Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (March 2008)
54 slides from Fortum Oyj's investor presentation, March 2008
Slide 1: A leading energy company in the Nordic area
- a leading energy company in the Nordic area Presentation for investors March 2008
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, Russia 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 countries Russia – existing Generation 51.1 TWh TGC-1 (~25% minority stake*) Electricity sales 58.5 TWh Power generation ~6 TWh Heat sales 20.4 TWh Heat production ~8 TWh Distribution cust. 1.6 million Electricity cust. 1.3 million *Fortum’s share Russia – acqui
Slide 6: Fortum Business structure
Fortum Business structure Fortum Markets Fortum's comparable Large Nordic customers operating profit in 2007 Nordic Fortum wholesale wholesale EUR 1,564 million market Small Power market customers Generation Nord Pool and bilateral Other retail Markets 0% companies Deregulated Distribution Regulated
Slide 7: Strong financial position
Strong financial position ROE (%) EPS, (EUR) Total assets (EUR billion) 25,0 2,00 1,74 20,0 16,8 17,7 19,1 15,1 20,0 1,50 15,0 13,5 14,4 1,22 15,0 1,01 1,00 10,0 10,0 0,50 5,0 5,0 0,0 0,00 0,0 2005 2006 2007* 2005 2006 2007 2005 2006 2007 * Includes gains from REC and Lenenergo ROCE (%) Dividend, (E
Slide 8: Growing capital returns
Growing capital returns Dividend per share EUR • Dividend proposal of EUR 1.35 per share, in total ~EUR 1.35* 1.2 billion 1.26 Total ~ 5,075 MEUR 1.12 • Mandate for repurchasing of 0.58 0.53 the company’s own shares; 0.54 0.58 maximum EUR 300 million 0.42 • Dividend policy of 50 - 60% 0.77** 0.58***
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 TWh 30,000 4,000 1 800 500+ TWh 25,000 1 710 1 300 ~10 000 3,000 TWh 1 600 1 520 20,000 TWh 15,000 2,000 1 400 1 420 10,000 1 200 1,000 5,000 1 000 0 0 20041 2010E 2020E 2000 2005 2010E2015E 2020E 2000 2005 2010
Slide 11: ...also in the Nordic market
...also in the Nordic market Demand and capacity development in the Nordic market • Electricity demand is expected to increase by ~45 TWh by 2020 compared to 2006 TWh • Estimated retiring generation approx. 35 TWh*) 500 400 80 TWh • Total need for investments roughly 80 TWh 300 – decisions for anoth
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 70 Futures 70 29 February 2008 60 60 50 50 40 40 30 30 20 20 10 10 0 0 1995 -97 -99 -01 -03 -05 -07 -09 -11 -13 Coal Gas Nuclear Hydro Wind Clean coal So
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: 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 15: Nordic market becoming more integrated into Europe
Nordic market becoming more integrated into Europe • Nord Pool introduced in 2005 a German spot market area Present (MW) 50 "KONTEK" to enhance the Nordic-German trade 70 Under construction (MW) 60 • Estlink (Estonia - Finland) taken into commercial operation Planned (MW) in January 2007 800 Discuss
Slide 16: 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 17: Continued increase in CO2-free power production
Continued increase in CO2 -free power production Fortum's Nordic power production TWh 60 • ~9 TWh increase in 50 CO2 -free production* 40 • ~10 TWh increase in 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 2007 Af
Slide 18: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 18
Slide 19: Russia is the World's 4th largest power market
Russia is the World’s 4th largest power market – and growing rapidly Russia is the 4th largest power Demand for electricity in Russia to market in the World increase 50% by 2020 *) • Base scenario: 1,700 TWh/a by 2020 > 4,000 • High scenario 2,000 TWh/a by 2020 TWh 2,500 2,200 Demand growth 700+ TWh
Slide 20: Power sector reform impacts industry structure
Power sector reform impacts industry structure Regulated monopolies Competitive businesses State-controlled companies Privatised companies Private owner- <25% <25% 48% 48% <49% up to up to up to ship 100% 100% 100% System Federal Holding Holdings of 1 hydro 6 thermal 14 operator Grid of IDCs guarant
Slide 21: TGC-10 is a unique investment opportunity
TGC-10 is a unique investment opportunity Platform for growth in the World’s #4 power market Argayashsk Chelyabinsk Tobolsk Tyumen 1 – Liberalisation to increase power prices – Significant organic growth through investment programme – Fortum has a unique competence TGC-10 base in operating in Russia
Slide 22: TGC-10 – overview of the asset base and investment plans
TGC-10 – overview of the asset base and investment plans • A portfolio of 3,020 MW installed electricity capacity Boiler heat capacity 910 MW • The highest load factor of all TGCs • High demand growth Khanty-Masiysk • Electricity 18 TWh, Heat 27 TWh Tyumen Chelyabinsk • Committed investment programm
Slide 23: 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% 50 Nuclear 16% 40 Electricity price Gas Price EUR/MWh (156 TWh) 46% CO2 cost 30 (455 TWh) 20 Hydro Gas cost 18% 10 (17
Slide 24: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 24
Slide 25: 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 25
Slide 26: Key ratios
Key ratios MEUR 2007 2006 2005 Sales 4 479 4 491 3 877 Operating profit 1 847 1 455 1 347 Cash flow from operations 1 670 1 151 1 271 Interest-bearing net debt 4 466 4 345 3 158 Balance sheet total 17 674 16 839 15 130 Net debt/EBITDA* 2.2 2.3 1.8 Return on capital employed (%)* 14.0 13.4 13.5 Retur
Slide 27: Nordic water reservoirs
Nordic water reservoirs 120 100 reservoir content (TWh) 80 60 40 20 1996 2000 2006 2007 2008 reference level 0 1 5 9 13 17 21 25 29 33 37 41 45 49 Source: Nord Pool 27
Slide 28: Wholesale price for electricity
Wholesale price for electricity System Price Forward Curve 29.02.2008 90 80 70 60 EUR / MWh 50 40 30 20 10 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 28
Slide 29: Nord Pool year forwards
Nord Pool year forwards Year 05 Year 06 Year 07 Year 08 Year 09 Year 10 Year 11 Year 12 Year 13 €/MWh February 29, 2008 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 Q4 Q1 2004 2005 2006 2007 2008 29
Slide 30: Hedging of Power Generation's Nordic sales
Hedging of Power Generation's Nordic sales Status at the beginning of January 2008 (Status at the beginning of October 2007) Hedge ratio Hedge price Calendar year 2008 ~ 70% ~ EUR 44 per MWh (~65%) (~ EUR 44 per MWh) Calendar year 2009 ~ 25% ~ EUR 46 per MWh (~20%) (~ EUR 45 per MWh) 30
Slide 31: Fortum is well positioned for the future
Fortum is well positioned for the future • Focus on the Nordic and Baltic areas, Poland and Russia – opportunities in Russia • Climate change mitigation creates business opportunities – flexible and climate-benign production portfolio – investments in new CO2-free production capacity – efforts in de
Slide 32: Supplementary material
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 32
Slide 33: 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 34: 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 34
Slide 35: 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 ~350 companies Fortum Fortum Vattenfall Others Others Others Vattenfall Vattenfall 29% E.ON E.ON Fortum 51% 54% D
Slide 36: Price of EU emission allowances
Price of EU emission allowances €/CO2 35 2008 30 2007 25 20 15 10 5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2006 2007 2007 Source: Nord Pool 36
Slide 37: Strong financial performance in 2007
Strong financial performance in 2007 • Comparable operating profit EUR 1,564 (1,437) million, + 9% • Earnings per share EUR 1.74 (1.22), + 43% • Net cash from operating activities EUR 1,670 (1,151) million M EUR IV/2007 IV/2006 2007 2006 Power Generation 363 289 1 093 985 Heat 120 95 290 253 Distrib
Slide 38: Income statement
Income statement MEUR IV/2007 IV/2006 2007 2006 Sales 1 320 1 254 4 479 4 491 Expenses -800 -799 -2 632 -3 036 Operating profit 520 455 1 847 1 455 Share of profit of associates and joint ventures 18 18 241 69 Financial expenses, net -37 -25 -154 -103 Profit before taxes 501 448 1 934 1 421 Income t
Slide 39: Cash flow statement
Cash flow statement MEUR IV/2007 IV/2006 2007 2006 Operating profit before depreciations 635 573 2 298 1 884 Non-cash flow items and divesting activities -18 -71 -286 -92 Financial items and taxes -162 -230 -393 -463 Funds from operations (FFO) 455 272 1 619 1 329 Change in working capital -110 -180
Slide 40: Balance sheet
Balance sheet MEUR Dec 31 Dec 31 2007 2006 Non-current assets 15 788 15 103 Current assets 1 886 1 736 ASSETS 17 674 16 839 Total equity, 8 651 8 161 of which minority interest 292 253 Interest-bearing liabilities 4 893 4 502 Non-interest bearing liabilities 4 130 4 176 EQUITY AND LIABILITIES 17 674
Slide 41: Wholesale prices for electricity
Wholesale prices for electricity EUR/MWh Spot prices Forward prices 100 90 80 70 Dutch 60 German 50 40 Nordic 30 20 10 29 February 2008 0 2005 2006 2007 2008 2009 2010 Source: 41
Slide 42: Fortum's carbon exposure among the lowest in Europe
Fortum´s carbon exposure among the lowest in Europe g CO2/kWh electricity 1200 2006 data 1000 800 600 400 Average 372 g/kWh 200 0 Fortum Statkraft Union Fenosa Electrabel British Energy Endesa Essent EDF Dong: Vattenfall CEZ E.ON Enel EDP DEI SSE Drax Edison PVO Iberdola RWE Verbund Source: PWC & En
Slide 43: A leading Nordic power and heat company
A leading Nordic power and heat company • Leading power and heat company in Nordic • Listed at the Helsinki Stock Exchange 1998 • More than 50,000 shareholders • Among the most traded shares in Helsinki stock exchange • Market cap ~24 billion euros Households 4.8% Financial and insurance institution
Slide 44: Fortum's Nordic power generation
Fortum's Nordic power generation Fortum's Nordic power generation Fortum's Nordic power generation in 2007 in 2006 Hydro power 39% Hydro power 37% Other 2% Natural gas 1% Other 2% Peat 1% Peat 2% Biomass 2% Biomass 3% Coal 6% Coal 10% Nuclear power 49% Nuclear power 46% Total generation 51.1 TWh Tot
Slide 45: Fortum's heat production
Fortum's heat production Fortum's total heat production Fortum's Nordic heat production in 2007 in 2007 Biomass fuels 19% Biomass fuels 22% Coal 24% Coal 24% Natural gas 19% Heat pumps, Other 9% Other 12% electricity 16% Oil 5% Peat 5% Natural gas 9% Waste 5% Heat pumps, Peat 5% Oil 6% electricity 1
Slide 46: Historical Russian transaction multiples
Historical Russian transaction multiples (enterprise value) RUB/kW RUB/kW 25 000 20 000 19 098 18 985 17 986 17 817 17 338 16 052 15 625 15 571 15 000 14 410 12 768 12 148 11 937 10 000 9 404 5 000 0 WGC 3 TGC 3 TGC 5 WGC 5 WGC 4 TGC 1 WGC 2 TGC 8 TGC 9 TGC 12 WGC 6 TGC 3 TGC 10 46
Slide 47: Historical Russian transaction multiples
Historical Russian transaction multiples €/RUB at each (enterprise value) €/kW transaction day €/kW 600 543 528 512 497 490 500 466 445 434 406 400 367 344 336 300 264 200 100 0 WGC 3 TGC 3 TGC 5 WGC 5 WGC 4 TGC 1 WGC 2 TGC 8 TGC 9 TGC 12 WGC 6 TGC 3 TGC 10 Calculated with €/RUB exchange rate at eac
Slide 48: Transaction timetable
Transaction timetable Feb 28 Bidding day (submission of offers for Secondary Shares) Feb 29 BoD TGC 10 set the Final Offer Price, public announcement of the Final Offer Price March 17 - 21 Payment of Primary shares March 18 - 26 Transfer of Primary shares March 21 – April 15 Payment and transfer of
Slide 49: 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 50: 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 51: Reform – key events
Reform – key events 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 shareholders • Selling off
Slide 52: 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 53: 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 54: © Fortum
© Fortum