FORTUM Power and heat company in the Nordic area, Russia, Poland and the Baltics Investor / Analyst material June 2014 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 – 18
European and Nordic power markets, pages 19 – 30 Data on Fortum’s nuclear fleet, pages 31 – 35
Russia, pages 36 – 41 Data on capacity payments, pages 39 – 40 Fortum’s investment programme, page 41
Financials and outlook, pages 42 – 47 Hedges, pages 48 – 49
Efficiency programme, page 50
Facts of Distribution, page 51
3 Appr. 130,000 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 ~15 billion euros
Households 9.9% Financial and insurance institutions 2.0%
Other Finnish investors 8.3%
Finnish State 50.8% Foreign investors 29.0%
31.5.2014
4 Capital returns : 2013 EUR 1.10 per share ~ EUR 1.0 billion
• Fortum’s dividend policy is based on the following preconditions: – The dividend policy ensures that shareholders receive a fair remuneration for their entrusted capital, supported by the company’s long-term strategy that aims at increasing earnings per share and thereby the dividend. – When proposing the dividend, the Board of Directors looks at a range of factors, including the macro environment, balance sheet strength as well as future investment plans. 5 year dividend per share (EUR) history 1.1 • Fortum Corporation's target is to pay a stable, 1.0 1.0 1.0 1.0 sustainable and over time increasing dividend of 50-80% of earnings per share excluding one-off items
Fortum has since 1998 annually paid dividends in total ~10,493 MEUR
5 Fortum Executive Management as of 1st March 2014 Business Divisions President and CEO Corporate Staff Functions Tapio Kuula
Finance Human Resources and IT Chief Financial Officer Senior Vice President Timo Karttinen Mikael Frisk
Strategy and M&A Communications Senior Vice President Senior Vice President Kari Kautinen Helena Aatinen
Corporate Relations Legal Senior Vice President N.N. Esa Hyvärinen
Chief Operating Officer Matti Ruotsala
Hydro Power and Nuclear and Thermal Heat, Electricity Russia Distribution Power Technology Sales and Solutions Executive Vice Executive Vice Executive Vice Executive Vice Executive Vice President President President President President Alexander Chuvaev Timo Karttinen Per Langer Tiina Tuomela Markus Rauramo
Country responsibles: Timo Karttinen/Finland, Norway; Per Langer/Sweden; 6 Alexander Chuvaev/Russia; Markus Rauramo/Poland, Baltics, India 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 for society and deliver excellent value to our shareholders.
Strategy
Build on the strong Create solid earnings Build a platform for Nordic core growth in Russia future growth
Strong competence in CO2-free hydro and nuclear, efficient CHP production and energy markets
7 Our geographical presence today
Nr 3 Power Key figures 2013 generation Nordic countries Sales EUR 5.3 bn Operating profit EUR 1.5 bn Nr 1 Heat Power generation* 46.5 TWh Balance sheet EUR 23 bn
Heat sales* 13.9 TWh Personnel 9,200 Nr 2 Distribution Distribution customers 1.6 million Electricity customers 1.2 million Nr 2 Electricity Russia sales OAO Fortum Power generation 20.0 TWh Heat sales 24.2 TWh Great Britain In addition, ~25% share in TGC-1 Power generation 1.0 TWh Heat sales 1.8 TWh
Poland Baltic countries India** Power generation 0.6 TWh Power generation 0.5 TWh Power generation ~9 GWh Heat sales 4.0 TWh Heat sales 1.1 TWh
* incl. Fortum Värme; power generation 1.3 TWh and heat sales 8.2 TWh. ** Production figure for India estimate of full-year production, operations acquired 6/2013. 8 Fortum’s reporting segments and divisions
Power and Technology Heat, Electricity Sales Russia Distribution and Solutions
• Hydro, nuclear and • Combined heat and • Power and heat • Electricity distribution thermal power generation power (CHP) production generation and sales in activities • Power Solutions with • District heating activities Russia expert services and business to business • Includes OAO Fortum • Portfolio management and heating solutions and Fortum’s slightly trading • Solar business over 25% holding in • Technology and R&D • Electricity sales and TGC-1 functions related customer offering • Corporate Sustainability The segment incorporates two divisions: • Hydro Power and Technology • Nuclear and Thermal Power
9 Fortum mid-sized European power generation player; major producer in global heat (incl. Fortum Värme)
Power generation Heat production Customers
Largest producers in Europe and Russia, 2012 Largest global producers, 2012 Electricity customers in EU, 2012 TWh TWh Millions
EDF *) Gazprom Enel E.ON ***) IES EDF Enel Dalkia E.ON RWE **) Inter RAO UES RWE Rosenergoatom Fortum *) Iberdrola Gazprom RusHydro Vattenfall DEI Vattenfall Centrica GDF SUEZ ****) Sibgenco **) CEZ Inter RAO UES EuroSibEnergo RusHydro EDP Quadra NNEGC Energoat. Vattenfall DTEK, Ukraine Iberdrola SSE TGC-2 EuroSibEnergo EnBW Fortum Lukoil GDF SUEZ CEZ Minskenergo KDHC, Korea Tauron EnBW PGE ***) IES Tatenergo Gas Natural Statkraft Dong Energy Fenosa PGE PGNiG Fortum DTEK *****) ELCEN. Dong Energy DEI TGC-14 Hafslund 0 100 200 300 400 500 600 0 20 40 60 80 100 120 140 0 10 20 30 40
* incl. MOEK, ** incl. Bashkirenergo, *** incl. TGC-5, TGC-6, TGC-7, TGC-9, **** incl. TGC-12, TGC-13, ***** figure 2011, Fortum incl. Fortum Värme; power generation (1.2 TWh) and heat production (8 TWh). Source: Company information, Fortum analyses, 2012 figures pro forma, heat production of Beijing DH not available.
10 Biggest nuclear an hydro generators in Europe and Russia
TWh 600 550 Total generation 500 450 Other 400 Nuclear 350 Hydro 300 250 200 150 100 50 0 IES
DEI EDF CEZ BKK SSE Enel EDP PGE Alpiq Axpo RWE E.ON DTEK EnBW **** Fortum
Statkraft Centrica Verbund * Iberdrola Gazprom Vattenfall
RusHydro GDF SUEZ ** EPS, Serbia Norsk Hydro Norsk E-CO Energi E-CO Agder Energi Agder Hidroelectrica Inter RAO UES EuroSibEnergo Rosenergoatom Ukrhydroenergo *** Gas Natural Fenosa Natural Gas NNEGC Energoatom NNEGC
Figures 2012 pro forma * incl. Fortum Värme (CHP 1.2 TWh), ** incl. MOEK, *** incl. Bashkirenergo, **** incl. TGC-5, TGC-6, TGC-7, TGC-9 11 Fortum a forerunner in sustainability
• Carbon Disclosure Nordic Leadership Index
– Fortum no. 1, scores 100/100
• SAM Sustainability Yearbook
• STOXX® Global ESG Leaders indices
• oekom
• OMX GES Sustainability Finland Index
• ECPI® Indices
12 Fortum's carbon exposure among the lowest in Europe
g CO2/kWh electricity, 2012
1200 2012 1000 68% of Fortum's total power generation CO2-free 93% of Fortum’s power generation in the EU CO2-free 800 Close to 100% of the ongoing investment programme 600 in the EU CO2-free
400 Average 350 g/kWh
200 171 42 0 DEI CEZ EDF SSE Enel EDP PVO Drax RWE E.ON EnBW Statkraft Verbund Iberdrola Edipower Vattenfall Fortum EU Fortum GDF SUEZ Fortum total Fortum Dong Energy Union Fenosa
Source: PWC & Enerpresse, November 2013 Note: Only European generation except “Fortum total“ which includes Russia. Climate Change and Electricity, Fortum
13 Fortum’s strategic route
Divestment Divestment Divestment of Länsivoima Länsivoima Elnova Separation of of electricity E.ON Finland of Fingrid non-strategic 45% → 65% →100% 50% → 100% oil businesses shares, 2011 heat business distribution business
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Neste IVO
Birka Energi Stora Birka Energi Divetment of Divestment of heat Gullspång Østfold 50% Fortum Kraft 50% → 100% Lenenergo operations outside of Divestment 50% Stockholm shares Stockholm of small Shares in scale hydro Skandinaviska 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
Competitive businesses Large customers
Nordic wholesale market Power generation Retail customers
Power exchange and bilateral agreements Private customers, small businesses
Regulated businesses
Independent Independent Transmission and transmission system Distribution distribution operator system services companies
15 Fortum's power and heat production by source
Fortum's power generation Fortum's heat production in 2013 in 2013
Nuclear power Natural gas 35% Natural gas 61% 29%
Other 1% Oil 1% Biomass 2% Peat 1% Waste 5% Coal 7% Heat pumps, electricity 7% Coal 13% Hydro power 26% Biomass 12%
Total generation 68.7 TWh Total production 42.8 TWh (Generation capacity 15,128 MW) (Production capacity 21,659 MW)
Incl. Fortum Värme; power generation 1.3 TWh (capacity 610 MW) and heat production 8.2 TWh (capacity 3,626 MW).
16 Fortum's European power and heat production
Fortum's European Fortum's European power generation in 2013 heat production in 2013
Nuclear power Biomass Coal 48% 28% 22%
Other 2% Oil 1% Peat 2% Natural gas 3% Biomass 3% Natural gas Waste 12% 19% Coal 7%
Hydro power 37% Heat pumps, electricity 16% European generation 48.7 TWh European production 18.6 TWh (Generation capacity 10,873 MW) (Production capacity 8,193 MW)
Incl. Fortum Värme; power generation 1.3 TWh (capacity 610 MW) and heat production 8.2 TWh (capacity 3,626 MW).
17 Fortum’s Nordic generation capacity
Sweden Nordic MW Price areas MW Hydro 4 590 Nuclear 3 276 SE2 CHP * 1 048 Hydro 1 550 SE1 Other thermal 1 139 Wind 30 Wind 30
SE3 Nordic capacity 10 083 SE2 Hydro 1 540 Nuclear 1 816 Finland MW CHP * 610 Hydro 1 500 Other 12 Nuclear 1 460 CHP 438 Generation capacity SE3 in Sweden 5 558 Other thermal 1 127 Wind 0.4
Generation capacity in Finland 4 525 SE4
31 March 2014 * incl. Fortum Värme 610 MW
18 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 2/2014 • Market coupling for Central Western Europe (DE, FR, NL, BE) since 11/2010 with a continued coupling with Nord Pool Spot • NorNed cable (NO-NL) included in January 2011. 2014- 2015 • Poland coupled with Nord Pool Spot since December 2010
• UK coupling started through BritNed cable in April 2011 2010- • Estonian price area in Nord Pool Spot since 2010 and 2013 Lithuanian area since 6/2012. Latvia joined in June 2013
• Czech, Slovakia and Hungary coupled together since 2009 September 2012. Romania to join in November 2014 5/2014 • A common day-ahead market coupling for the whole north- western Europe was started 4 February 2014. Iberia (Spain & 2012 Portugal) joined 13 May 2014, and Italy joining later in 2014 • CEE market coupling region to join in 2015, with flow-based cross-border capacity allocation for further trade optimisation • In addition to day-ahead coupling, intraday market coupling and balancing market integration targeted as well
19 Current transmission capacity from Nordic area is over 5000 MW
Countries Transmission capacity MW
From Nordics To Nordics
Denmark - Germany 2,365 2,100 Sweden - Germany 615 600 Sweden - Poland 600 600 Norway - Netherlands 700 700 Finland - Estonia 860 1,016 Finland - Russia 0 (1/2015: 350) 1,300 860 Total 5,140 6,316
700 • Theoretical maximum in transmission capacity ~40 TWh per annum 2,365 600 • Net export from Nordic area to Continental Europe and 615 Estonia during the Nordic dry year 2013 was 3 TWh • During 2012 net export was 18 TWh • Approximately 25 TWh of net export is now reachable
20 Nordic, Baltic and Continental markets are integrating – interconnection capacity will double by 2020
The Northern Seas Offshore Grid and the Baltic New interconnections will Energy Market Integration Plan are included as double the export capacity priority electricity corridors in EU’s Infrastructure to over 10,000 MW by 2020 Guidelines, approved in April 2013 New internal Nordic and Baltic grid investments provide for increased available capacity for export to the NO-UK link of 1,400 MW agreed to Continent and Baltics be built by 2020; North Seas Countries’ Offshore Grid Initiative 350 MW of export capacity from launched for supergrid development Finland to Russia due to become available from January 2015 First direct 1,400 MW NO-DE link EU’s European Energy Programme agreed to be built by 2018 for Recovery co-financing Estlink 2 (2/2014) and NordBalt (12/2015) EU financial support for a 700 MW DK-NL link, due to be built by 2019 LitPol Link (500+500 MW) to connect the Baltic market to Jutland – DE capacity planned to Poland in 2015/20. It will open a grow by 1,000-1,500 MW by 2018 new transmission route from the Nordic market to the Continent EU support to connect Kriegers Svenska Kraftnät agreed 3/2014 Flak offshore wind area to DK&DE with 50Hertz to study a new Hansa by 2018 PowerBridge DC link between Sweden and Germany
21 Nordic water reservoirs
120
100
80
60
40 reservoir reservoir content (TWh)
20 2000 2003 2012 2013 2014 reference level 0 Q1 Q2 Q3 Q4
Source: Nord Pool Spot
22 Nordic year forwards
Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19
€/MWh 26 May 2014
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 Q3 Q4 Q1 Q2 2008 2009 2010 2011 2012 2013 2014
Source: NASDAQ OMX Commodities Europe
23 Wholesale price for electricity
EUR/MWh Nord Pool Spot System Price Forwards 110
100
90
80
70
60
50
40
30
20
10
26 May 2014 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
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
27 May 2014 0 2008 2009 2010 2011 2012 2013 2014 2015 2016
* Including weighted average capacity price
Source: Nord Pool Spot, NASDAQ OMX Commodities Europe, APX-ENDEX, Bloomberg Finance LP, ATS, NP “Market Council”, Fortum
25 Fuel and CO2 allowance prices
Crude oil price (ICE Brent) CO2 price (ICE ECX EUA) 150 35
120 28 2 90 21
60 14 USD / bbl
30 EUR / tCO 7
0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Coal price (ICE Rotterdam) Gas price (ICE NBP) 250 100
200 80
150 60
100 40 USD / t
50 GBp / therm 20
0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: ICE Market prices 27 May 2014; 2014-2015 future quotations 26 Nordic power generation – dominated by hydro, but fossil needed
160 Total Nordic generation 383 TWh in 2013 140 TWh % 120 Fossil fuels 48 13 100 TWh/a Nuclear 86 23 80 Biomass 23 6 60 23 6 40 Wind
20 Hydro * 203 53
0 Denmark Norway Sweden Finland Net export in 2013: 0.4 TWh
Source: ENTSO-E Statistical Factsheet 2013 *) Normal annual Nordic hydro generation 200 TWh, variation +/- 40 TWh.
27 Still a highly fragmented Nordic power market
Power generation Electricity distribution Electricity retail 406 TWh 15 million customers 15 million customers >350 companies ~500 companies ~350 companies
Vattenfall E.ON Vattenfall Others Others Others Fortum Fortum Dong Energy 33% Hafslund Vattenfall Statkraft 56% 52% Dong Caruna Energy Agder Energi Hafslund E.ON BKK Elenia Dong Energy Fortum * Norsk Hydro SEAS-NVE Statkraft E-CO Energi Helsinki PVO E.ON Helsinki Göteborg SEAS-NVE Bixia Göteborg, DinEl
* incl. Fortum Värme (1.2 TWh). Source: Fortum, company data, shares of the largest actors, pro forma 2012 figures.
28 New power generation capacity needed for increasing demand and retiring capacity replacements
250% Growth, 2011-2035 221% • Growing global energy demand Primary energy demand 200% will be increasingly fulfilled by Electricity generation electricity in the future 150% 110% • Substantial demand growth in 100% the emerging markets 44% 50% • Retirements and moderate 16% 0% demand growth in the EU US Europe Russia China India Other World areas total
• Globally, ~6 000 GW of new Capacity changes, 2013-2035 (GW)
capacity needed by 2035 Retiring capacity 377 530 149 205 68 612 1941
Capacity increase 234 340 73 1328 649 1487 4111
New capacity, total (1 611 870 222 1533 717 2099 6052
Source: IEA WEO 2013 (New polices scenario) 1) Total new capacity needed for increasing demand and replacements of retiring capacity
29 Fortum’s investment programme – Nordic region and Baltic countries
Project Electricity, MW Commissioned
Olkiluoto 3, Finland 400
Swedish nuclear upgrades 290
Refurbishing of hydro power 10 Annually
Total ~ 700
Additional electricity capacity around 700 MW, 100% CO2-free
Already commissioned in 2013 Blaiken, Sweden, wind power 30 Q1 2013 Klaipeda, Lithuania, waste CHP 20 60 Q2 2013 Järvenpää, Finland, biomass CHP 23 63 Q2 2013 Jelgava, Latvia, biomass CHP 23 45 Q2 2013 Brista, Sweden, waste CHP 20 57 Q4 2013
30 Overview of Fortum’s nuclear fleet
LOVIISA OLKILUOTO OSKARSHAMN FORSMARK Unit 1: 1978 Unit 1: 1972 Unit 1: 1980 Unit 1: 1977 Commercial operation Unit 2: 1980 Unit 2: 1974 Unit 2: 1981 started Unit 2: 1981 Unit 3: (Under construction) Unit 3: 1985 Unit 3: 1985 Generation Capacity Unit 1: 880 MW Unit 1: 473 MW Unit 1: 984 MW Unit 1: 496 MW Unit 2: 880 MW Unit 2: 638 MW Unit 2: 1,120 MW Unit 2: 496 MW (Unit 3: 1,600 MW) Unit 3: 1,400 MW Unit 3: 1,170 MW Total: 992 MW Total: 1,760 MW (3,360) Total: 2,511 MW Total: 3,274 MW Fortum’s share 27% 468 MW 43% 1,089 MW 22% 720 MW
Yearly production 8 TWh 14 TWh 17 TWh 25 TWh Fortum’s share of production 8 TWh 4 TWh 7 TWh 5.5 TWh Share of Fortums Nordic production 18% 9% 16% 13% Majority owner Fortum Pohjolan Voima E.ON Vattenfall Fortum’s share 26.6% 43.4% 22.2% Teollisuuden Voima Operated by Fortum (TVO) OKG Aktiebolag Forsmarks Kraftgrupp Responsibilities 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
Other units: Fortum is solely an owner with none of the responsibilities assigned to the licensee in the nuclear legislation. Other responsibilities are specified in the Companies Act and the Articles of Association and are mostly financial.
31 Fortum's nuclear power in the Nordics
Load factor (%) 2005 2006 2007 2008 2009 2010 2011 2012 2013
Osakarshamn 1 80 51 63 85 68 77 72 1 13 Oskarshamn 2 90 78 76 86 75 90 77 81 33 Oskarshamn 3 85 95 88 70 17 31 75 69 77 Forsmarks 1 85 76 81 81 88 93 79 88 87 Forsmark 2 94 72 85 79 64 39 94 82 89 Forsmark 3 95 92 88 69 86 81 85 93 88 Loviisa 1 95 93 94 86 96 93 94 84 92 Loviisa 2 95 88 96 93 95 89 94 91 93 Olkiluoto 1 98 94 97 94 97 92 94 90 97 Olkiluoto 2 94 97 94 97 95 95 90 96 93 Olkiluoto Forsmark Source: Fortum Loviisa
• Finnish units world class in availability Oskarshamn • Overview of production and consumption: www.fortum.com/investors - energy related links
32 Variety of technologies and ages
Unit Mwe (Net) Share (%) Share (Mwe) Commercial Age Type/ Supplier operation Generation *
Loviisa 1 496 100,0 496 1977-05-09 36 PWR / 1 AEE (Atomenergoexport) Loviisa 2 496 100,0 496 1981-01-05 33 PWR / 1 AEE (Atomenergoexport)
Olkiluoto 1 880 26,6 234 1979-10-10 34 BWR / 3 Asea-Atom / Stal-Laval Olkiluoto 2 880 26,6 234 1982-07-10 31 BWR / 3 Asea-Atom / Stal-Laval Olkiluoto 3 (1,600) 25,0 (400) (?) PWR / 3 Areva / Siemens
Oskarshamn 1 473 43,4 205 1972-02-06 42 BWR / 1 Asea-Atom / Stal-Laval Oskarshamn 2 638 43,4 277 1975-01-01 39 BWR / 2 Asea-Atom / Stal-Laval Oskarshamn 3 1,400 43,4 607 1985-08-15 28 BWR / 4 Asea-Atom / Stal-Laval
Forsmark 1 984 23,4 230 1980-12-10 33 BWR / 3 Asea-Atom / Stal-Laval Forsmark 2 1,120 23,4 233 1981-07-07 32 BWR / 3 Asea-Atom / Stal-Laval Forsmark 3 1,170 20,1 236 1985-08-18 28 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.
33 Third party nuclear liability in case of severe accident
Has been approved by the Parliament. In force 1.1.2012 onwards.
Law approved by Parliament in 2010, requires separate decision Unlimited from Government to come into company force. responsibility Convention 300 M€ 300 M€ parties State 500 M€ 500 M€ responsibility Responsibility of company 145 M€ (insurance or guarantee)
145 M€ 700 M€ 700 M€ Requires ratification by 2/3 145 M€ 700 M€ of member states to come 360 M€ into force. In Finland 240 M€ 200 M€ approved by Parliament in 2005 Old, Current, Sweden Finland, New Paris Finland Sweden (new, not temporary convention in force) legislation
34 Nuclear 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 95 355 ~3 OKG 3 2011 255 110 607 ~5 FKA 1 Decision 2014 120 ~25 257 ~2 FKA 2 2013 120 25 259 ~2 FKA 3 Decision 2014 170 ~35 270 ~2 Total ~290 ~2 ~1,950* ~15
Capacity increase and completion timetable based on recent estimate (Nord Pool). *At 31.12.2013 Fortum's share of Swedish nuclear capacity was 1,817 MW.
35 Russia is the World’s 4th largest power market
TWh 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
Power generation in 2012 based on gross output. Source: BP Statistical Review of World Energy June 2013
36 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 • 20 TWh power generation, 24 TWh heat production in 2013; more than Fortum’s Nordic heat sales (14 TWh, incl. Fortum Värme) TGC-1 • Investment programme to add 85%, almost 2,400 MW to power generation capacity OAO Fortum St. Petersburg Nyagan
Tobolsk TGC-1 Moscow Tyumen • Slightly over 25% of territorial generating company TGC-1 operating Chelyabinsk in north-west Russia • ~6,800 MW electricity production capacity (more than 40% hydro), ~27 TWh electricity, ~29 TWh heat in 2013
37 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
I/14 I/13 2013 LTM 40
Electricity spot price (market 35 price), Urals hub, RUB/MWh 1,018 931 1,021 1,031 30
Average regulated gas price, 25 Urals region, RUB 1000 m3 3,362 2,924 3,131 3,362 20 / MWh
Average capacity price for € 15 CCS ”old capacity”, 183 177 163 165 tRUB/MW/month 10
Average capacity price for 5 CSA ”new capacity”, 609 678 576 573 tRUB/MW/month 0 2008 2009 2010 2011 2012 2013 2014 Average capacity price, tRUB/MW/month 335 273 276 293 In addition to the power price generators receive a capacity payment.
Achieved power price for OAO Fortum, EUR/MWh 30.7 30.6 32.1 32.1 Source: ATS
38 2 Power market liberalisation – two markets
Capacity wholesale market Electricity wholesale market
Capacity prices Electricity prices • Competitive capacity selection (CCS) and free bilateral • Day ahead (spot) market, financial market, free bilateral agreements (FBA) agreements (FBA) and regulated bilateral agreements (RBA) • A higher, fixed capacity price for new • Fully liberalised from 1 Jan 2011 except for volumes intended for capacity (CSA* agreements, built after 2007) households priced by RBA (~10% of volume) • Lower capacity price for old capacity, price caps limits the price in some areas • 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
39 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
40 85% increase in power generation capacity in Russia by 2015 through the investment programme
41 Income statement
MEUR I/2014 I/2013 2013 LTM
Sales 1,473 1,654 5,309 5,128 Other income and expenses 996 1,129 3,906 3,773
Comparable operating profit 477 524 1,403 1,356 Items affecting comparability 1,856 -47 106 2,009
Operating profit 2,333 477 1,508 3,364 Share of profit of associates and jv’s 72 78 178 172
Financial expenses, net -64 -65 -289 -288
Profit before taxes 2,341 490 1,398 3,249 Income tax expense -86 -86 -186 -186
Net profit for the period 2,255 404 1,212 3,063 Non-controlling interests 4 3 8 9
EPS, basic (EUR) 2.53 0.45 1.36 3.44
EPS, diluted (EUR) 2.53 0.45 1.36 3.44
42 Comparable and reported operating profit
Comparable Reported MEUR operating profit operating profit I/2014 I/2013 I/2014 I/2013 Power and Technology 251 303 262 263 Heat, Electricity Sales 48 57 45 51 and Solutions Russia 73 41 73 40 Distribution 119 137 1,968 136
Other -14 -14 -14 -14
Total 477 524 2,333 477
• Non-recurring items (mainly to the sale of the Finnish electricity distribution business), IFRS accounting treatment (IAS 39) of derivatives and nuclear fund adjustments had an impact on the reported operating profit EUR 1,856 (-47) million in the first quarter
43 Cash flow statement
MEUR I/2014 I/2013 2013 LTM
Operating profit before depreciations 2,483 617 2,129 3,995
Non-cash flow items and divesting activities -1,864 26 -262 -2,152
Financial items and fx gains/losses -24 -210 -188 -2
Taxes -29 -31 -210 -208
Funds from operations (FFO) 567 402 1,469 1,634
Change in working capital 0 65 79 14
Total net cash from operating activities 566 467 1,548 1,647
Paid capital expenditures -162 -210 -1,004 -956
Acquisition of shares -1 -1 -15 -15
Other investing activities 2,551 144 76 2,483
Cash flow before financing activities 2,953 400 604 3,157
44 Key ratios
MEUR LTM 2013 EBITDA 3,995 2,129 Comparable EBITDA 1,938 1,975 Interest-bearing net debt 4,838 7,793 Comparable net debt/EBITDA 2.5 3.9
Return on capital employed, ROCE (%) 17.9 9.0 Return on shareholders’ equity, ROE (%) 26.8 12.0
Good liquidity – committed credit lines total EUR 2.2 billion
45 Debt Maturity Profile 1500 MEUR 2014 922 1250 2015 1,038 2016 864 1000 2017 556 750 2018 642 2019 822 500 2020 77 2021 541 250 2022 1,001 2023 115 0 2024+ 1,249 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024+ TOTAL 7,827 Bonds Financial institutions Other long-term debt CPs Other short-term debt
per 31 Mar, 2014 per 31 Dec, 2013 Average Interest Rate (incl. swaps and forwards) 3.7% 3.6% Portion of floating / fixed debt 41/59% 51/49%
46 Outlook
• Nordic markets ‒ Fortum continues to expect that the annual electricity demand growth will average 0.5% in the coming years ‒ Electricity is expected to continue to gain share of total energy consumption
• Russia ‒ Fortum’s goal is to achieve an operating profit level (EBIT) of about EUR 500 million run- rate in its Russia Segment during 2015 ‒ Fortum is evaluating its targets on a continuing basis, and will do so also once the political and economic situation stabilises. The company will then estimate if there still are possibilities to achieve the current target or if a new target level should be set
• Key drivers and risks ‒ Wholesale price of electricity and volumes • demand and supply • fuels • hydrological situation • power plant availability • CO2 emissions allowance prices
47
Outlook • Annual capex estimate excluding potential acquisitions – 2014 EUR 0.9 to 1.1 billion (incl. Finnish distribution Q1/2014, excluding Fortum Värme)
• Hedging – Rest of the year 2014 approx. 55% hedge ratio at approx. EUR 44/MWh – 2015 approx. 25% hedge ratio at approx. EUR 42/MWh
• Target for efficiency programme is to improve cash flow by EUR 1 billion during 2013-2014
• Taxation – Effective tax rate for the Group 19-21% – In Finland, a power plant tax has been adopted from the beginning of 2014. It will be implemented provided that the EU Commission approves it. Fortum has filed a complaint. If implemented, the estimated impact on Fortum would be approximately EUR 25 million annually
48 Hedging improves stability and predictability
2009 onwards thermal and import from Russia excluded
49 Fortum's efficiency programme 2013-2014
• Efficiency programme proceeding according to plan • Total annual cost savings visible in all divisions • Improved working capital efficiency • Divestments of non-core assets totalling approximately EUR 300 million
WHEN WHY WHAT 2013-2014
SPEED - Cash flow improved by EUR 1 billion – FLEXIBILITY CAPEX DIVESTMENTS EUR 250-350 million EUR 500 million WORKING CAPITAL FIXED COSTS Reduction Reduce EUR 150 million compared to 2012
50 Facts of Distribution
MEUR Fortum’s January 2013: Swedish Strategic assessment distribution commenced operations in 2013 December 2013: Operating profit 263 Assessment has been completed, divestment the Comparable operating profit 246 best alternative – Evaluation of divestment Comparable EBITDA 384 opportunities country by Capital expenditure 121 country
Number of employees 515 Closing by the end of Volume of distr. Electricity, TWh 27.8 Q1/2014: Divestment of Distribution Number of el. Distr. Custom. (‘000) 903 Finland
Closing by the end of Q2/2014: Divestment of Distribution Norway
Ongoing: Evaluation of divestment opportunities by country
51 For more information, please visit www.fortum.com/investors