- a leading energy company in the Nordic area

Transcription

1 - a leading energy company in the Nordic area Presentation for investors November 2007

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 Fortum today European power markets Russia Financials / outlook Supplementary material 3

4 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 4

5 Presence in focus market areas Nordic Generation 53.2 TWh Electricity sales 60.2 TWh Distribution cust. 1.6 mill. Electricity cust. 1.3 mill. Heat sales 20.1 TWh NW Russia (in associated companies) Power generation ~6 TWh Heat production ~7 TWh Poland Heat sales Electricity sales 3.6 TWh 8 GWh Baltic countries Heat sales 1.0 TWh Distribution cust. 23, numbers 5

6 Fortum Business structure Fortum Power Generation Deregulated Regulated Nordic Nordic wholesale wholesale market market Nord Pool and bilateral Transmission and system services Fortum Markets Large customers Small customers Other retail companies Fortum Distribution Fortum's comparable operating profit in 2006 EUR 1,437 million Distribution 17% Heat 17% Markets 0% Power Generation 66% 6

7 Strong financial position ROE (%) EPS, cont. (EUR) Total assets (EUR billion) 25,0 20,0 15,0 10,0 13,5 14,4 20,0 2,00 1,50 1,00 1,01 1,22 1,71 20,0 15,0 10,0 15,1 16,8 17,7 5,0 0,50 5,0 0, LTM 0, LTM 0, LTM ROCE (%) Dividend, (EUR) Net debt/ebitda 18,0 15,0 12,0 9,0 13,5 13,4 16,1 1,50 1,25 1,00 0,75 0,58 1,12 1,26 3,0 2,0 1,8 2,3 2,0 6,0 3,0 0,50 0,25 1,0 0,0 0,00 0, LTM LTM Situation 30 Sep

8 Growing capital returns Dividend per share EUR 0.13 Total ~ 3,775 MEUR * ** 0.53 Dividend of EUR 1.26 per share, in total over EUR 1.1 billion Mandate for repurchasing of the company s own shares; maximum EUR 300 million Dividend policy of 50-60% payout of previous year's results on the average * from continuing operations ** with 60% payout ratio 8

9 Fortum today European power markets Russia Financials / outlook Supplementary material 9

10 Huge need for new capacity Globally European wide and in Russia TWh 30,000 25,000 20,000 15,000 ~ TWh TWh 4,000 3,000 2, TWh TWh TWh ,000 5, E 2020E 1, E2015E 2020E Existing/remaining production Demand Source: IEA World Energy Outlook 2006, reference scenario for generation Source: Eurprog 2006; Europe, EU27; Fortum Source: RAO UES 1 Production 2004: TWh/IEA

11 ...also in the Nordic market Demand and capacity development in the Nordic market TWh 500 Retiring capacity ~ 30 TWh Old CHP Committed new capacity ~ 40 TWh Wind Cond TWh Old condense capacity (mainly coal) CHP Hydro Nuclear (incl. upgrades ) Demand Existing / remaining generation Committed projects Electricity demand is expected to increase by around 50 TWh by 2020 compared to 2005 Estimated retirement approx. 30 TWh Total need for investments roughly 80 TWh approximately 40 TWh already committed another 40 TWh still needed 11

12 New capacity will require an EUR 50+ power price EUR/MWh Source: Nord Pool Futures 1 November 2007 EUR/MWh CO 2 cost 20 /ton Fuel costs Fixed costs ( variation) Coal Gas Nuclear Hydro Wind Clean coal Source: IEA "World Energy Outlook 2006"; Elforsk "El från nya anläggningar" 2003, and Fortum. Adjusted to indicate nominal costs year Large variations in cost of new hydro and wind due to location and conditions 12

13 Towards a functioning European power market Today regional Nordic Tomorrow European Yesterday national 1990's Directives: Market liberalisation Strategy: Market integration Market-based development Increased competition Increased efficiency Benefiting customers and societies 13

14 Key EU objectives by 2020 Implementation of internal energy markets Energy efficiency +20% (2020) Increased resources for technology development Competitiveness Sustainability Minimum reduction of EU CO 2 emissions 20% (2020) Renewables 20% (2020) Development of CO 2 capture and storage Security of supply Development of cross-border transmission Increase in own production Enhancement of external energy relations 14

15 Nordic market becoming more integrated into Europe Nord Pool introduced in 2005 a German spot market area "KONTEK" to enhance the Nordic-German trade Estlink (Estonia - Finland) taken into commercial operation in January 2007 Jutland - Germany transmission capacity increased from 1200/800 MW to 1500/950 MW in February 2007 NorNed (Norway - the Netherlands) in November 2007 connecting Norway directly with the Continent Direct market coupling optimising hourly trading between Nord Pool and the German EEX planned to be implemented in Q2/2008 Market coupling to be extended to cover the whole Central Western Europe in Q1/2009 Nordel priority projects enhance internal Nordic market integration Present (MW) Under construction (MW) Planned (MW) Discussed (MW)

16 The Nordic market place in % Market at least 250 TWh/a 82% Market at least 285 TWh/a Six new cables: Fenno-Skan 2 South-middle Sweden ( ) Nea-Järpströmmen Skagerrak Store Bält NorNed Market coupling: Nordic+Kontek TLC (NL-BE-FR) Nordic-TLC Nordic-Germany Germany-TLC 79% X% Market at least 385 TWh/a Market at least 1,500 TWh/a Bigger market More efficient use of production capacity Better availability of transmission capacity Better security of supply Integration level of the markets, measured on an hourly level in 2010; percentage of the time wholesale prices being the same Source: Fingrid 16

17 One market one price The most efficient single commodity market in the world TLC market coupling price convergence better utilisation of cross-border capacity Target 17

18 Fortum's investment programme Olkiluoto 3, Finland, nuclear Swedish nuclear Suomenoja, Finland (CHP) Värtan, Sweden (bio CHP) Järvenpää, Finland (bio CHP) Brista, Sweden (waste CHP) Refurbishing of existing hydro assets Wind power, Sweden Total ~ 1,300 MW Value of the investment programme around EUR 3 billion of which ~90% CO 2 -free In addition Automated meter management (EUR 240 million) Security of supply in distribution (EUR 700 million) 18

19 Continued increase in CO 2 -free power production TWh Fortum's power production ~9 TWh increase in CO 2 -free production* ~10 TWh increase in total production* * compared to After the investment programme CO 2 -free production (nuclear power, hydro power, bio fuels) Other (peat, gas, coal, other) 19

20 Fortum today European power markets Russia Financials / outlook Supplementary material 20

21 Russian power markets are attractive Russian power generation TWh (bln kwh) > 4, US China Japan Russia India Canada Germany France Brasil Nordic 4th largest in the world Strong growth Potential for efficiency improvement Reform offers opportunities UK 2005 figures 21

22 Substantial need for new capacity Russian power demand forecast TWh (bln kwh) 1,800 1,600 1,400 1,200 1,000 Demand growth 500+ TWh before year ,710 1,520 1,420 Power generation investment is expected to total 90 billion by 2011: nuclear 40 billion (10,000 MW) thermal 40 billion (42,000 MW) and hydro 10 billion (4,800 MW) In addition grid and transmission investment expected to amount to 40 billion 22

23 Power sector reform impacts industry structure Regulated monopolies Competitive businesses Private ownership <25% System operator State-controlled companies <25% 48% Federal Grid Company (FGC) Holding of IDCs 48% Holdings of guaranteeing suppliers, isolated energos <49% 1 hydro wholesale generation company (WGC) Privatised companies up to 100% 6 thermal wholesale generation companies (WGCs) up to 100% 14 territorial generation companies (TGCs) up to 100% Sales companies Decision on future structure and ownership pending % Rosenergoatom 100 % state-owned nuclear company 12 interregional distribution companies (IDCs) Target structure planned to emerge in

24 Gas price is an important factor affecting electricity price Nuclear 16% (156 TWh) Hydro 18% (175 TWh) Russian power generation 991 TWh in Oil 2% Gas 46% (455 TWh) Price EUR/MWh Electricity price and typical marginal costs for gas-fired power plant 2 Electricity price CO2 cost Gas cost Other <1% Coal 18% (178 TWh) 0 Russia Nordic Germany Price of gas is the key factor affecting the electricity price in Russia since almost half of power is produced with gas-fired power generation Gas price is regulated and is currently very low Long term gas contracts available for the first time in power sector 1) Source: RAO UES, MinPromEnergo 2) Annual average market prices for 2006 (for Russia liberal energy price). In Russia there is a separate capacity payment in addition to energy price. 24

25 Fortum's current holdings in Russia TGC-1 ~25% ownership 6,250 MW capacity electricity ~24 TWh heat ~25 TWh Invested MEUR ~ 240 Market capitalisation MEUR ~ 900 (Fortum's share) 25

26 Major production volume under sale The new structure in generation ownership By share of production Rosenergoatom 11% Other standalone co's and stations 20% Krasnoyarskaya GES 3% Irkutskenergo 6% 1 hydro WGC 10% 6 thermal WGCs 24% 14 TGCs 26% WGCs WGC 1 WGC 2 WGC 3 WGC 4 WGC 5 WGC 6 TGCs TGC 1 TGC 2 TGC 3 TGC 4 TGC 5 TGC 6 TGC 7 TGC 8 TGC 9 TGC 10 TGC 11 TGC 12 TGC 13 TGC Q4 Indicative time schedule 2007 Q1 Q2 Q3 Q4 Q Q2 Actual placements and schedule of preparedness of the companies for share placements Source: Press clips 26

27 Major growth opportunity in power generation WGCs large scale power generation, with big generation units and only limited heat generation capacities 8,500-9,000 MW power generation volumes TWh/a new investment programs 1,900-3,100 MW, bringing power generation volumes to a level of TWh/a The size of each WGC more than half of Fortum's current production TWh each TGC except Mosenergo Power generation each WGC Fortum 27

28 Fortum today European power markets Russia Financials / outlook Supplementary material 28

29 Current Fortum Group financial targets Return on capital employed 12% Return on shareholder's equity 14% Net debt/ebitda

30 Key financials MEUR (Continuing operations) LTM in Q Sales Operating profit Cash flow from operations Interest-bearing net debt Balance sheet total Net debt/ebitda Return on capital employed (%) Return on shareholders' equity (%)

31 Nordic water reservoirs reservoir content (TWh) reference level Source: Nord Pool 31

32 Wholesale price for electricity 90 System Price Forward Curve EUR / MWh Source: Nord Pool 32

33 Nord Pool year forwards /MWh Year 05 Year 06 Year 07 Year 08 Year 09 Year 10 Year 11 Year 12 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q November 1, 2007 Q2 Q3 Q

34 Hedging of Power Generation's Nordic sales Status at the beginning of October 2007 (Status at the beginning of July 2007) Hedge ratio Hedge price Rest of 2007 ~ 85% ~ EUR 41 per MWh (~80%) (~ EUR 40 per MWh) Calendar year 2008 ~ 65% ~ EUR 44 per MWh (~50%) (~ EUR 43 per MWh) Calendar year 2009 ~ 20% ~ EUR 45 per MWh 34

35 Fortum is well positioned for the future Focus on the Nordic and Baltic areas, Poland and Russia Good hedging positions Flexible and climate-benign production portfolio Strong financial position Attractive opportunities in Russia 35

36 Fortum today European power markets Russia Financials / outlook Supplementary material 36

37 We want to be leading in sustainability "Our energy improves life for present and future generations" Core Purpose Vision Strategy To be the benchmark power and heat company excelling in sustainability 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 Values Excellent performance Co-operative spirit Creativity and innovation High ethics 37

38 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 Capital expenditure, acquisitions and capital returns to shareholders are the ways to move towards the target Dividend policy of 50-60% payout of previous year's results on the average 38

39 Nordic capacity structure MW Total Nordic capacity MW (31 Dec 2006) Wind power Gas turbines, etc. Condensing power CHP, district heating CHP, industry Nuclear power Hydro power 0 Denmark Norway Sweden Finland Source: Nordel 39

40 Still a highly fragmented Nordic power market Power generation 384 TWh >350 companies Electricity distribution 14 million customers ~500 companies Electricity retail 14 million customers >450 companies Others 29% Vattenfall Others Fortum Vattenfall Others Fortum Vattenfall E.ON Fortum 51% E.ON 54% Dong Energy Agder Helsinki Norsk Hydro E-CO Energi PVO Dong Energy E.ON Statkraft Dong Energy Hafslund SEAS-NVE Helsinki Statkraft Göteborg BKK Hafslund Plusenergi SEAS-NVE Helsinki Fjordkraft Östkraft Current market shares based on 2006 figures 40

41 Development of the European Emission Trading System Future challenges EU committed to emission trading Improving the market by increasing market transparency information available to all market participants at the same time common procedures - harmonisation stability and predictability Expansion of emission trading during the Kyoto period JI and CDM utilisation National allocation plans for second trading period (NAP 2) /CO Q1 Q2 Q3 Q4 Q ETS price Q2 Q3 Q4 Q Q2 Q3 Q

42 Russian power industry reform A Nordic/Western analogy Unbundling of businesses by type of activity Competitive businesses Generation Sales Regulated monopolies Transmission Distribution Market liberalisation in competitive businesses Pricing model reform from tariff regulation to competitive pricing Key steps in the reform "Power industry law" approved Restructuring of regional energos (P&H companies) Formation of new companies Establishment of Russian power exchange Launch of the free-trade sector of the wholesale market Introduction of vested bilateral contracts for a transitional period to replace the regulated sector of the wholesale market Launch of balancing power market Competitive market of ancillary services and generating capacity Gradual liberalisation of the retail market 42

43 Russian power industry reform has progressed well Key steps in the reform Time "Power industry law" approved 2003 Establishment of Russian power exchange (ATS) 2001 Launch of the free-trade sector of the wholesale market in European & Urals 2003 in Siberia 2005 Launch of balancing power segment 2006 Launch of new wholesale market model 2006 Restructuring of regional energos (P&H companies) almost complete Formation of new companies almost complete Capacity market 2007 Competitive market of ancillary services 2007 Financial derivatives market 2008 Full liberalisation of the power market

44 Reform Planned key events for Structural reform Completion of the Structural reform RAO UES to release ownership from generation assets Share placements and sales of stakes in WGCs and TGCs Completion of the first spin-offs of RAO UES Distribution of RAO UES assets to its shareholders Selling off maintenance and repairing companies Selling off sales companies Market liberalisation Launch of Capacity Market Launch of Ancillary Services Market Launch of Financial Derivatives Market 44

45 Strong financial performance in Q1-Q3/2007 Comparable operating profit EUR 1,048 (997) million, + 5% Earnings per share EUR 1.33 (0.83), + 60% Net cash from operating activities EUR 1,325 (1,059) million MEUR III/2007 III/2006 I-III/2007 I-III/ LTM Power Generation Heat Distribution Markets Other Comparable operating profit

46 Income statement MEUR III/2007 III/2006 I-III/2007 I-III/ LTM Sales Expenses Operating profit Share of profit of associates and joint ventures Financial expenses, net Profit before taxes Income tax expense Net profit for the period Minority interest EPS, basic (EUR) EPS, diluted (EUR)

47 Cash flow statement MEUR III/2007 III/2006 I-III/2007 I-III/ LTM Operating profit before depreciations Non-cash flow items and divesting activities Financial items and taxes Funds from operations (FFO) Change in working capital Total cash from operating activities Paid capital expenditures Acquisition of shares Other investing activities Cash flow before financing activities

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

49 Wholesale prices for electricity EUR/MWh Spot prices Forward prices Dutch German Nordic October 2007 Source: 49

50 Sustainability: even stricter CO 2 targets gco 2 /kwh DEI Drax RWE EDP Energi E2 Edison Endesa CEZ Union Fenosa Enel Scottish&Southern E.ON Essent Elsam Vattenfall Electrabel Helsingin Energia Iberdrola PVO Source: PWC and Enerpresse 2006, Fortum Verbund 107 Fortum 2006 British Energy EDF 38 Fortum 2005 Statkraft Fortum's new target <80 gco 2 /kwh In heat production, Fortum's aim is to reduce the specific emissions in each district heating area by at least 10% from 2006 until 2020 Outside the EU, Fortum is committed to reduce specific emissions and increase efficiency 50

51 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 ~26 billion euros Households 4.8% Financial and insurance institutions 1.7% Other Finnish investors 7.5% Finnish State 50.5% Foreign investors 35.5% 31 October

52 Fortum's Nordic power generation Fortum's Nordic power generation in 2006 Hydro power 37% Fortum's Nordic power generation in 2005 Hydro power 42% Other 2% Peat 2% Biomass 3% Coal 10% Nuclear power 46% Total generation 53.2 TWh (Generation capacity 10,768 MW) Other 2% Peat 1% Biomass 2% Coal 3% Nuclear power 50% Total generation 51.2 TWh (Generation capacity 11,136 MW) 52

53 Fortum's Nordic heat production Fortum's Nordic heat production in 2006 Fortum's Nordic heat production in 2005 Biomass fuels 25% Coal 20% Biomass fuels 24% Coal 17% Other 12% Heat pumps, electricity 15% Other 11% Heat pumps, electricity 16% Waste 6% Peat 7% Oil 8% Natural gas 7% Waste 6% Peat 7% Oil 10% Natural gas 9% Total production 21.3 TWh (Production capacity 9,239 MW) Total production 20.6 TWh (Production capacity 8,252 MW) 53

54 Territorial generation companies (TGCs) Companies combined on a territorial basis from regional energos' generation assets TGCs may include also heat assets Installed capacity of which hydro TGC-1 6,248 MW 2,874 MW TGC-2 2,583 MW TGC-3 10,677 MW TGC-4 3,324 MW TGC-5 2,467 MW TGC-6 3,140 MW TGC-7 6,880 MW TGC-8 3,602 MW 297 MW TGC-9 3,280 MW 35 MW TGC-10 2,773 MW TGC-11 2,026 MW TGC-12 4,549 MW TGC-13 2,458 MW TGC MW 54,650 MW Source: RAO UES, company websites 54

55 Thermal and hydro wholesale generation companies Each company will include power plants across the Russian Federation The size of thermal WGCs about 9,000 MW each, the hydro WGC rough 22,000 MW Thermal WGCs: WGC-1 9,531 MW WGC-2 8,695 MW WGC-3 8,497 MW WGC-4 8,630 MW WGC-5 8,672 MW WGC-6 9,052 MW 53,077 MW Hydro WGC: 22,687 MW Rosenergoatom Nuclear Power Plants Non-RAO UES energos: Tatenergo Bashkirenergo Irkutskenergo Novosibirskenergo Source: RAO UES, company websites 55

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