Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (December 2008)
59 slides from Fortum Oyj's investor presentation, December 2008
Slide 1: A leading power and heat company in the Nordic area
- a leading power and heat company in the Nordic area Presentation for investors December 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, capex and outlook • Supplementary material 3
Slide 4: We intend to keep our leading position
We intend to keep our leading position Vision To be the benchmark power and heat company excelling in sustainability "Our energy improves life for present and future Fortum focuses on the Nordic, Russian generations" and Baltic Rim markets as a platform Strategy for profitable growth Core Purpose Be
Slide 5: Fortum at a glance
Fortum at a glance Nr 1 Heat Nordic countries Distribution Generation 51.1 TWh Electricity sales 58.5 TWh Electricity Heat sales 20.4 TWh sales Distribution cust. 1.6 million Nr 2 Power Electricity cust. 1.3 million Russia generation TGC-1 (~25%) Power generation ~6 TWh Heat production ~8 TWh TGC-10
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 growth in EBITDA and in cash flow
Strong growth in EBITDA and in cash flow MEUR EBITDA (LTM) MEUR Total net cash from operating activities (LTM) 2 500 2 000 2 000 2 370 1 500 1 785 2 066 1 500 1 884 1 550 1 000 1 151 1 000 500 500 0 0 2006 2007 LTM Q3'08 2006 2007 LTM Q3'08 Sales gain From Lenenergo shares Additional dividend from H
Slide 8: Growing capital returns
Growing capital returns Dividend per share EUR • Dividend of EUR 1.35 per share, in total ~EUR 1.2 billion 1.35 Total ~ 5,075 MEUR 1.12 1.26 • Mandate for repurchasing of the company’s own shares; 0.58 0.53 maximum EUR 300 million 0.54 0.58 • Dividend policy of 50 - 60% 0.42 payout of previous year'
Slide 9: Agenda
• Fortum today • European power markets • Russia • Financials, capex and outlook • Supplementary material 9
Slide 10: 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 11: Huge need for new capacity
Huge need for new capacity Globally ... ... European wide ... ... and in Russia TWh TWh TWh 2,000 30,000 4,000 700+ TWh by 2020 1 800 25,000 1,700 1,300 ~10,000 3,000 TWh 1 600 20,000 TWh 15,000 2,000 1 400 10,000 1 200 1,000 5,000 1 000 0 0 20041 2010E 2020E 2000 2005 2010E2015E 2020E 2000 2005 201
Slide 12: Electricity demand resilient to changes in economic conditions
Electricity demand resilient to changes in economic conditions Nordic electricity consumption 1986–2007 • Nordic demand has grown consistently, also over the recession 450 CAGR 1.2% in early 90’s 400 • Weather affects demand more than a 350 potential industry slow down 300 • Supply side variations m
Slide 13: Nordic demand breakdown
Nordic demand breakdown Nordic electricity demand, 100% = 400 TWh • Non-industrial demand is forecast to increase +20 TWh 10 % Forest net demand by 2020 Forest self-supplied • Industrial demand to grow by Other industrial ~10 TWh by 2020 45% demand Metal • Net effect on announced Oil and gas closure
Slide 14: Nordic market is tight
Nordic market is tight Consumption, demand and import/export in the Nordic at winter peak 2008/2009 (MWh/h) All time Peak Available Import (-)/ peak 2008/2009* capacity export (+) Denmark 6 480 7 100 7 300 200 Finland 14 800 15 100 13 200 -1 900 Norway 23 050 23 800 24 600 800 Sweden 27 300 28 900 2
Slide 15: Demand is growing – new capacity is needed in the Nordic market
Demand is growing – new capacity is needed in the Nordic market Demand forecasts for the Nordic • Electricity demand is expected to increase by ~35 TWh by 2020 compared to 2007 market • Estimated retiring generation approx. 35 TWh*) TWh 470 460 450 • Total need for investments roughly 70 TWh – decis
Slide 16: New capacity, except nuclear, will require a well over 60 EUR/MWh power price
New capacity, except nuclear, will require a well over 60 EUR/MWh power price EUR/MWh EUR/MWh 110 110 CO2 cost 30 €/ton 100 100 Other costs ( variation) 90 90 80 Futures 1 December 2008 80 70 70 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 W
Slide 17: Current transmission capacity from Nordic area to Continental Europe is ~4000 MW
Current transmission capacity from Nordic area to Continental Europe is ~4000 MW Transmission Countries Stations capacity MW From Nordel To Nordel Denmark - Germany 2100 1550 Sweden - Germany 600 600 Sweden - Poland 600 600 Norway - Netherlands 700 700 350 Total 4000 3450 700 • Theoretical maximum i
Slide 18: New investments could double capacity to Continent by 2020
New investments could double capacity to Continent by 2020 Present interconnections New interconnections from the Nordic market to could double the capacity the Continent have a total to over 8000 MW by 2020 capacity of abt. 4000 MW New internal Nordic Additional grid investments 700 MW cable NO-NL
Slide 19: Market coupling milestones
Market coupling milestones • Market coupling between Belgium (BelPEX), Netherlands (APX) and France (Powernext) since November 2006 • Market coupling EEX - Nord Pool started 29 September 2008 but was on 8th October suspended until Q1/'09 due to 2009 technical problems • Market coupling NL-Nord Pool
Slide 20: North-European power markets integrating
North-European power markets integrating • Significant increase in grid capacity planned Expected development of grid • The maximum export capacity from the capacity Nordic market to the Continent and Baltics could double by 2020 8 000 80 • Market coupling proceeding 6 000 60 • Nordic energy ministe
Slide 21: Nordic water reservoirs
Nordic water reservoirs Reservoir content (TWh) 120 100 80 60 40 20 2000 2003 2006 2007 2008 reference level 0 1 5 9 13 17 21 25 29 33 37 41 45 49 week Source: Nord Pool 21
Slide 22: Deficit or excess in water reservoirs affects the spot price
Deficit or excess in water reservoirs affects the spot price Water + snow compared to normal (TWh) Nordic spot price (EUR/MWh) 80 80 60 70 60 40 50 20 40 0 30 -20 20 -40 10 -60 0 1/2000 1/2001 1/2002 1/2003 1/2004 1/2005 1/2006 1/2007 1/2008 22
Slide 23: Nord Pool year forwards – with high volatility
Nord Pool year forwards – with high volatility Year 05 Year 06 Year 07 Year 08 Year 09 Year 10 Year 11 Year 12 Year 13 €/MWh 1 December 2008 72 70 68 66 64 62 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 Q2 Q3 Q4 2004 2005 2006 2007 2008
Slide 24: Nord Pool forwards and Fortum full year hedges – managing volatility
Nord Pool forwards and historical development of Fortum full year hedges – managing volatility EUR/MWh 75 70 65 60 55 20% 45% 55% 50 35% 20% 25% 45 75% 65% 65% 40 55% 50% 40% 35% 35% 40% 35 30 25 20 15 Forward 2007 Forward 2008 Forward 2009 Forward 2010 10 Hedge avg. 2007 Hedge avg. 2008 Hedge avg.
Slide 25: Forward, spot and achieved price of Fortum
Forward, spot and achieved price of Fortum – beating the spot in 2007 and Q1-Q3/2008 EUR/MWh 60 55 50 48.6 €/MWh 49.3 €/MWh 45 39.7 €/MWh 42.7 €/MWh 40 37.1 €/MWh 35 31.2 €/MWh 30 29.3 €/MWh 27.9 €/MWh 25 20 15 Forward 2006 Forward 2007 Forward 2008 10 Achieved 2006 Achieved 2007 Achieved until Q3 2
Slide 26: European prices still clearly above Nordic prices
European prices still clearly above Nordic prices EUR/MWh Spot prices Forward prices 110 100 90 80 Dutch 70 60 German 50 40 Nordic 30 Russian* 20 10 13 November 2008 0 2005 2006 2007 2008 2009 2010 * Including capacity tariff estimate. E.g 2008 10 €/MWh Source: , ATS 26
Slide 27: Fuel and CO2 allowance prices
Fuel and CO2 allowance prices Crude oil price Crude (Brent) oil price (Brent) CO2 COprice 2 price 160 35 140 30 120 25 EUR / tCO2 USD / bbl 100 20 80 60 15 40 10 20 5 0 0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Coal price Coal (API2) price (API2) GasGas price (NBP) price (NBP) 240 120 200
Slide 28: Condensing power fuel and CO2 costs
Condensing power fuel and CO2 costs Margin for • Other variable costs • Fixed costs ? • Current Nord Pool spot hardly • Return on invested capital covers the marginal cost for CO2: 8 fuel and emissions NP Spot ? 52 EUR/MWh • Running a gas fired 71 EUR/MWh condensing plant would require CO2 16 48 EUR
Slide 29: Agenda
• Fortum today • European power markets • Russia • Financials, capex and outlook • Supplementary material 29
Slide 30: Russia is the World's 4th largest power market – and growing rapidly
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 *) TWh • High scenario 2,000 TWh/a by 2020 • Base scenario: 1,700 TWh/a by 2020 4,000 3,500 3,000 2,200 Demand growth 700+
Slide 31: Fortum's current holdings in Russia
Fortum's current holdings in Russia TGC-10 • Fortum holding 93.4% at the moment (income statement consolidated from 1 April 2008) • TGC-10 operates in the heart of Russia’s oil and gas producing region • EUR 2.5 billion paid of which EUR 1.3 billion remains in the company (share issue) and will be u
Slide 32: 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 33: Reform – Recent and planned events for 2008-2009
Reform – Recent and planned events for 2008-2009 Events taken place in 2008 Planned events during 2008-2009 • RAO UES ceased to exist in June 2008 • Increase of power market liberalisation rate to 50% • Market Council established to continue the power market development • Launch of Long Term Capacit
Slide 34: Further power market liberalisation
Further power market liberalisation Share of liberalised trade for • Further liberalisation of existing capacity energy market to increase to 50% in July 2009 100 % 100 % 100 % 90 % 80 % • The rate of liberalised 80 % volume is based on 2007 70 % 60 % 60 % balance. All new capacity 50 % 50 % is sold
Slide 35: Currently 25% of electricity sold with liberalised prices
Currently 25% of electricity sold with liberalised prices European and Urals part power price 1) development; EUR/MWh 40 35 • Day-Ahead-Market for electricity well-functioning 30 and competitive 25 • All volume sold to Day- 20 Ahead-Market, but market 15 based price formation for about 25% of the vo
Slide 36: Investment programme of TGC-10
Investment programme of TGC-10 Moscow Nyagan Tyume Tobolsk Chelyabinskn Electricity capacity (MW) Kurgan Plant Fuel type Existing Planned Total Tyumen CHP-2 Gas 755 450 1,205 MW 6,000 Tyumen CHP-1 Gas 472 190 662 Tobolsk CHP Gas 452 210 662 5,000 Chelyabinsk CHP-3 Gas 360 220 580 4,000 +73% +2,270 M
Slide 37: Overall integration status
Overall integration status • Integration • The integration process started in April 2008 with an integration team headed by Tapio Kuula • In October, expatriates to power plants, heat networks and maintenance companies • Now about 45 persons • Integration process is in line with the original plan •
Slide 38: Efficiency improvement to exceed 100 MEUR in 2011
Efficiency improvement to exceed 100 MEUR in 2011 • Purchasing • Portfolio Management and Trading (PMT) • Heat regulation • Heat - technical and business improvements • Generation - technical improvements • Others 38
Slide 39: Agenda
• Fortum today • European power markets • Russia • Financials, capex and outlook • Supplementary material 39
Slide 40: Operational performance improved by 28%
Operational performance improved by 28% Comparable operating profit Consistent hedging MEUR strategy and higher 418 -29 4 -33 -72 hydro power 1 1337 production in Power Generation 1048 Higher fuel and CO2 costs in Heat Distribution – stable business as usual Low sales margin in Markets The first yea
Slide 41: Income statement
Income statement MEUR III/2008 III/2007 I-III/2008 I-III/2007 2007 LTM Sales 1 272 860 4 034 3 159 4 479 5 354 Expenses -877 -350 -2 682 -1 832 -2 632 -3 482 Operating profit 395 510 1 352 1 327 1 847 1 872 Share of profit of associates and jv 8 6 78 223 241 96 Financial expenses, net -66 -45 -185 -
Slide 42: Cash flow statement
Cash flow statement MEUR III/2008 III/2007 I-III/2008 I-III/2007 2007 LTM Operating profit before depreciations 532 623 1 735 1 663 2 298 2 370 Non-cash flow items and divesting activities -56 -263 -38 -268 -286 -56 Financial items and taxes -92 -89 -372 -231 -393 -534 Funds from operations (FFO) 38
Slide 43: Key ratios
Key ratios MEUR LTM 2007 2006 in Q3 '08 Sales 5 354 4 479 4 491 Comparable operating profit 1 853 1 564 1 437 Cash flow from operations 1 785 1 670 1 151 Balance sheet total 20 546 17 674 16 839 Interest-bearing net debt 6 520 4 466 4 345 Net debt/EBITDA* 2.8 2.2 2.3 Return on capital employed (%)*
Slide 44: 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 44
Slide 45: Capital expenditures EUR 1-1.5 billion – significant flexibility
Capital expenditures EUR 1 - 1.5 billion – significant flexibility • Annual capital expenditures EUR 1–1.5 billion Esimated annual Capex 2009-2013 • Maintenance/productivity Maintenance ~ EUR 300–500 m EUR 300–500 million p.a. • Growth in Nordic and Baltic rim Growth ~ EUR 200–500 m countries EUR 20
Slide 46: Good Liquidity and sizable committed facilities
Good Liquidity and sizable committed facilities LIQUID FUNDS AND COMMITTED CREDIT LINES (MEUR) Liquid Funds Cash and cash equivalents 663 Bank Deposits over 3 months 516 1 179 of which in Russia 1 109 Available Outstanding Total amount Committed Credit Lines Short Term - Overdrafts 202 11 213 Long T
Slide 47: Updated debt maturity profile end of October
Updated debt maturity profile end of October MEUR 2500 2.268 2000 1.643 1500 877 1000 738 534 634 501 500 299 274 245 81 0 Q4/2008 2010 2012 2014 2016 2018+ Bonds Financial institutions Other long-term debt CPs Other short-term debt 47
Slide 48: A turnaround programme launched in Markets
A turnaround programme launched in Markets • New management • Product portfolio • Customer segments • Fixed costs – Union negotiations started in Finland and Sweden, 200 people • Procurement price • Electricity price increases in Finland and Sweden – Finland: 9% in Aug, 14% in Dec – Sweden: 13% in O
Slide 49: Hedging of Power Generation's Nordic sales
Hedging of Power Generation's Nordic sales Status at the beginning of October 2008 (Status at the beginning of July 2008) Hedge ratio Hedge price Rest of 2008 ~ 65% ~ EUR 46 per MWh (~70%) (~ EUR 46 per MWh) 2009 ~ 55% ~ EUR 53 per MWh (~45%) (~ EUR 51 per MWh) 2010 ~ 20% ~ EUR 55 per MWh 49
Slide 50: Fortum well positioned for the future
Fortum well positioned for the future • Flexible power and heat • Growth through the investment production portfolio programmes • Integration of Russian • Strong financial performance TGC-10 proceeding well – and financial headroom over EUR 100 million • Carbon exposure among the efficiency improvem
Slide 51: Supplementary material
• Fortum today • European power markets • Russia • Financials, capex and outlook • Supplementary material 51
Slide 52: Fortum's investment programme – Nordic region, Poland and Baltic countries
Fortum's investment programme – Nordic region, Poland and Baltic countries MW (El.) MW (Heat) • Olkiluoto 3, Finland, nuclear 400 • Swedish nuclear 300 • Suomenoja, Finland (gas CHP) 240 220 • Järvenpää, Finland (biomass CHP) 25 55 • Brista, Sweden (waste CHP) 20 60 • Refurbishing of existing hydro
Slide 53: Nordic power generation mix
Nordic power generation mix 160 Total Nordic generation 397 TWh in 2007 140 TWh % 120 Fossil fuels 63 16 100 TWh/a Nuclear 87 22 80 Waste 4 1 60 Biomass 19 5 40 Wind 10 3 20 Hydro 214 54 0 Hydro variance +/- 40 TWh from Denmark Norway Sweden Finland average Net import in 2007: 3TWh Source: Nordel 53
Slide 54: Still a highly fragmented Nordic power market
Still a highly fragmented Nordic power market Power generation Electricity distribution Electricity retail 397 TWh 14 million customers 14 million customers >350 companies ~500 companies ~350 companies Fortum Fortum Vattenfall Others Others Others Vattenfall Vattenfall 30% E.ON E.ON Fortum 50% 51% H
Slide 55: Fortum's carbon exposure is among the lowest in Europe
Fortum's carbon exposure is among the lowest in Europe g CO 2 /kWh electricity 1200 2007 1000 800 600 Average 373 g/kWh 400 200 64 0 Union Fenosa Enel Drax Dong Energy E.ON EDP Endesa Vattenfall Statkraft RWE Electrabel Fortum CEZ Scottish&Southern Verbund Iberdrola British Energy Nuon EDF DEI PVO S
Slide 56: 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 ~13 billion euros Households 5.0% Financial and insurance institution
Slide 57: 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 58: 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 59: (© Fortum
(© Fortum