Fortum and Nordic power markets

Transcription

1 Fortum and Nordic power markets Mikael Lilius President and CEO, Fortum Corporation Enskilda Securities, Finnish Blue Chip Seminar 2005 Helsinki, 22 September 2005

2 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 2

3 Consistent delivery of strategy Restructuring worth 14 billion in Strengthened position in the Nordic market increased CO 2 -free hydro and nuclear power generation strengthened position in electricity distribution and retail foothold in Norway, NW Russia and Poland Disposal of non-core businesses power and heat businesses outside the Nordic and Baltic Rim focus market power plant and transmission engineering businesses gas retail and trading businesses oil businesses separated 3

4 Leading market positions in the Nordic area #1 # 2 Electricity distribution Power generation Heat Retail sales of electricity 4

5 Good financial performance EPS, EUR

6 Good returns to shareholders - dividends Dividends, EUR * CAGR: 26% Dividend policy Fortum Corporation's dividend policy states that the company aims at paying a dividend which corresponds to a payout ratio of 50% to 60% on the average * Cash dividend, Neste Oil shares not included 6

7 Good returns to shareholders - share price Quotation of Fortum shares and Dow Jones 600 utilities index volume weighted weekly average weekly averages, 2001 week 1 = Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Divident payout: 0,58 eur cash Neste Oil shares Fortum volume weighted index DJ600 index 7

8 Towards open European power markets National Nordic European 1990's Increasing competition Increasing efficiency Lowest possible prices - gradual price convergence in Europe 8

9 Nordic market is a forerunner from "Nordic today " to "Europe tomorrow " Nordic market GB/IRL market (2005?) Baltic market (2008?) E. European market ( ?) W. European market ( ?) Italian zonal market (2004?) SE Europe market ( ?) Iberian market (2005?) * European Commission strategy paper 2003 The Nordic market is the only regional market in the EU today Recognized functionality of the market design 9

10 A large Nordic power generation market Generation, 2004 others British Energy Scottish&Southern 385 TWh E.ON RWE EdF Fortum others Vattenfall 379 TWh E.ON Elsam Statkraft others Steag 570 TWh EnBW RWE Vattenfall EON Source: Eurelectric, Nordel, Fortum estimates, Company data 19 July

11 A fragmented Nordic power market 2004 figures others Generation 379 TWh 45% Fortum Vattenfall E.ON Distribution 14 million customers others Fortum Vattenfall E.ON Hafslund Nesa Retail 14 million customers others 64% 66% Fortum Vattenfall E.ON Hafslund Nesa Elsam Statkraft Finland Sweden Denmark Norway >350 companies >500 companies 2* 70 Source: Fortum, Company data * 2 major generators; in addition hundreds of small CHP and wind generators 90 80** ** excl. 40 minor transformer associations ~450 companies

12 New capacity will be required TWh/a Demand E 2010E 2015E 2020E Existing Remaining Committed Generation capacity is needed to cover increasing demand to replace old capacity Stable and predictable investment environment is required to guarantee security of supply efficient capacity also in the future 12

13 Price signals guide new capacity investments /MWh Forwards Sep 2, 2005 Investments are made on rational financial basis Price signals and confidence in regulatory framework are necessary for investment decisions New capacity requires a long-term price of at least /MWh Source: Nord Pool, Fortum 13

14 Prices are higher in central Europe EUR/MWh German Spot German futures Nordpool System UK Spot Nordpool futures UK futures 14

15 Price of EU emission allowances /tco Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Sep

16 Russia is an emerging opportunity Power and heat sector reform Strong growth potential Need for investments Efficiency improvement potential 16

17 Lenenergo a strong foothold for Fortum in NW Russia Population in key geographical markets Million Largest utility in northwestern Russia 10 thermal and 6 hydro plants Power generation capacity ~3,245 MW and production ~13.5 TWh/a Heat generation capacity ~13,900 MW and production ~26.9 TWh/a Personnel ~12,500 Fortum's share 32,8% of voting shares 17

18 TGC-1 established in NW Russia Capacity (MW) NW Russia TGC-1 total MW* (of which hydro 2874 MW) Kolenergo Norway Sweden Finland Karelenergo 915 Denmark Source: Fortum, company web pages Lenenergo * Capacity to be finally included in TGCs may be different. Kolenergo thermal capacity 335 MW probably not to be included into TGC-1. NW Russia total generation capacity MW including also generation outside the reform (e.g. nuclear). 18

19 Fortum in the Baltics and Poland Fortum today in the Baltic countries Strong heat market position established in Estonia Distribution business in Estonia Heat platform established in Lithuania Fortum today in Poland Heat has established a platform for growth Ongoing privatization of district heating Privatization of electricity generation and distribution Tallinn Kohtla-Jarve Estonia Tartu Ventspils Riga Jelgava Latvia Klaipeda Siauliai Lithuania Panevezys Kaunas Vilnius Existing Fortum DZT operations PESC Cz ęstochowa 19

20 Forward power prices in NordPool 20

21 Solid business performance in the first half of the year Fortum's comparable operating profit EURm, continuing operations I-II/04 I-II/ LTM LTM = Last twelve months III/03-II/05 Solid business performance in the first half of 2005 Net debt decreased due to strong cash flow - strong financial position At the beginning of July, Fortum had hedged approximately two-thirds of its Nordic Power Generation sales volume for the next 12 months Market fundamentals support further good performance 21

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