FORTUM Power and heat company in the Nordic area, Russia, Poland and the Baltics Investor / Analyst material September 2014
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
Content Fortum today, pages 4 18 European and Nordic power markets, pages 19 30 Data on Fortum s nuclear fleet, pages 31 35 Russia, pages 36 41 Data on capacity payments, pages 39 40 Fortum s investment programme, page 41 Financials and outlook, pages 42 47 Hedges, pages 48 49 Efficiency programme, page 50 Facts of Distribution, page 51 3
Appr. 120,000 shareholders Power and heat company in the Nordic countries, Russia, Poland and the Baltics Listed at the Helsinki Stock Exchange since 1998 Among the most traded shares on the NASDAQ OMX Helsinki stock exchange Market cap ~17 billion euros Households 8.7% Financial and insurance institutions 1.4% Other Finnish investors 7.7% Finnish State 50.8% Foreign investors 31.4% 31.8.2014 4
Capital returns : 2013 EUR 1.10 per share ~ EUR 1.0 billion Fortum s dividend policy is based on the following preconditions: The dividend policy ensures that shareholders receive a fair remuneration for their entrusted capital, supported by the company s long-term strategy that aims at increasing earnings per share and thereby the dividend. When proposing the dividend, the Board of Directors looks at a range of factors, including the macro environment, balance sheet strength as well as future investment plans. Fortum Corporation's target is to pay a stable, sustainable and over time increasing dividend of 50-80% of earnings per share excluding one-off items Fortum has since 1998 annually paid dividends in total ~10,493 MEUR 5 year dividend per share (EUR) history 1.0 1.0 1.0 1.0 1.1 5
Fortum Executive Management President and CEO Tapio Kuula Business Divisions Corporate Staff Functions Finance Chief Financial Officer Timo Karttinen Strategy and M&A Senior Vice President Kari Kautinen Legal General Counsel Sirpa-Helena Sormunen Human Resources and IT Senior Vice President Mikael Frisk Communications Senior Vice President Helena Aatinen Corporate Relations Senior Vice President Esa Hyvärinen Chief Operating Officer Matti Ruotsala Hydro Power and Technology Executive Vice President Per Langer Nuclear and Thermal Power Executive Vice President Tiina Tuomela Heat, Electricity Sales and Solutions Executive Vice President Markus Rauramo Russia Executive Vice President Alexander Chuvaev Distribution Executive Vice President Timo Karttinen 6 Country responsibles: Timo Karttinen/Finland, Norway; Per Langer/Sweden; Alexander Chuvaev/Russia; Markus Rauramo/Poland, Baltics, India
Fortum s Mission and Strategy Mission Fortum s purpose is to create energy that improves life for present and future generations. We provide sustainable solutions for society and deliver excellent value to our shareholders. Strategy Build on the strong Nordic core Create solid earnings growth in Russia Build a platform for future growth Strong competence in CO 2 -free hydro and nuclear, efficient CHP production and energy markets 7
Our geographical presence Power generation Heat Distribution Nordic countries Power generation* Heat sales* Distribution customers in Sweden 46.5 TWh 13.9 TWh 0.9 million Key figures 2013 Sales EUR 5.3 bn Operating profit EUR 1.5 bn Balance sheet EUR 23 bn Personnel 9,200 Electricity sales Great Britain Power generation 1.0 TWh Heat sales 1.8 TWh Electricity customers 1.2 million Russia OAO Fortum Power generation 20.0 TWh Heat sales 24.2 TWh In addition, ~25% share in TGC-1 Poland Power generation 0.6 TWh Heat sales 4.0 TWh Baltic countries Power generation Heat sales 0.5 TWh 1.1 TWh India Power generation ~9 GWh * incl. Fortum Värme; power generation 1.3 TWh and heat sales 8.2 TWh. 8
Fortum s reporting segments and divisions Power and Technology Heat, Electricity Sales and Solutions Russia Distribution Hydro, nuclear and thermal power generation Power Solutions with expert services Portfolio management and trading Technology and R&D functions The segment incorporates two divisions: Hydro Power and Technology Nuclear and Thermal Power Combined heat and power (CHP) production District heating activities and business to business heating solutions Solar business Electricity sales and related customer offering Corporate Sustainability Power and heat generation and sales in Russia Includes OAO Fortum and Fortum s slightly over 25% holding in TGC-1 Electricity distribution activities 9
Fortum mid-sized European power generation player; major producer in global heat (incl. Fortum Värme) Power generation Largest producers in Europe and Russia, 2012 TWh Heat production Largest global producers, 2012 TWh Customers Electricity customers in EU, 2012 Millions EDF E.ON Enel RWE Rosenergoatom *) Gazprom Vattenfall GDF SUEZ **) Inter RAO UES RusHydro NNEGC Energoat. Iberdrola EuroSibEnergo Fortum CEZ EnBW ***) IES Statkraft PGE DTEK DEI 0 100 200 300 400 500 600 *) Gazprom ***) IES Dalkia **) Inter RAO UES Fortum RusHydro Vattenfall ****) Sibgenco EuroSibEnergo Quadra DTEK, Ukraine TGC-2 Lukoil Minskenergo KDHC, Korea Tatenergo Dong Energy PGNiG *****) ELCEN. TGC-14 0 20 40 60 80 100 120 140 Enel EDF E.ON RWE Iberdrola DEI Centrica CEZ EDP Vattenfall SSE EnBW GDF SUEZ Tauron PGE Gas Natural Fenosa Fortum Dong Energy Hafslund 0 10 20 30 40 * incl. MOEK, ** incl. Bashkirenergo, *** incl. TGC-5, TGC-6, TGC-7, TGC-9, **** incl. TGC-12, TGC-13, ***** figure 2011, Fortum incl. Fortum Värme; power generation (1.2 TWh) and heat production (8 TWh). Source: Company information, Fortum analyses, 2012 figures pro forma, heat production of Beijing DH not available. 10
Biggest nuclear an hydro generators in Europe and Russia TWh 600 550 500 450 Total generation Other 400 Nuclear 350 300 Hydro 250 200 150 100 50 0 EDF Rosenergoatom NNEGC Energoatom RusHydro Vattenfall E.ON Enel EuroSibEnergo GDF SUEZ Statkraft * Fortum Iberdrola RWE EnBW CEZ Axpo Verbund ** Gazprom Hidroelectrica Centrica Alpiq E-CO Energi Ukrhydroenergo Norsk Hydro EPS, Serbia BKK Agder Energi EDP Gas Natural Fenosa DEI SSE *** Inter RAO UES PGE DTEK **** IES 11 Figures 2012 pro forma * incl. Fortum Värme (CHP 1.2 TWh), ** incl. MOEK, *** incl. Bashkirenergo, **** incl. TGC-5, TGC-6, TGC-7, TGC-9
Fortum a forerunner in sustainability Carbon Disclosure Nordic Leadership Index Fortum no. 1, scores 100/100 SAM Sustainability Yearbook STOXX Global ESG Leaders indices oekom OMX GES Sustainability Finland Index ECPI Indices 12
Fortum's carbon exposure among the lowest in Europe g CO 2 /kwh electricity, 2012 1200 1000 800 600 400 2013 63% of Fortum's total power generation CO 2 -free 88% of Fortum s power generation in the EU CO 2 -free Close to 100% of the ongoing investment programme in the EU CO 2 -free Average 350 g/kwh 200 0 171 42 DEI Drax RWE SSE EDP E.ON Vattenfall Enel Edipower Union Fenosa CEZ EnBW GDF SUEZ Dong Energy Iberdrola Fortum total EDF Verbund Fortum EU PVO Statkraft Note: Fortum s specific emission of the power generation in 2013 in the EU were 70 g/kwh and in total 202 g/kwh. Only European generation except Fortum total which includes Russia. Source: PWC & Enerpresse, November 2013 Climate Change and Electricity, Fortum 13
Fortum s strategic route Länsivoima 45% 65% Länsivoima 100% Elnova 50% 100% Separation of oil businesses E.ON Finland Divestment of Fingrid shares, 2011 Divestment of non-strategic heat business Divestment of electricity distribution business 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Neste IVO Birka Energi Gullspång 50% Fortum 50% Stockholm Skandinaviska Elverk Gullspång Stockholm Energi Lenenergo shares 1998 Stora Kraft Birka Energi 50% 100% Østfold Shares in Hafslund Shares in Lenenergo Divestment of Lenenergo shares Starting TGC-1 District heat in Poland 2003 Divestment of heat operations outside of Stockholm TGC-10 Divestment of small scale hydro Divestment of electricity distribution and heat businesses 14
Fortum in the Nordic electricity value chain Competitive businesses Large customers Power generation Nordic wholesale market Power exchange and bilateral agreements Retail customers Private customers, small businesses Regulated businesses Independent transmission system operator Transmission and system services Distribution Independent distribution companies 15
Fortum's power and heat production by source Fortum's power generation in 2013 Fortum's heat production in 2013 Nuclear power 35% Natural gas 29% Natural gas 61% Other 1% Biomass 2% Coal 7% Hydro power 26% Oil 1% Peat 1% Waste 5% Heat pumps, electricity 7% Biomass 12% Coal 13% Total generation 68.7 TWh (Generation capacity 15,128 MW) Total production 42.8 TWh (Production capacity 21,659 MW) 16 Incl. Fortum Värme; power generation 1.3 TWh (capacity 610 MW) and heat production 8.2 TWh (capacity 3,626 MW).
Fortum's European power and heat production Fortum's European power generation in 2013 Fortum's European heat production in 2013 Nuclear power 48% Biomass 28% Coal 22% Other 2% Natural gas 3% Biomass 3% Coal 7% Oil 1% Peat 2% Waste 12% Natural gas 19% Hydro power 37% European generation 48.7 TWh (Generation capacity 10,873 MW) Heat pumps, electricity 16% European production 18.6 TWh (Production capacity 8,193 MW) 17 Incl. Fortum Värme; power generation 1.3 TWh (capacity 610 MW) and heat production 8.2 TWh (capacity 3,626 MW).
Fortum s Nordic generation capacity Sweden Price areas MW SE2 Hydro 1 550 Wind 30 SE3 Hydro 1 540 Nuclear 1 816 CHP * 610 Other 12 Generation capacity in Sweden 5 558 SE3 SE1 SE2 Nordic Hydro 4 590 Nuclear 3 276 CHP * 1 048 Other thermal 1 139 Wind 30 Nordic capacity 10 083 Finland MW MW Hydro 1 500 Nuclear 1 460 CHP 438 Other thermal 1 127 Wind 0.4 SE4 Generation capacity in Finland 4 525 31 March 2014 * incl. Fortum Värme 610 MW 18
Market coupling milestones - cross-border power flows optimised by power exchanges Market coupling between NL, BE and FR since 2006 Germany Nord Pool Spot coupling started 11/2009 Market coupling for Central Western Europe (DE, FR, NL, BE) since 11/2010 with a continued coupling with Nord Pool Spot NorNed cable (NO-NL) included in January 2011. 2015 2/2014 Poland coupled with Nord Pool Spot since December 2010 UK coupling started through BritNed cable in April 2011 Estonian price area in Nord Pool Spot since 2010 and Lithuanian area since 6/2012. Latvia joined in June 2013 2010-2013 Czech, Slovakia and Hungary coupled together since September 2012. Romania to join in November 2014 A common day-ahead market coupling for the whole northwestern Europe was started 4 February 2014. Iberia (Spain & Portugal) joined 13 May 2014, and Italy joining early 2015 5/2014 2009 2012 CEE market coupling region to join in 2015, with flow-based cross-border capacity allocation for further trade optimisation In addition to day-ahead coupling, intraday market coupling and balancing market integration targeted as well 19
Current transmission capacity from Nordic area is over 5000 MW Countries Transmission capacity MW From Nordics To Nordics Denmark - Germany 2,365 2,100 Sweden - Germany 615 600 Sweden - Poland 600 600 Norway - Netherlands 700 700 Finland - Estonia 1000 1,016 Finland - Russia 0 (1/2015: 350) 1,300 Total 5,280 6,316 1000 Theoretical maximum in transmission capacity ~40 TWh per annum Net export from Nordic area to Continental Europe and Estonia during the Nordic dry year 2013 was 3 TWh During 2012 net export was 18 TWh Approximately 25 TWh of net export is now reachable 700 2,365 615 600 20
Nordic, Baltic and Continental markets are integrating interconnection capacity will double by 2020 The Northern Seas Offshore Grid and the Baltic Energy Market Integration Plan are included as priority electricity corridors in EU s Infrastructure Guidelines, approved in April 2013 Two 1400 MW NO-UK links as EU Projects of Common Interest: NSN link to England agreed to be built by 2020, NorthConnect to Scotland still requiring Norwegian permission First direct 1,400 MW NO-DE link agreed to be built by 2018 EU financial support for a 700 MW DK-NL link, due to be built by 2019 Jutland DE capacity planned to grow by 720 MW by 2019, with further 500 MW increase by 2022 Svenska Kraftnät agreed 3/2014 with 50Hertz to study a new Hansa PowerBridge DC link between Sweden and Germany New interconnections will double the export capacity to over 10,000 MW by 2020 New internal Nordic and Baltic grid investments provide for increased available capacity for export to the Continent and Baltics 350 MW of export capacity from Finland to Russia due to become available from January 2015 EU s European Energy Programme for Recovery co-financing Estlink 2 (2/2014) and NordBalt (12/2015) LitPol Link (500+500 MW) to connect the Baltic market to Poland in 2015/20. It will open a new transmission route from the Nordic market to the Continent 21
Nordic water reservoirs 120 100 reservoir content (TWh) 80 60 40 20 0 2000 2003 2012 2013 2014 reference level Q1 Q2 Q3 Q4 Source: Nord Pool Spot 22
Nordic year forwards Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 /MWh 70 1 September 2014 60 50 40 30 20 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2008 2009 2010 2011 2012 2013 2014 Source: NASDAQ OMX Commodities Europe 23
Wholesale price for electricity EUR/MWh Nord Pool Spot System Price Forwards 110 100 90 80 70 60 50 40 30 20 10 0 1 September 2014 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 24 Source: Nord Pool Spot, NASDAQ OMX Commodities Europe
Wholesale prices for electricity EUR/MWh 110 100 90 Spot prices Forward prices 80 70 60 50 40 30 20 Dutch German Nordic Russian* 10 0 2008 2009 2010 2011 2012 2013 2014 2015 1 September 2014 2016 * Including weighted average capacity price Source: Nord Pool Spot, NASDAQ OMX Commodities Europe, APX-ENDEX, Bloomberg Finance LP, ATS, NP Market Council, Fortum 25
Fuel and CO 2 allowance prices 150 Crude oil price (ICE Brent) 35 CO 2 price (ICE ECX EUA) 120 28 USD / bbl 90 60 30 EUR / tco 2 21 14 7 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 250 Coal price (ICE Rotterdam) 100 Gas price (ICE NBP) 200 80 USD / t 150 100 50 GBp / therm 60 40 20 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 26 Source: ICE Market prices 1 September 2014; 2014-2015 future quotations
Nordic power generation dominated by hydro, but fossil needed 160 Total Nordic generation 383 TWh in 2013 140 TWh % 120 Fossil fuels 48 13 TWh/a 100 80 Nuclear 86 23 60 Biomass 23 6 40 Wind 23 6 20 Hydro * 203 53 0 Denmark Norway Sweden Finland Net export in 2013: 0.4 TWh Source: ENTSO-E Statistical Factsheet 2013 *) Normal annual Nordic hydro generation 200 TWh, variation +/- 40 TWh. 27
Wholesale electricity price too low to attract investments EUR/MWh 110 100 90 80 70 60 50 40 30 20 10 0 Source: Nord Pool spot, NASDAQ OMX Commodities Europe Futures 1 September 2014 1995 2014 2024 EUR/MWh 110 100 90 80 70 60 50 40 30 20 10 0 Coal condensing Average levelised costs of new electricity generation Onshore wind Nuclear Utility scale Solar PV In Italy Large hydro Gas Offshore wind NOTE: The presented figures are calculated based on data from recent public reports and do not represent Fortum s view. Average achieved price ( /MWh) for the production type depends on availability and flexibility. There are large variations in the cost of hydro, wind and solar depending on location and conditions. Commodity prices are forward prices as of August 2014. 28
Still a highly fragmented Nordic power market Power generation 406 TWh >350 companies Electricity distribution 15 million customers ~500 companies Electricity retail 15 million customers ~350 companies Others 33% Vattenfall Statkraft Others 56% E.ON Dong Energy Vattenfall Fortum Hafslund Others 52% Vattenfall Fortum Hafslund Dong Energy Agder Energi BKK Dong Energy Norsk Hydro E-CO Energi PVO E.ON Fortum * Caruna Elenia SEAS-NVE Helsinki Göteborg E.ON Statkraft Helsinki SEAS-NVE Bixia Göteborg, DinEl * incl. Fortum Värme (1.2 TWh). Source: Fortum, company data, shares of the largest actors, pro forma 2012 figures. 29
New power generation capacity needed for increasing demand and retiring capacity replacements Growing global energy demand will be increasingly fulfilled by electricity in the future 250% 200% 150% Growth, 2011-2035 Primary energy demand Electricity generation 221% Substantial demand growth in the emerging markets Retirements and moderate demand growth in the EU Globally, ~6 000 GW of new capacity needed by 2035 100% 50% 0% Capacity changes, 2013-2035 (GW) Retiring capacity 377 16% 530 44% 149 110% US Europe Russia China India Other areas 205 68 612 World total 1941 Capacity increase 234 340 73 1328 649 1487 4111 New capacity, total (1 611 870 222 1533 717 2099 6052 Source: IEA WEO 2013 (New polices scenario) 1) Total new capacity needed for increasing demand and replacements of retiring capacity 30
Overview of Fortum s nuclear fleet Commercial operation started Generation Capacity Fortum s share Yearly production Fortum s share of production Share of Fortums Nordic production Majority owner Fortum s share Operated by Unit 1: 1977 Unit 2: 1981 LOVIISA OLKILUOTO OSKARSHAMN FORSMARK Unit 1: 496 MW Unit 2: 496 MW Total: 992 MW 8 TWh 8 TWh Unit 1: 1978 Unit 2: 1980 Unit 3: (Under construction) Unit 1: 880 MW Unit 2: 880 MW (Unit 3: 1,600 MW) Total: 1,760 MW (3,360) 27% 468 MW 14 TWh 4 TWh Unit 1: 1972 Unit 2: 1974 Unit 3: 1985 Unit 1: 473 MW Unit 2: 638 MW Unit 3: 1,400 MW Total: 2,511 MW 43% 1,089 MW 17 TWh 7 TWh Unit 1: 1980 Unit 2: 1981 Unit 3: 1985 Unit 1: 984 MW Unit 2: 1,120 MW Unit 3: 1,170 MW Total: 3,274 MW 22% 720 MW 25 TWh 5.5 TWh 18% 9% 16% 13% Fortum Fortum Pohjolan Voima 26.6% Teollisuuden Voima (TVO) E.ON 43.4% OKG Aktiebolag Vattenfall 22.2% Forsmarks Kraftgrupp Responsibilities Loviisa: Fortum is the owner, licensee and operator with all the responsibilities specified in the Nuclear Energy Act, Nuclear Liability Act, and other relevant nuclear legislation Other units: Fortum is solely an owner with none of the responsibilities assigned to the licensee in the nuclear legislation. Other responsibilities are specified in the Companies Act and the Articles of Association and are mostly financial. 31
Fortum's nuclear power in the Nordics Load factor (%) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Osakarshamn 1 80 51 63 85 68 77 72 1 13 Oskarshamn 2 90 78 76 86 75 90 77 81 33 Oskarshamn 3 85 95 88 70 17 31 75 69 77 Forsmarks 1 85 76 81 81 88 93 79 88 87 Forsmark 2 94 72 85 79 64 39 94 82 89 Forsmark 3 95 92 88 69 86 81 85 93 88 Loviisa 1 95 93 94 86 96 93 94 84 92 Loviisa 2 95 88 96 93 95 89 94 91 93 Olkiluoto 1 98 94 97 94 97 92 94 90 97 Olkiluoto 2 94 97 94 97 95 95 90 96 93 Source: Fortum Forsmark Olkiluoto Loviisa Finnish units world class in availability Overview of production and consumption: www.fortum.com/investors - energy related links Oskarshamn 32
Variety of technologies and ages Unit Mwe (Net) Share (%) Share (Mwe) Commercial operation Age Type/ Generation * Supplier Loviisa 1 Loviisa 2 496 496 100,0 100,0 496 496 1977-05-09 1981-01-05 36 33 PWR / 1 PWR / 1 AEE (Atomenergoexport) AEE (Atomenergoexport) Olkiluoto 1 Olkiluoto 2 Olkiluoto 3 880 880 (1,600) 26,6 26,6 25,0 234 234 (400) 1979-10-10 1982-07-10 (?) 34 31 BWR / 3 BWR / 3 PWR / 3 Asea-Atom / Stal-Laval Asea-Atom / Stal-Laval Areva / Siemens Oskarshamn 1 Oskarshamn 2 Oskarshamn 3 473 638 1,400 43,4 43,4 43,4 205 277 607 1972-02-06 1975-01-01 1985-08-15 42 39 28 BWR / 1 BWR / 2 BWR / 4 Asea-Atom / Stal-Laval Asea-Atom / Stal-Laval Asea-Atom / Stal-Laval Forsmark 1 Forsmark 2 Forsmark 3 984 1,120 1,170 23,4 23,4 20,1 230 233 236 1980-12-10 1981-07-07 1985-08-18 33 32 28 BWR / 3 BWR / 3 BWR / 4 Asea-Atom / Stal-Laval Asea-Atom / Stal-Laval Asea-Atom / Stal-Laval *Generation refers to technical resemblence based on KSU classification and not to reactor design generations. All reactors are of Generation II except Olkiluoto-3 (EPR) which is of Generation III. PWR = Pressurized Water Reactor The most common reactor type in the world (e.g. all French units, most US units). Also the Loviisa units are PWRs, but based on Russian design. High pressure prevents water from boiling n the reactor. The steam rotating the turbine is generated in separate steam generators. BWR = Boiling Water Reactor Similar to the PWR in many ways, but the steam is generated directly in the reactor. Popular reactor type e.g. in Sweden, the US and Japan. 33
Third party nuclear liability in case of severe accident Has been approved by the Parliament. In force 1.1.2012 onwards. Law approved by Parliament in 2010, requires separate decision from Government to come into force. 300 M 300 M Unlimited company responsibility Convention parties 500 M 145 M 500 M State responsibility Responsibility of company (insurance or guarantee) 145 M 240 M Old, Finland 145 M 360 M Current, Sweden 700 M Sweden (new, not in force) 700 M 200 M Finland, temporary legislation 700 M New Paris convention Requires ratification by 2/3 of member states to come into force. In Finland approved by Parliament in 2005 34
Nuclear upgrades in Sweden Reactor Completion Increase 100% (MW) Fortum's capacity increase (MW) Additional generation for Fortum (TWh/a) Fortum's capacity after increase (MW) Fortum's generation after increase (TWh/a) OKG 1-0 - 205 ~2 OKG 2 2009, 2017 30 + 180 95 355 ~3 OKG 3 2011 255 110 607 ~5 FKA 1 Decision 2014 120 ~25 257 ~2 FKA 2 2013 120 25 259 ~2 FKA 3 Decision 2014 170 ~35 270 ~2 Total ~290 ~2 ~1,950* ~15 Capacity increase and completion timetable based on recent estimate (Nord Pool). *At 31.12.2013 Fortum's share of Swedish nuclear capacity was 1,817 MW. 35
Russia is the World s 5th largest power market TWh 6,000 5,000 4,000 3,000 2,000 1,000 0 Power generation in 2013 based on gross output. Source: BP Statistical Review of World Energy June 2014 36
Fortum in Russia OAO Fortum (former TGC-10) Operates in the heart of Russia s oil and gas producing region, fleet mainly gas-fired CHP capacity 20 TWh power generation, 24 TWh heat production in 2013; more than Fortum s Nordic heat sales (14 TWh, incl. Fortum Värme) Investment programme to add 85%, almost 2,400 MW to power generation capacity TGC-1 St. Petersburg Nyagan OAO Fortum TGC-1 Slightly over 25% of territorial generating company TGC-1 operating in north-west Russia Moscow Chelyabinsk Tobolsk Tyumen ~6,800 MW electricity production capacity (more than 40% hydro), ~27 TWh electricity, ~29 TWh heat in 2013 37
Day ahead wholesale market prices increase driven by recovering demand and gas price Key electricity, capacity and gas prices in the OAO Fortum area Day ahead power market prices for Urals Electricity spot price (market price), Urals hub, RUB/MWh II/14 II/13 I-II/14 I-II/13 2013 LTM 1,132 970 1,075 950 1,021 1,074 40 35 30 Average regulated gas price, Urals region, RUB 1000 m 3 3,362 2,836 3,362 2,880 3,131 3,362 Average capacity price for CCS old capacity, trub/mw/month 129 146 156 162 163 160 / MWh 25 20 15 10 Average capacity price for CSA new capacity, trub/mw/month 493 513 553 575 576 563 Average capacity price, trub/mw/month 256 252 296 262 276 293 5 0 2008 2009 2010 2011 2012 2013 2014 In addition to the power price generators receive a capacity payment. Achieved power price for OAO Fortum, EUR/MWh 31.7 31.1 31.2 30.8 32.1 32.3 Source: ATS 38 2
Power market liberalisation two markets Capacity wholesale market Electricity wholesale market Capacity prices Competitive capacity selection (CCS) and free bilateral agreements (FBA) A higher, fixed capacity price for new capacity (CSA* agreements, built after 2007) Electricity prices Day ahead (spot) market, financial market, free bilateral agreements (FBA) and regulated bilateral agreements (RBA) Fully liberalised from 1 Jan 2011 except for volumes intended for households priced by RBA (~10% of volume) Lower capacity price for old capacity, price caps limits the price in some areas Old capacity intended for households are priced by regulated bilateral agreements (RBA) CSA is the intended mechanism for earning a (reasonable) return on invested capital in new capacity Capacity prices are a big part of a power generator s income a typical CHP plant ~35%, CCGT ~55%, of revenues In the day ahead (spot) market, the price mechanism is a day ahead hourly auction. Supply demand balance and variable cost (fuel) are the key drivers for the spot price Financial market for electricity started in June, 2010 39 * Capacity supply agreement
Capacity prices for new capacity considerably higher than prices for old capacity prices Long term rules and price parameters approved Both old and new capacity can participate in capacity auctions Old capacity (pre 2007) and new capacity priced differently Old capacity is priced by capacity auctions; price cap possibility New capacity under capacity supply agreements to receive guaranteed payments The payments for new capacity are based on approved pricing formulas Vary according to plant size, fuel, geographic location, capital costs Allow the recovery of capital costs and include return on invested capital; the targeted ROCE level 12-14% (with current government benchmark bond yields) After three years (2014), the regulator will review the earnings from the electricity-only market and can revise the payments, same goes after 6 years. Old capacity prices will depend on auction outcomes, but will likely remain relatively low; potentially price caps could limit the price 40
85% increase in power generation capacity in Russia by 2015 through the investment programme 41
Income statement MEUR II/2014 II/2013 I-II/2014 I-II/2013 2013 LTM Sales 1,016 1,205 2,489 2,858 5,309 4,940 Other income and expenses 761 916 1,758 2,046 3,906 3,618 Comparable operating profit 255 289 732 813 1,403 1,322 Items affecting comparability 41 140 1,897 93 106 1,910 Operating profit 295 429 2,629 905 1,508 3,232 Share of profit of associates and jv s 37 34 109 112 178 175 Financial expenses, net -48-75 -113-140 -289-262 Profit before taxes 284 388 2,626 878 1,398 3,146 Income tax expense -37-74 -124-160 -186-150 Net profit for the period 247 314 2,502 718 1,212 2,996 Non-controlling interests 0 0 4 3 8 9 EPS, basic (EUR) 0.28 0.35 2.81 0.80 1.36 3.36 EPS, diluted (EUR) 0.28 0.35 2.81 0.80 1.36 3.36 42
Comparable and reported operating profit MEUR Comparable operating profit Reported operating profit Comparable operating profit Reported operating profit II/2014 II/2013 II/2014 II/2013 I-II/2014 I-II/2013 I-II/2014 I-II/2013 Power and Technology 183 210 151 338 434 513 413 600 Heat, Electricity Sales and Solutions 11 13 67 24 59 70 112 75 Russia 28 20 28 20 102 61 101 61 Distribution 45 60 63 61 164 197 2,030 197 Other -13-14 -13-14 -27-28 -28-28 Total 255 289 295 429 732 813 2,629 905 Non-recurring items (mainly to the sale of the Finnish electricity distribution business), IFRS accounting treatment (IAS 39) of derivatives and nuclear fund adjustments had an impact on the reported operating profit EUR 41 (140) million in the second quarter and 1,897 (93) million in the first half year. 43 Note: The divested distribution operations are included in the segment information until the closing of the transactions.
Cash flow statement MEUR II/2014 II/2013 I-II/2014 I-II/2013 2013 LTM Operating profit before depreciations 427 579 2,909 1,196 2,129 3,842 Non-cash flow items and divesting activities -58-189 -1,921-163 -262-2,020 Financial items and fx gains/losses 29-100 4-309 -188 125 Taxes -67-51 -95-81 -210-224 Funds from operations (FFO) 330 240 897 641 1,469 1,725 Change in working capital 125 42 125 107 79 97 Total net cash from operating activities 455 282 1,022 749 1,548 1,821 Paid capital expenditures -168-201 -330-411 -1,004-923 Divestments of shares * 316 2 2,817 37 144 2,924 Other investing activities 171 18 219 126-83 10 Cash flow before financing activities 774 101 3,727 501 604 3,830 44 * Including Proceeds from the interest-bearing receivables relating to divestments
Key ratios MEUR LTM 2013 EBITDA 3,843 2,129 Comparable EBITDA 1,892 1,975 Interest-bearing net debt 5,008 7,793 Comparable net debt/ebitda 2.6 3.9 Return on capital employed, ROCE (%) 18.4 9.0 Return on shareholders equity, ROE (%) 28.2 12.0 Good liquidity committed credit lines total EUR 2.2 billion 45
Debt Maturity Profile 1500 1250 1000 750 500 250 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024+ Bonds Financial institutions Other long-term debt CPs Other short-term debt MEUR 2014 286 2015 1,014 2016 862 2017 544 2018 628 2019 821 2020 76 2021 545 2022 1,033 2023 112 2024+ TOTAL 1,245 7,166 per 30 Jun, 2014 per 31 Dec, 2013 Average Interest Rate (incl. swaps and forwards) 4.0 % 3.6 % Portion of floating / fixed debt 39 / 61 % 51 / 49 % 46
Outlook Nordic markets Fortum continues to expect that the annual electricity demand growth will average 0.5% in the coming years Electricity is expected to continue to gain share of total energy consumption Russia The target for the Russia Segment in Russian roubles (RUB 18.2 billion) to be reached during 2015 is intact, but the euro result level will be volatile and with current exchanges rates lower than EUR 500 million Key drivers and risks Wholesale price of electricity and volumes demand and supply fuels hydrological situation power plant availability CO2 emissions allowance prices 47
Outlook Annual capex estimate excluding potential acquisitions 2014 EUR 0.9 to 1.1 billion (incl. Finnish distribution Q1/2014, Norway 1H/2014, excluding Fortum Värme) Hedging Rest of the year 2014 approx. 55% hedge ratio at approx. EUR 45/MWh 2015 approx. 30% hedge ratio at approx. EUR 41/MWh Target for efficiency programme is to improve cash flow by EUR 1 billion during 2013-2014 Taxation Effective tax rate for the Group 19-21% In Finland, the power plant tax (so called windfall tax) has been revoked 48
Hedging improves stability and predictability 2009 onwards thermal and import from Russia excluded 49
Fortum's efficiency programme 2013-2014 Efficiency programme proceeding according to plan Total annual cost savings visible in all divisions Improved working capital efficiency Divestments of non-core assets totalling approximately EUR 400 million WHY WHAT WHEN 2013-2014 SPEED - Cash flow improved by EUR 1 billion FLEXIBILITY CAPEX EUR 250-350 million WORKING CAPITAL Reduction DIVESTMENTS EUR 500 million FIXED COSTS Reduce EUR 150 million compared to 2012 50
Facts of Distribution MEUR Fortum s Swedish distribution operations in 2013 Operating profit 263 Comparable operating profit 246 Comparable EBITDA 384 Capital expenditure 121 Number of employees 515 Volume of distr. Electricity, TWh 27.8 Number of el. Distr. Custom. ( 000) 903 January 2013: Strategic assessment commenced December 2013: Assessment has been completed, divestment the best alternative Evaluation of divestment opportunities country by country Closed by the end of Q1/2014: Divestment of Distribution Finland Closed by the end of Q2/2014: Divestment of Distribution Norway Ongoing: Evaluation of divestment opportunities by country 51
For more information, please visit www.fortum.com/investors