Financial update. Juha Laaksonen. Chief Financial Officer, Fortum Corporation. Capital Markets Day

Transcription

1 Financial update Juha Laaksonen Chief Financial Officer, Fortum Corporation Capital Markets Day 29 November 2005

2 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

3 Contents Recent financial performance Accounting issues Financial position Capital expenditure and acquisitions 3

4 Recent financial performance Accounting issues Financial position Capital expenditure and acquisitions 4

5 Good performance in January September Key market drivers Increase of 1% in electricity consumption Decrease of 4% in Nord Pool price of electricity Increase of 6% in Fortum's achieved Nordic Generation power price Well-performing businesses Comparable operating profit EUR 874 (799) million Earnings per share EUR 0.65 (0.58) Net cash from operating activities EUR 847 (989) million Net debt EUR 3,333 (5,445) million Gearing at 47% Comparison: I-III/05 (I-III/04) 5

6 January September in brief CONTINUING OPERATIONS, CUMULATIVE I-III 2005 Sales (MEUR) Operating profit (MEUR) Comparable operating profit (MEUR) Net assets (MEUR) Return on net assets (comparable) (%) CAPEX (MEUR) Power Generation 1, , Heat , Distribution , Markets Other/elim Fortum Group 2, , ) Capital employed 2) Return on capital employed, Fortum total 3) Includes investments in shares 6

7 Income statement MEUR I-III/2005 I-III/2004 Net sales Expenses Operating profit Share of profit of associates and joint ventures 28 9 Financial expenses, net Profit before taxes Income tax expense Profit for the period from continuing operations Profit for the period from discontinued operations Net profit for the period Of which minority interest EPS, Total Fortum Group (EUR) EPS, continuing operations (EUR) EPS, discontinued operations (EUR)

8 Cash flow statement MEUR I-III/2005 I-III/ Operating profit before depreciations continuing operations Non-cash flow items and divesting activities Financial items and taxes Funds from operations continuing operations (FFO) Change in working capital Net cash from operating activities continuing operations Net cash from operating activities discontinued operations Total cash from operating activities Capital expenditures Other investing activities Investing activities discontinued operations Cash flow before financing activities

9 Balance sheet MEUR Sep 30 Dec Non-current assets Current assets ASSETS Total equity of which minority interest Interest-bearing liabilities Non-interest bearing liabilities EQUITY AND LIABILITIES Gearing (%) Equity per share (EUR) Net debt, (MEUR)

10 Outlook: hedging of Nordic Power Generation sales At the beginning of October, Fortum had hedged its Nordic Power Generation sales volume as follows: Calendar year 2006 Q4/2005 Hedge ratio Approximately two thirds Approximately 70% Hedge price Slightly higher than the achieved Nordic Generation power price during the last 12 months (EUR 30.4 per MWh) Approximately the same as the achieved Nordic Generation power price during the last 12 months (EUR 30.4 per MWh) 10

11 Nord Pool Year Forwards /MWh Year 06 Year 07 Year Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q

12 Recent financial performance Accounting issues Financial position Capital expenditure and acquisitions 11

13 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 the Q2/2005 interim report intention to provide a true and fair view of Fortum's quarterly operational performance excludes volatility from IAS 39 in operating profit, nuclear fund adjustment effects and non-recurring items 12

14 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 Q3/05 Q1-Q3/05 Q3/04 Q1-Q3/04 Operating profit /- Non-recurring items /- IAS /- Nuclear Comparable operating profit Unqualifying (IAS39) financial derivatives and nuclear fund adjustments have been presented as "Items affecting comparability" in the interim reports during Non-recurring items include capital gains and losses on sale of fixed assets, shares, etc. 13

15 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 in fair values, net of deferred tax, are recorded in equity The Group's change in hedging reserves in equity is mainly due to increase in the electricity price quotations since year-end IAS 39 effects on equity IAS 39 effects on operating profit, periodic Q Q Q Dec 2004 Mar 2005 Jun 2005 Sep

16 CO 2 accounting CO 2 emission trading started in 2005 in the EU Cost and liability are recorded when actual emissions (in tonnes of CO 2 ) exceed the received emission rights The cost and liability is measured at the probable settlement price, i.e., current market price or contracted purchase price for emission rights Sold emission rights are recognised in other operating income on delivery 15

17 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 is shown at the value of the related liabilities, even though the fair value is higher, since Fortum does not have control over the Nuclear Waste Fund Any reductions of the liabilities due to actions taken cause an accounting charge, since the value of the Nuclear Waste Fund has to be reduced in the balance sheet These adjustments are excluded from comparable operating profit 16

18 Recent financial performance Accounting issues Financial position Capital expenditure and acquisitions 17

19 Current Fortum Group financial targets ROE >12% ROCE >12% Normal CAPEX <depreciation Gearing <100% 18

20 Credit ratings Moody's long-term rating Standard & Poor's long-term rating A2 (stable outlook) 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 its solid financial prospects." Standard & Poor's 19

21 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 option after Government sell-down in the summer 20

22 Funding sources and maturity profile Funding and treasury risk management centralised to Group Treasury Transparent loan portfolio Interest bearing loans in the end of Sep 2005 Average interest rate disclosed in the end of 2004 was 4.1%. 809 Total 4,115 MEUR 1,729 Access to all relevant debt markets Bonds Bank loans Other long-term debt Short-term debt 21

23 Recent financial performance Accounting issues Financial position Capital expenditure and acquisitions 22

24 Through restructuring and with major investments... EUR 13 billion restructuring during Investments EUR million 4,381 Acquisitions Divestments Norway E&P Stora Enso Power production EPV Transmission Engineering Power Plant Engineering Elnova Espoon Sähkö Hafslund Østfold Fredrikstads Energi Länsivoima 3,131 Edenderry Humber Småland Distribution Birka Energi Lenenergo Tartu Energia Brigg Wesertal DZT, PESC Germany Electricity operations Wroclaw 1, , Budapesti Erömü Oman Laem Chabang ) LTM 1) 1) According to IFRS LTM based on September

25 ... to increased profitability EUR 13 billion restructuring during Acquisitions Transmission Engineering Return on capital employed % Divestments Norway E&P Hafslund Østfold Fredrikstads Energi Stora Enso Power production Länsivoima EPV Elnova Lenenergo Power Plant Engineering Espoon Sähkö Edenderry Brigg Humber Småland Distribution Wesertal Birka Energi Tartu Energia DZT, PESC Germany Electricity operations Wroclaw Budapesti Erömü Laem Chabang Oman LTM 1 1) According to IFRS LTM based on September

26 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: nuclear (OL3) in Finland ~EUR 225 million ( ) nuclear investments in Sweden ~EUR 600 million in 10 years Acquisitions E.ON Finland case 25

27 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

28 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 WACC Group ROCE target at 12% as an overall return target Synergies an important part of the evaluation process 27

29 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 distribution network O&M customer platform hedging 28

30 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