Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Day (June 2004)
37 slides from Fortum Oyj's investor day presentation, Jun 17, 2004
Slide 1: The Way Forward
The Way Forward Mikael Lilius President and CEO Capital Markets Day June 17, 2004
Slide 2: Fortum's strategy
Fortum's strategy Fortum focuses on the Nordic energy market as a platform for long-term profitable growth Create the Become the Strengthen leading energy supplier position as the power and heat of choice leading clean company fuels refining company Excel in business performance 2
Slide 3: Consistent delivery of strategy
Consistent delivery of strategy Restructuring worth 9 billion 2000 - Strengthened position in the Nordic market – increased share of hydro generation – strengthened position in electricity distribution and retail – foothold in Norway and NW Russia Disposal of non-core businesses – power and heat bus
Slide 4: Strong presence in chosen markets
Strong presence in chosen markets Population in key geographical markets Million 3 1 2 7 4
Slide 5: Becoming the leading Nordic energy company
Becoming the leading Nordic energy company Power and Heat Oil #1 #1 Clean fuels Heat refining Distribution #2 Wholesale* #2 Sales of Sales of electricity heating oil Power generation 5 * One of the two biggest wholesalers
Slide 6: Financial performance
Financial performance Fortum
Slide 7: Strong financial track record
Strong financial track record Earnings per share Operating profit EUR 0.97 EUR million 1,507 0.91 1,420 CAGR: 22 % 0.79 CAGR: 19% 1,289 0.55 0.57 906 914 0.41 705 1999 2000 2001 2002 2003 LTM 1999 2000 2001 2002 2003 LTM LTM = 1 April 2003 - 31 March 2004 7
Slide 8: Strong financial track record, cont'd
Strong financial track record, cont'd ROE ROCE Target 12% % % 12.5 12.9 12.3 11.4 10.5 11.1 8.6 9.4 8.3 8.4 8.7 7.7 1999 2000 2001 2002 2003 LTM 1999 2000 2001 2002 2003 LTM LTM = 1 April 2003 - 31 March 2004 8
Slide 9: Strong financing capacity
Strong financing capacity Gearing 1 % 114 115 88 85 80 Target 100% 79 2 2 2 1999 2000 2001 2002 2003 Q1/04 1. Gearing (%) defined as interest-bearing net debt / (shareholder’s equity + minority interests). 2. The minority interest related to the preference shares amounting to EUR 1.2 billion and car
Slide 10: Good dividend payer
Good dividend payer Dividend per share EUR 0.42 • Consistent increase in 0.31 dividends paid 0.23 0.26 • Dividend policy to be 0.18 reviewed after completion of Oil separation 1999 2000 2001 2002 2003 10
Slide 11: The way forward
The way forward Fortum
Slide 12: Continuing on a high performance track
Continuing on a high performance track • Structural development • Customer value management • Improving operational efficiency 12
Slide 13: Towards an open European power market
Towards an open European power market • Ongoing market liberalisation 1995 • Market-based development 1991 1996 • Increased competition 2003 1990 • To enhance industry efficiency 1998 – capital – supply-demand balance – use of natural resources • For the benefit of customers and society Fully libera
Slide 14: The European liberalisation and integration process
The European liberalisation and integration process Now: • Opening of national markets – implementation of current directives in all EU countries Goal: • Integration – the future European market operates as one open market 14
Slide 15: The Nordic market – a forerunner
The Nordic market – a forerunner Nordic market GB/IRL market (2005?) Baltic market (2008?) E. European market (2005-2008?) W. European market (2005-2008?) SE Europe market (2005-2008?) Italian zonal market (2004?) Iberian market (2005?) * European Commission strategy paper 2003 • The Nordic market i
Slide 16: A functioning market
A functioning market Nordic grid - infrastructure Nord Pool - a liquid power available for the whole region exchange 910 1019 TWhTWh 545 TWh Nordic transmission 25 TWh Members March 22, 2004 at 00-01 a.m. MWh/h 32 400 400 Spot trade 1350 Derivatives trade* 300 Members 300 Energy balance 728 (+ impor
Slide 17: Today only limited interconnection capacity
Today only limited interconnection capacity Regional integrated market Power flows to and from the with limited import capacities Nordic market GWh, 2003 200 – 17 TWh net power imports to the Nordic countries in 2003 – only ~5% of Nordic demand can currently be met by imports due to limited 11,500 i
Slide 18: New capacity will be required
New capacity will be required Nordic supply and demand TWh/a 500 Demand In order to ensure 400 • long term supply security 300 • highest efficiency 200 100 Price signals are necessary 0 1990 2000 2010E 2020E renewables Peat Other Hydro Coal Oil Wind Nuclear Natural gas Source: Europrog / Finergy 18
Slide 19: Price signals guide new base load capacity investments
Price signals guide new base load capacity investments €/MWh 60 • Investments are made on rational financial basis 50 • New capacity requires a 40 long term price of 30-35 €/MWh 30 20 • Price signals are necessary Forwards June 4, 2004 for generators’ decisions on 10 new capacity 0 -94 -96 -98 -00 -
Slide 20: Power market integration also means price convergence
Power market integration also means price convergence Rolling annual average price EUR/MWh 50 50 45 • Integration of the Nordic hydro 40 40 35 system to the European thermal EUR/MWh 30 30 25 system 20 20 15 10 10 5 0 0 2001 2002 2003 2004 Holland Spot APX Germany Spot EEX NP System UK Spot Spain Spo
Slide 21: Increasing trend in German futures
Increasing trend in German futures Futures June 7, 2004 EUR/MWh 45 40 German EEX 35 Futures Nord Pool 30 Futures 25 20 15 2004 2005 2006 2007 2008 2009 2010 21
Slide 22: Emissions trading proceeds
Emissions trading proceeds • Increasing speculations on the ratification of the Kyoto protocol by Russia – however, the importance of the Kyoto process has diminished as the EU institutions approved the idea of decoupling the use of global (Kyoto) trading mechanisms in the EU trading • Implementatio
Slide 23: Fortum is well-positioned
Fortum is well-positioned Carbon exposure – power companies kgCO2/MWh, 2002 1000 • Large share of hydro and nuclear 800 production 600 • Organisational capability for CO2 400 trading in place 200 0 Fortum Endesa Iberdrola Vattenfall PVO E.ON EDF Verbund ENEL Southern Scottish& British Energy Statkra
Slide 24: Outlook on regulatory framework
Outlook on regulatory framework • Further harmonisation in the Nordic market will support the agreed EU power sector liberalisation and integration development – development of the market infrastructure i.e. Nordic TSO (Transmission System Operator) and transmission grid – market-based peak-load cap
Slide 25: European oil industry is facing changes
European oil industry is facing changes • Industry consolidation and Murmansk privatisation will continue New export terminal • New environmental planned St.Petersburg requirements Enlarging • Transition from gasoline to Primorsk harbor Kirishi sulfur-free diesel in traffic fuels refinery upgr
Slide 26: Increasing importance of Russian crude
Increasing importance of Russian crude Transportation flows Historical Mt/a Now • Declining North Sea production • Increasing volumes of crude oil and feedstocks from Russia 10 10 50 5 5 26
Slide 27: Structural development is key to retaining a shaper position
Structural development is key to retaining a shaper position Power & Heat, Markets • Consolidation will continue • Maintain the Nordic focus • Proactive moves will be • Pursue the value creative required for retaining a consolidator and shaper role leadership position • Capture the Russian growth op
Slide 28: The Nordic home market is large on a European level
The Nordic home market is large on a European level others 5 largest actors 370 TWh others 5 largest actors Fortum others Vattenfall 545 TWh others 363 TWh E.ON Elsam Statkraft 536 TWh largest actor Generation Nordic 2003, other 2002 figures Source: Fortum, company data 28
Slide 29: Further consolidation is expected
Further consolidation is expected Top 5 players’ market share, 2003 Generation Distribution Retail 363 TWh 14 million customers 14 million customers Fortum Fortum Fortum others others others Vattenfall Vattenfall Vattenfall E.ON E.ON 44% Nesa Hafslund 68% Hafslund 64% E.ON Nesa Elsam Statkraft Numbe
Slide 30: Russia is an emerging opportunity
Russia is an emerging opportunity • Power and heat sector reform • Strong growth potential • Need for investments • Low valuations • Efficiency improvement potential 30
Slide 31: Lenenergo – a strong foothold in NW Russia
Lenenergo – a strong foothold in NW Russia Population in key geographical markets Million • Largest utility in north- western Russia • 10 thermal and 6 hydro plants 3 • Power generation 1 2 7 capacity ~ 3,250 MW • Fortum´s share 21% 31
Slide 32: Our businesses will have better opportunities independently
Our businesses will have better opportunities independently Oil separation and listing will • Enable Fortum to further increase its focus on its Nordic utility strategy • Allow Fortum’s oil business to take full advantage of attractive market developments 32
Slide 33: Separation of Fortum Oil
Separation of Fortum Oil Fortum Corporation Shares Fortum Power Fortum Oil and to be sold and Heat Oy Gas Oy Remains in Fortum Group NewCo • Fortum Markets • Porvoo and Naantali refineries (electricity customers) • Retail stations • Heat companies • Shipping activities • Gas companies • Fortum Marke
Slide 34: Customer value management – developing position as the supplier of choice
Customer value management – developing position as the supplier of choice Productivity • Development of superior 2004 onwards: customer insight Becoming a significant profit contributor and driver of customer • Introduction of new, value management differentiated offerings 2001-2003: • Development o
Slide 35: Continued focus on operational excellence
Continued focus on operational excellence • Strong track record on improving operational efficiency • Continuous improvement targeted – More efficient customer interface management – Increased operational efficiency in distribution – Improved purchasing cost efficiency – Improved cost efficiency and
Slide 36: Potential to excel
Potential to excel • Structures in place • Well performing businesses • Strong cash flow • Well prepared for market changes • New opportunities by separating and listing the oil business Strong confidence in the future 36
Slide 37: 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. 37