- a leading energy company in the Nordic area

Transcription

1 - a leading energy company in the Nordic area Presentation for investors February 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 Nordic power market 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 53.5 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 3.6 TWh Electricity sales 8 GWh Baltic countries Heat sales 1.0 TWh Distribution cust. 23, numbers 5

6 Market Structure - Business Value Chain Deregulated Generation Nordic Nordic wholesale wholesale market market Nord Pool and bilateral Large customers Retail companies Retail Retail market market Small customers Regulated Transmission and system services Independent TSO Distribution Independent DSO 6

7 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% 7

8 Capital structure Fortum wants to have a prudent and efficient capital structure, which at the same time allows the implementation of its strategy Access to flexible funding sources is key Dividend policy of 50-60% payout on the average for Fortum continuing operations' results In the medium term, allowing the implementation of strategy and the returns of capital, Fortum expects to have its net debt to EBITDA around 3.0x Beased on 2006: Net debt/ebitda 2.3 8

9 Strong dividend growth Dividend per share EUR Total ~ 3,775 MEUR * *** 0.53 Fortum's aim is to pay a dividend corresponding to an average payout ratio of 50% to 60% ** * from continuing operations ** Proposal of the Board of Directors *** with 60% payout ratio 9

10 Fortum today Nordic power market Russia Financials / outlook Supplementary material 10

11 Towards a functioning European power market Today - regional Nordic Tomorrow - European Yesterday - national 1990s Directives: Market liberalisation Strategy: Market integration Market-based development Increased competition Increased efficiency Benefiting customers and societies 11

12 Nordic market becoming more integrated into Europe Nord Pool introduced in 2005 a German spot market area "KONTEK" to enhance the Nordic-German trade Direct market coupling between Nord Pool and the German EEX planned by the fourth quarter of 2007 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) by 2008 coupling Nord Pool and APX Nordel priority projects enhance internal Nordic market integration Present (MW) Under construction (MW) Planned (MW) Discussed (MW)

13 Still a highly fragmented Nordic power market Generation 395 TWh > 350 companies Distribution 14 million customers ~ 500 companies Retail 14 million customers > 450 companies others 29% Helsinki BKK E-CO Energi Norsk Hydro PVO Dong Energy E.ON Vattenfall Statkraft Fortum others 51% Fortum Vattenfall E.ON Dong Energy Hafslund Helsinki SEAS-NVE BKK Statkraft Göteborg others 53% Fortum Dong Energy Vattenfall E.ON Hafslund Plusenergi SEAS-NVE Helsinki Fjordkraft Östkraft 2005 figures; the effects of the structural changes in Finland and in Denmark have been taken into account. 13

14 Huge need for new capacity... Globally European wide and in Russia TWh TWh E 2020E ~ TWh E 2015E2020E 900 TWh Demand growth ~ TWh before 2020 (lately, also higher estimates presented) Source: IEA World Energy Outlook 2006, reference scenario for generation 1 Production 2004: TWh/IEA 2006 Existing/remaining capacity Demand Source: Eurprog 2005; Europe: EU25 Source: Ministry of Energy; Russian Energy Strategy

15 ...also in the Nordic market Demand and capacity development in the Nordic market TWh TWh Electricity demand is expected to increase by around 50 TWh by 2020 compared to 2005 Estimated retirement approx. 30 TWh Demand Existing / remaining generation Committed projects Total need for investments roughly 80 TWh approximately 40 TWh already committed another 40 TWh still needed 15

16 New capacity will require an EUR 40+ power price EUR/MWh Futures 29 Jan 2007 EUR/MWh CO 2 cost 15 /ton Fuel costs Fixed costs ( variation) Source: Nord Pool 0 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 16

17 Increasing use of energy will impact emissions dramatically Greenhouse gases Energy emissions 65% Other emissions 35% Energy related CO2 emissions estimated to grow 55% by 2030 Mill. tonnes CO Power generation 10,587 17,680 Industry 4,742 7,255 Transport 5,289 8,246 Resid. & services 3,297 4,298 Other 2,165 2,942 Total 26,079 40,420 Source: Stern: Review on the economics on climate change, 2006; data from World Resources Institute Climate Analysis Indicators Tool (CAIT), 2000; IEA World Energy Outlook 2006 (the Reference Scenario) 17

18 Fortum's accelerated investment programme Olkiluoto 3 Swedish nuclear Suomenoja Värtan Refurbishing of existing hydro assets Peak load gas turbine Total ~ 1,500 MW Value of the investment programme around EUR 2,800* million 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 2006; with normal utilisation After the investment programme CO 2 -free production (nuclear power, hydro power, bio fuels) Other (peat, gas, coal, other) 19

20 Nordic capacity structure MW Total MW (31 Dec 2005) ) Wind power Gas turbines, etc. Condensing power CHP, industry CHP, district heating Nuclear power Hydro power 0 Denmark Norway Sweden Finland 1) incl. power plants producing 100% of condensing in Denmark. The rest condensing power is included in CHP, district heating Source: Nordel 20

21 Nordic water reservoirs reservoir content (TWh) reference level week Source: Nord Pool 21

22 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) /tco Source: Nord Pool Q1 ETS price Q2 Q3 Q4 Q Q2 Q3 Q

23 Wholesale price for electricity EUR/MWh Spot price Nordic Source: 23

24 Fortum today Nordic power market Russia Financials / outlook Supplementary material 24

25 From a western industry actor's perspective Russia is an emerging opportunity Russian Energy Strategy Power and heat sector reform Need for huge investments Need for efficiency improvement Strong growth potential Electricity production, TWh High Low

26 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 (ATS) 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 26

27 Fortum's current operations in Russia ~25% stake in Territorial Generating Company No. 1(TGC-1) based on the stake in St. Petersburg Generating Company (Lenenergo generation) ~1/3 stake in other companies spun off from Lenenergo earlier the largest utility in northwest Russia Operation & maintenance services Electricity imports Nuclear fuel and coal imports TGC-1 Electricity production capacity ~6,070 MW (of which hydro 2,874 MW) Production volume of electricity ~22 TWh and heat ~29TWh Third largest TGC Started operation on 1 October 2005 based on a leasing model Merger on 1 November 2006 On TGC-1's Board of Directors Fortum has 3 representatives out of a total of 11 members Owners of TGC-1: RAO UES ~56% Fortum ~25% Norilsk Nickel ~7% Others ~12% 27

28 Fortum today Nordic power market Russia Financials / outlook Supplementary material 28

29 Another good year for Fortum Strong financial performance Fortum Espoo integrated Investment programme accelerated Good progress in Russia TGC-1 ownership increased to over 25% Markets' customer flow continued to develop positively during

30 Strong financial performance From continuing operations comparable operating profit EUR 1,437 (1,334) million, + 8% earnings per share EUR 1.22 (1.01), + 21% net cash from operating activities EUR 1,151 (1,271) million The key financial targets exceeded Fortum s net debt to EBITDA 2.3 at year end Proposed dividend of EUR 1.26 per share, in total over EUR 1.1 billion Comparison: 2005 financial results 30

31 Comparable operating profit MEUR IV/2006 IV/ Power Generation Heat Distribution Markets Other Comparable operating profit Non-recurring items Other items effecting comparability OP from continuing operations

32 Comparable and reported operating profit Operating profit 2006 Operating profit 2005 Comparable Reported Diff. Comparable Reported Diff. Power Generation Heat Distribution Markets Other Total

33 Income statement MEUR Sales Expenses Operating profit Share of profit of associates and joint ventures 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)

34 Cash flow statement MEUR 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 Acquisition of shares Other investing activities Investing activities, discontinued operations Cash flow before financing activities

35 Balance sheet MEUR Dec 31 Dec Non-current assets Current assets ASSETS Total equity of which minority interest Interest-bearing liabilities Non-interest bearing liabilities EQUITY AND LIABILITIES Net debt / EBITDA Equity per share (EUR) Net debt, (MEUR)

36 Wholesale prices for electricity EUR/MWh Spot prices Forward prices UK German Nordic January 29, Source: 36

37 Nord Pool year forwards /MWh Year 05 Year 06 Year 07 Year 08 Year 09 Year 10 Year 11 Year 12 January 29, 2007 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q

38 Hedging of Power Generation's Nordic sales Status at the beginning of January 2007: Hedge ratio Hedge price Calendar year 2007 ~ 65 % ~ EUR 42 per MWh Calendar year 2008 ~ 35 % ~ EUR 42 per MWh 38

39 Fortum is well positioned Continued focus on the Nordic and Baltic Rim countries Competitive corporate and cost structure Flexible and climate-benign production portfolio Strong financial position Promising opportunities in Russia 39

40 Fortum today Nordic power market Russia Financials / outlook Supplementary material 40

41 A huge foreseen increase in energy demand... By 2030, globally, it is estimated that demand for primary energy grows 50% + demand for power more or less doubles power sector share of primary energy demand grows from 37% to 41% Mtoe* Other RES Biomass and waste Hydro Nuclear Gas Oil Coal Primary energy demand until % +69% +40% +21% +68% +60% +42% Total +53% 0 2,000 4,000 6,000 8,000 10,000 14,000 18,000 * million tons oil equivalent Source: IEA World Energy Outlook 2006 (the Reference Scenario) 41

42 Fortum's carbon exposure among the lowest in Europe Carbon exposure European power companies g/kwh DEI Drax RWE Energi E2 EDP Union Fenosa CEZ Edison Endesa Scottish&Southern Essent ENEL E.ON Elsam Vattenfall Electrabel Helsinki PVO Iberdrola Verbund Fortum British Energy EDF Statkraft Source: PWC and Enerpresse

43 The climate challenge requires actions A price for emissions Investments in climate benign generation, carbon exposure to be retained among the lowest in Europe Participation in carbon funds Joint implementation (JI) agreements in Russia Future energy technologies Increasing energy efficiency - e.g., AMM 43

44 Fortum facts Fortum is a leading Nordic Power & Heat ( P&H ) company Focus entirely on power and heat following the spinn-off of the downstream oil business in 2005 Geographical focus on the Baltic rim area: Nordic countries, Poland, Baltic countries, NW Russia Strong cash generation supported by leading operational efficiency Operations spanning the entire P&H value chain Majority ownership by Finnish Government (50.8%) Market capitalisation of around 19 billion Key performance figures 2006 Revenues EBITDA Net debt Market capitalisation 4,491m 1,884m 4,345m ~ 19bn 44

45 Fortum provides leadership in core businesses Businesses Power Generation Heat Distribution Markets Revenues 2,439m 1,268m 753m 1,912m Operating profit (comparable) 985m (66%) 253m (17%) 250m (17%) -4m (-0%) Business unit Generation Portfolio Management and Trading Service Heat/Värme Distribution Markets Leading efficiency 14% Nordic market share Best-in-class physical and financial market operations Efficient operation and maintenance services Nordic leader in district heating Developing presence in the Baltics and Poland Leading Nordic distribution company 1.6 mio. customers 1.3 mio. business and private electricity sales customers Nordic market position #2 Power Generation #1 Heat #1 Distribution #1 Electricity 2006 numbers 45

46 A leading Nordic power and heat company Leading power and heat company in Nordic Founded and listed at the Helsinki Stock Exchange 1998 More than 50,000 shareholders Among the most traded shares in Helsinki stock exchange Market cap ~19 billion euros Households 4.8% Financial and insurance institutions 1.9% Other Finnish investors 7.1% Finnish State 50.8% Foreign investors 35.4% 31 December

47 Power and heat production in Fortum Fortum s Nordic power generation Fortum s Nordic heat production Hydro power 37% Biomass fuels 25% Coal 20% Other 2% Peat 2% Biomass 3% Other 12% Heat pumps, electricity 15% Coal 10% Nuclear power 46% Waste 6% Natural gas 7% Peat 7% Oil 8% 53.5 TWh in 2006 Total generation capacity 10,768 MW 21.3 TWh in 2006 Total production capacity 9,239 MW 47

48 Distribution regulation differ country by country Finland Sweden Norway Status New model for period New regulatory model is being applied to 2003, 2004 and 2005 tariffs The regulator has proposed a model for the next 5-year period starting in Regulation principle Rate of return, ex-post regulation Yardstick, ex-post regulation, with benchmarking based on hypothetical efficient company Revenue cap, ex-ante regulation Allowed return Maximum allowed rate of return based on actual defined cost data Actual operation vs. fictious network parameters defines return Maximum annual income limit based on historical or defined cost data Regulation authority is supervising years 2003, 2004 and 2005 due to claimed overpricing. All companies that have received a decision to reimburse customers have appealed to court. 48

49 Fortum in Poland and the Baltic countries Operations of Fortum Heat District heat to 30 cities and towns Energy sales district heat 3.6 TWh electricity 8 GWh Production capacity heat plants 106 CHP 1 Personnel: 988 Energy sales in Estonia heat 0.9 TWh; gas 19 GWh Energy sales in Lithuania heat 64 GWh; fuels 50 Gwh Production capacity 143 heat plants Personnel:

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