Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (May 2006)
51 slides from Fortum Oyj's investor presentation, May 2006
Slide 1: A leading energy company in the Nordic area
- a leading energy company in the Nordic area Presentation for investors May 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 an approx. 14% Generation market share of Nordic consumption Portfolio Mgmt • Best-in-class physical and financial market operations & Trading • Efficient operation and maintenance services
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's aim is to pay a 1.12 dividend corresponding 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* * 0.58 from continuing operations 10
Slide 11: Excellent share performance
Excellent share performance Share price Market value Index 17.9 EUR billion 500 Fortum 450 400 13.1 350 11.8 300 250 -3.3 200 6.9 150 5.3 Dow Jones 600 4.0 100 3.4 50 0 1/01 1/02 1/03 1/04 1/05 1/06 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Mar Neste Oil 3 May 2000 2001 2002 2003 2004 as 2005 dividends
Slide 12: Agenda
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 12
Slide 13: 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 13
Slide 14: Still a highly fragmented Nordic power market
Still a highly fragmented Nordic power market Generation Distribution Retail 395 TWh 14 million customers 14 million customers > 350 companies >500 companies ~450 companies Fortum Fortum Fortum others others others E.ON Vattenfall 29% Vattenfall Dong Energy E.ON 51% 53% Vattenfall Helsinki BKK Dong
Slide 15: New capacity will be needed
New capacity will be needed Demand and capacity development in • Electricity demand is expected to the Nordic market increase around 55 TWh by 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 ca
Slide 16: 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 May 2, 2006 20 20 10 10 0 -94 -96 -98 -00 -02 -04 -06 -08 0 Coal Gas Nuclear Hydro Wind Source: Nord Pool, Fortum Source: NEA & IEA "Projected Cost of
Slide 17: Spot history and forwards in Europe
Spot history and forwards in Europe Yearly moving average spot price Forwards EUR/MWh EUR/MWh 100 90 80 UK 70 60 German 50 40 Nord Pool 30 Dutch 20 10 Spanish May 2, 2006 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Reuters, OMEL 17
Slide 18: Nordic market becoming more integrated into Europe
Nordic market becoming more integrated into Europe Present +100 70 50 Under construction 60 • In 2005, Nord Pool introduced a Planned 1500 Discussed 800 spot market area "KONTEK" to +200 facilitate market coupling on the 500 Kontek cable + 200 550 100 • NorNed (Norway - The Netherlands) +800 350 130
Slide 19: Fuel and CO2 allowance prices
Fuel and CO2 allowance prices Oil price Gas price (UK) 80 120 70 100 60 GBP / therm 80 USD / bbl 50 40 60 30 40 20 10 20 0 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Coal price CO2 price 90 35 80 30 70 25 EUR / tCO2 60 USD / t 50 20 40 15 30 10 20 10 5 0 0 2004 2005 2006 2007 2008 2004 2005
Slide 20: 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 Source: Nord Pool 20
Slide 21: Agenda
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 21
Slide 22: 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 S K 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 22
Slide 23: 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 24: 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 25: 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 26: 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 27: 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 28: Fortum's strong 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 29: 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 30: 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 31: Agenda
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 31
Slide 32: A good start to the year
A good start to the year • EUR 486 (393) million comparable operating profit from continuing operations, up by 24% • All segments excluding Markets improved their performance • From continuing operations – earnings per share EUR 0.39 (0.28), up by 39% – net cash from operating activities EUR 303 (62
Slide 33: Development of prices
Development of prices • 75% increase in Nord Pool system area price to 45.4 EUR/MWh in Q1/2006 • Fortum Power Generation's achieved Nordic power price increased by 17% to 37.1 EUR/MWh in Q1/2006 • Increase in CO2 price to 22-27 EUR/tonne in Q1 33
Slide 34: Comparable operating profit
Comparable operating profit MEUR I/2006 I/2005 2005 LTM Power Generation 293 224 854 923 Heat 126 107 253 272 Distribution 81 66 244 259 Markets 0 7 30 23 Other -14 -11 -47 -50 Comparable operating profit 486 393 1 334 1 427 Non-recurring items 0 6 30 24 Other items effecting comparability -14 7 -17
Slide 35: Income statement
Income statement MEUR I/2006 I/2005 2005 LTM Sales 1 343 1 133 3 877 4 087 Expenses -871 -727 -2 530 -2 674 Operating profit 472 406 1 347 1 413 Share of profit of associates and joint ventures 35 15 55 75 Financial expenses, net -15 -35 -135 -115 Profit before taxes 492 386 1 267 1 373 Income tax e
Slide 36: Cash flow statement
Cash flow statement MEUR I/2006 I/2005 2005 Operating profit before depreciations, continuing operations 570 509 1 754 Non-cash flow items and divesting activities 24 -14 15 Financial items and taxes -110 -205 -405 Funds from operations, continuing operations (FFO) 484 290 1 364 Change in working ca
Slide 37: Balance sheet
Balance sheet MEUR Mar 31 Dec 31 2006 2005 Non-current assets 13 106 13 075 Current assets 1 595 2 055 ASSETS 14 701 15 130 Total equity 6 498 7 411 of which minority interest 231 260 Interest-bearing liabilities 4 107 3 946 Non-interest bearing liabilities 4 096 3 773 EQUITY AND LIABILITIES 14 701
Slide 38: Nord Pool year forwards
Nord Pool year forwards Year 05 Year 06 Year 07 Year 08 Year 09 €/MWh May 3, 2006 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 2004 2005 2006 38
Slide 39: Hedging of Power Generation's Nordic sales
Hedging of Power Generation's Nordic sales Fortum has hedged Power Generation's Nordic sales volume at the beginning of April 2006: Hedge ratio Hedge price 4-12 / 2006 ~ 80 % ~ EUR 33 per MWh Calendar year ~ 55 % ~ EUR 37 per MWh 2007 39
Slide 40: Fortum well positioned for 2006 and 2007
Fortum well positioned for 2006 and 2007 • A strong start to the year • Continued focus on the Nordic and Baltic Rim countries • Competitive corporate structure, costs and production portfolio • Strong financial position and cash flow Fortum has the foundations for good performance 40
Slide 41: Agenda
• Fortum today • Nordic power market • Russia • Financials / outlook • Supplementary material 41
Slide 42: 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 5.0% Financial and insurance institutions 2.2% Other Finnish investors 7.
Slide 43: Current Fortum Group financial targets
Current Fortum Group financial targets • ROE >12% • ROCE >12% • Net debt / EBITDA 3.0 - 3.5 • Normal CAPEX <depreciation 43
Slide 44: 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 45: Funding sources and maturity profile
Funding sources and maturity profile Interest bearing loans at the end of March 2006 Average interest rate disclosed at the end of 2005 for the year 2005 was 4%. 1,506 • Funding and treasury risk management centralised to Group Treasury 828 Total 4,107 MEUR • Transparent loan portfolio 580 542 • Acc
Slide 46: Total equity
Total equity MEUR Mar 31 Dec 31 Change 2006 2005 Share capital 2 997 2 976 21 Share premium 72 70 2 Other restricted funds 2 2 0 Fair value and other reserves 1) -378 -117 -261 Retained earnings 2) 3 574 4 220 -646 Minority 231 260 -29 Total equity 6 498 7 411 -913 1) Major part is attributable to f
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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