capital markets day fortum’s solutions for sustainable...
TRANSCRIPT
Fortum’s solutions for sustainable cities
Capital Markets Day
Markus Rauramo / Executive Vice President City Solutions / 16 November 2016
2
Agenda
• City Solutions Division
• Key priorities
• Challenges and actions to improve existing business
• Integrations
• Transitions driven by megatrends
• Growth opportunities
• Summary
3
Solutions for sustainable cities, an urban environment with empowered citizens
One of the leading heating and cooling solutions producers
with best available technologies and competences
Market leader in the Nordics and one of the leading
European companies in the hazardous waste business
Second largest electricity retail company in the Nordic
countries
Zabrze CHP
2018
Fortum
production
plants
Co-owned
production
Retail electricity
customers
4
Main focus is to improve profitability and cash flow
• Comparable EBITDA EUR 213 million
• Net assets EUR 2,931 million
• Comparable return on net assets 7.6%
• Heat production capacity 3,884 MW
• Power generation capacity 760 MW
NOTE: (LTM Sept-16)
• Over 1.3 million electricity sales customers
• Heat supply to one million homes in the Nordic and
Baltic countries and Poland
Comparable EBITDA and RONA%
211 204 209 213
8.7 8.77.9 7.6
0
2
4
6
8
10
0
100
200
300
Comparable RONA-% Comparable EBITDA
2013 2014 2015 LTM
(Sep-16)
City Solution’s ambition is to maximise added value of waste and biomass in its operations
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Järvenpää
Bio-CHP
Brista and
Högdalen
Co-owned
Waste CHP
Värtan
Co-owned
Bio-CHP
Jelgava
Bio-CHP
Klaipeda
Waste-CHP
Czestochowa
Coal/bio-CHP
Espoo
Heat recovery from
water treatment
facility
Espoo
Heat recovery from
hospital (ready
2016)
Joensuu Bio oil
production at CHP
Naantali
Co-owned
Multifuel CHP
(ready 2017)
Espoo
Geothermic DH
with St1
(ready 2017)
Zabrze
Waste/coal/bio-
CHP
(ready 2018)
Pärnu
Bio-CHP
Riihimäki waste
treatment +
circular economy
village
Kumla
Waste treatment
facility
Nyborg
Biggest hazardous
waste unit in
Europe
Stockholm
Jelgava
Joensuu
Järvenpää
Espoo
Częstochowa Zabrze
Riihimäki
Kumla
Nyborg
TartuPärnu
Klaipeda
NaantaliBrista
Högdalen
Värtan
Espoo
Recovering waste
heat from data
centres
Stockholm
Open district
heating concept
Finland
Electric vehicles
charging poles,
Solar panels
Bio
Coal-bio
Waste
Other
Co-owned
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Key priorities
In CHP, waste and biomass
• Improve efficiency and productivity of existing
CHP fleet
• Implement efficiency programme and partner
model in O&M
• Execute key organic growth projects and
complete ongoing investments
• Integrate acquired companies and deliver
synergies
• Develop City Solution concept towards circular
economy: Nordic leadership, Eastern Europe, UK
as well as investigate possibilities in carefully
selected urban areas in South East Asia
• Maximise the added value of waste and biomass
In retail electricity sales:
• Increase sales and build on increasing
customer base
• Integrate and deliver synergies through
acquisition to enable business expansion
• Continue the development of “customer
experience” competence through extended
service offerings
7
Key challenges and ongoing actions to improve profitability in existing district heat business Status and actions
• Good cash based profitability
• Large investment projects
• Efficiency actions
– O&M partnering
• Development of new products, e.g. cooling solutions
• Organic growth in existing locations
• Long-term development of regulation in Baltics and
Poland
Challenges
• Dependency on market prices and weather
conditions
• Competition from alternative heating and cooling
solutions
– Product pricing
• Regulatory environment
8
Integration of acquisitions proceeding well
DUON• Expansion of the energy retail business by
entering the Polish market
• Consolidated into Fortum as of 30 April 2016
• Key milestones in 2016 to date reached
• Business result outlook exceed assumptions
• Establishment of B2C sales organisation started
• Brand change launched
Ekokem• Expansion into handling and recycling of materials
and waste
• Consolidated into Fortum as of 31 August 2016
• Business result outlook in line with acquisition
assumptions
• Integration programme, and governance &
resource planning ongoing
• Joint development and growth of the businesses
started
• Diversification of Group earnings structure
Fuel mix of European district heating
Fossil fuel CHP and HOB
Waste to Energy
Industrial Excess heat
Biomass heat
Geothermal heat
Solar thermal heat
Large scale heat pumps
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Space heating is still heavily based on fossil fuels Opportunity to decrease CO2
More than 60 cities with >1 TWh
heating potential
Sources: Heat Roadmap Europe; Fortum view
Fortum’s current markets among the most attractive ones
10
Heating and cooling
Drivers
• Fossil fuel based
production losing
competitiveness
• Ageing existing capacity
• Building specific
decentralised cooling /
AC not efficient
• Intermittent renewable
electricity
Required transitions
• Geothermal heat and
recovery of heat from
available sources: e.g.
data centers, sludge
water
10
Fortum solutions
From: To:
• Heat from
primary sources
• CHP supplemented
with additional uses of
production assets
• CHP as sole
district heat
production form
Pyrolysis
• Centralised cooling
• Mainly
decentralised
cooling
• Local fuel based CHP
and heat only options
Multi-fuel CHP
solutions
System integrator
in open district
heating and cooling
Biochemicals etc.
Result drivers
• Fuel and CO2 emissions allowance prices
• Fuel cost, availability, flexibility and efficiency
• Power, heat and auxiliary product prices
• Weather conditions
• Maintenance and asset lifetime management practices
and costs
Cooling solutions
By 2025:
• Globally c.a. 200 million ton/a new
recycling business (corresponds to 1,000–
2,000 recycling units, EUR ~ 20-60 billion
CAPEX)
• 170 million ton/a new Waste to Energy
(WtE) capacity (~700 new plants, EUR ~70
billion CAPEX)
• Landfilling/disposal levels increase despite
significant investments in WtE and
recycling
• Opportunities in Europe and in selected
urban areas in South East Asia
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Growing waste volumes and need to divert from landfilling Increasing global demand on waste to energy and recycling solutions
680
0
500
1 000
1 500
2 000
2 500
1 360
2002
Recycling
Landfilling/other
Waste to Energy
2015
2 300
2025
Global Municipal Solid Waste development (MSW)
mtpa
Sources: World Bank Global Review of Solid Waste Management, March 2012; Fortum view
12
Waste and recycling
Drivers Required transitions Fortum solutions
From: To:
• Bans on landfilling of waste
/ landfill taxes
• Recycling targets and
incentives
• Customer preferences for
products from recycled
material / recyclability of
products
• Growing quality of recycled
materials and decreasing
cost of material recycling
Circular economy
• Reducing waste
volumes
• Material recycling
• Waste to Energy
solutions
• Biowaste recycling
Linear economy
• Waste to
landfilling
• High
consumption of
virgin materials
Hazardous waste
management
Recycling and
Waste to Energy
Solutions
Environmental
construction
Result drivers
• Gate fees for waste, energy & recyclables sales
• Industrial activity
• Volumes impacted by landfill ban and increasing recycling
• Circular economy thinking
• Hazardous waste - legislation and its enforcement
Ekokem acquisition
Activities
13
Transition from waste management to resource management within circular economy
NOW:
Linear economy and waste management
FUTURE:
Resource management within circular economy
Natural resources
Take
Make
Discard
Waste disposal
Renewables
14
Fortum and Ekokem to form a Circular Economy Champion
Sustainable solutions for cities and industry
Global network Financial muscleWaste-to-Energy
leadership
Total waste management
solutions
Hazardous waste
expertise
Leverage
extensive service
offering and combined
references
1Combine
competences and
asset portfolio for
immediate value
creation
2Commercialise
the Circular Economy
Village globally
3Utilise
financial resources for
continued expansion in
hazardous waste
treatment
4Gear-up
technology and service
innovations through joint
competences
5
15
Electricity retail sales
Drivers
• Active customers with
clear preferences
• Smarter use of energy
and new options to cover
the customers’ energy
demand
• Borders to other services
crossed, new business
models
• Customers’ more
demanding and offered
solutions that remove
hurdles protecting
incumbents
Required transitions
• Service bundles,
utilisation of data
analytics & big data
Fortum solutions
From: To:
• Electricity in
kilowatt hours as
main product
• Decreasing margins
and narrowing price
span in commodity
sales
• Inefficient market
processes
DUON acquisition
• Increasing importance
of brand
• Low retail price
transparency
and poor
knowledge of
alternative
products
• Increasing customer
expectations
Smarter electric
vehicle charging
Advanced energy
solutions with
demand response
Info24 acquisitionBusiness and result drivers • Growing customer base is an essential part of long-term profitable growth
• Efficient operations and low cost base (Cost per order [CPO], Cost-to-Serve)
• Product mix and portfolio development
Solar panels and
storage
• Considerable
share of passive
customers
Activities
16
Utilising Nordic competences to expand in the Polish retailmarket
Va
lue
cre
ati
on
Ag
en
da
Grow organically in
the SME-segment
(electricity, gas)
1
Expand into Private
Customer segment
(electricity, gas)
2Utilise cross-selling
potential with heat
customers
Implement Fortum
brand
3
Integrate overlapping
functions and utilise
expertise from both
organisations
4
Utilise market
potential when
ramping up services
sales
5
• Experience of Nordic competitive
energy retail markets
• Strong growth track record in the
household segment
• Growth ambition supported by
financial strength
• High growth in the profitable SME
segment
• Dual-fuel approach (electricity, gas)
providing competitiveness and
flexibility
• Competent and agile organisation
Planned actions towards EBIT growth
Additional synergies
6
Additional value related to
Customer Retail Sales
development agenda
17
Summary• Improve efficiency and profitability of existing CHP fleet
• Execute key organic projects, complete ongoing
investments
• Integrate and develop DUON and Ekokem
• Increase sales and capitalise on increasing customer base
• Increase retail sales profit through market development
• Develop City Solution concept towards circular economy
– Nordic leadership
– Eastern Europe
– UK
– Growth in carefully selected urban areas in South East Asia
• Maximise the added value of waste and biomass
For more information, please visit
www.fortum.com/investors