Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (October 2005)
50 slides from Fortum Oyj's investor presentation, October 2005
Slide 1: A leading energy company in the Nordic area
– a leading energy company in the Nordic area Presentation for investors October 2005
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: 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 3
Slide 4: Restructuring worth 13 billion euro in 2000-2005
Restructuring worth 13 billion euro in 2000 – 2005 Acquisitions Transmission Engineering Power Plant Norway Divestments E&P Stora Enso Engineering Electricity EPV production Elnova Espoon Sähkö Hafslund Østfold Länsivoima Fredrikstads Lenenergo Energi Edenderry Humber Småland Birka Energi Tartu Ener
Slide 5: Leading market positions in the Nordic area
Leading market positions in the Nordic area # 1 # 2 Electricity Power distribution generation Retail sales Heat of electricity 5
Slide 6: A large and fragmented Nordic market
A large and fragmented Nordic market Generation, 2004 British Energy others Scottish&Southern 385 TWh E.ON RWE EdF Fortum others others Vattenfall RWE 379 TWh Steag 570 TWh E.ON EnBW Elsam Statkraft Vattenfall EON Source: Eurelectric, Nordel, Fortum estimates, Company data 6
Slide 7: Fragmented Nordic market
Fragmented Nordic market 2004 figures Generation Distribution Retail 379 TWh 14 million customers 14 million customers Fortum Fortum others Fortum others others Vattenfall Vattenfall E.ON Vattenfall E.ON 45% 64% 66% Hafslund Hafslund Nesa Nesa E.ON Elsam Statkraft >350 companies >500 companies ~450
Slide 8: Today only limited interconnection capacity
Today only limited interconnection capacity Regional integrated Power flows to and from market with limited import the Nordic market capacities GWh, 2004 200 – 11.6 TWh net power imports to the Nordic countries in 2004 11,100 – only ~5% of Nordic demand can currently be met by imports due 5,400 1300
Slide 9: New capacity will be required
New capacity will be required TWh/a 500 Demand • Generation capacity is needed 400 – to cover increasing demand 300 – to replace old capacity 200 • Stable and predictable investment environment is 100 required to guarantee – security of supply 0 – efficient capacity also in 1990 2000 2004 2005E 2010
Slide 10: Price signals guide new capacity investments
Price signals guide new capacity investments €/MWh 60 50 • Investments are made on rational financial basis 40 • Price signals and confidence in regulatory framework are necessary 30 Forwards for investment decisions Oct 14, 2005 20 • New capacity requires a long-term price of at least 35-40+ €/MWh
Slide 11: Market prices for electricity
Market prices for electricity € /MWh 90 80 70 60 50 40 30 Futures 18 Oct 2005 20 10 Source: Reuters 0 2002 2003 2004 2005 2006 2007 German Spot Nord Pool System UK Spot German futures Nord Pool futures UK futures 11
Slide 12: Price of EU emission allowances
Price of EU emission allowances €/tCO2 30 25 20 15 10 5 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2003 2004 2005 Source: Reuters 12
Slide 13: Russia is an emerging opportunity
Russia is an emerging opportunity z Power and heat sector reform z Strong growth potential z Need for investments z Efficiency improvement potential 13
Slide 14: Lenenergo – a strong foothold for Fortum in NW Russia
Lenenergo – a strong foothold for Fortum in NW Russia Population in key • Largest utility in north- geographical western Russia markets • 10 thermal and 6 hydro Million plants • Power generation capacity ~3,245 MW and production ~13.5 TWh/a • Heat generation 3 capacity ~13,900 MW 1 2 and production
Slide 15: Territorial Generation Company 1 (TGC-1)
Territorial Generation Company 1 (TGC-1) TGC-1 Capacity TGC-1 (in North-West Russia) Kolenergo MW started its operation in October Sweden 27 500 Karelenergo Norway Finland • Fortum is an indirect owner of 23 000 13 400 TGC-1 through its ownership in Lenenergo Lenenergo • Fortum's ownership in Denmar
Slide 16: Interim results January - September 2005
Interim results January - September 2005
Slide 17: Strong performance continues
Strong performance continues • Good third quarter performance with strong cash flow and clearly higher operating profit • EUR 874 (799) million comparable operating profit from continuing operations • Earnings per share EUR 0.65 (0.58) from continuing operations • Net cash from operating activities
Slide 18: Comparable operating profit
Comparable operating profit MEUR I-III/2005 I-III/2004 2004 LTM Power Generation 557 498 730 789 Heat 156 132 207 231 Distribution 168 183 240 225 Markets 22 24 23 21 Other -29 -38 -52 -43 Comparable operating profit 874 799 1 148 1 223 Non-recurring items 20 -11 18 49 Other items effecting comparab
Slide 19: Development of key market drivers
Development of key market drivers • 1% decrease in Nord Pool system area price to 29.7 EUR/MWh in Q3 • Fortum's achieved Nordic Generation power price increased by 6% to EUR 29.9 in Q3 • 92% (82%) of Nordic own production CO2-free in the first nine months, 96% (84%) in Q3 • CO2 price is at the momen
Slide 20: Comparable and reported operating profit
Comparable and reported operating profit Operating profit I-III/2005 Operating profit I-III/2004 Comparable Reported Diff. Comparable Reported Diff. Power Generation 557 529 28 498 522 -24 Heat 156 175 -19 132 143 -11 Distribution 168 175 -7 183 183 0 Markets 22 21 1 24 34 -10 Other -29 -27 -2 -38 -
Slide 21: Income statement
Income statement MEUR I-III/2005 I-III/2004 Net sales 2 765 2 751 Expenses -1 892 -1 919 Operating profit 873 832 Share of profit of associates and joint ventures 28 9 Financial expenses, net -100 -167 Profit before taxes 801 674 Income tax expense -206 -163 Profit for the period from continuing ope
Slide 22: Cash flow statement
Cash flow statement MEUR I-III/2005 I-III/2004 2004 1 206 1 123 1 595 Operating profit before depreciations continuing operations Non-cash flow items and divesting activities -41 -51 -49 Financial items and taxes -288 -187 -341 Funds form operations continuing operations (FFO) 877 885 1 205 Change i
Slide 23: Key developments during the quarter
Key developments during the quarter • CO2-free production increased to 96% of Fortum's Nordic production in Q3 • Accelerated efforts to improve reliability of distribution networks – Total investment of EUR 700 million over a 5-year period • Arbitration process going on to buy E.ON Finland shares ow
Slide 24: Outlook
Outlook • In mid-October power forward prices for the rest of 2005 were at the level of 38-40 EUR/MWh and for the year 2006 around 37-38 EUR/MWh • Government budget proposals in Sweden and Finland include an additional cost element for nuclear and hydro power production – Fortum estimates that the a
Slide 25: Hedging of Nordic Power Generation sales
Hedging of Nordic Power Generation sales At the beginning of October, Fortum had hedged its Nordic Power Generation sales volume as follows: Hedge ratio Hedge price Calendar Approximately Slightly higher than the year 2006 two thirds achieved Nordic Generation power price during the last 12 months (
Slide 26: Foundations for good performance in place
Foundations for good performance in place • Continued focus on Nordic countries and Baltic rim • Solid business performance • Strong financial position • Favourable market fundamentals 26
Slide 27: Supplementary material
Supplementary material @Fortum
Slide 28: Corporate structure
Corporate structure Fortum corporation t ing s por ent Re gm Power Generation Distribution Markets se Heat ess s in s t Bu uni Portfolio Generation Management Service Värme Heat Distribution Markets and Trading 28
Slide 29: Nordic water reservoirs
Nordic water reservoirs 12 0 10 0 reservoir content (TWh) 80 60 40 20 2000 2004 2005 Reference level 0 1 5 9 13 17 21 25 29 33 37 41 45 49 53 week 29
Slide 30: Nordic and German Forward Prices
Nordic and German Forward Prices (19.10.2005) 46 160 44 140 MW/day (indicative) 42 120 40 100 EUR/MWh 38 80 36 60 34 40 32 20 30 0 2006 2007 2008 2009 2010 2011 NP & Nordic OTC trading vol. EEX trading vol. NP forw ards EEX (German) forw ards 30
Slide 31: Power Generation
Power Generation + Better production mix and improved Nordic Generation power price MEUR I-III/2005 I-III/2004 Net sales 1,460 1,501 Comparable operating profit 557 498 Net assets 6,037 6,183 Comparable RONA, % 12.5 10.5 Business units: Generation, Portfolio Management and Trading, Service 31
Slide 32: Heat
Heat + Good results in Fortum Värme - Higher prices of fuels such as oil and coal MEUR I-III/2005 I-III/2004 Net sales 738 709 Comparable operating profit 156 132 Net assets 2,336 2,362 Comparable RONA, % 9.3 8.0 Business units: Heat, Värme 32
Slide 33: Distribution
Distribution - Storms in Norway and Sweden in the beginning of the year MEUR I-III/2005 I-III/2004 Net sales 511 513 Comparable operating profit 168 183 Net assets 3,033 3,086 Comparable RONA, % 7.9 8.3 Business units: Distribution 33
Slide 34: Markets
Markets + Positive inflow of customers - Increased customer service costs MEUR I-III/2005 I-III/2004 Net sales 974 1,009 Comparable operating profit 22 24 Net assets 143 137 Comparable RONA, % 16.4 26.7 Business units: Markets 34
Slide 35: Balance sheet
Balance sheet MEUR Sep 30 Dec 31 2005 2004 Non-current assets 12 942 15 213 Current assets 1 899 2 354 ASSETS 14 841 17 567 Total equity 7 039 7 650 of which minority interest 177 150 Interest bearing liabilities 4 115 5 240 Non-interest bearing liabilities 3 687 4 677 EQUITY AND LIABILITIES 14 841
Slide 36: Nord Pool power price
Nord Pool power price €/MWh 60 50 40 30 20 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2003 2004 2005 Source: Reuters 36
Slide 37: Espoon Sähkö's ownership arrangements
Espoon Sähkö's ownership arrangements Previous events E.ON Finland's current owners : • 1994: IPO of Espoon Sähkö, about 74% of the shares remain with the City E.ON Nordic AB 65.6% • 1996: the City sells a stake of about 6% on the stock The City of Espoo 34.2% exchange Other 0.2% • 1999: Länsivoima
Slide 38: Power generation by energy source
Power generation by energy source Fortum’s Nordic power generation 54.4 TWh in 2004 Others 2% Natural gas 1% Hydro power 35% Biomass 2% Peat 2% Coal 11% Nuclear power 47% Fortum’s Nordic generation capacity 11,220 MW 38
Slide 39: Heat production by energy source
Heat production by energy source Fortum’s Nordic heat production 21.7 TWh in 2004 Bio fuels 23% Heat pumps, electricity 17% Others 12% Waste 5% Coal 17% Peat 7% Natural gas 6% Oil 13% Total generation capacity 8,290 MW Includes 100 % of Fortum Värme samägt med Stockholm stad 39
Slide 40: Fortum's CO2 Emissions and preliminary allocation
Fortum's CO2 Emissions and preliminary allocation 14 12 10 MtCO2/a 8 6 4 2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Emissions from the EU ETS* installations Allocation to Fortum's ETS installations**) Fortum's total emissions *) EU ETS = EU Emission
Slide 41: Carbon exposure - Power companies
0 100 200 300 400 500 600 700 800 900 1000 DEI 41 Scottish Drax [kgCO2/MWh] ESB Elkraft RWE Union Fenosa EDP Edison Source: PWC 2003, Carbon factor of power companies ENEL Endesa Vattenfall Electrabel PVO Scottish&Southern E.ON Carbon exposure - Power companies Iberdrola Fortum 2004 2003 2002 2001 V
Slide 42: Quotation of Fortum share
Quotation of Fortum share 18.10.2005 450 Divident pay out: • 0,58 eur cash 400 • Neste Oil shares 350 300 250 200 150 100 50 0 01/01 07/01 01/02 07/02 01/03 07/03 01/04 07/04 01/05 07/05 Fortum closing value index DJ600 index , utilities 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 2.2% Other Finnish investors 7.
Slide 44: History
History Neste Länsivoima Separation of oil businesses disclosed IVO Stora Kraft 1997 2000 2003 Fortum Birka 1996 1998 2002 2003 2004 Skandinaviska Gullspång Østfold Separation of oil Elverk businesses through a Shares in share dividend and Stockholm Lenenergo a sale of shares Energi Shares in disclo
Slide 45: Broad customer base
Broad customer base Industrial and energy companies as well as private consumers 1.2 million electricity customers 1.4 million electricity distribution customers 45
Slide 46: Group financial targets
Group financial targets • ROE >12% • ROCE >12% • CAPEX <depreciation 46
Slide 47: Comparable operating profit
Comparable operating profit Comparable operating profit represents the underlying business performance by excluding items effecting comparability These are mainly: – accounting effects from fair valuation of financial derivatives for future cash flows where hedge accounting is not applied (IAS 39) –
Slide 48: Financing and Liquidity situation - Sept 30, 2005
Financing and Liquidity situation - Sept 30, 2005 Funding Sources MEUR Maturity profile external debt Long-Term Financing MEUR EMTN bonds (Euro) 2 042 2500 Other Bonds Fortum Oyj & others 377 2000 Loans from financial institutions 446 1500 Other long term debt 1 248 Total Long Term Financing 4 113 1
Slide 49: Ratings upgrade in 2005 by both Moody's and Standard and Poors
Ratings upgrade in 2005 by both Moody's and Standard and Poors • Moody's long term rating A2 (stable outlook) • Standard & Poor's long term rating A- (stable outlook) "The upgrade of the long term ratings on Fortum reflects the group's decreased business risk following the demerger of its oil busine
Slide 50: @Fortum
@Fortum