FORTUM Power and heat company in the Nordic area, Russia, Poland and the Baltics
Investor/Analyst material June 2012 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, pages 4 -17
European and Nordic power markets, pages 19 - 30 Data on Fortum’s nuclear fleet, pages 31 - 37
Russia, pages 39 - 46 Data on capacity payments, pages 42 - 43 Fortum’s investment programme, page 46
Financials and outlook, pages 48 – 56 Hedges, pages 54 - 55 More than 100,000 shareholders
• Power and heat company in the Nordic countries, Russia, Poland and the Baltics • Listed at the Helsinki Stock Exchange since 1998 • Among the most traded shares on the NASDAQ OMX Helsinki stock exchange • Market cap ~13 billion euros
Households 8.6% Financial and insurance institutions 3.1%
Other Finnish investors 10.0%
Finnish State 50.8% Foreign investors 27.5%
31 May 2012
4 Capital returns
Dividend per share EUR
1.35 1.26 1.12 • Dividend 2011 EUR 1.00 Total ~ 8,630 MEUR 1.00 1.00 1.00 1.00 per share, in total ~EUR 0.58
0.53 0.9 billion 0.58 0.54 • Dividend policy of 50-60% 0.42 payout of previous year's 0.26 0.31 0.23 0.77
0.73 results on the average 0.13 0.18 0.58
1998 19992000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
72% 103% 78% 58% 68% 68% 50%
5 Organisational structure
Business President and CEO Staff Functions Divisions Tapio Kuula
Power (Espoo) Executive Vice President Matti Ruotsala Finance Executive Vice President and Chief Financial Officer Heat (Stockholm) Juha Laaksonen Executive Vice President Per Langer Corporate Relations and Strategy Executive Vice President Russia (Chelyabinsk) Anne Brunila Executive Vice President Alexander Chuvaev Corporate Human Resources Senior Vice President Mikael Frisk Electricity Solutions and Distribution (Espoo) Executive Vice President Timo Karttinen
Country responsibles: Timo Karttinen / Finland, Norway; Per Langer / Sweden, Poland, Baltics; Alexander Chuvaev / Russia
6 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 that fulfill the needs for low emissions, resource efficiency and energy supply security, and deliver excellent value to our shareholders.
Strategy
Leverage the strong Create solid earnings Build platform for Nordic core growth in Russia future growth
Competence in CO2-free hydro, nuclear and energy efficient CHP production, and energy markets
7 Strategy builds on our competences and industry beliefs
Two strong Competitiveness Integrating European More attractive platforms for key for long term energy markets and growth prospects growth value creation a gradual decrease in power and heat in the weight of the generation Nordic power price
• Nordic power • Sustainable • Leverage our •Electricity wholesale and business models competences in solutions and heat market cannot rely on a nuclear, hydro and distribution part of • Russian power continuous high CHP the Nordic core and heat level of subsidies • Industrial restructuring market opportunities
StrongStrong focusfocus onon deliveringdelivering valuevalue andand stablestable returnsreturns toto shareholdersshareholders
8 Our geographical presence today
Nr 1 Heat Key figures 2011 Nordic countries Sales EUR 6.2 bn Operating profit EUR 2.4 bn Nr 1 Distribution Power generation 53.1 TWh Balance sheet EUR 23 bn Heat sales 17.2 TWh Personnel 10,800 Nr 2 Power Distribution customers 1.6 million generation Electricity customers 1.2 million Nr 2 Electricity sales Russia OAO Fortum Power generation 17.4 TWh Great Britain Heat sales 26.7 TWh Power generation 1.2 TWh TGC-1 (~25%) Heat sales 2.1 TWh Power generation ~7 TWh Heat sales ~8 TWh
Poland Baltic countries Power generation 0.6 TWh Power generation 0.4 TWh Heat sales 4.3 TWh Heat sales 1.1 TWh Distribution cust. ~24,000*
* Distribution business sold Jan 1, 2012
9 Divisions of Fortum
Business Power Division Heat Division Russia Division Electricity Solutions and description Fortum’s power generation, Combined heat and power Power and heat generation Distribution Division physical operation and generation, district heating and sales in Russia. It Fortum's electricity sales and trading as well as expert and cooling activities and includes OAO Fortum and distribution activities. Two services for power b- to-b heating solutions. Fortum’s slightly over 25% business areas: Distribution producers. holding in TGC-1. and Electricity Sales. Comparable operating EUR 1,201 million EUR 278 millionEUR 74 million Distr.: EUR 295 million profit El. sales: EUR 27 million EUR 6,247 million EUR 4,191 million EUR 3,273 million Distr.: EUR 3,589 million Net assets El. sales: EUR 11 million Volume Nordic generation 48.1 Heat sales 22.6 Power sales.: 20.2 Distr.net. 26.1, reg.net. 16.7 (TWh) Power sales: 6.2 Heat sales.: 26.7 El. sales: 14.4
Drivers Nordic power price, Fuel mix, heat and New capacity, and price for Distr.: Regulated generation volumes power price that, power and heat price El. sales: Sales margin
10 Fortum mid-sized European power generation player; Global #4 in heat
Power generation Heat production Customers
Largest producers in Europe and Russia, 2010 Largest global producers, 2010 Electricity customers in EU, 2010 TWh TWh millions EDF *) IES Enel E.ON Gazprom EDF Enel Dalkia E.ON RWE Fortum RWE ***) GDF SUEZ Vattenfall Iberdrola Gazprom **) SUEK Rosenergoatom Onexim CEZ Vattenfall Bashkirenergo DEI Inter RAO UES Irkutskenergo Centrica Iberdrola RAO ES East EDP NNEGC Energoat. Inter RAO UES Vattenfall RusHydro TGC-2 GDF SUEZ Fortum Tatenergo SSE CEZ Lukoil EnBW EnBW Kievenergo PGE *) IES Minsk Energo Gas Natural Irkutskenergo Dong Energy Fenosa Statkraft KDHC, Korea Tauron PGE PGNiG Fortum SSE TGC-14 Dong Energy DEI ELCEN, Rom. Hafslund 0 100 200 300 400 500 600 0 20 40 60 80 100 120 140 0204010 30
* incl. TGC-5, TGC-6, TGC-7, TGC-9, ** incl. TGC-12, TGC-13, *** incl. International Power Source: Company information, Fortum analyses, 2010 figures pro forma, heat production of Beijing DH not available. 11 Biggest nuclear and hydro generators in Europe and Russia
TWh 600 550 Total generation 500 Other 450 Nuclear 400 Hydro 350 300 250 200 150 100 50 0 IES DEI BKK Enel SSE CEZ EDF EDP PGE Alpiq Axpo RWE E.ON EnBW Edison Fortum Statkraft Verbund Iberdrola Gazprom Vattenfall RusHydro GDF SUEZ EPS, Serbia EPS, Norsk Hydro Norsk E-CO Energi Agder Energi Agder Irkutskenergo Hidroelectrica Inter RAO UES Inter Rosenergoatom Ukrhydroenergo Gas NaturalFenosa NNEGC Energoatom Krasnoyarskaya HPP Krasnoyarskaya
Figures 2010 pro forma
12 Fortum's carbon exposure among the lowest in Europe
g CO2/kWh electricity, 2010 2011
1000 65% of Fortum's total power generation CO2-free 85% of Fortum’s power generation in the EU CO2-free 800 Close to 100% of the ongoing investment programme in the EU CO2-free 600
Average 337 g/kWh 400
200 189 0 84 DEI SSE Enel CEZ EDF EDP Drax PVO RWE Dong E.ON Statkraft Verbund Iberdrola Vattenfall Fortum EU Fortum total Union Fenosa
Source: PWC & Enerpresse, Novembre 2011 Changement climatique et Électricité, Fortum GDF SUEZ Europe
Note: Fortum’s specific emission of the power generation in 2011 in the EU were 88 g/kWh and in total 192 g/kWh. 13 Figures for all other companies include only European generation. Fortum’s strategic route
Divestment of Länsivoima Länsivoima Elnova Separation of Divestment of non-strategic E.ON Finland 45%→65% →100% 50%→100% oil businesses Fingrid shares heat business
19961997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Neste IVO
Stora Birka Energi Divestment of Divestment of Divestment of Gullspång Birka Energi Østfold 50% Fortum Kraft 50% → 100% Lenenergo heat operations non-strategic 50% Stockholm shares outside of heat business Shares in Skandinaviska Stockholm Hafslund Starting Elverk Gullspång TGC-10 TGC-1 Stockholm Shares in Energi Lenenergo District heat in Poland Lenenergo 2003 → shares 1998 →
14 Fortum in the Nordic electricity value chain
Nordic Large customers wholesale Generation market Retail companies Power exchanges and bilateral Competitive Private customers, small businesses businesses
Regulated Transmission and Distribution businesses system services
Independent transmission Independent system operator distribution companies
15 Fortum's European power and heat production
Fortum's European Fortum's European power generation in 2011 heat production in 2011
Nuclear power Coal 26% Biomass fuels 45% 24%
Other 1% Biomass 3% Other 4% Natural gas 4% Peat 3% Natural gas Waste 4% 22% Coal 9% Oil 5% Hydro power 38% Heat pumps, electricity 12% European generation 55.3 TWh European production 22.0 TWh (Generation capacity 11,422 MW) (Production capacity 10,625 MW)
16 Fortum a forerunner in sustainability
• Dow Jones Sustainability Index World – Fortum is the only Nordic power and heat company listed in the index
• SAM Sustainability Yearbook 2010, 2011 and 2012
• STOXX® Global ESG Leaders indices
• oekom
• OMX GES Sustainability Finland Index
• Storebrand SRI (Fortum, the most responsible electricity company globally in 2006 and 2009)
• Carbon Disclosure Project (sector leader in CDLI index in 2011)
17 Fortum today, pages 4 -17
European and Nordic power markets, pages 19 - 30 Data on Fortum’s nuclear fleet, pages 31 - 37
Russia, pages 38 - 45 Data on capacity payments, pages 42 - 43 Fortum’s investment programme, page 46
Financials and outlook, pages 48 – 56 Hedges, pages 54 - 55 Market coupling milestones - cross-border power flows optimised by power exchanges
• Market coupling between NL, BE and FR since 2006 • Germany – Nord Pool Spot coupling started 11/2009
• Market coupling for Central Western Europe (DE, FR, BeNeLux) 2012- 2013 since 11/2010 with a continued coupling mechanism with Nord Pool Spot • NorNed cable (NO-NL) included in January 2011 1 1 0 • Poland coupled with Nord Pool Spot since December 2010 2 2010-
0 2013 1 • UK coupling started trough BritNed cable in April 2011 0 2 • The TSOs and power exchanges are developing a single market coupling for the whole western Europe by end-2012 2009 6 0 0 • In addition to day-ahead coupling, intraday market coupling 2 2012 and balancing market integration targetted as well • Estonian price area in Nord Pool Spot since April 2010 with full integration of the Baltic States during 2012–2013 • EU’s European Target Model for cross-border power trading sets 2014 as deadline for an EU-wide market coupling
19 Current transmission capacity from Nordic area to Continental Europe is ~4000 MW
Transmission Countries capacity MW From Nordics To Nordics Denmark - Germany 2 100 1 550 Sweden - Germany 600 600
Sweden - Poland 600 600
Norway - Netherlands 700 700 350 Total 4 000 3 450
700 • Theoretical maximum in transmission capacity ~35 TWh per annum 2100 600 • Net export from Nordic area to Continental Europe in 600 2011 was ~6 TWh • During Nordic dry year 2010 net import was ~8 TWh • Approximately 20 TWh net export fairly easily reachable
20 Nordic and Continental markets are integrating – interconnection capacity could double by 2021
Both merchant and TSO projects for links to the New interconnections could UK by 2018/21; North Seas Countries’ Offshore double the capacity to over Grid Initiative launched for supergrid development 8000 MW by 2021
First direct 1000 MW NO- New internal Nordic grid DE link could be built by investments provide for 2018/2021 increased available capacity for export to the Continent and Baltics EU financial support for 700 MW DK-NL link to EU’s European Energy connect offshore wind, too Programme for Recovery cofinancing Estlink 2 and Jutland – DE capacity to be NordBalt increased by 500 MW in 2012 and by further 500 MW by 2018 LitPol Link of 1000 MW to connect the Baltic European Commission included the market to Poland by EU support to connect Northern Seas Offshore Grid and the 2015/20. It would open Kriegers Flak offshore wind Baltic Energy Market Integration Plan as a new transmission area to DK&DE; new 400 kV priority electricity corridors in its 2011 route from the Nordic AC cable SE-DK also studied Infrastructure Package proposal market to the Continent
21 Nordic water reservoirs
120
100
80
60
40 reservoir content (TWh) content reservoir 20 2000 2003 2010 2011 2012 reference level 0 Q1 Q2 Q3 Q4
Source: Nord Pool Spot
22 Nordic year forwards
€/MWh Year 09 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15Year 16 Year 17 31 May 2012
70
60
50
40
30
20
10
0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2007 2008 2009 2010 2011 2012
Source: NASDAQ OMX Commodities Europe
23 Wholesale price for electricity
EUR/MWh Nord Pool System Price Forwards 110
100
90
80
70
60
50
40
30
20
10
31 May 2012 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Source: Nord Pool Spot, NASDAQ OMX Commodities Europe
24 Wholesale prices for electricity
EUR/MWh Spot prices Forward prices 110 100 90 80 Dutch 70
60 German 50 40 Nordic 30 Russian* 20 10 0 31 May 2012 2007 2008 2009 2010 2011 2012 2013 * including capacity tariff estimate. E.g 9.4 €/MWh for 2010, 6.8 for 2011 and 5.9 for 2012.
Source: Nord Pool Spot, NASDAQ OMX Commodities Europe, EEX, APX-ENDEX, Bloomberg Finance LP, ATS, Fortum 25 Fuel and CO2 allowance prices
Crude oil price (ICE Brent) CO price (ICE ECX EUA) 160 35 2 140 30 120 25 2 100 20 80 60 15 USD /USD bbl 10 40 /EUR tCO 20 5 0 0 2006 20072008 2009 2010 2011 2012 2013 2006 20072008 2009 2010 2011 2012 2013
Coal price (ICE Rotterdam) Gas price (ICE NBP) 240 100 200 80 160 60 120
USD / t 40 80 GBp /GBp therm 40 20 0 0 2006 20072008 2009 2010 2011 2012 2013 2006 20072008 2009 2010 2011 2012 2013
Source: ICE 26 Market prices 31 May 2012; 2012-2013 future quotations Nordic power generation – dominated by hydro, but fossil needed
140 Total Nordic generation 382 TWh in 2010 120 TWh % 100 Fossil fuels 71 19
80 TWh/a Nuclear 78 20
60 Biomass 25 7
40 Wind 12 3
20 Hydro * 196 51
0 Denmark Norway Sweden Finland Net import in 2010: 18 TWh
Source: ENTSO-E Memo 2010 *) Normal annual Nordic hydro generation 200 TWh, variation +/- 40 TWh.
27 Still a highly fragmented Nordic power market
Power generation Electricity distribution Electricity retail 382 TWh 15 million customers 15 million customers >350 companies ~500 companies ~350 companies
Vattenfall Fortum Vattenfall Others Others Others E.ON Fortum
30% Dong Dong Energy Energy Fortum 53% 52% Vattenfall E.ON Agder Energi Helsinki Hafslund Norsk Hydro Hafslund E-CO Energi Statkraft Elenia Statkraft PVO SEAS-NVE Dong Energy E.ON Helsinki SEAS-NVE Göteborg Helsinki Bixia Syd Energi Göteborg
Source: Fortum, company data, shares of the largest actors, pro forma 2010 figures.
28 New capacity needed for increasing demand and retiring capacity replacements
300% ~260% • Growing global energy Growth, 2009-2035 demand will be 250% Primary energy demand Electricity generation increasingly fulfilled 200% by electricity in the future ~170% 150% • Substantial demand growth in the emerging markets 100% ~ 50% 50% • Retirements and moderate ~30% demand growth in the EU 0% US Europe Russia China India Other World • Globally, 5 900 GW of new areas total capacity needed by 2035 Capacity changes, 2011-2035 (GW) Retiring capacity 464 544 159 217 65 552 2001
New capacity, 708 938 204 1605 657 1784 5896 total (1
Source: IEA WEO 2011 (New polices scenario) 1) Total new capacity needed for increasing demand and retiring capacity replacements 29 New capacity, except nuclear, will require over 60 EUR/MWh power price
EUR/MWh EUR/MWh 110 110 CO2 cost 100 100 Other costs( variation) 90 90 80 80 70 70 60 60 Futures 50 31 May 2012 50 40 40 30 30 20 20 10 10 0 0 1995 -97 -99 -01-03 -05 -07 -09 -11 -13 -15 -17 Coal Gas Nuclear Hydro Wind Clean coal Source: Nord Pool spot, NASDAQ OMX Commodities Europe Estimated lifetime average cost in nominal 2014 terms. Large variations in cost of new hydro and wind due to location and conditions.
30 Overview of Fortum’s nuclear fleet
Olkiluoto
Forsmark Loviisa
Oskarshamn
Loviisa Olkiluoto Oskarshamn Forsmark
Two units, built 1977 and 1981 Two units, built 1978 and 1980 Three units, built 1972,1974 and Three units, built 1980,1981 and one under construction 1985 1985 2 × 488 MW = 976 MW 473 + 638 + 1400 = 2511 MW 984 + 996 + 1170 = 3150 MW 880 + 880 MW = 1760 MW Fortum’s share: 100 % Under construction 1600 MW Fortum’s share: 43 % (1089 MW) Fortum’s share: 22 % (699 MW)
Yearly production 8 TWh Fortum’s share: 27 % (468 MW) Yearly production 17 TWh Yearly production 25 TWh Fortum’s share: 7 TWh Fortum’s share: 5,5 TWh Share of Fortum’s Nordic power Yearly production 14 TWh production: 18 % Fortum’s share: 4 TWh Share of Fortum’s Nordic power Share of Fortum’s Nordic power production: 16 % production: 13 % Share of Fortum’s Nordic power production: 9 %
31 Ownership structures and formal responsibilities
Teollisuuden Voima Oyj
EPV Energia Site Licensee Operator 6,5 Fortum 26,6 Fortum Power and Heat Oy Fortum Power and Heat Oy Pohjolan Karhu Voima Loviisa Voima 56,8 0,1 Teollisuuden Voima Oyj Teollisuuden Voima Oyj Kemira 1,9 Olkiluoto Mankala 8,1 Oskarshamn OKG Aktiebolag OKG Aktiebolag Forsmark Forsmarks Kraftgrupp AB Forsmarks Kraftgrupp AB OKG Aktiebolag
Karlstad kommun 2,1
Fortum 43,4 E.ON 54,5 Loviisa: Fortum is the owner, licensee and operator with all the responsibilities specified in the Nuclear Energy Act, Nuclear Liability Act, and other relevant nuclear legislation Forsmarks Kraftgrupp AB
Skellefteå Kraft 2,0 Other units: Fortum is solely an owner with none of the E.ON 9,9 responsibilities assigned to the licensee in the nuclear legislation. Fortum 22,2 Other responsibilities are specified in the Companies Act and the Vattenfall 66,0 Articles of Association and are mostly financial.
32 Fortum's nuclear power in the Nordics
Planned annual outages days in Load factor (%) 2005 2006 2007 2008 2009 2010 2011 2012 (from May 7th onwards) Oskarshamn180516385687772 40 Oskarshamn290787686759077 27 Oskarshamn385958870173175 9 Forsmark 185768181889379 32 Forsmark 294728579643994 39 Forsmark 395928869868185 16 Loviisa 1 95939486969394 42 Loviisa 2 95889693958994 23 Olkiluoto 1 98949794979294 15 Olkiluoto 2 94979497959590 8 Source: IAEA, NordPool. Rounded numbers. Situation on 7 May 2012 Olkiluoto • Finnish units world class in availability Forsmark Loviisa • Availability improved in Swedish units
• Overview of production and consumption: Oskarshamn www.fortum.com – investors - energy related links
33 Variety of technologies and ages
Commercial Type / Unit MWe (net) share [%] share [Mwe] Age Supplier operation Generation* Loviisa-1 488 100,0 488 1977-05-09 34 PWR / 1 AEE (Atomenergoexport) Loviisa-2 488 100,0 488 1981-01-05 30 PWR / 1 AEE (Atomenergoexport) Olkiluoto-1 880 26,6 234 1979-10-10 32 BWR / 3 Asea-Atom / Stal-Laval Olkiluoto-2 880 26,6 234 1982-07-10 29 BWR / 3 Asea-Atom / Stal-Laval Olkiluoto-3 (1600) 25,0 (400) 2014 (?) PWR / 3 Areva / Siemens Oskarshamn-1 473 43,4 205 1972-02-06 39 BWR / 1 Asea-Atom / Stal-Laval Oskarshamn-2 638 43,4 277 1975-01-01 36 BWR / 2 Asea-Atom / Stal-Laval Oskarshamn-3 1400 43,4 607 1985-08-15 26 BWR / 4 Asea-Atom / Stal-Laval Forsmark-1 984 23,4 230 1980-12-10 31 BWR / 3 Asea-Atom / Stal-Laval Forsmark-2 996 23,4 233 1981-07-07 30 BWR / 3 Asea-Atom / Stal-Laval Forsmark-3 1170 20,1 236 1985-08-18 26 BWR / 4 Asea-Atom / Stal-Laval
*Generation refers to technical resemblence based on KSU classification and not to reactor design generations. All reactors are of Generation II except Olkiluoto-3 (EPR) which is of Generation III.
PWR = Pressurized Water Reactor The most common reactor type in the world (e.g. all French units, most US units). Also the Loviisa units are PWRs, but based on Russian design. High pressure prevents water from boiling n the reactor. The steam rotating the turbine is generated in separate steam generators. BWR = Boiling Water Reactor Similar to the PWR in many ways, but the steam is generated directly in the reactor. Popular reactor type e.g. in Sweden, the US and Japan.
34 Third party nuclear liability in case of severe accident Has been approved by the Parliament. Law approved by In force 1.1.2012 onwards. Parliament in 2010, requires separate decision from Government to come Unlimited company into force. responsibility
Convention parties 300 M€ 300 M€
State responsibility 500 M€ 500 M€ Responsibility of company 145 M€ (insurance or guarantee)
145 M€ 700 M€ 700 M€ 145 M€ 700 M€ Requires ratification by 360 M€ 2/3 of member states 240 M€ 200 M€ to come into force. In Finland approved by Current, Current, Sweden Finland, New Paris Parliament in 2005. Finland Sweden (new, not temporary convention in force) legislation
35 Fortum to get 290 MW CO2 free capacity through upgrades in Sweden
Reactor Completion Increase Fortum's Additional Fortum's Fortum's 100% capacity generation capacity generation (MW) increase for Fortum after after (MW) (TWh/a) increase increase (MW) (TWh/a)
OKG 1 - 0 - 205 ~2 OKG 2 2009, 2015 30 + 180 95 350 ~3 OKG 3 2011 250 110 607 ~5 FKA 1 Decision 2013 120 ~25 257 ~2 FKA 2 2012 130 30 264 ~2 FKA 3 Decision 2013 170 ~35 270 ~2 Total ~290 ~2 ~1,950* ~15
Capacity increase and completion timetable based on recent estimate (Nord Pool). At 31.12.2010 Fortum's share of Swedish nuclear capacity was 1,778 MW. 36 Fortum’s investment programme – Nordic region, Poland and Baltic countries
Project Electricity, MW Heat, MW Commissioned Olkiluoto 3, Finland 400 2014 Swedish nuclear upgrades 290 Refurbishing of hydro power 10 annually Brista, Sweden 20 57 Q4 2013 (waste CHP) Klaipeda, Lithuania 20 60 Q1 2013 (waste CHP) Järvenpää, Finland 23 63 Q2 2013 (biofuel CHP) Jelgava, Latvia 23 45 Q3 2013 (biofuel CHP) Total ~800 ~225
Additional electricity capacity around 800 MW
~100% CO2-free
37 Fortum today, pages 4 -17
European and Nordic power markets, pages 19 - 30 Data on Fortum’s nuclear fleet, pages 31 - 37
Russia, pages 39 - 46 Data on capacity payments, pages 42 - 43 Fortum’s investment programme, page 46
Financials and outlook, pages 48 – 56 Hedges, pages 54 - 55 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 S a K U n U India Chi Japan Brazil Russia France Nordic Canada th Korea Germany u So
Data 2010 based on gross output. Source: BP Statistical Review of World Energy June 2011
39 Fortum - a major player in Russia
OAO Fortum (former TGC-10) • Operates in the heart of Russia’s oil and gas producing region, fleet mainly gas-fired CHP capacity • 17 TWh power generation, 27 TWh heat production in 2011; more than Fortum’s Nordic heat sales • Investment programme to add 85%, almost 2,400 MW to TGC-1
power generation capacity OAO Fortum • Annual efficiency improvement reached St. Petersburg Nyagan
EUR 100 million in Q2 2011 (compared to 2008 level) Tobolsk Moscow Tyumen TGC-1 Chelyabinsk • Slightly over 25% of territorial generating company TGC-1 operating in north-west Russia • ~6,400 MW electricity production capacity (appr. 50% hydro), ~26 TWh/a electricity, ~30 TWh/a heat
40 Day ahead wholesale market prices – increase driven by recovering demand and gas price
Key electricity, capacity and gas prices in the OAO Fortum area Day ahead power market prices for Urals
40 I/2012III/2009 I/2011 III/2008 2011 LTM 35 Electricity spot price 849 947 925 900 (market price), Urals hub, 30 RUB/MWh 25 Average regulated gas 2,548 2,548 2,548 2,548 price, Urals region, RUB 20 1000 m3 € / MWh € / Average capacity price for 166 184 160 156 15 CCS ”old capacity”, tRUB/MW/month 10
Average capacity price for 577 759 560 550 5 CSA ”new capacity”, tRUB/MW/month 0 2007 2008 2009 2010 2011 2012 Average capacity price, 243 214 209 218 tRUB/MW/month In addition to the power price generators receive a capacity payment. Achieved power price for 29.3 29.2 29.2 29.3 OAO Fortum, EUR/MWh
Source: ATS
41 2 Power market liberalisation – two markets
Capacity wholesale market Electricity wholesale market
Capacity prices Electricity prices - Competitive capacity selection (CCS) and free - Day ahead (spot) market, financial market, free bilateral agreements (FBA) bilateral agreements (FBA) and regulated bilateral - A higher, fixed capacity price for new agreements (RBA) capacity (CSA* agreements, built after 2007) - Fully liberalised from 1 Jan 2011 except for - Lower capacity price for old capacity, price caps volumes intended for households priced by RBA limits the price in some areas (~10% of volume) - Old capacity intended for households are priced by regulated bilateral agreements (RBA)
• CSA is the intended mechanism for earning a (reasonable) return on invested capital in new capacity • Capacity prices are a big part of a power generator’s income – a typical CHP plant ~35%, CCGT ~55%, of revenues • In the day ahead (spot) market, the price mechanism is a day ahead hourly auction. Supply – demand balance and variable cost (fuel) are the key drivers for the spot price • Financial market for electricity started in June, 2010
* Capacity supply agreement 42 Capacity prices for new capacity considerably higher than prices for old capacity prices
• Long term rules and price parameters approved • Both “old” and “new” capacity can participate in capacity auctions • Old capacity (pre 2007) and new capacity priced differently – Old capacity is priced by capacity auctions; price cap possibility – New capacity under capacity supply agreements to receive guaranteed payments • The payments for new capacity are based on approved pricing formulas – Vary according to plant size, fuel, geographic location, capital costs, … – Allow the recovery of capital costs and include return on invested capital; the targeted ROCE level 12-14% (with current government benchmark bond yields) – After three years (2014), the regulator will review the earnings from the electricity-only market and can revise the payments, same goes after 6 years.
• “Old” capacity prices will depend on auction outcomes, but will likely remain relatively low; potentially price caps could limit the price
43 Long-term financial target will be dictated by basic economic logic
Invested capital Assuming, having EUR completed the investment programme, an invested capital of a
a ~4 bn … and an unchanged b cost of capital b In 2009, WACC for Russia was ~12%
~2.5 bn The annual comparable operating profit in Russia needs to be ~EUR 500 million in order to beat the 2011 ~2014 cost of capital (WACC) after ~EUR 100 million improvement in the completion of the EBITDA through the efficiency investment programme improvement programme
44 Key factors behind the profitability improvement in Russia
Efficiency improvement programme 2008-2011 – Increasing heat production profitability – Fuel efficiency improvement – Cost savings
New capacity commissioning 2011-2014 – Additional capacity 2,388 MW; +85% – Capacity is sold at CSA* contracts with guaranteed higher price
Pace of new capacity increase of Fortum investment programme in Russia 2011 - 638 MW 2012 - 836 MW (Nyagan 2 in 2012 or 2013) 2013 - 418 MW 2014 - 496 MW Total - 2,388 MW
45 * Capacity Supply Agreement 85% increase in power generation capacity by the end of 2014 through the investment programme
Power generation capacity (MW)
PlantSupply date Fuel type Existing Planned Total
Tyumen CHP-2 Gas 755 755 Tyumen CHP-1 Feb/2011; 2014 Gas 472 209; 2*248 (CHP/Condensing) 1177 Tobolsk CHP Oct/2011 Gas 452 213 (Condensing) 665 Chelyabinsk CHP-3 June/2011 Gas 360 216 (CHP/Condensing) 576 Chelyabinsk CHP-2 Gas, coal 320 320 Argayash CHP Gas, coal 195 195 Chelyabinsk CHP-1 Gas, coal 149 149 Chelyabinsk GRES Gas 82 82 Nyagan GRES 2012, 2012 or 2013, 2013 Gas 3x418 (Condensing) 1,254 Boilers -
Total 2,785 2,388 5,173
46 Fortum today, pages 4 -17
European and Nordic power markets, pages 19 - 30 Data on Fortum’s nuclear fleet, pages 31 - 37
Russia, pages 39 - 46 Data on capacity payments, pages 42 - 43 Fortum’s investment programme, page 46
Financials and outlook, pages 48 – 56 Hedges, pages 54 - 55 Strong position in a continuously challenging business environment
• Electricity will continue to gain a higher share of the total energy consumption
• Good production portfolio going forward
• Hedges create stability
• Strong financial position
48 Income statement
MEUR I/2012 I/2011 2011 LTM Sales 1 901 2 034 6 161 6 028 Expenses -1 250 -1 385 -4 359 -4 224 Comparable operating profit 651 649 1 802 1 804 Items affecting comparability 85 251 600 434 Operating profit 736 900 2 402 2 238 Share of profit of associates and jv's -7 59 91 25 Financial expenses, net -76 -55 -265 -286 Profit before taxes 653 904 2 228 1 977 Income tax expense -119 -158 -366 -327 Net profit for the period 534 746 1 862 1 650 Non-controlling interests 39 68 93 64
EPS, basic (EUR) 0.56 0.76 1.99 1.79 EPS, diluted (EUR) 0.56 0.76 1.99 1.79
49 Comparable and reported operating profit
Comparable operating Reported operating Comparable operating Reported operating MEUR profit profit profit profit I/2012 I/2011 I/2012 I/2011 2011 2011 Power 341 325 367 489 1 201 1 476 Heat 161 171 213 265 278 380 Russia 4834483474 74 Distribution 110 124 117 125 295 478 Electricity Sales 9 11 11 -20 27 3 Other -18 -16 -20 7 -73 -9 Total 651 649 736 900 1 802 2 402
• IFRS accounting treatment (IAS 39) of derivatives had an impact on the reported operating profit. In the first quarter EUR -16 (173) million, or earnings per share EUR -0.01 (0.14).
50 Cash flow statement
MEUR I/2012 I/2011 2011 LTM
Operating profit before depreciations 894 1 049 3 008 2 853 Non-cash flow items and divesting activities -99 -270 -726 -555 Financial items and fx gains/losses -142 -302 -376 -216 Taxes -78 -114 -394 -358 Funds from operations (FFO) 575 363 1 512 1 724 Change in working capital -22 91 101 -12 Total net cash from operating activities 553 454 1 613 1 712 Paid capital expenditures -272 -206 -1 285 -1 351 Acquisition of shares 0 -19 -62 -43 Other investing activities 255 210 522 567 Cash flow before financing activities 536 439 788 885
51 Key ratios
MEUR LTM 2011 2010 Q1'12 EBITDA 2 853 3 008 2 271 Comparable EBITDA 2 385 2 374 2 396 Interest-bearing net debt 6 523 7 023 6 826 Comparable Net debt/EBITDA 2.7 3.0 2.8
Return on capital employed (%) 12.8 14.8 11.6 Return on shareholders' equity (%) 16.7 19.7 15.7
Good liquidity – committed credit lines total EUR 2.7 billion
52 Outlook
• Key drivers and risks – Wholesale price of electricity • Demand • Fuels
•CO2 emissions prices • Water reservoirs • Power plant availability • Nordic markets – Annual electricity demand growth estimated to be approximately 0.5% – Electricity continues to gain share of total energy consumption • Russia – Profits from Russia build up in pace with the capacity increase – The commissioning of the new units Nyagan 1 and 2 postponed – Fortum’s goal is to achieve an operating profit level of about EUR 500 million and to create positive economic value added after completing the ongoing investment programme
53 Outlook
• Annual capex (excluding potential acquisitions) – 2012 around EUR 1.6 to 1.8 billion – 2013 and 2014 around EUR 1.1 to 1.4 billion annually
• Hedging – rest of 2012 approximately 70% hedge ratio at approximately EUR 48/MWh (Q4: 65% at EUR 48/MWh) – 2013 approximately 45% hedge ratio at approximately EUR 46/MWh (Q4: 40% at EUR 46/MWh)
• In Finland, the Government announced that a so-called windfall tax will be introduced in 2014
54 Hedging improves stability and predictability
EUR/M Wh Realised prices quarterly since 2000 80
70 2009 onw ards thermal and import from Russia excluded 60
50
40
30
20
10
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Power's Nordic power price Spot price, SE&FI avg. 2009 onwards new definition
55 Debt Maturity Profile MEUR
2012 903
1500 2013 643
1250 2014 1,261 2015 1,086 1000 2016 867
750 2017 587 2018 194 500 2019 897
250 2020 74
2021 564 0 2022+ 1,021 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022+
Bonds Financial institutionsOther long-term debtCPs Other short-term debt
per 31 Mar, 2012 per 31 Dec, 2011 Average Interest Rate (incl. swaps and forwards) 4.6% 4.4% Portion of floating / fixed debt 43 / 57% 47 / 53%
56 57