Fortum Focused Nordic Energy Strategy
1 Overview of Fortum
l Leading Nordic energy company - utility and oil businesses l Sales of €11.6 Bn and operating profit of €1.2 Bn (1)(2) l Founded in 1998 from merger of IVO Group and Neste Group l Privatised with IPO in 1998 – Now largest quoted Nordic utility - market capitalisation of €4.2 Bn l Focused Nordic energy strategy – Key step: Acquisition of remaining 50% of Birka Energy, announced on November 6, 2001
1) 12 months to 30 September, 2001 2) Includes 100% of Birka Energi 2 Key Strengths
l One of the largest Nordic utilities – Balance of power and heat generation, distribution and supply services – Also strong niche player in Refining & Marketing with high quality asset base
l Strong growth potential – Generation portfolio positioned to benefit from rising Nordic electricity prices – Flexibility of thermal capacity complements low cost hydro and nuclear – Synergies and cost savings from integrating acquisitions
l New management team focus on value – Clear strategy being implemented – Over €2 billion of proceeds realized from assets sale, capital re-allocated to higher growth activities – Focus on Nordic energy – Further restructuring steps underway
3 Leading Nordic Player in Core Businesses
Fortum’s Nordic Market Positions(1) l Fortum is a leading Nordic player in all key Nordic energy businesses Generation # 2 l Birka acquisition Distribution # 2 strengthens all Fortum’s core Power Markets # 2 and Heat businesses District Heat # 1
Refining & Marketing # 2
1) Includes 100% of Birka Energi 4 Leading Nordic Energy Company
l Increased profitability and growth of Power & Heat activities
2000 Operating Profit Last Twelve Months Operating Profit (1)(2) (50% Birka Energi) (1) (pro-forma for 100% Birka Energi)
Power & Heat Power 36% & Heat 50%
Oil Oil 50% 64%
1) Operating profit including capital gains and losses, excluding Service, Engineering and other operations 2) 12 months to 30 September, 2001 5 Nordic Region: Attractive Investment Proposition
NordPool Spot Prices Nordic Supply/Demand Trends €/MWh MW 1996 1997 1998 1999 2000 2001 90,000 Production Capacity 45 Peak Power + Reserve Demand
40 80,000 35
30 70,000
25
60,000 20
15 50,000
10
5 40,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1990 1995 2000 2005 2010 2015
l Profits geared towards recovery of electricity prices from historical low levels
Source: NordPool Source: Finergy 6 Power & Heat
l 12,100 MW electricity l 1.4 million distribution generation capacity customers
l 59 TWh output
l 8,400 MW heat capacity l Industrial and commercial supply
l 1.4 million retail customers
Operating statistics as of Q3 2001, pro-forma for 100% of Birka Energi 7 Oil
Retail
l 1,000 outlets Refining and Marketing (60% unmanned)
l 14 million tonnes/year
l State-of-the-art refineries
Exploration & Production
l 40,000 boe/day
Operating statistics as of Q3 2001,2001 pro-forma for 100% of Birka Energi 8 Oil Refining & Marketing Superior Margins l Market leader in refining and marketing of high-quality, pro- $/bbl environmental petroleum 6 products in the Baltic Rim 5 l Gasolines and diesel fuels fulfill the tightest EU 4 requirements 3 l Own technology for production of gasoline components 2 l Tanker fleet being restructured. 1 Double bottom or hull in all vessels 0 1995 1996 1997 1998 1999 2000 l Prepared to introduce ethanol Fortum in the production of gasoline Brent Complex Yearly Average (Refinery in NW Europe)
Source: Company Data 9 Fortum Performance & Ownership Outperforming the Sector Ownership Structure € per share 6.00 Domestic Households Domestic 5.6% Domestic Others Financial and 3.3% Insurance 5.00 Institutions 8.9% International 5.5%
4.00 Treasury Stock 6.0% Finnish State 3.00 70.7% 10-Nov-2000 09-Mar-2001 06-Jul-2001 02-Nov-2001
Fortum DJ STOXX 600 Utilities
Source: Company Data Source: Company Data, as of 31 October, 2001
10 Strategy
11 Fortum’s Nordic Energy Strategy
Fortum focuses on the Nordic energy market creating a platform for long-term sustainable growth
Create the Develop a Leverage our leadingleading powerpower leadingleading refiningrefining customer base company company with through focus on clean innovativeinnovative fuels and branding and premium focused components marketing
Excel in business performance
12 Fortum’s Nordic Energy Strategy
l Focus on developing balanced utility businesses across Nordic region, building on current activities in Finland and Sweden l Focus on creating value from a niche position in Refining and Marketing – Participation in industry consolidation l Divest non-core utility and oil assets
13 Implementing Our Strategy
l Over €2 Bn of proceeds realized from assets sale l Important steps for ongoing repositioning of Fortum
July 1999 September 2000 May 2001 November 2001 Sale of Merger with Sale of Full Acquisition of Enermet Länsivoima Humber Birka Energi
May 1999 October 1999 June 2001 June 2001 Sale of Sale of Neste Sale of Sale of Gasum Chemicals Transmission Budapesti Eromu Engineering
14 Birka Transaction Highlights
l Fortum acquires all of Birka Energi l €1.5 Bn (SEK14.5 Bn) cash consideration Fortum l City retains 50% economic interest in Birka Värme (Heat Business) and continues successful partnership with Fortum City of Birka l Expected close Q1 2002 Stockholm l Acquisition financed by bank borrowings and non-core divestitures l Creates potential annual synergies of up to Birka €60 million by 2004 Värme l A key step in delivering Fortum’s Nordic energy strategy
15 Birka: Third Largest Swedish Utility
Birka Energi
Generation Heat Networks Other
(1) and Sales
32% 31% 30% Share of 7% Net Turnover (%) Net Turnover
1) Based on Birka Energi net turnover for 12 months to 30 September, 2001
16 Strong Strategic Logic for Acquisition
l A key step in delivering Fortum’s Nordic energy strategy – Management focused on creating value in core businesses
l Builds scale and critical mass in Nordic power business – Strong position in all key segments
l Enables benefits from merging operations – Significant synergies and cost savings potential
l Offers long-term growth opportunities – Low cost generation portfolio should benefit from favourable demand and supply trends
l Improves balance of energy business – Stable heat and distribution revenues improve earnings visibility
17 Leading Nordic Power Generator Nordic Generators Fortum Low Cost Portfolio
Fortum Generation Fuel Split TWh Fortum Birka (Pro-forma for 100% Birka Energi) 200
Other 160 4% Hydro Thermal 38% 120 31%
80
40 Nuclear 27%
0 Vattenfall Fortum & Statkraft Sydkraft Other Birka
Source: Company Reports Source: Company Data
18 Leading Nordic Electricity Retailer
Nordic Electricity Customers
l 2,000 0.8 million Swedish and Fortum Birka 0.4 million Finnish 1,600 customers 1,230 1,200 l 10% Nordic market share 800 l Retail customers provide 400
additional hedge for 0 Vattenfall Fortum Sydkraft Hafslund BKK generation & Birka & Viken
Source: Company Reports
19 Leader in Nordic Heat Sector
Nordic District Heating Market Share l Fortum is #1 Nordic 15 generator and supplier of 12% district heat l Birka heating network in 10 Sweden serves 6,800 customers mainly in 5 Stockholm area l Stable heat and distribution 0 revenues improve earnings Fortum Helsingin Køben- Sydkraft Vattenfall & Birka Energia havns visibility Belysing- svaesen
Source: Company Data
20 Significant Distribution Player in Finland and Sweden
l Acquisition adds Birka’s network operations, delivering 30 TWh of electricity l 900,000 distribution connections in Sweden and 280,000 in Finland l Fortum connects 9% of Nordic electricity customers
21 Financial Impact
l Expected cash flow and earnings enhancement post- goodwill amortisation in 2003
l Pro-forma Fortum LTM EBITDA: +18%(1)
l Pro forma EBITDA interest cover: ~4.8x(1)
l Pro forma gearing: ~107%(2)
l ~€375 million of goodwill, amortised over 20 years
1) 12 months to 30 September, 2001 2) Net financial debt over shareholders’ equity plus minority interest, at 30 September, 2001
22 Financials
23 Fortum Income Statement
Revenues(1) EBITDA(1) (2) EBIT(1) (2)
€ MM € MM € MM 14,000 2,000 1,400 23 1,800 12,000 66 1,200 95 1,600
10,000 1,400 830 1,000 597 1,200 8,000 158 800 1,666 1,012 832 8,511 1,000 195 90 8,292 600 6,000 600 800 478 331 114 264 5,352 5,007 600 400 117 4,000 1,030 400 591 651 565 592 200 2,000 355 351 338 3,060 200 2,227 1,796 1,790 0 0 -1 0 -6 -32 1998 1999 2000 LTM to 1998 1999 2000 LTM to 1998 1999 2000 LTM to 30/09/01 30/09/01 30/09/01 50% Birka PF 100% 50% Birka PF 100% 50% Birka PF 100% Birka Birka Birka
Power & Heat Oil Other & Eliminations
Source Annual Report Notes 1. Change of accounting principles related to natural gas trading have altered Annual Report data 2. Including Income from Associates and Capital Gains 24 Fortum Balance Sheet
Fortum (€ billion) Fortum Birka (50%) Adjustments(1) Pro Forma As of 30 September 2001(2)
l Net Financial Debt 3.8 1.5 1.8 7.1
l Shareholders’ Equity 5.2 1.3 (1.3) 5.2
l Total Assets 13.8 3.7 0.6 18.2
(3) l Gearing 58% 117% - 107%
l Adjusted Gearing(4) 95% - - 155%
1) Birka Transaction impact (goodwill, minority interest in Birka Värme) and adjustment of Birka financials to Fortum’s accounting standards 2) Exchange rate of €0.1044/SEK as of 31 October 2001 3) Net financial debt over shareholders’ equity plus minority interest 25 4) Gearing adjusted for inclusion of preference shares as debt Financing Strategy
l Birka acquisition financed through bank credit lines
l Objectives of putting in place long-term capital structure
l €1 billion from sales of existing assets
l Possible access to capital markets in due course
26 Next Steps
27 Next Steps
l Commitment to value creation through further restructuring
l Ongoing focus on improving business performance
l Achieve full synergies and cost savings potential from Birka acquisition
l Divestments in progress – UK power assets – Omani exploration and production assets
l Announced intention to sell German businesses
l Continue to participate in consolidation of Nordic electricity sector
28