FORTUM A leading power and heat company in the Nordic area Presentation for investors September 2009
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 European power markets Russia Financials and outlook 3
4 We intend to keep our leading position
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 OAO Fortum* 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
Capital returns Dividend per share EUR Total ~ 5,965 MEUR 0.18 0.23 0.26 0.31 0.42 0.13 0.58 1.12 0.58 0.54 1.26 0.73 0.53 1.35 0.77 0.58 1.00 Dividend 2008 EUR 1.00 per share, in total ~EUR 0.9 billion Dividend policy of 50-60% payout of previous year's results on the average 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 72% 103% 78% 58% 6
Fortum s strategic route Länsivoima 45% 65% Länsivoima 100% Elnova 50% 100% Separation of oil businesses E.ON Finland 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Neste IVO Gullspång Skandinaviska Elverk Birka Energi 50% Fortum 50% Stockholm Gullspång Stockholm Energi Stora Kraft Birka Energi 50% 100% Østfold Shares in Hafslund Shares in Lenenergo Starting TGC-1 District heat in Poland 2003 Divestment of Lenenergo shares TGC-10 7
Tapio Kuula President and CEO of Fortum Corporation since May 2009 Joined Fortum in 1996 and has been a member of the Management Team since 1997 Holds a Master's degree both in electrical engineering and economics Latest responsibility areas within the company are Generation, Power Portfolio Management and Trading, Service and TGC-10 as well as Fortum's activities in Finland and Russia Earlier positions are within forest industry and managing director positions of several utility companies. Vice Chairman of the Board of Teollisuuden Voima Oy (TVO), Chairman of the Board of OAO Fortum, Member of the Board of Lappeenranta University of Technology, Member of the Supervisory Board of Varma Mutual Insurance Company and Committee Member of Baltrel and its Chairman 2002-2005 Previously Chairman/Vice Chairman of the Boards of several power and heat and distribution companies in Finland, Sweden, Russia, Germany and the UK 8
New organisational structure as of 1 October 2009 Business Divisions President and CEO Tapio Kuula Staff functions Power (Espoo) Executive Vice President Matti Ruotsala Finance Executive Vice President, CFO Juha Laaksonen Heat (Stockholm) Executive Vice President Per Langer Corporate Relations and Sustainability Executive Vice President Anne Brunila Russia (Chelyabinsk) Executive Vice President Alexander Chuvaev Corporate Human Resources Senior Vice President Mikael Frisk Electricity Solutions and Distribution (Espoo) Executive Vice President Timo Karttinen Corporate Strategy and R&D Senior Vice President Maria Paatero-Kaarnakari Country responsibles: Timo Karttinen/Finland, Norway; Per Langer/ Sweden, Poland, Baltics; Alexander Chuvaev/Russia Improved efficiency, accountability, simplicity 9
A leading Nordic power and heat company Leading power and heat company in Nordic Listed at the Helsinki Stock Exchange 1998 Approximately 75,000 shareholders Among the most traded shares in Helsinki stock exchange Market cap ~15 billion euros Households 5.9% Financial and insurance institutions 2.2% Other Finnish investors 8.0% Finnish State 50.8% Foreign investors 33.1% 31 August 2009 10
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 11
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) 12
13 Fortum's carbon exposure is among the lowest in Europe g CO 2 /kwh electricity 1200 1000 2007 800 600 400 Average 373 g/kwh 200 64 0 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
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), completed March'09 Pärnu, Estonia (biomass/peat CHP) Electricity capacity ~1,200 MW ~80% CO2-free 14
Decision-in-Principle application for Loviisa 3 A Decision-in-Principle application for the construction of a new 1000-1800 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 15
16 Planned schedule for the implementation of Loviisa 3
Fortum today European power markets Russia Financials and outlook 17
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 18
New capacity, except nuclear, will require over 60 EUR/MWh power price EUR/MWh 110 100 90 80 70 60 50 40 30 20 10 0 Source: Nord Pool Futures 1 September 2009 1995-97 -99-01 -03-05 -07-09 -11-13 EUR/MWh 110 100 90 80 70 60 50 40 30 20 10 0 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
Current transmission capacity from Nordic area to Continental Europe is ~4000 MW Countries Transmission capacity MW From Nordel To Nordel Denmark - Germany 2 100 1 550 Sweden - Germany 600 600 Sweden - Poland 600 600 Norway - Netherlands 700 700 Total 4 000 3 450 350 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 2008 700 2100 600 600 20
Nordic and Continental markets are integrating interconnection capacity could double by 2020 Additional 700 MW cable NO-NL studied New interconnections could double the capacity to over 8000 MW by 2020 700-1400 MW NO-DE studied DK-NL link studied and EU financial support sought to connect offshore wind, too 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 internal Nordic grid investments provide for increased available capacity for export to the Continent and Baltics EU s European Economic Recovery Plan promises co-financíng to Estlink 2 and NordBalt (SE-LT) LitPol Link of 1000 MW to connect the Baltic market to Poland by 2015/18. It would open a new transmission route from the Nordic market to the Continent 21
Market coupling milestones Market coupling between Netherlands (APX), Belgium (Belpex) and France (Powernext) since 2006 Market coupling Germany (EEX) - Nord Pool started in September 2008 but was suspended in October. Restart after modifications is due during Q3/2009. 2011 2010 Market coupling agreement signed in 2008 for DE-F-BeNeLux, coupling due to start in 2010 Market coupling NL - Nord Pool planned through the NordNed cable synchronized with market coupling Nord Pool-EEX and Germany-NL/BE/FR NL-UK coupling planned trough the BritNed cable from 2011 Existing Q3 2009 2010-2015 Baltic Energy Market Interconnection Plan (6/2009) determines the price area Estlink to be set up Q1/2010 and a full integration of the Baltic states to the Nord Pool market during 2011-2015 Fingrid is studying possibilities to increase flexibility in electricity trade with Russia 22
Nordic water reservoirs 120 100 reservoir content (TWh) 80 60 40 20 0 2003 2007 2008 2009 reference level 1 5 9 13 17 21 25 29 33 37 41 45 49 week Source: Nord Pool 23
Wholesale price for electricity EUR/MWh 110 Nord Pool System Price Forwards 100 90 80 70 60 50 40 30 20 10 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 1 September 2009 24
Nord Pool year forwards /MWh 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 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 Q1 2005 2006 Q2 Q3 Q4 Q1 2007 Q2 Q3 Q4 Q1 2008 1 September 2009 Q2 Q3 2009 25
Wholesale prices for electricity EUR/MWh 110 100 90 Spot prices Forward prices 80 70 60 50 40 30 Dutch German Nordic Russian* 20 10 0 1 September 2009 2005 2006 2007 2008 2009 2010 2011 * Including capacity tariff estimate. E.g 2009 11 /MWh 26 Source:, ATS
Fuel and CO 2 allowance prices USD / bbl 160 140 120 100 80 60 40 20 0 Crude oil price (ICE Brent) 2006 2007 2008 2009 2010 EUR / tco2 35 30 25 20 15 10 5 0 CO 2 price (NP EUA) 2006 2007 2008 2009 2010 240 Coal price (ICE Rotterdam) 100 Gas price (ICE NBP) USD / t 200 160 120 80 40 GBp / therm 80 60 40 20 0 2006 2007 2008 2009 2010 0 2006 2007 2008 2009 2010 27 Source: ICE, Nord Pool Market prices 1 September 2009; 2009-2010 future quotations
Nordic power generation mix 160 140 Total Nordic generation 398 TWh in 2008 TWh/a 120 100 80 Fossil fuels Nuclear Waste TWh 54 83 4 % 13 21 1 60 Biomass 20 5 40 Wind 10 3 20 Hydro * 226 57 0 Denmark Norway Sweden Finland Net import in 2008: -1.5 TWh Source: Nordel *) Normal annual Nordic hydro generation 200 TWh, variation +/- 40 TWh. 28
Still a highly fragmented Nordic power market Power generation 398 TWh >350 companies Electricity distribution 14 million customers ~500 companies Electricity retail 14 million customers ~350 companies Others 30% Helsinki Agder Energi Norsk Hydro E-CO Energi PVO Dong Energy E.ON Vattenfall Statkraft Fortum Others 50% Fortum Vattenfall E.ON Dong Energy Hafslund SEAS-NVE Helsinki Statkraft Syd Energi Göteborg Others 52% Fortum Vattenfall Dong Energy E.ON Hafslund Statkraft SEAS-NVE Helsinki Öresundskraft Syd Energi Current market shares based on 2008 figures 29
Electricity demand development Finland Sweden Norway Denmark Nordic Tyumen Chelyabinsk Russia Urals area Russia 5 % 5 % 0 % 0 % -5 % -5 % -1% -10 % -15 % -11% -10 % -15 % -9% -7% -20 % -20 % -25 % -30 % Q1 2009 vs Q1 2008 Q2 2009 vs Q2 2008-25 % -30 % -25% Q1 2009 vs Q1 2008 Q2 2009 vs Q2 2008 Change in actual consumption (not temperature corrected), according to preliminary statistics 30
Recession has affected Nordic demand Nordic power demand development ILLUSTRATIVE 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Illustrative forecast Actual The recession affects the electricity consumption in the Nordic countries and Russia Fortum expects the electricity consumption to return to a grow path after the recession 31
Fortum today European power markets Russia Financials and outlook 32
Russia is the World s 4th largest power market TWh 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 US China Japan Russia India Germany Canada France South Korea Brazil Nordic UK Data 2008 based on gross output. Source: BP Statistical Review of World Energy June 2009 33
Fortum - a major player in Russia OAO Fortum (former TGC-10) Majority of the Russian territorial generating company OAO Fortum in the Urals region OAO Fortum operates in the heart of Russia s oil and gas producing region OAO Fortum 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 34
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 35
Further power market liberalisation Share of liberalised trade for existing capacity Further liberalisation of energy market increased 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 2011 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % 5 % Jan 2007 10 % 15 % July 2007 Jan 2008 25 % 30 % July 2008 Jan 2009 50 % July 2009 60 % Jan 2010 80 % July 2010 100 % 100 % Jan 2011 36
Currently 50% of electricity sold with liberalised prices Urals part power price 1) development /MWh 40 35 30 25 20 15 10 5 Day-Ahead-Market for electricity well-functioning and competitive All volume sold to Day-Ahead- Market, but market based price formation for about 50% of the volume 0 2006 2007 2008 2009 1) In addition generators currently receive on average about 11 EUR/MWh capacity payment Used EUR/RUB daily exchange rate 37
Investment programme of OAO Fortum 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 1,000 0 +73% +2,270 MW 3,020 5,290 2007 2013 Tyumen CHP-2 Gas 755 450 1,205 Tyumen CHP-1 Gas 472 190 662 Tobolsk CHP Gas 452 210 662 Chelyabinsk CHP-3 Gas 360 220 580 Chelyabinsk CHP-2 Coal, gas 320 320 Argayash CHP Coal, gas 195 195 Chelyabinsk CHP-1 Coal, gas 149 149 Chelyabinsk GRES Gas 82 82 Nyagan GRES Gas 3x400 1,200 Boilers - Kurgan Generation (49%) Gas 235 235 Total 3,020 2,270 5,290 38
Efficiency improvement in Russia ~100 MEUR in 2011 Purchasing Portfolio Management and Trading (PMT) Heat regulation Heat - technical and business improvements Generation - technical improvements Others 39
Fortum today European power markets Russia Financials and outlook 40
Income statement MEUR II/2009 II/2008 I-II/2009 I-II/2008 2008 LTM Sales 1 194 1 322 2 826 2 762 5 636 5 700 Expenses -819-974 -1 852-1 805-3 673-3 720 Operating profit 375 348 974 957 1 963 1 980 Share of profit of associates and jv's 29 36-4 70 126 52 Financial expenses, net -49-74 -81-119 -239-201 Profit before taxes 355 310 889 908 1 850 1 831 Income tax expense -61-65 -172-187 -254-239 Net profit for the period 294 245 717 721 1 596 1 592 Non-controlling interests 5 2 22 26 54 50 EPS, basic (EUR) 0.32 0.27 0.78 0.78 1.74 1.74 EPS, diluted (EUR) 0.32 0.27 0.78 0.78 1.74 1.74 41
Cash flow statement MEUR II/2009 II/2008 I-II/2009 I-II/2008 2008 LTM Operating profit before depreciations 499 483 1 220 1 203 2 478 2 495 Non-cash flow items and divesting activities 18 55 19 18-275 -274 Financial items and fx gains/losses 160-35 299-80 233 612 Taxes -117-123 -131-200 -332-263 Funds from operations (FFO) 560 380 1 407 941 2 104 2 570 Change in working capital 144 117 119 98-102 -81 Total net cash from operating activities 704 497 1 526 1 039 2 002 2 489 Paid capital expenditures -171-215 -351-379 -1 018-990 Acquisition of shares -4-1 -54-773 -1 243-524 Other investing activities -2-19 -9-45 -21 15 Cash flow before financing activities 527 262 1 112-158 -280 990 42
Key ratios MEUR LTM 2008 2007 EBITDA 2 495 2 478 2 298 Net cash flow from operations 2 489 2 002 1 670 Interest-bearing net debt 6 004 6 179 4 466 Equity 7 903 8 411 8 651 Balance sheet total 19 473 20 278 17 674 Net debt/ebitda* 2.4 2.5 2.2 Return on capital employed (%)* 14.1 15.0 14.0 Return on shareholders' equity (%)* 19.9 18.7 15.8 *2007 adjusted for REC and Lenenergo gains in Q2 '09 43
Current Fortum Group financial targets Return on capital employed 12% Return on shareholder's equity 14% Net debt/ebitda 3.0 3.5 44
Liquidity at the end of Q2 MEUR Available Outstanding Total amount SHORT TERM FINANCING Commercial Paper Programmes Finnish CP Programme 373 127 500 SEK 5.000 M Swedish CP Programme 275 187 462 648 314 962 LIQUID FUNDS AND COMMITTED CREDIT LINES Committed Credit Lines Short Term 207 0 207 Long Term * 2 700 0 2 700 2 907 0 2 907 Liquid Funds Cash and cash equivalents 1 008 Bank Deposits over 3 months 432 1 440 of which in Russia 753 Total Available Cash and Committed Financing 4 347 * EUR 1.2 billion revolving credit facility (RCF) due 2011 and EUR 1.5 billion RCF due 2013 45
Debt maturity profile at the end of Q2 2000 1500 1000 500 0 MEUR Y2009 2011 2013 2015 2017 2019+ Bonds Financial institutions Other long-term debt CPs Other short-term debt MEUR 2009: 332 2010: 576 2011: 1,258 2012: 476 2013: 556 2014: 1,119 2015: 297 2016: 835 2017: 200 2018: 73 2019+: 1,722 30 June, 2009 31 Dec, 2008 Duration (years) 2.0 1.5 Average interest rate (incl. swaps and forwards) 3.3 % 4.7 % Portion of floating / fixed debt 56 / 44 % 64 / 36 % 46
Hedging of Power Generation's Nordic sales Status at the end of June 2009 (Status at mid-april 2009) Hedge ratio Hedge price rest of 2009 ~ 80% ~ EUR 50 per MWh (~75%) (~ EUR 51 per MWh) 2010 ~ 65% (~65%) ~ EUR 43 per MWh (~ EUR 43 per MWh) 2011 ~ 30% (~30%) ~ EUR 42 per MWh (~ EUR 42 per MWh) 47
Fortum in a strong position Flexible, low cost and climate-benign production portfolio Russian power reform and the integration of OAO Fortum proceeding as planned Good hedging positions Strong balance sheet and liquidity 48
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