- a leading energy company in the Nordic area Presentation for investors September 2007 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 • Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 3 Fortum's strategy Fortum focuses on the Nordic and Baltic Rim markets as a platform for profitable growth Become the leading Become the power and heat energy supplier company of choice Benchmark business performance 4 Presence in focus market areas Nordic Generation 53.2 TWh Electricity sales 60.2 TWh Distribution cust. 1.6 mill. Electricity cust. 1.3 mill. NW Russia Heat sales 20.1 TWh (in associated companies) Power generation ~6 TWh Heat production ~7 TWh Baltic countries Heat sales 1.0 TWh Poland Distribution cust. 23,000 Heat sales 3.6 TWh Electricity sales 8 GWh 2006 numbers 5 Fortum Business structure Fortum Markets Fortum's comparable Large operating profit in 2006 NordicNordic customers EUR 1,437 million Fortum wholesalewholesale Small Power marketmarket customers Generation Nord Pool and Markets 0% bilateral Other retail companies Deregulated Distribution 17% Regulated Transmission Power and system Fortum Heat 17% Generation services Distribution 66% 6 Strong financial position ROE (%) EPS, cont. (EUR) Total assets (EUR billion) 20 1.50 1.42 20.0 16.8 17.5 17.3 1.22 18 15.1 1.01 15.0 1.00 16 14.4 10.0 14 0.50 13.5 12 5.0 10 0.00 0.0 2005 2006 LTM 2005 2006 LTM 2005 2006 LTM ROCE (%) Dividend, (EUR) Net debt/EBITDA 16 1.50 4 1.26 1.25 1.12 14.1 3 14 1.00 2.4 13.5 13.4 0.53 2.3 0.54 1.8 0.75 2 0.58 12 0.50 0.73 0.58 1 0.25 10 0.00 0 2005 2006 LTM 2004 2005 2006 2005 2006 LTM Situation 30 June 2007 7 Growing capital returns Dividend per share EUR • Dividend of EUR 1.26 per share, in total over EUR 1.1 1.26 billion 1.12 Total ~ 3,775 MEUR • Mandate for repurchasing of the company’s own shares; 0.53 0.54 maximum EUR 300 million 0.58 0.42 • Dividend policy of 50 - 60% 0.26 0.31 0.18 0.23 payout of previous year's 0.13 0.58* 0.73** results on the average 1998 19992000 2001 2002 2003 2004 2005 2006 * from continuing operations ** with 60% payout ratio 8 • Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 9 Huge need for new capacity... Globally ... ... European wide ... ... and in Russia TWh TWh 30 000 3 500 25 000 ~10 000 3 000 900 20 000 TWh 2 500 TWh Demand growth 2 000 15 000 ~300-500 TWh 1 500 by 2015 10 000 1 000 5 000 500 0 0 20041 2010E 2020E 2000 2005 2010E 2015E 2020E Existing/remaining capacity Demand Source: IEA World Energy Outlook 2006, reference scenario for generation Source: Minister Kristenko Source: Eurprog 2005; Europe: EU25 December 2006 1 Production 2004: 17 408 TWh/IEA 2006 10 ...also in the Nordic market Demand and capacity development in the Retiring capacity Committed new capacity Nordic market ~ 30 TWh ~ 40 TWh Wind TWh Old CHP Cond. 500 Nuclear CHP 400 80 TWh (incl. upgrades ) Old condense capacity Hydro 300 (mainly coal) 200 • Electricity demand is expected to increase by around 50 TWh by 2020 compared to 2005 100 • Estimated retirement approx. 30 TWh 0 2000 2005 2010 2015 2020 • Total need for investments roughly 80 TWh Demand – approximately 40 TWh already committed Existing / remaining generation – another 40 TWh still needed Committed projects 11 New capacity will require an EUR 50+ power price EUR/MWh EUR/MWh 110 110 CO2 cost 20 €/ton 100 100 Fuel costs 90 90 Fixed costs ( variation) 80 80 Futures 70 29 August 2007 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 1995 -97 -99 -01 -03 -05 -07 -09 -11 Coal Gas Nuclear Hydro Wind Clean coal Source: Nord Pool Source: IEA "World Energy Outlook 2006"; Elforsk "El från nya anläggningar" 2003, and Fortum. Adjusted to indicate nominal costs year 2012. Large variations in cost of new hydro and wind due to location and conditions 12 Towards a functioning European power market Tomorrow – Today – European regional Nordic Yesterday – national 2010 - 2000 - 1990's Directives: Benefiting Market liberalisation • Market-based development • Increased competition Strategy: customers and Market integration • Increased efficiency societies 13 Nordic market becoming more integrated into Europe • Nord Pool introduced in 2005 a German spot Present (MW) 50 market area "KONTEK" to enhance the Nordic- 70 Under construction (MW) 60 German trade Planned (MW) 800 • Direct market coupling between Nord Pool and Discussed (MW) 1500 +200 the German EEX under development 500 • Estlink (Estonia - Finland) taken into commercial + 200 operation in January 2007 550 100 600 1300 • Jutland - Germany transmission capacity 1040 2050 +800 350 900 900 increased from 1200/800 MW to 1500/950 MW 600 740 in February 2007 1700 1200 300 700 1500600 1000 +500 600 600 • NorNed (Norway - the Netherlands) by 2008 1100 connecting Norway directly with the Continent 700 600 550 2200 1000 200 • Nordel priority projects enhance internal Nordic 3800 2500 +1500 125 market integration 1700 3500 1600 1000 2750 1500 14 The Nordic market place in 2010 98% 82% Six new cables: Market coupling: • Fenno-Skan 2 • Nordic+Kontek • South-middle • TLC (NL-BE-FR) Sweden (2012-13) • Nordic-TLC Market Market • Nea-Järpströmmen • Nordic-Germany at least at least • Skagerrak • Germany-TLC 250 TWh/a 285 TWh/a • Store Bält • NorNed 79% X% • Bigger market • More efficient use of production capacity • Better availability of transmission capacity Market Market • Better security of supply at least at least 385 TWh/a 1,500 TWh/a Integration level of the markets, measured on an hourly level in 2010; percentage of the time wholesale prices being the same Source: Fingrid 15 One market – one price The most efficient single commodity market in the world TLC market coupling Target ¾price convergence ¾better utilisation of cross-border capacity 16 Key EU objectives by 2020 • Implementation of • Minimum reduction of EU internal energy markets CO2 emissions 20% (2020) • Energy efficiency +20% • Renewables 20% (2020) (2020) Competitiveness Sustainability • Development of CO2 • Increased resources for capture and storage technology development Security of supply • Development of cross-border transmission • Increase in own production • Enhancement of external energy relations 17 Fortum's investment programme • Olkiluoto 3, Finland, nuclear • Swedish nuclear • Suomenoja, Finland (CHP) • Värtan, Sweden (bio CHP) Total • Järvenpää, Finland (bio CHP) ~ 1,300 MW • Brista, Sweden (waste CHP) • Refurbishing of existing hydro assets • Wind power, Sweden Value of the investment programme around EUR 3 billion of which ~90% CO2-free In addition • Automated meter management (EUR 240 million) • Security of supply in distribution (EUR 700 million) 18 Continued increase in CO2 -free power production TWh Fortum's power production 60 • ~9 TWh increase in 50 CO2 -free production* • ~10 TWh increase in 40 total production* 30 * compared to 2006 20 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 After the investment programme CO2 -free production Other (nuclear power, hydro power, bio fuels) (peat, gas, coal, other) 19 • Fortum today • European power markets • Russia • Financials / outlook • Supplementary material 20 Russian power markets are attractive Russian power generation TWh > 4,000 (bln kWh) 2 500 2 000 1 500 1 000 500 0 S a K U n U India Chi Japan BrasilNordic Russia Canada France Germany • 4th largest in the world • Strong growth • Potential for efficiency improvement • Reform offers opportunities 2005 figures 21 Substantial need for new capacity Russian power demand forecast TWh (bln kWh) • Power generation investment is expected to 1,800 1,710 total € 90 billion by 2011: Demand growth 500+ TWh 1,600 1,520 • nuclear € 40 billion (10,000 MW) before year 2020 • thermal € 40 billion (42,000 MW) 1,400 1,420 • and hydro € 10 billion (4,800 MW) 1,200 • In addition grid and transmission 1,000 investment expected to amount to € 40 billion 2000 2005 2010 2015 2020 22 Power sector reform impacts industry structure RAO UES restructuring Regulated monopolies Competitive businesses State-controlled companies Privatised companies Share of private 0%<25% 48% 48% <49% 65 -100% 75 -100% ownership System Federal Holding Holdings of 1 hydro 6 thermal 14 operator Grid of IDCs guaranteeing wholesale wholesale territorial Sales Company suppliers, generation generation generation companies (FGC) isolated company companies companies energos (WGC) (WGCs) (TGCs) Ownership share 49% 49 - 100% 4-5 inter- regional Target structure planned distribution companies to emerge in 2008 (IDCs) 23 Gas price is an important factor affecting electricity price Russian power generation Electricity price and typical 1 991 TWh in 2006 marginal costs for gas-fired power plant2 Oil 60 2% Electricity price Nuclear 50 CO2 cost 16% Gas (156 TWh) 46% 40 (455 TWh) 30 Gas cost Hydro 20 18% Price EUR/MWh Price (175 TWh) 10 Other 0 <1% Russia Germany Coal Nordic 18% (178 TWh) • Price of gas is the key factor affecting the electricity price in Russia since almost half of power is produced with gas-fired power generation • Gas price is regulated and is currently very low • Long term gas contracts available for the first time in power sector 1) Source: RAO UES, MinPromEnergo 2) Annual average market prices for 2006 (for Russia liberal energy price).