow statement
Cash flow statement MEUR 2005 2004 Operating profit before depreciations continuing operations 1 754 1 583 Non-cash flow items and divesting activities 15 -37 Financial items and taxes -405 -341 Funds from operations continuing operations (FFO) 1 364 1 205 Change in working capital -93 27 Net cash f
Slide 38: Balance sheet
Balance sheet MEUR Dec 31 Dec 31 2005 2004 Non-current assets 13 075 15 213 Current assets 2 055 2 354 ASSETS 15 130 17 567 Total equity 7 411 7 650 of which minority interest 260 150 Interest-bearing liabilities 3 946 5 240 Non-interest bearing liabilities 3 773 4 677 EQUITY AND LIABILITIES 15 130
Slide 39: Nord Pool Year Forwards
Nord Pool Year Forwards Year 06 Year 07 Year 08 Year 09 €/MWh March 6, 2006 46 44 42 40 38 36 34 32 30 28 26 24 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2004 2005 2006 39
Slide 40: Hedging of Nordic Power Generation sales
Hedging of Nordic Power Generation sales Fortum has hedged its Nordic Power Generation sales volume at the end of January 2006: Hedge ratio Hedge price 2-12 / 2006 75 % ~ EUR 32 per MWh Calendar 40 % ~ EUR 34 per MWh year 2007 40
Slide 41: Fortum well positioned also for the future
Fortum well positioned also for the future • Continued focus on the Nordic and Baltic Rim countries • Attractive growth opportunities • Strong financial position and cash flow • Favourable market fundamentals, an upward trend in electricity forward prices 41
Slide 42: Supplementary material
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 42
Slide 43: Fortum - a listed company
Fortum - a listed 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 Households 5.2% Financial and insurance institutions 2.4% Other Finnish investors 7.
Slide 44: Current Fortum Group financial targets
Current Fortum Group financial targets • ROE >12% • ROCE >12% • Net debt / EBITDA 3.0 - 3.5 • Normal CAPEX <depreciation 44
Slide 45: Credit ratings
Credit ratings • Moody's long-term rating A2 (stable outlook) • Standard & Poor's long-term rating A- (stable outlook) "Due to the cash outflows, which in 2006 total €2.23 billion, Fortum’s debt is expected to increase significantly and credit measures are likely to weaken as a result, thereby marke
Slide 46: Funding sources and maturity profile
Funding sources and maturity profile 1,697 Interest bearing loans in the end of 2005 Average interest rate disclosed in the end of 2005 for the year 2005 was 4%. • Funding and treasury risk management centralised to Group Treasury Total 3,946 MEUR 828 • Transparent loan portfolio 580 542 • Access to
Slide 47: Heat key figures
Heat key figures Nr 1 EUR million 2005 2004 Distribution Net sales 1,063 1,025 Heat Comparable operating profit 253 207 · · · · ·9.8· Employees 2,385 2,146 · · ··· 9.5 · ···· ·· ···· 0.1 · ·· · · ···· · ········· · · - · · Production plants · · · · ··· ·· ·· · ·· ········1. 2 CHP plants 23 - · · · ·
Slide 48: Polish power and heat markets
Polish power and heat markets Operations of Fortum Heat in Poland • Population 38 million • GDP growth around 4.5% in 2004 • Total electricity consumption 130-140 TWh/a • Polish generation approx. 150 TWh/a Płock • Number of electricity customers around 15.6 million • 8 distribution companies • Ener
Slide 49: Baltic countries' power and heat markets
Baltic countries' power and heat markets • Population 1.3 million (Estonia), 2.3 million (Latvia) and 3.4 million (Lithuania) • GDP growth 6.0% (Estonia), 5.5% (Latvia), 6.5% (Lithuania) • Total electricity consumption; Estonia and Latvia 6-7 TWh/a, Lithuania 10 TWh/a • Total generation; Estonia 9-1
Slide 50: Distribution regulation differ country by country
Distribution regulation differ country by country Finland Sweden Norway New model for New regulatory model is The regulator has proposed a Status period 2005 - 2007 being applied to 2003 and model for the next 5-year 2004 tariffs period starting in 2007. Regulation Rate of return, Yardstick, ex-post
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