- a leading energy company in the Nordic area

Transcription

1 - a leading energy company in the Nordic area Presentation for investors September 2006 (revised version)

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 investment highlights Fortum is a leading Nordic Power & Heat ( P&H ) company Focus entirely on power and heat following the disposal of the downstream 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 (51.1%) Market capitalisation of 18 billion Key performance figures as of YE 2005 Revenues EBITDA Net debt Market capitalisation 3,877m 1,754m 3,158m 18bn 4

5 Fortum provides leadership in core businesses Businesses Power Generation Heat Distribution Markets Revenues 2,058m (40%) 1,063m (20%) 707m (14%) 1,365m (26%) Operating profit (comparable) 854m (62%) 253m (18%) 244m (18%) 30m (2%) 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 5

6 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 6

7 Presence in focus market areas Nordic Generation 51.2 TWh Electricity sales 58.2 TWh Distribution cust. 1.6 mill. Electricity cust. 1.4 mill. Heat sales 19.4 TWh NW Russia (in associated companies) Power generation ~4 TWh Heat production ~6 TWh Poland Heat sales 3.9 TWh Electricity sales 20 GWh Baltic countries Heat sales 1.2 TWh Distribution cust. 22,000 7

8 Market Structure - Business Value Chain Competitive businesses Generation Nordic Nordic wholesale wholesale market market Nord Pool and bilateral Large customers Retail companies Retail Retail market market Small customers Regulated monopolies Transmission and system services Independent TSO Distribution Independent DSO 8

9 Fortum Business structure Fortum Power Generation Nordic Nordic wholesale wholesale market market Nord Pool and bilateral Fortum Markets Large customers Small customers Other retail companies Fortum's operating profit in 2005 EUR million 1,334 Markets 2 % Transmission and system services Fortum Distribution Distribution 18 % Power Heat 18 % Generation 62 % 9

10 Power and heat production in Fortum Fortum s Nordic power generation Fortum s Nordic heat production Hydro power 42% Biomass fuels 24% Coal 17% Other 2% Peat 1% Biomass 2% Coal 3% Nuclear power 50% Other 11% Waste 6% Peat 7% Heat pumps, electricity 16% Oil 10% Natural gas 9% 51.2 TWh in 2005 Total generation capacity 11,136 MW 20.6 TWh in 2005 Total production capacity 8,252 MW 10

11 Strong dividend growth Dividend per share EUR Total ~ 2,750 MEUR Fortum's aim is to pay a dividend corresponding to an average payout ratio of 50% to 60% * * 0.58 from continuing operations 11

12 Excellent share performance Share price Index 700 Market value EUR billion Fortum Dow Jones 600 Utilities Index Sep 2006, adjusted for Neste spin-off 31 Dec Dec Dec Dec Dec Mar 2005 Neste Oil as dividends 4Sep

14 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 14

15 Nordic market becoming more integrated into Europe In 2005, Nord Pool introduced a spot market area "KONTEK" to facilitate market coupling on the Kontek cable NorNed (Norway - The Netherlands) by 2008 Estlink (Estonia - Finland) by 2007 Nordel priority projects enhance Nordic power market integration Present Under construction Planned Discussed (490)

16 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. 16

17 New capacity will be needed in Nordic countries... TWh in the UK and Germany and in Russia TWh ~50 TWh TWh ~180 TWh ~170 TWh Demand growth ~ TWh before 2020 Source: Ministry of Energy; Russian Energy Strategy Source: Fortum Demand Supply Source: Eurprog 10/2005: 2005 generation, capacity closures by 2010 and 2020 included 17

18 ... also in Nordic countries Demand and capacity development in the Nordic market TWh Existing/remaining capacity Committed new capacity Electricity demand is expected to increase around 50 TWh by 2020 Committed plans of new capacity approx TWh Additionally: Possible closures of current capacity may take away up to 10 TWh by 2020 Upgrade of Swedish nuclear capacity requires a licence 18

19 New capacity will require an EUR 35+ price EUR/MWh Futures September 1, 2006 EUR/MWh Fuel costs, excl. CO 2 costs Fixed costs ( variation *) Source: Nord Pool, Fortum 0 Coal Gas Nuclear Hydro Wind Source: NEA & IEA "Projected Cost of Generating Electricity", 2005 update (average of European projects); Elforsk: "El från nya anläggningar", *) Large variations in costs for new hydro and wind due to location and conditions 19

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

21 Investments in organic growth Olkiluoto 3 (400 MW) Swedish nuclear (~250 MW) Suomenoja ( MW electricity, MW heat) Värtan (140 MW electricity, 300 MW heat) Refurbishing of existing hydro assets (~150 MW) Value of new capacity investments around EUR 2,700* million Automated meter management (EUR 240 million) Security of supply in distribution (EUR 700 million) * Incl. smaller capacity upgrades and refurbishments in various plants 21

22 Spot history and forwards in Europe Yearly moving average spot price EUR/MWh 100 Forwards EUR/MWh August 11, UK German Nord Pool Dutch Spanish Source: Reuters, OMEL 22

23 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 ETS Prices Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Q2 Q

24 Nordic water reservoirs reservoir content (TWh) reference level week Source: Nord Pool 24

26 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

27 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 27

28 Fortum's current operations in Russia A ~1/3 stake in companies spun-off from OAO Lenenergo, the largest utility company in northwest Russia; Operation & maintenance services Electricity imports Nuclear fuel and coal imports 28

29 TGC-1 operating as of 1 October 2005 Installed capacity MW Norway 28,800 Denmark 12,700 Sweden 33,200 Finland 16,600 Territorial Generating Company TGC-1 Production capacity ~ 5,750 MW, of which hydro 2,874 MW Third largest territorial generation company in Russia Started operation on 1 October 2005 based on a leasing model Transfer of assets into TGC-1's ownership targeted at the beginning of 2007 Fortum's calculated share ~18% Fortum has 3 members of 11 in total on TGC-1's Board of Directors Nordel figures 31 Dec

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

32 Income statement MEUR I-II/2006 I-II/2005 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)

33 Cash flow statement MEUR I-II/2006 I-II/ 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

34 Balance sheet MEUR 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 Net debt / EBITDA Equity per share (EUR) Net debt, (MEUR)

35 Nord Pool year forwards /MWh Q1 Year 05 Year 06 Year 07 Year 08 Year 09 Year 10 Year 11 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Sep 1, 2006 Q3 35

36 Hedging of Power Generation's Nordic sales Fortum has hedged Power Generation's Nordic sales volume at the beginning of July 2006: Hedge ratio Hedge price July to December 2006 ~ 90 % ~ EUR 35 per MWh Calendar year 2007 ~ 65 % ~ EUR 39 per MWh 36

38 Nordic Power market prices vs EEX 38

39 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 ~18 billion euros Households 4.9% Financial and insurance institutions 1.7% Other Finnish investors 7.2% Finnish State 51.1% International investors 35.1% 31 August

40 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 40

41 Distribution regulation differ country by country Finland Sweden Norway Status New model for period New regulatory model is being applied to 2003 and 2004 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 has supervised 41 areas for 2003 and 55 areas for 2004 due to claimed overpricing. All companies that have received a decision to reimburse customers have appealed to court. 41

42 Fortum in Poland and the Baltic countries Operations of Fortum Heat Wrocław Płock District heat to 30 cities and towns Energy sales district heat 3.9 TWh electricity 19 GWh Own production 0.9 TWh heat plants 96 CHP 1 Personnel: 1,200 Energy sales in Estonia heat 1.2 TWh; gas 80 GWh Energy sales in Lithuania heat 60 GWh; fuels 50 Gwh Production capacity 118 heat plants 1 CHP plant Personnel:

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