Transcript of Fortum s January-June 2016 half-year result News Conference for Analysts and Investors

Transcription

1 Transcript of Fortum s January-June 2016 half-year result News Conference for Analysts and Investors Hosted by Fortum s President & CEO Pekka Lundmark and CFO Timo Karttinen 20 July, 2016 Fortum Q2 2016

2 Pekka: Dear investors, welcome also for my part to this conference call. I will start with a few general comments on the result, and then I will make a couple of remarks regarding our strategy. Particularly, I'm going to focus on the ongoing Ekokem acquisition, because it marks a very important step in the implementation of our strategy. Before that, zooming into the second quarter, operationally, I would say that we are fairly happy with how things went. We had very high availability in our power plants, actually in our nuclear power plants which are fully owned the Loviisa plants. We had almost 100% availability in one of the reactors. It was actually 100% and the other one 99%, so it was really good. Actually, I've seen the second quarter result is slightly below that of last year. That comes from slightly lower volumes. We had a little bit lower hydro volumes in Q2. Nuclear was approximately on the same level as the year before. On the other hand, in Q1, we had higher hydro volumes than last year. All in all, H1 volumes were pretty much on the same level as last year, but specifically in Q2, we are slightly below last year. Russian ruble pushes the euro result down a little bit, and as you have seen, the slightly lower, actually power price also plays a role there. All in all, no dramatic changes in any of these variables compared to last year. There are some positive signs on the power price side driven by coal prices, driven by drier weather, hydro conditions. Among the positive signs, of course, in the quarter, is definitely also the Swedish agreement on energy policy. There were positive things that happened in the environment during the quarter, but then again, towards the end of the quarter, particularly the British EU exit vote increased the volatility. One consequence seems to be that the carbon price continues sliding downwards. It's in a pretty low level now. Before I go to strategy and Ekokem, the Swedish agreement on energy policy was a really important one for us. The fact that the nuclear tax will be phased out and the fact that the hydro property tax rate will drop from 2.8% to 0.5% in addition to the tax base itself which will be lowered in a few years' time. The combination of all this gives us a very positive outcome of the Swedish situation. This is exactly what we have been supporting, that the policy would develop towards such a direction where the different forms of CO2 free production would be treated more equally both in regulation and from taxation point of view. There the Swedish agreement is clearly a step into the right direction. There are still open things there. There are implementation issues. It's likely unclear still as to how the affect will be on the nuclear waste cost side, and it is also still unclear how in detail the new targets for additional renewables 18TWh will be implemented. That of course will also play into the overall result from our point of view, but the balance will be clearly on the positive side. One important piece of news during the quarter was also that now it has been confirmed that the Russian CSA payments for new capacity that we have a lot of in the country will be ten years. There was actually remember a discussion that it could potentially be 15 years instead of ten, but it has now been confirmed that it will be ten years. Summary of the numbers in Q2, we had a slight drop in sales, about 3% comparably. EBDA 209 compared to 208 the year ago for the reasons that I described, Page 2 of 13

3 slightly lower volume, slightly lower achieved price and the translation affect of the Russian ruble. Comparable operating profit 122 compared to 143, but then when we move more downwards on the P&L, the share of profits of associates and joint ventures, I'd like to highlight the fact that it was actually quite much higher than last year, 38 million compared to 22 million. Of course the three most important companies reported on this line are our stakes in Norwegian Havslund, in Fortum Värmein in Stockholm, Sweden, and in TGC-1 in Russia. There are a quite many items that affect comparability, so Timo will in his part of the presentation, zoom a little bit deeper into that. The reported earnings per share is only six cents, but if we eliminate the items affecting comparability, we come to in a way a number that we do not officially publish, but you can calculate it. It would be about 11 cents on a comparable basis if you want to get any EPS that can be compared to what it was last year, i.e., 13 cents. Then talking about our strategy. The picture that you see here is a picture of various systems in a typical city. When we talk about our capital reallocation and our strategy going forward, one of the most important elements, if not the most important element, will be to look for consolidation opportunities in our existing businesses, either in or close to our current home markets. That target obviously remains there as a very high priority target. That business will always be dependent on the development of the wholesale price of electricity, particularly in the Nordic market. That's why as we have said in our strategy definition, we are also looking for other revenues streams that would diversify our earnings profile so that it would be not be as strongly dependent only on Nordic power price as today is the case. We want to, however, do this in such a way that we always maintain the connection to our core and to the energy system that we know best. When we look at the challenges that the typical cities today have, they are many. They have big challenges in decarbonizing their heating systems, their cooling systems. They want to offer new solutions for consumers. They want to offer a lot of new digital platforms for active consumers, and at the same time, they want to increase the role of local fuels in the city energy system. This is where things like biomass and waste come into the picture. These are challenges that the cities are facing, and of course, our goal is not to be a turnkey supplier of everything in the city. The challenges are so many that one company cannot possibly solve them all. We have chosen a few focus areas, and we actually will keep on working on the exact focus in the coming quarters, but a couple of highlights about the things that we've been working on in the past few months. The one very important element in our strategy continues to be the consumer business which we are now, through the acquisition of Duon, expanding to Poland, which is an existing country for us. We are adding a business that we know from the Nordic experience into a country where we are already present today through heating business. We have an ongoing investment into a waste energy plant in Poland as well. Page 3 of 13

4 This is how Duon fits into the picture. It expands the geographical scope of our consumer business into a country that we already know. Then I just want to highlight. This is very small, and the numbers here are not important in the short term, but this was a technology platform acquisition. Digitalization is one of the most important drivers of the whole world at the moment, and Info 24, not only gives us a platform for the intelligent management of systems for electric traffic, but it also has potential to be scaled up to a more wider scale IOT platform for energy, various energy services. This was more for us a technology type of acquisition, almost in a way R&D that you speed up through an acquisition of a pretty good platform. Then when we move to the next one, then we are talking about first larger acquisition that we have recently made. Duon, roughly EUR 100 million or so, is already of a meaningful size, but Ekokem, EUR 700 million enterprise value, for 100% of the shares, is one order of magnitude more. This is now, I would say, a prime example of an acquisition that diversifies our revenue streams. It gives us access to new markets, but at the same time, it is a very strong connection to our traditional core, the energy system. It fulfills the criteria, the strategic criteria, for the types of acquisitions that we want to make very well. Let me explain this in a bit more detail. Ekokem is a company that is handling and recycling of materials and waste. They are specialists and Nordic market leaders in the recovery and final disposal solutions for waste. They are very strong in thermal treatment, high temperature, thermal treatment of toxic, hazardous waste. They are strong in soil remediation and environmental construction services, and they are, as we are today, in the waste energy business. They have approximately 10,000 active customers in Finland, Sweden, and Denmark. As such, this acquisition does not diversify our geographical portfolio, but it strengthens our position in our existing Nordic markets. Most importantly, it gives us, in addition to the waste to energy revenue streams, it gives us access to new revenue streams which we have not been in previously. The company had turnover of 258 million euros last year, comparable EBITDA of eur 57 million. As you may remember, the EUR 700 million enterprise value of the acquisition, 400% of the shares, represents approximately 11 times this years' expected EBITDA. From there, you can calculate that the EBITDA of the this company's actually growing, and we strongly believe that what we have acquired here or are acquiring will be a platform for growth. One potential way, but I emphasize that only one potential way to grow, is to expand to places where we are to other places where we are currently in waste to energy. We are big in waste to energy through our joint venture in Sweden, in Stockholm, where we have two facilities that are burning actually over one million tons of waste each year. Then we have the ongoing facility in Klaipeda, in Lithuania. We have another ongoing project in Lithuania in Kaunas to be ready in 2019, and we have an ongoing project in Zabrze, in Poland, to be completed in Kaunas will be completed in These are all potential places that have very good and natural synergy with the offering of Ekokem. On top of that, in theory, every waste to energy plant in the world has potential synergies with Ekokem. Page 4 of 13

5 In addition to the hazardous waste treatment, Ekokem has a pretty interesting, and I would say quite unique concept even globally, that they call Circular Economy Village that was actually inaugurated only a few weeks ago. This revenue or profit numbers that this Circular Economy Village will produce are definitely not visible in their last years' result numbers. This village that is now operating in Finland receives annually 100,000 tons of mixed waste, typically household waste. The waste goes first into a pretty automated, I would almost call it a factory, called Eko Refinery that separates the waste so that we get metal separated. We get plastics separated from the waste. We get biomass, and we get then the part that here is referred to as energy waste, i.e., the part that makes sense to be burnt into energy. The biomass goes into a biorefinery where biogas for transport purposes is produced. The plastic goes into a plastics refinery where the plastic is separated, crushed, washed, pressed into granules, and after that, sold as recycled plastics to the industry that will be able to use it as recycled plastics in their own products. Perhaps that way, brand their products as very environmental friendly, because they are based on recycled plastics. All these provide new revenue streams. Then the energy part, the part of the waste that does not have other use is it then goes to the waste to energy plant and into the system that we are already in today. This concept, as I said, is fairly this way integrated. It's fairly unique in the world. It's highly automated, and unlike the traditional utility business model which is based on very large, centralized production units and hence not very scalable, there are limits of a higher scalability in this concept. This all then needs to be verified and plans will be made as to how this will be scaled to more international markets. I wanted to take this time now and explain the background of this, because this is clearly one key element in our future growth strategy, but I want to emphasize not forgetting the other key element which is definitely going to be the consolidation of our traditional generation businesses. Then if I continue to the market conditions in the second quarter of 2016, the electricity consumption in the Nordic countries was more or less the same as last year. Q1 was actually quite much higher, so the H1 consumption was 3% up in the Nordic region compared to last year. We are still estimating that the long-term direction is 0.5% per year. Even though the year, the beginning of this year was so strong, it does not give us reason to change that estimate. Market prices have recovered somewhat, but they are still low. They've been supported by the hydrological situation and increased coal prices. As you have seen, the average systems bought price was EUR 23.9 versus EUR 20.7 last year, and the same type of difference can be seen in the Finnish and Swedish area prices. As I already pointed out in the beginning, unfortunately, the CO2 price has continued to drop, and it is now only 4.5 euros per ton. On the ration side, electricity consumption has been more or less stable, and the spot price is excluding capacity prices increased by 3% in the first price zone compared to the second quarter of last year. Page 5 of 13

6 At the beginning of 2016, the Nordic water reservoirs were at 98 terawatt hours, which was 15 terawatt hours more than the long-term average and 18 terawatt hours higher than a year earlier. Now when we're at the end of the second quarter, the reservoirs were actually one terabyte hour below the long-term average. Still, as you can see on this picture, quite much higher, 14 terawatt hours higher than a year ago. A year ago, what when then saw in the third quarter was extremely wet weather and a lot of remaining snow melt in the high altitudes. Now nobody knows how the weather will develop from here, but it is a fact that the remaining snow is on a significantly lower level than it was last year. There is very little left at this time which means that it is quite unlikely that we would see, even in a wet scenario, quite the similar development as we saw last year, but of course, who knows where the weather will go. Here is the price development. You can see the peak in the beginning of the year because of the cold weather, but after that, the spot prices have been between 20 and 25 euros. The forwards have recovered a little bit from the very low levels where they were. They actually were around 17 to 18 euros for the year 17 to 19 already, but now they have been recovering a little bit, but still they are, in historical comparison, on a fairly low level. Our achieved prices were EUR 30.5 in the second quarter compared to EUR 31.1 last year. As I already earlier commented that the spot prices were 15% up, but then when you add the affect of the area prices and hedges which plays a very important role here, you get to the achieved price which was EUR Then, again on the Russian side, spot prices I already commented, but the achieved prices for Fortum were, in euro terms, 11% below that those of last year, but in a local currency, in ruble, they were actually 9% up from last year. Then, finally, before I hand it over to Timo, the comparable operating profit bridge is between 16 and 15. I start from Q2. Last year's comparable operating profit EUR 143. Both volumes and price were slightly lower than last year which means that despite of the cost reductions that are actually proceeding according to the plans, and we are looking at least at achieving the EUR 100 million that we are targeting for the whole company, a significant part of that being in generation. Despite that, the comparable operating profit for Q2 is 16 million euros lower than last year, coming from these two reasons. City Solutions EUR four million below last year. Lower heat sales due to warm weather and lower achieved electricity price for the CHP plants. Russian result pretty much the same as last year. Here you have a strong effect from the currency. The ruble effect is minus nine million. Operationally, we are looking at an 8 million euro improvement year over year for Q2. That then leads to this EUR 122 Q comparable operating profit. Then finally H1, we start from EUR 486 volumes in generation about the same as last year, but achieved price for H1, almost four euros lower. That leads to 64 million lower result. City Solutions more or less the same. Russian result 90 million euros below last year, but there are two items affecting comparability there. Last year, EUR 30 million higher CSA provisions releases and then the ruble effect on H1 level, EUR 20 million. Page 6 of 13

7 Together, EUR 50 million. Eliminating these, you get a ruble demoninated operational improvement of EUR 31 million in H1. The combination of all these leads to then 397 million euro comparable operating profit for the continued operations. Then over to you, Timo. Timo: Thanks, Pekka. Good afternoon, everybody, and welcome to this results conference on my behalf as well. Let's look at some of the important points in our mainly second quarter, the numbers a bit close, so the first half. Starting from the comparable and reported operating profit. First our comparable operating profit by reporting segments Generation EUR 98, City Solutions EUR 7, Russia EUR 34, and then other consisting of headquarter costs and also the costs that we have for development, R&D, and building for the future, EUR -18. That then gives the total for the comparable EUR 122 as we have already heard. On the other hand, the reported operating profit was EUR 67. That means that all in all, we had minus 54 million euros of these items affecting comparability during the second quarter, and most of that you can say that almost all of that now during this quarter is coming from these fair value changes or directives in our Nordic power hedging. Those hedges that do not get hedge accounting but get to be fair valued through the profit and loss. Mostly that is in generation. As you can see, the biggest gap between the comparable and reported operating profit in the segments is in the generation segment. Then when we look at the first half year numbers, the comparable operating profit first half year, EUR 397 and the reported EUR 437, so there we have plus 40 million euros of these items affecting comparability. You may remember that during the first quarter, we had a bit over EUR 40 million of sales gains in these items affecting comparability. Meaning that all these other items including these fair value adjustments, so they net fairly close to zero during the first half. Then moving on to the income statement, and I focus on a couple of lines here that we haven't touched yet, mainly the share of profit of associates and joint ventures, and then net financial expenses. Starting from the Fortum Värme, the joint venture, 50/50 joint venture that we have with the city of Stockholm in Sweden. As you may remember, Fortum Värme was previously financed by shareholder loans from us. Then we made a decision with the city of Stockholm that Värme is getting external financing, and they will repay back to us the shareholder loans. They did that most of it during last year and also quite a lot of that during the second quarter. As those payments were premature compared to the original program and the exchange rate environment, the exchange rates were lower than in the original loan agreements, Värme paid also compensation for us for the premature payment of the shareholder loans. Early on during the second quarter 2015, they paid to us EUR 26 million of these compensations. That is visible there in the financial expenses, net 2015, reducing that from what it would have been otherwise. Even if it would show here that our net financial expenses have increased by EUR 20 million actually discounting for this EUR Page 7 of 13

8 26 million compensation that we got last year and didn't get any of that this year, our net financial expenses went down by six. Our actual interest expense during the quarter went down EUR 15 million compared to last year. On the other hand, then also our interest income went down by seven million exactly because we didn't have these shareholder loans from Värme anymore. That explains the change in the financial expenses. Then looking at the shareholder profits from associates increasing from EUR 22 to EUR 38. Of course, when Värme was last year paying compensation to us, they booked a negative effect on their own profits of this compensation. We booked 50% of after-tax Värme profits here on the associates and joint ventures line. Last year we booked EUR 10 million profits from our profit share in Värme, and that partly explains the increase in the shareholder profits from associates. That explains the increase in profits in Värme for this quarter. Our other associates also performed this year better than last year. Havslund was performing four million better, and TGC-1 was performing two million better. All that then leads to the net profit EUR 57 for the quarter, six euro cents for EPS, and as noted before, taking these items affecting comparability, EUR -54 into account, if we wouldn't have had that then the EPS would have been roughly five euro cents higher. Then moving over to the cash flow statement. There also a couple of points that are important to bear in mind to understand the quarterly cash flows. First, during the quarter, we decided to pay 127 million euros worth of kronas in Sweden regarding an ongoing tax dispute. That EUR 127 million is booked as a receivable. There is no provision so no profit and loss impact. On that we have solid external legal opinions supporting our view that we will ultimately win the tax dispute, and we will get the cash back. We decided to pay that instead of separately applying the permit not to pay it. We are getting some interest on that payment if and when we ultimately win that tax case, so that EUR 127 million is visible on these other funds from operations line which is now EUR 18 only during the quarter. It would be EUR 145 without this cash tax payment. Then the other thing to bear in mind during the quarter is that an extra commodity exchange moved over from the start of the year to requiring cash collateral for everybody who is trading there in electricity directives in the Nordic electricity exchange. That is because of the changes in European Financial Regulation. Previously, we were able to use bank guarantees for collateral. Now during the quarter, we paid EUR 92 million as cash collateral to NASDAQ because of this. EUR 44 million out of this EUR 92 is negative in our change in working capital line, because this is non-interest bearing, so it's booked as one item during changing working capital. Our working capital would be improving by EUR 22 instead of decreasing by EUR 22 if there wouldn't have been this cash collateral payment. Then the rest of this EUR 92, so EUR 48 million of this cash collateral payment, as it is interest-bearing, it's booked there down in other investment activities, inside cash used in investing activities. Within this EUR 134 million during the quarter, EUR -134 million, that includes also EUR -48 out of this cash collateral payment to NASDAQ. Page 8 of 13

9 Once again, all together, EUR 219 million cash we used for these tax payments in Sweden, and then the NASDAQ cash collateral payments. Those items are important to bear in mind when looking at our quarterly cash flows which just from the reported numbers, would seem to be fairly low. Then moving on to the debt portfolio, our total interest-bearing debt at the end of the quarter, EUR 5.2 billion. The average interest rate for the whole portfolio, [2.5.] 3.5% down from 3.7% at the start of the year. Our external debt is mainly taken as euros or Swedish kronas, that portfolio interest cost at the end of the quarter, 2.1% compared to 2.6% at the start of the year. Then we have swept EUR 722 million euros worth of financing into ruble that we use to finance our Russian activities. The cost of that financing including the cost of hedging the currency in those swaps, was 12.2% at the end of the quarter while it was 12.8% at the start of the year. Looking at the maturity profile, you can see that we have no more bonds maturing this year. We have a bit over EUR 300 million bonds maturing first quarter next year. We have and we continue to have a strong financial position of a comparable EBITDA last 12 months, 1,044 million euros. Our interest-bearing net debt negative, net cash position, EUR 934 million. Our net cash has gone down quite a lot during the year. That is mainly explained by the fact that during the second quarter, we paid 977 million euros of dividends. Then also we paid the 750 million euros maturing bond during the quarter. Our comparable net debt to EBITDA ratio currently -0.9 as the net debt is negative. You may remember that our target is to be around 2.5 in normal conditions. Return of capital employed where our long-term target is to be about 10%, for the last 12 months, There it's important to bear in mind that during the second half of 2015, we had more than EUR 950 million negative items affecting comparability coming mainly from the provisions and write-offs regarding the closure decision of Oskarshamn one and two nuclear units in Sweden. On top of that, we also had more than EUR 110 million negative impact in the joint ventures and associates line also coming from the Oskarshamn closure decision. Those negative items have really impacted this last 12-month return on capital employed. At the end of the quarter, we had more than six billion of liquid funds in our balance sheet, and we had committed credit lines totally two billion including a new, revolving credit facility that we completed and signed during the quarter, EUR 1.75 billion. Now then to the outlook and over back to Pekka. Pekka: Thank you, Timo. The most important things about the outlook before we take questions. I already mentioned earlier that we maintained the longer term forecast here.5% electricity demand growth. It will, in the future, be supported by things like the electrification of traffic, the speed of which will be hard to estimate. Russia, I just confirmed, that we maintained the target to get to 18.2 billion ruble operating profit for the segment, including OAO Fortum and our share of TGC-1. We expect this to be reached during the years 2017 to '18. Capex guidance is unchanged. This is excluding potential acquisitions of course, EUR 650 million of which maintenance capex Page 9 of 13

10 approximately EUR 350 million. Hedging, we have increased slightly now during the quarter. The hedging percentages for '16 we increased from the remainder of the year, we are now looking at 75% hedge that approximately 29 euros per megawatt hour and then 2017, we are now at 45% hedge that EUR 27. Here, it's worth remembering that these percentages are rounded up to the nearest five percentage points which means that these are not that accurate. That's one comment. The other comment is that these percentages do not include the area price hedges. Finally, taxation, effective tax rate guidance unchanged for the group 19 to 21%, but then when we look at the positive effects of the Swedish political agreement on reduction of both the nuclear and hydro taxes, the effect of that is so significant that it should definitely not be neglected. Okay, that's all now. Now, operator, we would be ready to take questions. Operator: James: Thank you. If you would like to ask a question at this time, please press the star or asterisk key followed by the digits one on your telephone. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star, one to ask a question. We will now take our first question from James Brand, Deutsche Bank. Please go ahead. Your line is open. Good afternoon. Two questions if I may. First, just on the deal agreed around Swedish tax reductions. The comments at the time suggested that in exchange for the reduced tax burden, that utilities would have to meet additional investments in the nuclear stations in terms of meeting heightened safety requirements and also spend capex refurbishing some of the hydro stations. I was just wondering whether you could give some details on what that might mean for you in terms of how much capex you might have to be spending or your share of capex over the next few years in nuclear, hydro in Sweden. The second question is on Olkiluoto 3. As I understand it, that's going through a testing phase this year. I was wondering whether there's any update on that process. I suspect not, otherwise it probably would have to come through on the TV or website, but if there is an update, it would be of interest. Second fold, on Olkiluoto 3, when it does come online, do you expect it to have much of an impact on the Finnish spreads? Thank you. Pekka: Thank you for the questions. If I start from the second one, obviously we do not give estimates on the power price developments, so unfortunately, we are unable to comment the second part of your question. To the first part, the information is unchanged. TVO has information from the supplier consortium that the plant is expected to be ready by the end of 2018, so that is unchanged. Then when it comes to the Swedish situation, you are quite correct that this is a package. It will almost automatically lead to now the operators making certain investment decisions on safety improvements that were actually triggered by the Fukushima accident, so there will be certain new safety systems invested into. Actually, Forsmark has already made the decision to make these safety upgrades. Page 10 of 13

11 We have not disclosed and actually it is not our role to disclose the size of these investments, but what I can say though is that we are looking at still fairly longremaining lifetime for these reactors after these investments and the depreciation that will come from these investments. The additional depreciation is very small compared to the positive affect of the lower tax. When it comes to hydro, there is no automatic obligation to invest into anything, but I would say on the contrary that this will make certain investments quite attractive from a financial point of it. There's still quite a lot of old hydro capacity. There's even 100-year old turbines in certain power stations, and they are usually pretty good investments from return on capital point of view. When you refurbish them, you can increase the capacity, you can increase the reliability of the stations. The fact that the variable cost of hydro production in Sweden will go down, we'll increase the number of potentially attractive investments. Timo: James: Operator: Speaker 5: Pekka: Let me note the detail there is no formal connection between the political decision to take away the nuclear tax in two years and then the safety or other investments in the nuclear power plants but separately the Swedish Nuclear Safety Authority had declared that if these Fukushima-related safety investments are not done in a certain time period, then all these Swedish reactors will have a limited time span that would end or would have ended some time mid next decade. These are formally not connected, but they're now as there is the political decision that the nuclear tax will be taken away, then there is more economic opportunity really to consider and do these safety investments. Okay, thanks so much. Thank you. We will now take our next question from Artem Beletski from SEB. Please go ahead. Your line is open. Yes, hi. This is Artem Beletski from SEB. Two questions from my side. First one relating to this favorable tax decision from Sweden. Is it so that you don't have any further insight at this stage what will be the profile of tax cuts when it comes to hydro and nuclear and maybe when you could get this type of information? The second question is relating to Russia and the decision of what comes to CSA payment period which has been kept at 10 years. Are you now more comfortable in reaching this EBIT target for 2017 and '18 following this outcome? Maybe just a reminder, do I remember it correctly that you actually assumed that the CSA period would be extended to 15 years when you gave out current guidance for Russia? If I ask the Russia question and Timo will then comment the Swedish tax cut situation. We are fairly confident about that '17, '18 target. If we would not be, we would obviously change it. It's not that simple that now because of this decision, now we would be so much more confident because we also have to remember that we had the divestment of Tobolsk which is quite a significant divestment actually in Q1. We are working on the structure all the time. We were still, in the beginning of this year, bringing in new capacity. We have been following this all the time and both before Page 11 of 13

12 and after this confirmation that it will be ten years, we have been confident that '17 to '18 timeframe is achievable. From a profitability point of view for the first ten years, this is a positive decision. Timo: Speaker 5: Operator: Miko: Pekka: Timo: To the first question, yes, it is true that we don't have any further insight. As you may remember, the political decision is that the nuclear capacity tax will be taken away over a two-year period starting from next year and likewise the hydro tax will be reduced over a four-year period. We don't have more insight, more detailed breakdown as to how and when that would happen. My own assumption is that if not before, but then when we see the next year's Swedish budget, then we get clarity at least what is in line for next year. Okay, that's all from my side. Thanks. Thank you. We will now take our next question from Mikko Ervasti from DNB. Please go ahead. Your line is open. Thank you very much. A couple of questions from my side. First on the M&A pipeline, you mentioned that the consolidation of this normal generation capacity in addition to this recent City Solutions -related deal, so you can please comment on what the pipeline looks like, the multiple situation, what kind of competition there is for these assets. Because not much has been happening recently and now about a year after, Pekka, you joined the team to execute these things, there hasn't been that much of this activity. Then another question on the hydro balances, you always referred to the market situation in the Nordic section as you should, but Pekka, can you please comment on your own hydro balances, because you've had relatively low hydro volumes in recent quarters, but the overall levels have come down. Have you spared your own reservoir capacity for some production later or have you bypassed it or what has been happening there? Please explain. Thank you. Okay, thank you. I'll take the M&A question and then Timo will continue on the hydro balance. You say that not much has happened, but I would still say that EUR 700 million acquisition of Ekokem is for one quarter is actually quite a lot. You say that we've been working on this for a year now, but it's three quarters to be exact, but still your point is valid that we have not published any larger scale consolidation transactions on the traditional side. It's really impossible to estimate if and when those come. We are keeping our eyes open. There are several interesting things that we are looking at at the moment. As you very well understand there is no way I could mention any names or speculate on any multiples. It is more important for us to do good deals than just to do deals. We are not in a hurry to spend the capital that we have. We feel that Ekokem is an excellent move, and it is a fairly sizable move, but of course, there is more room to maneuver in the coming quarters. This is unfortunately all I can say about this topic. Then, Timo, hydro. Yes, related to our own hydro balances. As you know, we haven't published them, and we are not directly commenting on what is the situation in our own hydro reservoirs. I think now I don't have the statistics here on paper or in my head, but I Page 12 of 13

13 think that the hydro production volumes due in the second quarter, they were somewhat lower than last year, but I think that they were still fairly close to normal. As you may remember, already second quarter last year, we and the market had quite a lot of hydro volumes. Even more so, if you go to the first quarter, I think that we made a record first quarter hydro production in our own hydro power plants during the first quarter this year. Those we have published, and we have commented. We have had quite a lot of hydro volumes. Our volumes in our reservoirs do not always exactly match what it Nordic volumes in general. That is depending on the rain variability in the regions and then details, so how do we dispatch. As I said, those we do not comment in more detail. Mikko: Operator: Sophie Jolly: Pekka: Timo: Pekka: Okay, thanks gentlemen. Thank you. As a reminder, if you would like to ask a question, please press star, one on your telephone. There are currently no questions in the queue at this time. Thank you. Thank you, everybody, for joining. If you have further questions, IR, the whole IR team, is happy to help. Pekka, Timo, thank you. I wish everybody a nice evening. Good-bye here from Helsinki, a very sunny Helsinki this time. Thanks, bye. Thank you. Thank you. Bye-bye. Page 13 of 13