Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (July 2019)
60 slides from Fortum Oyj's investor presentation, July 2019
Slide 1: Equity story of FORTUM – For a cleaner world
Equity story of FORTUM – For a cleaner world Investor / Analyst material July 2019
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. Any references to the fut
Slide 3: Content
Content Fortum in brief 4–5 Energy market transition 6 – 12 Fortum’s strategic route 13 – 19 Half-year Financial report 2019 20 – 39 Appendices European and Nordic power markets 40 – 48 Fortum’s power generation 49 – 54 Fortum’s Russian capacity and prices 55 – 56 Historical achieved prices 57 Divid
Slide 4: Fortum at a glance
Fortum in brief Fortum at a glance Description of Fortum Key shareholders Finnish households 9.7% Financial and • A leading clean-energy company across the Nordic region, the Baltic • Listed on the Helsinki insurance institutions countries, Poland, and Russia Stock Exchange since 1.7% 1998 • A circu
Slide 5: Fortum’s geographical footprint
Fortum in brief Fortum’s geographical footprint Nordic countries Russia Key figures 2018 Power generation PAO Fortum Sales EUR 5.2 bn #3 43.5 TWh Comparable #4 Heat sales #10 Power generation EBITDA EUR 1.5 bn 5.9 TWh 29.5 TWh Total assets EUR 22 bn #1 Electricity customers #8 Heat sales Personnel 8
Slide 6: Three main drivers are shaping the future electricity markets
Energy market transition Three main drivers are shaping the future electricity markets Climate and Politics and Technology Environment Regulation Development • Decarbonisation to • National and • Solar and wind reach Paris agreement international interests targets • Digitalisation and • Market model
Slide 7: Europe needs to eliminate CO2 emissions to reach climate goals
Energy market transition Europe needs to eliminate CO2 emissions to reach climate goals – this requires actions from all sectors MtCO2 (ekv.) 6 000 Greenhouse gas emissions 5 000 Coal 4 000 Power - 40 % 3 000 Oil Transport1 - 60 % 2 000 Industry2 Gas Buildings3 1 000 - 80 % Current EU climate target
Slide 8: Emission trading system (ETS) started in 2005
Energy market transition Emission trading system (ETS) started in 2005 to gradually limit emissions mainly in energy and industry MtCO2 (ekv.) 6 000 6000 Greenhouse gas emissions 5 000 5000 Large sectors not in ETS: 4 000 • Road transportation (~ 900 MtCO2 or 21 %) 4000 • Buildings (~ 600 MtCO2 or 1
Slide 9: The decades of electricity will affect several sectors
Energy market transition The decades of electricity will affect several sectors – and Fortum is well positioned for decarbonisation Global climate Electricity demand challenge (indicative) (2018-2050) Sector Future solutions, examples Fortum’s current offering, examples CO2-free generation, hydrogen
Slide 10: Volatility and uncertainty in the European power market increases the value of flexible assets
Energy market transition Volatility and uncertainty in the European power market increases the value of flexible assets Intermittent renewables Nuclear and coal closures Increasing role of gas Volatility and Supply-demand balance uncertainty Increased interconnection between Nordics and Continent Co
Slide 11: The MSR introduces tightness to carbon market
Energy market transition The MSR introduces tightness to carbon market Linear reduction factor (LRF) tightens the market Market stability reserve restores scarcity Abatement from coal to gas switching by reducing future auction volumes depends on coal and gas prices, together MtCO2 Illustrative volu
Slide 12: Several Western European countries exiting coal over the next decade
Energy market transition Several Western European countries exiting coal over the next decade • France to phase out coal from power sector at latest in FI: Phase-out Germany: Phase- by 2029 2022 out by 2038 SE: Last coal plant to close • United Kingdom to exclude coal condense from capacity 2022 mar
Slide 13: Positioning Fortum for the decade of electricity – For a cleaner world
Fortum’s strategic route Positioning Fortum for the decade of electricity – For a cleaner world 13
Slide 14: Fortum’s strategic priorities in a changing energy market
Fortum’s strategic route Fortum’s strategic priorities in a changing energy market 1. Pursue operational excellence and 2. Ensure value creation from investments increased flexibility and portfolio optimisation • Ensure benchmark performance • Increase shareholder value from Uniper • Focus on cash f
Slide 15: Delivering on financial targets through operational excellence and portfolio optimisation
Fortum’s strategic route Delivering on financial targets through operational excellence and portfolio optimisation in the short to mid term Strategic priorities… … creating value Operational excellence • Continue productivity improvement • Benchmark performance • Prioritise capital expenditure • Opt
Slide 16: Investment in Uniper supports Europe’s energy transition
Fortum’s strategic route Investment in Uniper supports Europe’s energy transition and provides a valuable cash flow contribution Generation capacity 36.6 GW in 2018 Fortum and Uniper strongly complement each other • Uniper is an international utility with a diversified portfolio and Gas significant
Slide 17: Fortum is a forerunner in sustainability
Fortum’s strategic route Fortum is a forerunner in sustainability We engage our customers and society to drive the change towards a cleaner Fortum listed in several world. Our role is to accelerate this change by reshaping the energy system, sustainability indexes and ratings: improving resource eff
Slide 18: Building the utility of the future
Fortum’s strategic route Building the utility of the future FUTURE UTILITY Hydrogen and methane for Power-to-Gas Sustainable materials traffic and industrial use • Sustainable hydrogen Hydrogen, methane • Recycling production and excess heat Electricity • Energy recovery • Synthetic “clean” gas prod
Slide 19: Fortum’s long-term financial targets and dividend policy
Fortum’s strategic route Fortum’s long-term financial targets and dividend policy Fortum’s dividend policy is Return on capital employed Comparable (ROCE) of at least Net debt/EBITDA ratio to pay a stable, at around sustainable, and over 10% 2.5x time increasing dividend of 50-80% of earnings per sh
Slide 20: Interim Report January-June 2019
Interim Report January-June 2019 Fortum Corporation 19 July 2019
Slide 21: Improved results in all business segments and strong cash flow
Half-year Financial Report 2019 Improved results in all business segments Strategy and strong cash flow execution continues • Nordic spot power price down, -9% Y/Y Portfolio – Achieved power price at EUR 35.0, up 1.9 EUR/MWh optimisation – • Reservoir levels above long-term average review of heating
Slide 22: Nordic water reservoirs above the historical average level
Half-year Financial Report 2019 Nordic water reservoirs above the historical average level Reservoir content (TWh) 120 • Heavy rains in May and June resulted in high 100 inflows 80 • As a consequence, water reservoirs increased above average during the quarter 60 • Reservoirs currently only 40 sligh
Slide 23: Weaker fuel prices and increased coal-to-gas switching in Q2
Half-year Financial Report 2019 Weaker fuel prices and increased coal-to-gas switching in Q2 USD / t Coal price (ICE Rotterdam) 250 The coal market loosened during Q2: Chinese demand growth faltered due to strong hydro power production and macroeconomic slowdown while the 200 competitiveness of gas
Slide 24: CO2 price continued strong in Q2
Half-year Financial Report 2019 CO2 price continued strong in Q2 EUR / tCO2 CO2 price (ICE EUA) 35 The CO2 market recovered during Q2 as implied switch levels were raised by 28 weak far-dated coal prices. Moreover, the delay of Brexit deadline to end-October alleviated (not eliminated) the bearish r
Slide 25: Nordic Q2 spot power price declined on improved hydrology
Half-year Financial Report 2019 Nordic Q2 spot power price declined on improved hydrology EUR/MWh Nordic spot and forward prices 90 • During Q2, the average Nord Pool system spot Nord Pool System Price 80 price was 35.6 EUR/MWh (39.0) Futures 70 • The average area price was: – 37.4 EUR/MWh (42.0) in
Slide 26: German-Nordic power price spread
Half-year Financial Report 2019 German-Nordic power price spread SPOT PRICE • During Q2 2019, the average spread was 0.2 EUR/MWh with the EUR/MWh Nordic and German daily spot prices in Jan 2018 – July 2019 100 Nordic system average price at 35.6 EUR/MWh and German price at 35.8 EUR/MWh 80 60 • Decli
Slide 27: Fortum’s achieved power price +6% in Q2
Half-year Financial Report 2019 Fortum’s achieved power price +6% in Q2 despite lower Nordic power price – Russian achieved price +11% +15% -9% +6% +11% Changes refer to year-on-year difference (Q2 2019 versus Q2 2018) NOTE: Achieved power price (includes capacity payments) in roubles increased by 1
Slide 28: Generation
Half-year Financial Report 2019 Generation Q2 2019 H1 2019 • Higher achieved power price, • Higher achieved power price, +1.9 EUR/MWh, +6% +3.3 EUR/MWh, +10% • Good operational performance • Good operational performance – Higher hydro and nuclear – Higher nuclear volumes and volumes successful hydro
Slide 29: City Solutions
Half-year Financial Report 2019 City Solutions Q2 2019 H1 2019 • Higher heat sales volumes • Improved result in recycling and • Improved result in recycling waste business and waste business • Better performance in heat • Higher fuel and CO2 costs business in Norway • Higher power price Hafslund syn
Slide 30: Consumer Solutions
Half-year Financial Report 2019 Consumer Solutions Q2 2019 H1 2019 • Improved sales margin • Higher sales margins – Favourable market conditions – Favourable market conditions – Improved product margins continued in Q2 • Continued competition with high • Part of the profitability customer churn in t
Slide 31: Russia
Half-year Financial Report 2019 Russia Q2 2019 H1 2019 • Clearly lower bad-debt • Higher power margins and higher CSA provisions payments • Higher power margins • Lower bad-debt provisions • Higher CSA payments • Heat distribution business to Yustek JV • FX impact EUR 2 million • FX impact EUR -6 mi
Slide 32: Q2 2019 – Strong performance in Generation and Russia
Half-year Financial Report 2019 Q2 2019 – Strong performance in Generation and Russia Comparable operating profit EUR million • Increased spend on Business Technology • Higher heat • Higher sales • Clearly lower including internal sales volumes margins bad-debt and external • Improved result • Part
Slide 33: H1 2019 – Profit increased in all business segments
Half-year Financial Report 2019 H1 2019 – Profit increased in all business segments Comparable operating profit EUR million • Higher power • Increased margin spend on • Improved result • Higher sales • Lower bad-debt Business in recycling and margin provisions Technology waste business • Part of • H
Slide 34: Uniper purchase price allocation finalised
Half-year Financial Report 2019 Uniper purchase price allocation finalised • The total acquisition cost EUR 3,968 million includes direct costs relating to the acquisition • Fortum's share of the goodwill on Uniper's balance sheet, EUR 930 million, is derecognised as it is not an identifiable asset
Slide 35: Key financials
Half-year Financial Report 2019 Key financials MEUR Q2 Q2 Q1-Q2 Q1-Q2 2018 LTM • Comparable operating profit mainly 2019 2018 2019 2018 driven by Generation and Russia Sales 1,144 1,087 2,834 2,672 5,242 5,404 • Share of profits from associates of Comparable EBITDA 372 282 918 820 1,523 1,621 EUR 46
Slide 36: Income statement
Half-year Financial Report 2019 Income statement Q2 Q2 Q1-Q2 Q1-Q2 2018 LTM MEUR 2019 2018 2019 2018 Sales 1,144 1,087 2,834 2,672 5,242 5,404 • Nuclear fund adjustment due to Other income 23 18 44 42 130 132 regular nuclear technical update, Materials and services -526 -555 -1,443 -1,380 -2,795 -2,
Slide 37: Cash flow statement
Half-year Financial Report 2019 Cash flow statement Q2 Q2 Q1-Q2 Q1-Q2 MEUR 2019 2018 2019 2018 2018 LTM Comparable EBITDA 372 282 918 820 1,523 1,621 • Very strong cash flow Realised FX gains/losses 15 91 10 133 231 108 strengthened by Paid net financial costs, income taxes and dividends received, -
Slide 38: Ongoing actions to deleverage aim to optimise cash flow and maintain financial flexibility
Half-year Financial Report 2019 Ongoing actions to deleverage aim to optimise cash flow and maintain financial flexibility LTM 2018 TARGET Comparable EBITDA, MEUR 1,621 1,523 • Liquid funds of EUR 1.3 billion Interest-bearing net debt, MEUR 5,422 5,509 • Committed credit lines of EUR 1.8 billion Com
Slide 39: Outlook
Half-year Financial Report 2019 Outlook Demand growth Hedging 2019 Estimated Targeted cost Taxation annual capital synergies of Hafslund Electricity demand in For the remainder of Effective tax rate for the Nordics is 2019: ~80% hedged at expenditure, transaction 2019 for the Group expected to grow
Slide 40: Still a highly fragmented Nordic power market
European and Nordic power markets Still a highly fragmented Nordic power market Fortum has the largest electricity customer base in the Nordics Power generation in 2017 Electricity retail 402 TWh 15 million customers >350 companies ~350 companies Vattenfall Others Fortum Others Vattenfall 37% Statkr
Slide 41: Fortum mid-sized European power generation player
European and Nordic power markets Fortum mid-sized European power generation player – major producer in global heat Power generation Heat production Customers Largest producers in Europe and Russia, 2017 Largest global producers, 2017 Electricity customers in Europe, 2017 TWh TWh Millions EDF Gazpro
Slide 42: Nordic year forwards
European and Nordic power markets Nordic year forwards Year10 Year11 Year12 Year13 Year14 Year15 Year16 Year17 Year18 Year19 Year20 Year21 €/MWh 16 July 2019 70 Year20 Year21 40 38 60 36 34 32 50 30 Apr May June July 2019 2019 2019 2019 40 30 20 10 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Slide 43: Wholesale power prices
European and Nordic power markets Wholesale power prices EUR/MWh Spot prices Forward prices 100 90 80 70 60 German 50 Nordic 40 Russian* 30 20 10 16 July 2019 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 * Including weighted average capacity price 43 Source: Nord Pool, Bloomberg Finance
Slide 44: Current transmission capacity from the Nordic area is >6,000 MW
European and Nordic power markets Current transmission capacity from the Nordic area is >6,000 MW COUNTRIES TRANSMISSION CAPACITY MW From Nordics To Nordics Denmark - Germany 2,225 2,100 Sweden - Germany 615 615 Sweden - Poland 600 600 Sweden - Lithuania 700 700 Norway - Netherlands 723 723 320 Finl
Slide 45: Nordics, Baltics, the Continental and the UK markets are integrating
European and Nordic power markets Nordics, Baltics, the Continental and the UK markets are integrating – interconnection capacity to double by end-2023 The Northern Seas Offshore Grid and the Baltic New interconnections will double the Energy Market Integration Plan are included as Nordic export cap
Slide 46: Power Generation in the Baltic Rim in 2018 (2017)
European and Nordic power markets Power Generation in the Baltic Rim in 2018 (2017) Hydro NORDICS BALTICS Nuclear Sweden 2018 TWh % TWh % Fossil fuel 158 TWh Biomass (159) Hydro *212 53 3 17 Waste Wind Finland Nuclear 88 22 - - 67 TWh Solar (65) Fossil fuel 28 7 13 62 Others Norway 146 TWh Biomass 2
Slide 47: Northern European conventional capacity decreasing
European and Nordic power markets Northern European conventional capacity decreasing Estimated annual net changes in nuclear DATE CAPACITY AREA UNIT/ TRANSMISSION COMMENT and thermal capacity 1.10.2018 - 1100 MW DE Lignite reserve Niederaußem E & F and Jänschwalde F moved to lignite reserve 31.12.20
Slide 48: Fortum’s evolution and historical strategic route
Fortum’s power Generation Fortum’s evolution and historical strategic route Skandinaviska Birka Energi Länsivoima Elnova Østfold Elverk 50% Fortum →100% 50% → 100% 50% Stockholm Gullspång merged Shares in with Stockholm Energi Hafslund Gullspång Stora Kraft Birka Energi TGC-1 E.ON Divestment 50% → 1
Slide 49: Fortum's power and heat production by source
Fortum’s power Generation Fortum's power and heat production by source Fortum's power generation in 2018 Fortum's heat production in 2018 Natural gas 38% Natural gas 64% Solar 0.5% Total Total Waste 0.5% Nuclear Others 1% generation power Peat 1% production Wind 1% Biomass 1% 74.6 TWh 30% Heat pumps
Slide 50: Fortum's European power and heat production by source
Fortum’s power Generation Fortum's European power and heat production by source Fortum's European power generation in 2018 Fortum's heat European production in 2018 Nuclear power 50% Coal 28% Biomass 24% Natural gas 1% European European Wind 1% generation Others 2% production Waste 1% 44.7 TWh 9.4 T
Slide 51: Fortum’s Nordic, Baltic and Polish generation capacity
Fortum’s power Generation Fortum’s Nordic, Baltic and Polish generation capacity GENERATION CAPACITY MW NORWAY MW FINLAND MW Hydro 4,672 Price areas Hydro 1,548 NO4, Wind 82 Nuclear 1,485 Nuclear 2,819 NO4 SE1 NO1, CHP 20 CHP 451 CHP 785 Generation capacity 102 Other thermal 376 Other thermal 376 Ge
Slide 52: Fortum is growing towards gigawatt scale target in solar and wind
Fortum’s power Generation Fortum is growing towards gigawatt scale target in solar and wind power production PORTFOLIO TECHNOLOGY STATUS CAPACITY MW FORTUM SHARE, MW SUPPLY STARTS/ STARTED Ånstadblåheia 50 MW FINLAND 90 90 Kalax Wind Under development 90 90 Sørfjord 97 MW NORWAY 179 179 Blaiken 37 M
Slide 53: Fortum’s nuclear fleet
Fortum’s power Generation Fortum’s nuclear fleet LOVIISA OLKILUOTO OSKARSHAMN FORSMARK Commercial Unit 1: 1977 Unit 1: 1978 Unit 1: 1972* Unit 1: 1980 operation started Unit 2: 1981 Unit 2: 1980 Unit 2: 1974* Unit 2: 1981 Unit 3: (Under construction) Unit 3: 1985 Unit 3: 1985 Generation Capacity Uni
Slide 54: Fortum's nuclear power in the Nordics
Fortum’s power Generation Fortum's nuclear power in the Nordics LOAD 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 FACTOR (%) Oskarshamn 1* 80 51 63 85 68 77 72 1 12 74 60 81 82 0 Oskarshamn 2* 90 78 76 86 75 90 77 81 33 0 0 0 0 0 Oskarshamn 3 85 95 88 70 17 31 68 69 77 75 79
Slide 55: Thermal power generation capacity in Russia on 31 Dec 2018
Fortum’s Russian capacity and prices Thermal power generation capacity in Russia on 31 Dec 2018 YEAR SUPPLY POWER FUEL CCS CSA PRODUCTION TOTAL STARTS PLANT TYPE CAPACITY CAPACITY TYPE CAPACITY < 2011 Tyumen CHP-2 Gas 755 CHP/Condensing 755 Chelyabinsk CHP-2 Gas, coal 320 CHP/Condensing 320 Argayash
Slide 56: Day ahead wholesale market prices in Russia
Fortum’s Russian capacity and prices Day ahead wholesale market prices in Russia Key electricity, capacity and gas prices in the PAO Fortum area II/19 II/18 I-II/19 I-II/18 2018 LTM Electricity spot price (market price), Urals hub, RUB/MWh 1,151 1,004 1,140 1,008 1,043 1,109 Average regulated gas pr
Slide 57: Hedging improves stability and predictability
Historical achieved prices Hedging improves stability and predictability – principles based on risk mitigation 57 2009 onwards thermal and import from Russia excluded
Slide 58: Capital returns: 2018 EUR 1.10 per share
Dividend Capital returns: 2018 EUR 1.10 per share ~ EUR 1 billion Five year history of dividend per share Fortum's target is to pay a stable, sustainable, and over time increasing dividend of 50-80% of EUR earnings per share excluding one-off items 1,4 1.30 1,2 0,2 1.10 1.10 1.10 1.10 Fortum’s divid
Slide 59: Successful strategy execution in shifting the business from regulated towards merchant based
The divestment of Distribution Successful strategy execution in shifting the business from regulated towards merchant based – extraction of significant value and cash flow 2014-2015 2016-2018 New investments and acquisitions Shifted EPS and cash flow Divestment in line with strategy compensated to 1
Slide 60: Fortum Investor Relations and Financial Communications
Next events: Q3/2019 results on 24 October 2019 For more information, To subscribe Fortum's releases, please fill out the subscribtion form on our website https://www.fortum.com/about-us/media/media-room/subscribe-press-releases please visit www.fortum.com/investors Fortum Investor Relations and Fin