Capital Markets Day Fortum Corporation

Transcription

1 Capital Markets Day 2005 Fortum Corporation 29 November 2005

2 Capital Markets Day Agenda Registration and coffee Fortum in the Nordic and European electricity markets, Mikael Lilius, President and CEO Financial update, Juha Laaksonen, CFO Fortum's strategy in Russia, Tapio Kuula, SVP Q&A Lunch Fortum in Poland and the Baltics, Timo Karttinen, SVP Electricity retail and distribution, Christian Lundberg, SVP Q&A Closing remarks, Mikael Lilius, President and CEO

3 Fortum in the Nordic and European electricity markets Mikael Lilius President and CEO, Fortum Corporation Capital Markets Day 29 November 2005

4 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

5 Contents Fortum today Key developments in industry environment Fortum going forward 3

6 Fortum today Key developments in industry environment Fortum going forward 4

7 Fortum focus on power and heat A pure power and heat company following separation of oil operations Operations throughout the entire power and heat energy chain Geographical focus on the Nordic, NW Russian and Baltic Rim markets 5

8 Operations throughout the entire power and heat energy chain Generation Portfolio Mgmt & Trading Service Heat / Värme Distribution Markets One of Europe s most efficient generators with a 14% market share of Nordic consumption Best-in-class physical and financial market operations Efficient operation and maintenance services for industry and energy companies Nordic leader in district heating with strong industrial cooperation and a developing presence in the Baltics and Poland Leading Nordic distribution company with 1.4 million customers in Finland, Sweden, Norway and Estonia Wide product offering for 1.2 million business and private electricity sales customers 6

9 Presence in focus market areas Nordic Generation 52.8 TWh Distribution cust. 1.4 mill. Electricity sales 41.4 TWh Electricity cust. 1.2 mill. Heat sales 19.8 TWh NW Russia Generation ~4.7 TWh Heat production ~8.9 TWh Poland Heat sales Electricity sales 3.9 TWh 19 GWh Baltic countries Heat sales 1.3 TWh Distribution cust. 22,000 Electricity sales 43 GWh 7

10 A versatile generation portfolio Fortum s Nordic power generation 54.4 TWh in 2004 Other 2% Natural gas 1% Biomass 2% Peat 2% Coal 11% Hydro power 35% 38% of generated electricity uses renewable water- and biomassbased energy sources 83% of electricity generation is carbon dioxide-free Nuclear power 47% Fortum s Nordic generation capacity 11,220 MW Certified environmental and safety systems 8

11 Major focusing during Separation of Oil Acquisitions Norway Divestments Divestment of Oil E&P Stora Enso Generation Hafslund Østfold EUR Fredrikstads Energi Edenderry oil assets Småland non-focus market power assets Birka Energi Distribution Brigg EPV EUR Elnova 7 billion Länsivoima 6 billion Humber Transmission Engineering Power Plant Engineering Lenenergo Acquisition of Tartu Energia CO2 -free generation Wesertal Germany Power businesses Espoon Sähkö 4,470 MW of power generation capacity DZT, PESC, Wroclaw, PEC non-core engineering Budapesti Erömü growth platforms in LaemRussia Norway, NW Chabang and the Baltic Rim Oman 9

12 A leading Nordic power and heat company Nr 1 Nr 2 Distribution Power generation Heat Electricity sales 10

13 Excellent share performance Share price Index Fortum Market value EUR billion (85% of Neste Oil market value of 6.4) Dow Jones /01 1/02 1/03 1/04 1/05 31 Dec Dec Dec Dec Dec Mar 2005 Neste Oil as dividends*) 24 Nov 2005 *) Dividending Neste Oil shares at 15, 3.75/Fortum's share 11

14 Strong dividend growth Dividend per share EUR 0.58 Total 1,669 MEUR Fortum aims at paying a dividend that corresponds to an average payout ratio of 50% to 60%

15 Recent developments Nordic Continuation of offer for City of Espoo's shares in E.ON Finland until 31 December 2005 Russia Initiation of TGC-1 operation in NW Russia on 1 October 2005 Acquisition of 24.8% of the shares in Kolenergo Co-operation agreement with RAO UES, Integrated Energy Systems (IES/KES) and Fortum Service Poland Acquisition of a majority of the city of Wroclaw's district heating company MPEC Wroclaw S.A. Acquisition of majority of the city of Plock's district heating company PEC contracted Other Service O&M agreement with Trianel Energie in Germany 13

16 Fortum today Key developments in industry environment Fortum going forward 14

17 Towards an open European power market 1990's EU Directive: EU Commission strategy: Market liberalisation, i.e., free choice of supplier Integration of national power markets through regional markets into one European power market Market-based development Increased competition Increased efficiency 15

18 EU-kommissionens strategi EU strategy integration through wholesale market development From harmonised regional markets to an integrated European market Nordisk marknad SB/IRL marknad (2005?) Baltisk marknad (2008?) Östeuropeisk marnad ( ?) Västeuroepisk marknad ( ?) Italiensk zonmarknad (2004?) Sydosteuropeisk marknad ( ?) Iberisk marknad (2005?) Transmission and system services Development of market places for power trade Management of bottlenecks Market transparency Harmonisation of regulation 16

19 EU integration moving forward Integration requires Investments in interconnection capacity Market-based utilisation of cross-border interconnections Development of cross-border trade through increased use of market coupling (implicit auctioning) New interconnection capacity proposed by the Commission Nord Pool spot, KONTEK Regional and cross-regional initiatives proceeding, e.g., Iberia France-Belgium-Holland NorNed 17

20 Nordic market becoming more integrated into Europe Nord Pool has introduced a spot market area "KONTEK" to facilitate market coupling on the Kontek cable NorNed (Norway-the Netherlands) by 2008 Estlink (Estonia-Finland) by 2007 Nordel priority projects enhance Nordic power market integration Present Under construction Planned Discussed ~ (490)

21 Nordic and continental European integration benefits Monthly average price EUR/MWh Spot prices in Nordics, Germany and Poland NordPool EEX Polish PX GWh / week Import Nordic electricity exchange with Germany and Poland Current maximum import capacity Export Current maximum export capacity Integration creates synergies from combining thermal power and hydro power dominated markets European integration will mean gradually increasing price convergence as physical interconnections and cross-border trading evolve Integration enlarges the relevant market area and increases competition 19

22 Forwards Yearly moving average spot price EUR/MWh 70 Forwards EUR/MWh Nov 18, German Spot German futures Nord Pool System Nord Pool futures Dutch Spot Spanish Spot Russian Spot Source: Reuters, OMEL, ATS 20

23 New capacity will be needed Demand and capacity development in the Nordic market TWh Electricity demand is expected to increase by around 55 TWh Committed plans of new capacity around 20 TWh Consistent long term energy policy required to support investments in new capacity Existing/remaining capacity Committed new capacity 21

24 New capacity will require an EUR 35+ price EUR/MWh Forwards 18 Nov 2005 EUR/MWh Fuel costs, excl. CO 2 costs Fixed costs Source: Nord Pool, Fortum 0 Coal Gas Nuclear Hydro Wind Source: NEA & IEA "Projected Cost of Generating Electricity", 2005 update (average of European projects); Elforsk: "El från nya anläggningar",

25 Futures indicate continued high fuel prices and CO 2 allowance prices Oil price Gas price USD / bbl USD / t Increasing, also pushing the gas prices Coal price Decreasing, still ~50% above the average for previous 10 years GBp / therm EUR / tco CO 2 price CO 2 prices increased sharply due to gas prices & delayed entrance of actors Source: Reuters, Market prices Nov 18, 2005; future quotations 23

26 Hydrology and CO 2 price are the key drivers for electricity price in the Nordic market weekly production [GWh / week] Hydro power production in Norway and Sweden Due to increased inflows in 2005, hydro power production has been higher than the two previous years Condensing power production on a low level Price, /tco EU ETS CO 2 prices and volumes Volume, MtCO 2 /month Prices for CO 2 emission allowances have been higher than initially anticipated The impact of CO 2 emission allowance price on electricity price depends on the hydrological situation 1 / / / / / / / /

27 Summary on industry environment development Europe is moving towards an open and integrated power market - Fortum promotes this development European integration will mean gradually increasing price convergence as physical interconnections and cross-border trading evolve Nordic market is the benchmark for European development Nordic market is gradually becoming more integrated into continental Europe New capacity will be needed, in both the Nordic and continental European power market Hydrology and CO 2 price are the key drivers for electricity price in the Nordic market 25

28 Fortum today Key developments in industry environment Fortum going forward 26

29 Fortum's strategy Fortum focuses on the Nordic and Baltic Rim markets as a platform for profitable growth Become the leading power and heat company Become the energy supplier of choice Benchmark business performance 27

30 Key issues in going forward Growth Becoming the energy supplier of choice Promoting market-driven development of the electricity market Continued focus on performance targeting world class 28

31 Growth Organic growth Participation in further Nordic consolidation Leveraging Russian and Baltic Rim growth opportunities 29

32 Organic growth in all businesses a target By 2010 Fortum invests in ~800 MW new power generation Capacity increases in nuclear in Sweden, ~250 MW OL3 nuclear unit in Finland, 400 MW Refurbishing of existing hydro assets, ~150 MW Bio-CHP and waste-to-energy Heat B2B development Leveraging retail customer churn opportunities 30

33 Still a highly fragmented Nordic power market Generation 379 TWh > 350 companies Distribution 14 million customers >500 companies Retail 14 million customers ~450 companies others Fortum others Fortum Vattenfall others Fortum E.ON 31% Vattenfall 54% E.ON 55% Vattenfall Hafslund Norsk Hydro Helsinki E-CO Energi Energi E2 Elsam PVO Statkraft E.ON BKK Hafslund Nesa Copenhagen Helsinki Statkraft Göteborg Nesa Plusenergi Copenhagen Helsinki Fjordkraft Öresundskraft Source: Fortum, Company data; Shares of 10 largest actors, 2004 figures 31

34 Nordic restructurings ongoing Recent events Acquisition of Danish power assets by DONG and Vattenfall Statkraft acquisition of E.ON Sverige's generation assets in Sweden and Finland E.ON's offer for minority stakeholders' shares in E.ON Sverige Fortum's offer for City of Espoo's shares in E.ON Finland continued 32

35 Leveraging Fortum's position as the only foreign strategic investor in the Russian power sector Fortum is today well-appreciated Participation in NW Russia restructuring Service co-operation in enhancing operations of the TGCs Participation in St Petersburg area district heating upgrading and development 33

36 Growth platforms established in Poland and the Baltics Baltic countries Strong Heat market position in Estonia Growth platform for Heat established in Lithuania Power distribution in Estonia Poland Strong Heat growth platform established Ongoing privatisation of district heating providing opportunities Follow-up of power sector privatisation 34

37 Becoming the energy supplier of choice Driving customer focus and sales culture Creating best experience in all customer interfaces 35

38 Efficient organisation focusing on key processes Markets Offerings - customer solutions development Efficient power procurement and risk management Distribution Reliable and safe distribution of power Operational and investment efficiency of the grid Customer Services Excellent customer service Efficient customer processes 36

39 Market driven development of the electricity market Supporting and driving further Nordic harmonisation Supporting Nordic infrastructure development and TSO co-operation 37

40 Common rules for one market still some way to go in Nordic harmonisation Areas that call for harmonisation measures Treatment of industry actors ownership restrictions differences in taxation treatment of utilities unequal requirements on legal unbundling Nordic infrastructure development treatment of transmission bottlenecks still national retail markets National solutions within the regulatory framework different promotion schemes to support renewables different tariff structures in distribution regulation 38

41 Government proposals for taxation changes Nuclear capacity tax In Sweden; nuclear capacity tax from current SEK 5 514/MW (thermal effect) to SEK /MW (thermal effect), i.e., an 85% increase Property tax on hydro In Sweden; from the current 0.5% to 1.2% on permanent basis and an additional 0.5% for the period In Finland; increase on upper level of the municipal property tax to 2.5% from the current 1.4% Property tax on nuclear In Finland; increase on upper level on the municipal property tax from the current 2.2% to 2.5% Cumulative increase in tax deductible costs estimated at 60 MEUR if tax level changes approved 39

42 Performance target world class Ensuring performance excellence in key areas Delivering on stretched targets 40

43 Performance excellence in key areas Plant availability Customer service Risk management Purchasing Operational efficiency Safety 41

44 Fortum Group's current financial targets ROE >12% ROCE >12% Normal CAPEX <depreciation Gearing <100% 42

45 Fortum is well-positioned for the future Strong market positions in the Nordic market Firm growth platforms established in NW Russia, Poland and the Baltic countries Opportunities for strengthening presence in the consolidating Nordic and developing Russian, Polish and Baltic markets Solid financial position enables further developments in the focus markets Continued focus on the efficiency of operations Market fundamentals support future good performance 43