FORTUM A leading power and heat company in the Nordic area

Transcription

1 FORTUM A leading power and heat company in the Nordic area Presentation for investors March 2009

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 Content Fortum today European power markets Russia Financials and outlook 3

4 4 We intend to keep our leading position

5 Our geographical presence today Nr 1 Nr 2 Heat Distribution Electricity sales Power generation Poland Heat sales 3.6 TWh Electricity sales 18 GWh Nordic countries Generation 51.6 TWh Electricity sales 59.1 TWh Heat sales 20.0 TWh Distribution cust. 1.6 million Electricity cust. 1.3 million Russia TGC-1 (~25%) Power generation ~7 TWh Heat sales ~7 TWh TGC-10* Power generation 16.6 TWh Heat sales 25.7 TWh *pro forma 2008 data Baltic countries Heat sales 1.3 TWh Distribution cust. 24,000 5

6 Strong growth in EBITDA and in cash flow MEUR EBITDA MEUR Total net cash from operating activities Sales gain From Lenenergo shares Additional dividend from Hafslund MEUR Net debt 4,0 Adjusted net debt/ebitda (LTM) , , , ,

7 Capital returns Dividend per share EUR Total ~ 5,965 MEUR Dividend of EUR 1.00 per share proposed to the AGM, in total ~EUR 0.9 billion Dividend policy of 50-60% payout of previous year's results on the average

8 Fortum in the Nordic electricity value chain Fortum Markets Fortum Power Generation Deregulated Regulated Nordic Nordic wholesale wholesale market market Nord Pool and bilateral Transmission and system services Large customers Small customers Other retail companies Fortum Distribution 8

9 Fortum's European production by source Fortum's power generation in 2008 Hydro power 44% Coal 23% Fortum's heat production in 2008 Biomass fuels 20% Other 2% Peat 1% Biomass 2% Natural gas 2% Coal 4% Nuclear power 45% Other 10% Oil 4% Waste 7% Peat 7% Natural gas 16% Heat pumps, electricity 13% Total generation 52.6 TWh (Generation capacity 10,788 MW) Total production 25.0 TWh (Production capacity 10,468 MW) 9

10 10 Fortum's carbon exposure is among the lowest in Europe g CO 2 /kwh electricity Average 373 g/kwh DEI Nuon RWE Drax CEZ Scottish&Southern Union Fenosa Endesa Enel EDP Vattenfall Dong Energy E.ON Electrabel PVO Iberdrola EDF British Energy Verbund Fortum Statkraft Source: PWC & Enerpresse, 2008 Changement climatique et Électricité Electrici

11 Fortum s investment programme Nordic region, Poland and Baltic countries Olkiluoto 3, Finland, nuclear Swedish nuclear Suomenoja, Finland (gas CHP) Järvenpää, Finland (biomass CHP) Brista, Sweden (waste CHP) Refurbishing of existing hydro assets Wind power, Sweden Czestochowa, Poland (coal/biomass CHP) Tartu, Estonia (biomass/peat CHP) Pärnu, Estonia (biomass/peat CHP) Electricity capacity ~1,200 MW ~80% CO2-free 11

12 Decision-in-Principle application for Loviisa 3 A Decision-in-Principle application for the construction of a new MW nuclear power plant unit in Loviisa Designed service life of the unit at least 60 years Fortum already has two nuclear power plant units in Loviisa The power plant unit will be designed to allow for combined heat and power production Five reactor alternatives The investment cost of one nuclear unit is EUR 4-6 billion The plant site and its basic infrastructure ready, the basic investments in nuclear waste management have been made 12

13 13 Planned schedule for the implementation of Loviisa 3

14 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 ~14 billion euros Households 5.3% Financial and insurance institutions 1.6% Other Finnish investors 7.2% Finnish State 50.8% Foreign investors 35.1% 28 February

15 Fortum today European power markets Russia Financials and outlook 15

16 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 16

17 Huge need for new capacity Globally European wide and in Russia TWh 35,000 30,000 25,000 20,000 15,000 10,000 5, ~14,000 TWh TWh 4,000 3,000 2,000 1, ,300 TWh TWh 1,800 1,600 1,400 1,200 1, Source: IEA World Energy Outlook 2008, reference scenario for generation IEA projects that in reference scenario GW of capacity additions are needed by Of this GW is to be installed by 2015 (~600 GW under construction in 2007) Source: Eurelectric, Eurprog 2007, EU27, Fortum General scheme, base case, 2007 APBE, base case, post-crisis, January 2009 General scheme = power sector development target adopted by the government in 2007 APBE = forecasting agency in charge of updating General Scheme 17

18 New capacity needed in the Nordic market Demand and capacity development in the Nordic market Committed new production ~40 TWh TWh CHP bio CHP other OL 3 nuclear Wind Hydro Nuclear upgrades Committed projects Existing/remaining generation* Demand *) Existing capacity partly decommissioned due to increasing environmental requirements, partly replaced by more efficient new plants; may still be available as peak-load capacity. 18

19 New capacity, except nuclear, will require over 60 EUR/MWh power price EUR/MWh Source: Nord Pool Futures 26 February EUR/MWh CO 2 cost Other costs ( variation) Coal Gas Nuclear Hydro Wind Clean coal Estimated lifetime average cost in nominal 2014 terms. Large variations in cost of new hydro and wind due to location and conditions. 19

20 Current transmission capacity from Nordic area to Continental Europe is ~4000 MW Countries Transmission capacity MW From Nordel To Nordel Denmark - Germany Sweden - Germany Sweden - Poland Norway - Netherlands Total Theoretical maximum in transmission capacity ~35 TWh per annum Net export from Nordic area to Continental Europe in 2007 was ~9 TWh and in 2008 ~15 TWh Approximately 20 TWh net export fairly easily reachable NorNed was taken into use in May

21 Nordic and Continental markets are integrating interconnection capacity could double by 2020 Additional 700 MW cable NO-NL studied MW NO-DE studied DK-NL link studied Jylland DE capacity to be increased by 500 MW in 2011 and by further 500 MW by 2017 Baltic Wind Link 1100 MW studied to connect SE, DK and DE through the Kriegers Flak offshore wind park In the EU's Second Strategic Energy Review the Commission focuses strongly on interconnecting the Baltic states and Poland to form an electricity market around the Baltic Sea New interconnections could double the capacity to over 8000 MW by 2020 New internal Nordic grid investments provide for increased available capacity for export from southern Sweden, Norway and Denmark EU granted 100 MEUR for the Estlink 2 -project PolLit Link of 1000 MW planned to connect the Baltic market to Poland by It would also open a new transmission route from the Nordic market to the Continent 21

22 Market coupling milestones Market coupling between Belgium (BelPEX), Netherlands (APX) and France (Powernext) since November 2006 Market coupling EEX - Nord Pool started 29 September 2008 but was on 8th October suspended until Q due to technical problems Market coupling NL-Nord Pool 2009 trough the NordNed cable during 2009 implicit auctions, synchronized with market coupling Nord Pool-Germany and Germany-BE/NL/FR Market coupling agreement signed in June for DE-F- BeNeLux. during 2009 NL-UK planned trough the BritNed cable Integration of the Baltic power market into the Nordic power market is discussed Baltic Spot price area not before Q due to Estonian law change requirements Fingrid is studying possibilities to increase flexibility in electricity trade with Russia Existing 2009 Q

23 Nordic water reservoirs reservoir content (TWh) reference level week 23

24 Nord Pool year forwards /MWh Year 06 Year 07 Year 08 Year 09 Year 10 Year 11 Year 12 Year 13 Year 14 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Q2 Q3 Q4 Q February 2009 Q2 Q3 Q4 Q

25 Wholesale prices for electricity EUR/MWh Spot prices Forward prices 20 February Dutch German Nordic Russian* * Including capacity tariff estimate. E.g /MWh 25 Source:, ATS

26 Fuel and CO 2 allowance prices USD / bbl Crude oil price (Brent) EUR / tco CO2 price USD / t Coal price (API2) GBp / therm Gas price (NBP) Source: Market prices February 2009; future quotations

27 Nordic power generation mix Total Nordic generation 397 TWh in 2007 TWh/a Fossil fuels Nuclear Waste TWh % Biomass Wind Hydro Denmark Norway Sweden Finland Hydro variance +/- 40 TWh from average Net import in 2007: 3TWh Source: Nordel 27

28 Still a highly fragmented Nordic power market Power generation 397 TWh >350 companies Electricity distribution 14 million customers ~500 companies Electricity retail 14 million customers ~350 companies Others Vattenfall Others Fortum Vattenfall Others Fortum Vattenfall 30% Fortum 50% E.ON 51% E.ON Helsinki BKK Norsk Hydro E-CO Energi PVO Dong Energy E.ON Statkraft Dong Energy Hafslund SEAS-NVE Helsinki Statkraft Syd Energi Göteborg Dong Energy Hafslund Statkraft SEAS-NVE Helsinki Östkraft Öresundskraft 28 Current market shares based on 2007 figures, active players

29 Economic downturn has affected power consumption Nordic paper and metal companies have announced plant closures and temporary production cuts Power demand has decreased the most in Finland; the biggest share of energy intensive industry among the Nordic countries In the longer term, electricity consumption in the Nordic countries is still predicted to increase by less than 1% a year % change (from year 2007) 2% 1% 0% -1% -2% -3% -4% 0% Power demand decreased in all Nordic countries except Norway in % Nordic Preliminary estimates Sweden Norway Finland and the most dramatic decline in demand took place during Q4 / 2008 Denmark % change (Q4) -2% -4% -6% -8% -10% -5% Nordic Sweden Preliminary estimates Norway Finland Denmark 29

30 Fortum today European power markets Russia Financials and outlook 30

31 Russia is the World s 4th largest power market and growing rapidly Russia is the 4th largest power market in the World Demand for electricity in Russia TWh 4,000 3,500 3,000 2,500 2,000 1,500 1, US China Japan Russia India Germany Canada France Brazil South Korea Nordic UK TWh 1,800 1,600 1,400 1,200 1, General scheme, base case, 2007 APBE, base case, post-crisis, January 2009 General scheme = power sector development target adopted by the government in 2007 APBE = forecasting agency in charge of updating General Scheme Source: IEA, 2008, data

32 Fortum - a major player in Russia TGC-10 Majority of the Russian territorial generating company TGC-10 in the Urals region TGC-10 operates in the heart of Russia s oil and gas producing region TGC-10 adds 18 TWh/a to Fortum s power generation and the heat sales double Annual efficiency improvement approximately EUR 100 million in 2011 Fortum's management model in place since September 2008 TGC-1 Slightly over 25% of territorial generating company TGC-1 operating in north-west Russia ~6,250 MW electricity production capacity (appr. 50% hydro), ~24 TWh/a electricity, ~30 TWh/a heat TGC-1 St. Petersburg Moscow Nyagan Khanty-Mansisk Chelyabinsk Kurgan TGC-10 Surgut Tobolsk Tyumen 32

33 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) complete Formation of new companies complete Capacity market transitional model 2008 Long term capacity market model 2009 Competitive market of ancillary services 2009 Financial derivatives market 2009 Full liberalisation of the wholesale market 2011 onwards 33

34 Further power market liberalisation Share of liberalised trade for existing capacity Further liberalisation of energy market to increase to 50% in July 2009 The rate of liberalised volume is based on 2007 balance. All new capacity is sold with liberal prices The sales to households will remain regulated still after % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % 5 % Jan % 15 % July 2007 Jan % 30 % July 2008 Jan % July % Jan % July % 100 % Jan

35 Currently 30% of electricity sold with liberalised prices European and Urals part power price 1) development; EUR/MWh /MWh Day-Ahead-Market for electricity well-functioning and competitive All volume sold to Day-Ahead- Market, but market based price formation for about 30% of the volume ) In addition generators currently receive on average about 11 EUR/MWh capacity payment Used EUR/RUB daily exchange rate 35

36 Investment programme of TGC-10 Moscow Nyagan Tyume Tobolsk Chelyabinskn Kurgan Plant Power generation capacity (MW) Fuel type Existing Planned Total MW 6,000 5,000 4,000 3,000 2,000 1, % +2,270 MW 3,020 5, Tyumen CHP-2 Gas ,205 Tyumen CHP-1 Gas Tobolsk CHP Gas Chelyabinsk CHP-3 Gas Chelyabinsk CHP-2 Coal, gas Argayash CHP Coal, gas Chelyabinsk CHP-1 Coal, gas Chelyabinsk GRES Gas Nyagan GRES Gas 1,200 1,200 Boilers - Kurgan Generation (49%) Gas TGC-10 3,020 2,270 5,290 36

37 Efficiency improvement appr. 100 MEUR in 2011 Purchasing Portfolio Management and Trading (PMT) Heat regulation Heat - technical and business improvements Generation - technical improvements Others 37

38 Fortum today European power markets Russia Financials and outlook 38

39 Income statement, 2008 MEUR Sales Expenses Operating profit Share of profit of associates and jv s 126 Financial expenses, net -239 Profit before taxes Income tax expense -254 Net profit for the period Minority interest EPS, basic (EUR) EPS, diluted (EUR)

40 Cash flow statement, 2008 MEUR Operating profit before depreciations Non-cash flow items and divesting activities -275 Financial items and taxes -99 Funds from operations (FFO) Change in working capital -102 Total net cash from operating activities Paid capital expenditures Acquisition of shares Other investing activities Cash flow before financing activities

41 Key ratios MEUR EBITDA Cash flow from operations Interest-bearing net debt Shareholders' equity Balance sheet total Net debt/ebitda* Return on capital employed (%)* Return on shareholders equity (%)* * 2007 adjusted for REC and Lenenergo gains 41

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

43 Capital expenditures EUR billion significant flexibility Annual capital expenditures EUR billion Esimated annual Capex Maintenance/productivity EUR million p.a. Maintenance ~ EUR m Growth in Nordic and Baltic rim countries EUR million p.a. Growth ~ EUR m Investments in Russian growth on average EUR 500 million per annum Russian growth ~ EUR 500 m 43

44 Good liquidity MEUR Available Outstanding Total amount SHORT TERM FINANCING Commercial Paper Programmes Finnish CP Programme SEK M Swedish CP Programme LIQUID FUNDS AND COMMITTED CREDIT LINES Committed Credit Lines Short Term Long Term Liquid Funds Cash and cash equivalents 733 Bank Deposits over 3 months of which in Russia (~ 50% in euros, ~ 50% in roubles) Total Available Cash and Committed Financing

45 Debt maturity profile MEUR Y Bonds Financial institutions Other long-term debt CPs Other short-term debt MEUR 2009: : : : : : : : : : : Dec, Dec, 2007 Duration (years) 1,6 1,3 Average interest rate (incl. swaps and forwards) 4,7 % 4,6 % Portion of floating / fixed debt 64 / 36 % 67 / 33 % 45

46 Hedging of Power Generation's Nordic sales Status at the end of January 2009 (Status at the beginning of October 2008) Hedge ratio Hedge price rest of 2009 ~ 65% ~ EUR 53 per MWh (~55%) (~ EUR 53 per MWh) 2010 ~ 50% (~20%) ~ EUR 46 per MWh (~ EUR 55 per MWh) 46

47 Fortum in a stable position Flexible and climate-benign production portfolio Integration of Russian TGC-10 proceeding Growth through investment programmes in Russia and Baltic Rim countries Two new CHP plants to be commissioned in 2009 Strong balance sheet and liquidity Good hedging positions Fortum in a stable position to weather the turbulence, despite lower visibility beyond

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