Fortum - Power and heat company in the Nordic area, Russia, Poland and the Baltics Balance sheet strength enables growth and value creation Berenberg European Conference, Surrey 2 December 2014 Timo Karttinen, CFO Fortum Corporation
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
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 3
Scrutinized investment discipline opens opportunities for future growth Strong balance sheet and operational cash flow enables future growth Fortum is to be one of the leading companies in European electricity generation and heat production RESTRUCTURING MERGERS & AQUISITIONS Brown- and greenfield projects Priority in hydro, nuclear and CHP We have strong competences ready for fast and successful integration EXISTING MARKET WIDENING INTEGRATED EUROPEAN MARKET Platform for the future Portfolio balance broadened to a couple new geographies and technologies Carefully considered steps 4
A well integrated power market would support competitiveness and security of supply in Europe as well as enable healthy growth of renewables Transmission needs: Hydro energy Wind energy Bioenergy Solar energy Nuclear energy Optimal location of generation, e.g. solar PV in Southern Europe, wind on coast and Northern Europe Improved security of supply through enhanced transmission grid network Enabling flexible hydro power to balance the volatility caused by wind/solar across country borders Optimal competence and location logic in utilising nuclear Avoid costly national solutions 5
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 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 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 6
Result update and market conditions
Summary of January-September 2014 Good results in continuously demanding market environment Flexible hydro production partly offset weak electricity price Strong cash flow from operations Finnish and Norwegian electricity distribution business sales completed. The evaluating and planning of the possible future divestment of the Swedish electricity distribution business continued 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 Finnish Government decided not to introduce the power plant tax (so called windfall tax) Events after the balance sheet date Efficiency programme successfully completed during Q4 Fortum s sold its shares in Gasum (31%) with the sales price of EUR 310 million, and capital gain of roughly EUR 190 million to be booked Q4/2014 8
Market conditions in January-September 2014 Nordic countries Power consumption in the Nordic countries declined somewhat compared to the same period in 2013 Industrial consumption nearly unchanged, however, other consumption decreased due to mild weather At the end of September, hydro reservoirs 10 TWh below long-term average, but at the level of comparison period Nordic system spot prices approx. EUR 10 per MWh lower, while Finnish and Swedish area prices approximately EUR 6-8 per MWh lower European business environment and carbon market Several countries have signalled changes in their power market policy European commission gave a proposal for 2020-2030 climate and energy policy Implementation of backloading (CO2) started Russia Power consumption in Fortum s operating areas unchanged Average electricity spot price for power increased 8% (in RUB) in the first price zone compared to 2013 9
January-September 2014 Results Key figures (EUR) III/14 III/13 I-III/14 I-III/13 2013 LTM Sales, million 976 1,060 3,466 3,918 5,309 4,857 Comparable EBITDA, million 309 336 1,317 1,429 1,975 1,863 Operating profit, million 149 96 2,778 1,002 1,508 3,284 Comparable operating profit, million 183 167 915 979 1,403 1,339 Profit before taxes, million 95 27 2,721 904 1,398 3,215 Earnings per share 0.10 0.04 2.91 0.84 1.36 3.42 Items affecting comparability -0.03-0.05 2.11 0.03 0.10 2.19 Net cash from operating activities, million Cash flow before financing activities, million 288 401 1,310 1,150 1,548 1,708 259 152 3,987 653 604 3,938 10
January-September: Good results despite warm weather, low spot prices and weak rouble Comparable operating profit, EUR million * The divested distribution operations are included in the segment information until the closing of the transactions * 11
Fortum's efficiency programme 2013-2014 The efficiency programme successfully finalised during Q4 overall target has been met, focus will stay Total annual cost savings visible in all divisions Improved working capital efficiency Divestments of non-core assets totalling more than EUR 800 million including sale of Gasum shares during Q4 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 12
Efficiency, cash flow and investments in focus Focus on current portfolio Flexibility - Profitability - Scrutinize investments in current portfolio Cost control Continuous efficiency improvements Working capital optimisation Further divestments of non-core assets or ones with limited potential Hedges Growth investments Profitable projects with fast pay-back in focus Successful divestments create platform to execute growth Business builds on current portfolio in addition, we will select the most profitable new investments to support our financial targets and deliver excellent value to our shareholders 13
By restructuring and investing we maintain the current assets and create growth Financial targets LTM 2013 Target Return on capital employed, ROCE (%) 18.9 9.0 12 Return on shareholders equity, ROE (%) 29.0 12.0 14 Comparable net debt/ebitda 2.6 3.9 ~3 - excluding Värme 2.2 3.4 20 Over the cycle ROCE% 15 10 5 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 LTM ROCE target 10 Y FIN Bond 14
Diversified funding base net debt EUR 4.8 billion at the end of September 2014 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 32 2015 1,035 2016 863 2017 548 2018 629 2019 821 2020 76 2021 547 2022 1,057 2023 112 2024+ TOTAL 1,249 6,969 per 30 Sep, 2014 per 31 Dec, 2013 Average interest rate (incl. swaps and forwards) 3.9% 3.6% Portion of floating / fixed debt 47 / 53% 51 / 49% 15
Outlook
Outlook Nordic markets Fortum continues to expect that the average annual electricity demand growth will be 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 Key drivers and risks Wholesale price of electricity and volumes demand and supply fuels hydrological situation power plant availability CO2 emissions allowance prices 17
Outlook Annual capex estimate, excluding potential acquisitions 2014 EUR 0.9 to 1.1 billion Hedging The remaining 2014 approx. 70% hedge ratio at approx. EUR 43/MWh 2015 approx. 40% hedge ratio at approx. EUR 41/MWh 2016 approx. 10% hedge ratio at approx. EUR 39/MWh The efficiency programme is successfully finalised during Q4 of 2014 Taxation Effective tax rate for 2014 for the Group 19-21% In Finland, the power plant tax ( windfall tax ) has been revoked 18
Creating shareholder value 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 19
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