Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (September 2008)
47 slides from Fortum Oyj's investor presentation, September 2008
Slide 1: A leading energy company in the Nordic area
- a leading energy company in the Nordic area Presentation for investors September 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, Russian 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: Fortum at a glance
Fortum at a glance Nr 1 Heat Nordic countries Key figures Q2/2008, last 12 months Distribution Generation 51.1 TWh Sales 4,942 MEUR Electricity sales 58.5 TWh Operating profit 1,987 MEUR Electricity Heat sales 20.4 TWh Employees 16,069 sales Distribution cust. 1.6 million Nr 2 Power Electricity cust
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) 20,0 17,5 2,00 1,74 1,68 24 20,5 15,8 17,7 14,4 16,8 15,0 1,50 18 1,22 10,0 1,00 12 5,0 0,50 6 0,0 0,00 0 2006 2007 LTM 2006 2007 LTM 2006 2007 LTM ROCE (%) Dividend, (EUR) Adjusted net debt/EBITDA 18,0 1,50 1,35 3,0 2,8 2,8 1,2
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 / 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 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 11: New capacity needed in the Nordic market
New capacity needed in the Nordic market Demand and capacity development • Electricity demand is expected to increase by in the Nordic market ~35 TWh by 2020 compared to 2007 TWh • Estimated retiring generation approx. 35 TWh*) 500 400 70 TWh • Total need for investments roughly 70 TWh 300 – decisio
Slide 12: New capacity 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 Futures 80 1 September 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 Wi
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: 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 Under construction (MW) 70 60 • Estlink (Estonia - Finland) taken into commercial operation Planned (MW) 800 in January 2007 Discuss
Slide 15: 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 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 *) • High scenario 2,000 TWh/a by 2020 > 4,000 • Base scenario: 1,700 TWh/a by 2020 TWh 2,500 2,200 Demand growth 700+ TWh
Slide 20: Fortum's current holdings in Russia
Fortum's current holdings in Russia TGC-10 • Fortum holding 76.5% at the moment (income statement consolidated from April 1, 2008 • TGC-10 operates in the heart of Russia’s oil and gas producing region • EUR 2.1 billion paid of which EUR 1.3 billion remains in the company (share issue) and will be u
Slide 21: TGC-10 acquisition – significant growth in power generation
TGC-10 acquisition – significant growth in Fortum’s power generation Power generation, TWh Annual power generation by largest producers, TWh 93 EDF *) **) E.ON+WGC-4 70 *) Enel+WGC-5 52 RWE ***) Gazprom Energoatom Vattenfall Electrabel Iberdrola Fortum Fortum Fortum + TGC-10 RusHydro 2007 + TGC-10 w
Slide 22: TGC-10 will double Fortum's heat volumes
TGC-10 will double Fortum’s heat volumes TGC-10 heat generation and local network • Main heat supplier in the area, 27 TWh/a • Mainly CHP, additionally heat boilers • From networks 1/3 owned and 2/3 operated • An area with large temperature changes – cold winters, January aver. -16 °C – warm summers
Slide 23: TGC-10 is a unique investment opportunity
TGC-10 is a unique investment opportunity Platform for growth in the World’s #4 power market Argayash 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 A
Slide 24: 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 • The highest load factor of all TGCs Total boiler heat capacity 910 MW • High demand growth Moscow Nyagan • Electricity 18 TWh, Heat 27 TWh Tyumen Tobolsk • Committed investment program
Slide 25: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 25
Slide 26: 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 26
Slide 27: Key ratios
Key ratios MEUR LTM 2007 2006 in Q2 '08 Sales 4 942 4 479 4 491 Operating profit 1 987 1 847 1 455 Cash flow from operations 1 639 1 670 1 151 Interest-bearing net debt 6 254 4 466 4 345 Balance sheet total 20 531 17 674 16 839 Net debt/EBITDA* 2.8 2.2 2.3 Return on capital employed (%)* 13.8 14.0 1
Slide 28: 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 28
Slide 29: Wholesale price for electricity
Wholesale price for electricity EUR/MWh Nord Pool System Price Forwards 110 100 90 80 70 60 50 40 30 20 10 1 September 2008 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 29
Slide 30: 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 September 1, 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 2004 2005 2006 2007 2008 30
Slide 31: Hedging of Power Generation's Nordic sales
Hedging of Power Generation's Nordic sales Status at the beginning of July 2008 (Status at the beginning of April 2008) Hedge ratio Hedge price Rest of 2008 ~ 70% ~ EUR 46 per MWh (~60%) (~ EUR 45 per MWh) 2009 ~ 45% ~ EUR 51 per MWh (~35%) (~ EUR 48 per MWh) 31
Slide 32: Fortum well positioned for the future
Fortum well positioned for the future • Flexible and climate-benign production portfolio • Nordic capacity investment programme proceeding • Opportunity in the Russian TGC-10 • Growth in Poland and the Baltic countries • Strong balance sheet • Good hedging positions • Good financial outlook 32
Slide 33: Agenda
• Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 33
Slide 34: 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 35: Power generation in the Nordic region in 2007
Power generation in the Nordic region in 2007 160 Total Nordic generation 397 TWh in 2007 140 120 Wind 100 Gas turbines, etc. TWh/a 80 Condensing 60 CHP, district heating CHP, industry 40 Nuclear 20 Hydro 0 Denmark Norway Sweden Finland Source: Nordel 35
Slide 36: 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 E.ON Vattenfall 30% Vattenfall E.ON Fortum 50% 51% H
Slide 37: Price of EU emission allowances
Price of EU emission allowances EUR/CO2 35 2008 30 2007 25 20 15 10 5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2005 2006 2007 2008 Source: Nord Pool 37
Slide 38: Comparable operating profit
Comparable operating profit • Comparable operating profit EUR 984 (810) million, + 21% • IFRS mark-to-market effect on Q2 reported operating profit EUR -56 (+30) million • Earnings per share EUR 0.78 (0.65 excluding non-recurring gains H1/07), + 20% • Net cash from operating activities remained stro
Slide 39: Income statement
Income statement MEUR II/2008 II/2007 I-II/2008 I-II/2007 2007 LTM Sales 1 322 959 2 762 2 299 4 479 4 942 Expenses -974 -632 -1 805 -1 482 -2 632 -2 955 Operating profit 348 327 957 817 1 847 1 987 Share of profit of associates and jv 36 15 70 217 241 94 Financial expenses, net -74 -41 -119 -72 -15
Slide 40: Cash flow statement
Cash flow statement MEUR II/2008 II/2007 I-II/2008 I-II/2007 2007 LTM Operating profit before depreciations 483 438 1 203 1 040 2 298 2 461 Non-cash flow items and divesting activities 55 -6 18 -5 -286 -263 Financial items and taxes -158 14 -280 -142 -393 -531 Funds from operations (FFO) 380 446 941
Slide 41: Wholesale prices for electricity
Wholesale prices for electricity EUR/MWh Spot prices Forward prices 110 100 90 80 Dutch 70 60 German 50 40 Nordic 30 Russian* 20 10 1 September 2008 0 2005 2006 2007 2008 2009 2010 * Including capacity tariff estimate. E.g 2008 10 €/MWh Source: , ATS 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 Dong: EDF Vattenfall E.ON CEZ Enel SSE EDP DEI Drax Edison Iberdola PVO 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 4.7% 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: Russian power industry reform
Russian power industry reform A Nordic/Western analogy Key steps in the reform Establishment of Russian power exchange (2001) Unbundling of businesses by type "Power industry law" approved (2003) of activity Restructuring of regional energos (P&H companies) Competitive Regulated Formation of
Slide 47: © Fortum
© Fortum