Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Day (November 2005)
30 slides from Fortum Oyj's investor day presentation, Nov 29, 2005
Slide 1: Financial update
Financial update Juha Laaksonen Chief Financial Officer, Fortum Corporation Capital Markets Day 29 November 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: Contents
Contents • Recent financial performance • Accounting issues • Financial position • Capital expenditure and acquisitions 3
Slide 4: Recent financial performance
• Recent financial performance • Accounting issues • Financial position • Capital expenditure and acquisitions 4
Slide 5: Good performance in January – September
Good performance in January – September Key market drivers Well-performing businesses • Increase of 1% in electricity • Comparable operating profit EUR consumption 874 (799) million • Decrease of 4% in Nord Pool • Earnings per share EUR 0.65 price of electricity (0.58) • Increase of 6% in Fortum's •
Slide 6: January – September in brief
January – September in brief CONTINUING OPERATIONS, Sales Operating Comparable Net Return on CAPEX CUMULATIVE I-III 2005 profit operating assets net assets profit (comparable) (MEUR) (MEUR) (MEUR) (MEUR) (%) (MEUR) Power Generation 1,460 529 557 6,037 12.5 60 Heat 738 175 156 2,336 9.3 71 Distributi
Slide 7: 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 8: 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 from operations continuing operations (FFO) 877 885 1 205 Change i
Slide 9: 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 10: Outlook: hedging of Nordic Power Generation sales
Outlook: 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 year Approximately Slightly higher than the 2006 two thirds achieved Nordic Generation power price during the last 12
Slide 11: Nord Pool Year Forwards
Nord Pool Year Forwards €/MWh Year 06 Year 07 Year 08 25.11.2005 40 38 36 34 32 30 28 26 24 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2004 2005
Slide 12: Accounting issues
• Recent financial performance • Accounting issues • Financial position • Capital expenditure and acquisitions 11
Slide 13: Fortum transition to IFRS
Fortum transition to IFRS • Transition to IFRS from the beginning of 2005 – Financial Statements 2004 in February 2005, including audited section of IFRS information – transition press release in April 2005, including comparison figures for 2004 • Concept of comparable operating profit introduced in
Slide 14: Concept of comparable operating profit
Concept of comparable operating profit • Purpose to disclose Fortum's true operational performance on a quarterly basis Operating profit + / - Non-recurring items + / - Unqualifying (IAS39) financial derivatives hedging future cash-flows + / - Nuclear fund adjustments Comparable operating profit Q3/
Slide 15: IAS 39 financial instruments
IAS 39 financial instruments • Fortum applies hedge accounting for most of the electricity derivatives used to hedge future cash flows • When hedge accounting is not applied, the fair value changes of financial derivatives are recorded in P&L • When hedge accounting is applied the effects of changes
Slide 16: CO2 accounting
CO2 accounting • CO2 emission trading started in 2005 in the EU • Cost and liability are recorded when actual emissions (in tonnes of CO2) exceed the received emission rights • The cost and liability is measured at the probable settlement price, i.e., current market price or contracted purchase pric
Slide 17: Nuclear assets and liabilities
Nuclear assets and liabilities • Fortum owns the Loviisa nuclear power plant in Finland • Under IFRS, Fortum's part of the Nuclear Waste Fund and the related liabilities for decommissioning and disposal of spent fuel are presented gross in the balance sheet • Fortum's share of the Nuclear Waste Fund
Slide 18: Financial position
• Recent financial performance • Accounting issues • Financial position • Capital expenditure and acquisitions 17
Slide 19: Current Fortum Group financial targets
Current Fortum Group financial targets • ROE >12% • ROCE >12% • Normal CAPEX <depreciation • Gearing <100% 18
Slide 20: Credit ratings
Credit ratings • 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 business, continuing strong operating performance, and
Slide 21: Capital structure
Capital structure • Fortum wants to have a prudent and efficient capital structure • Access to flexible funding sources is key • Current rating provides plenty of headroom • Dividend policy of 50 - 60% payout on the average for Fortum continuing operations' results • Share buy-backs has become an op
Slide 22: Funding sources and maturity profile
Funding sources and maturity profile 1,729 Interest bearing loans in the end of Sep 2005 Average interest rate disclosed in the end of • Funding and treasury risk 2004 was 4.1%. management centralised to Group Treasury Total 4,115 MEUR • Transparent loan portfolio 809 587 548 • Access to all relevan
Slide 23: Capital expenditure and acquisitions
• Recent financial performance • Accounting issues • Financial position • Capital expenditure and acquisitions 22
Slide 24: Through restructuring and with major investments ...
Through restructuring and with major investments ... EUR 13 billion restructuring during 2000 – 2005 Investments Acquisitions Transmission Engineering EUR million 4,381 Divestments Norway E&P Power Plant Engineering Stora Enso Power production EPV Elnova Espoon Sähkö Hafslund Østfold Fredrikstads En
Slide 25: ... to increased profitability
... to increased profitability EUR 13 billion restructuring during 2000 – 2005 17.2 Return on capital employed % 15.8 Acquisitions Transmission Engineering Norway Power Plant E&P Engineering Divestments Stora Enso Power production EPV Elnova Espoon Sähkö 11.4 Hafslund Østfold Fredrikstads Energi Län
Slide 26: Capital expenditure
Capital expenditure • In the power and heat business investment horizon is decades • Maintenance/productivity capex: – annual level in the Group ~ depreciation. This is currently EUR ~450 million – distribution investment programme ~EUR 700 million in the next 5 years • Capacity expansions: – nuclea
Slide 27: Acquisitions will continue
Acquisitions will continue • Nordic consolidation • Opportunities in Russia and Poland • A prudent balance sheet and financial flexibility will be required • Strategic fit means continuing focus on Nordic countries and the Baltic Rim • Value creation the key financial criteria 26
Slide 28: Strict financial criteria for acquisitions
Strict financial criteria for acquisitions • Value creation – we want to beat the appropriate cost of capital – cost of capital varies by business / country / currency – DCF the main valuation methodology – multiples and others used to support • We expect return on capital after integration to beat
Slide 29: Synergies are often overlooked but important
Synergies are often overlooked but important • Strong focus is the key – market and business • We have integrated acquisitions successfully – Birka, Stora-Enso good examples • We have deep industrial and business competence – plant availability and optimisation – district heating network O&M – distr
Slide 30: Concluding remarks
Concluding remarks • Company is in a good shape • Strong results and cash flow • Fortum wants to have a prudent and efficient capital structure, allowing access to flexible funding sources – acquisitions part of strategy – Board of Directors will propose a dividend to the AGM on 3 February 29