fortum a leading power and heat company in the nordic area · natural gas 4%. european production...

FORTUM A leading power and heat company

in the Nordic area

Investor/Analyst materialFebruary

2011

2

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.

Fortum today

European power markets

Russia

Financials and outlook

Content

4

Our geographical presence today

TGC-1 (~25%)Power generation ~6 TWhHeat sales ~8 TWh

OAO Fortum Power generation 16.1 TWhHeat sales 26.8 TWh

Russia

PolandHeat sales 4.0 TWh Electricity sales 0.1 TWh

Baltic countriesHeat sales 1.4 TWhElectricity sales 0.3 TWhDistribution cust.

~24,000

Nordic countriesPower generation

52.3

TWhHeat sales 20.7 TWhDistribution cust. 1.6 millionElectricity cust. 1.2 million

Nr 1

Nr 3

Heat

Electricity sales

Distribution

Power generation

Nr 1

Nr 2

Key figures 2010Sales EUR 6.3 bnOperating profit EUR 1.7 bn

Personnel 10,600

5

Fortum mid-sized European power generation player; Global #4 in heat

* incl. TGC-5, TGC-6, TGC-7, TGC-9, ** incl. TGC-12, TGC-13. *** incl. International PowerSource

Company information, Fortum analyses, 2009 figures

pro forma, **** 2007

Largest global producers, 2009 TWh

Largest producers in Europe and Russia, 2009TWh

Power generation Heat productionElectricity customers in EU, 2009

millions

Customers

OneximTatenergo

Minsk EnergoKievenergo

IrkutskenergoBashkirenergo

RAO ES East

Inter RAO UESTGC-2

Fortum

DongKDHC, Korea

TGC-14

Lukoil

Gazprom

0 20 40 60 80 100 120 140ELCEN, Rom.

Dalkia****)

Vattenfall

SUEK**)

Beijing

DH****)

*) IES

DEICEZ

Enel

CentricaEDP

Iberdrola

SSEEnBW

Fortum

EDFE.ONRWE

Vattenfall

Gas NaturalFenosa

PGE

Tauron

GDF SUEZ

HafslundDong

0 20 4010 30

Irkutskenergo*) IES

Iberdrola

RusHydro

FortumEnBW

Vattenfall

CEZ

RWE

DEIPGE

SSE

Statkraft

RosenergoatomGazprom

NNEGC Energoat.

EnelE.ONEDF

0 100 200 300 400 500 600

Inter RAO UES

GDF SUEZ***)

6

Total ~ 7,742 MEUR

1999 2001 20032000 2002 2004

0.18 0.230.26 0.31

0.420.58

2005

1.12

Dividend per shareEUR

0.13

1998

0.58

0.54

2006

1.26

0.73

0.53

•

Dividend 2010 EUR 1.00 per share, in total ~EUR 0.9 billion

•

Dividend policy of 50-60% payout of previous year's results on the average

2007

1.35

0.77

0.58

2008

1.00

Capital returns

72% 103% 78% 58%

1.00

2009

68%

1.00

2010

68%

7

Fortum’s strategic route

Stockholm

Energi

Gullspång

Birka

Energi50% Fortum

50% Stockholm

Länsivoima→100% E.ON Finland

Separation of oil businesses

Gullspång

Skandinaviska

Elverk

Birka

Energi50% → 100%

StoraKraft

Länsivoima45% → 65%

Elnova50% → 100%

District heat in Poland 2003 →

Østfold

Shares in Hafslund

Shares in Lenenergo

Starting TGC-1

Divestment of Lenenergo

shares

TGC-10

Lenenergo shares

1998 →

To sell

Fingrid

shares

*

To divest heat operations outside of

Stockholm **

* preliminary

agreement** expected

to be

finalised

during

Q1 2011

20082005 2006 20072002 2003 20041999 2000 20011996 1997 1998

IVO

2009 2010 2011

Neste

http://upload.wikimedia.org/wikipedia/commons/4/4c/Flag_of_Sweden.svghttp://fi.wikipedia.org/wiki/Kuva:Flag_of_Russia.svghttp://upload.wikimedia.org/wikipedia/commons/4/4c/Flag_of_Sweden.svg

88

Strategy

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.

Mission

Leverage the strong Nordic core

Create solid earnings growth in Russia

Build platform for future growth

Competence in CO2

-free nuclear, hydro and energy efficient CHP production,and operating in competitive energy markets

Fortum’s Mission and Strategy

9

Strategy builds on our competences and industry beliefs

99

•

Electricity solutions and distribution part of the Nordic core

More attractive growth prospects in power and heat generation

Two strong platforms for growth

•

Nordic power

wholesale and heat market

•

Russian power and heat market

Competitiveness key for long term value creation

•

Sustainable business models cannot rely on a continuous high level of subsidies

Integrating European energy markets and a gradual decrease in the weight of the Nordic power price

•

Leverage our competences in nuclear, hydro and CHP

•

Industrial restructuring opportunities

Strong focus on delivering value and stable returns to shareholdersStrong focus on delivering value and stable returns to shareholders

10

Organisational structure

President and CEOTapio Kuula

Corporate Strategy and R&DSenior Vice President

Maria Paatero-Kaarnakari

Electricity Solutions and Distribution (Espoo)

Executive Vice PresidentTimo Karttinen

Power (Espoo)Executive Vice President

Matti Ruotsala

Heat (Stockholm) Executive Vice President

Per Langer

Russia (Chelyabinsk)Executive

Vice

PresidentAlexander Chuvaev

FinanceExecutive Vice President and

Chief Financial OfficerJuha

Laaksonen

Corporate Relations and Sustainability

Executive Vice PresidentAnne Brunila

Corporate Human ResourcesSenior Vice President

Mikael Frisk

Business Divisions

Staff Functions

Country responsibles: Timo Karttinen / Finland, Norway; Per Langer

/ Sweden, Poland, Baltics; Alexander Chuvaev

/ Russia

Improved

efficiency, accountability, simplicity

11

Foreign investors 30.1%Finnish State 50.8%

Other Finnish investors 9.0%

Households 7.5% Financial and insurance institutions 2.6%

• Leading power and heat company in Nordic countries• Listed at the Helsinki Stock Exchange 1998• Approximately 100,000 shareholders• Among the most traded shares in Helsinki stock exchange• Market cap ~19 billion euros

A leading Nordic power and heat company

31 January 2011

12

Private customers,

small businesses

Retail companies

Fortum in the Nordic electricity value chain

Large customers

Competitive businesses

Regulated businesses

Independent transmission system operator

Independent distribution companies

Generation

Nordic wholesale

market

Power exchanges and bilateral

Transmission and system services

Distribution

http://www.nasdaqomx.com/

13

A portfolio of hydro, nuclear and energy efficient CHP*

Hydro power 41%

Coal 8%

Other 3%

Nuclear power 41%

Biomass 3%

European generation 53.7 TWh (Generation capacity 11,328 MW)

Fortum's

European power generation in 2010

Natural gas 4%

European production 26.1 TWh (Production capacity 10,698 MW)

Fortum's European heat production in 2010

Waste

4%Peat

3%

Heat pumps, electricity 13%

Oil

7%

Coal22%

Biomass fuels21%Other 8%

Natural gas22%

* Combined heat and power

14

Fortum's carbon exposure among the lowest in

Europe

Source: PWC & Enerpresse, Novembre

2010Changement

climatique

et Électricité, Fortum

g CO2

/kWh electricity, 2009

Average

346 g/kWh

0

200

400

600

800

1000

1200

DE

I

Dra

x

RW

E

CE

Z

SSE

EDP

Ene

l

Vat

tenf

all

E.O

N

Don

g

Uni

on F

enos

a

GD

F S

UE

Z E

urop

e

Iber

drol

a

Fortu

m to

tal

ED

F

PVO

Ver

bund

Fortu

m E

U

Sta

tkra

ft

41155

The share of CO2

-free power generation was 69% ofFortum's

total power generation.

In the EU, the share was 91% of the power generation and ~100% of the capacity of the ongoing investment programme.

Note:Fortum’s specific emission of the power generation in 2010 in the EU were 84 g/kWh and in total 189 g/kWh, 86 % (91 %) emission free in EU and 66 % (69 %) emission free overall.Figures for all other companies include only European generation.

15

Fortum’s investment programme –

Nordic region, Poland and Baltic countries

Electricity capacity around 750 MW~100% CO2

-free

Project Electricity, MWHeat,MW Commissioned

Olkiluoto

3, Finland 400 2013Swedish nuclear upgrades 260 by 2013-

Forsmark

3 upgrade (to be decided) 30 post 2013Refurbishing of hydro power 20-30 annually

Brista, Sweden 20 60 2013(waste CHP)Klaipeda, Lithuania 20 60 2012(biofuel/waste CHP)

Total by ~2013 ~750 ~120

16

Fortum to get 290 MW CO2

free capacity through upgrades in Sweden

Reactor

OKG 1

Completion

-

Increase

100% (MW)

0

Fortum's capacity

increase

(MW)

Additional generation for Fortum

(TWh/a)

Fortum's capacity

after

increase

(MW)

Fortum's

generation

after increase

(TWh/a)

- 205 ~2

OKG

2 2009, 2013 30 + 180 95 355 ~3OKG 3 2011 255 110 607 ~5FKA 1 Decision 2011 120 ~25 257 ~2FKA 2 2012 120 25 259 ~2FKA 3 Decision 2013 170 ~35 270 ~2Total ~290 ~2 ~1,950* ~15

Capacity increase and completion timetable based on recent estimate (Nord Pool). At 31.12.2009 Fortum's share of Swedish nuclear capacity was 1,778 MW.

Fortum today


Russia


18

New capacity, except nuclear, will require over 60 EUR/MWh

power price

Other costs ( variation)CO2

cost

Coal Gas Nuclear Hydro Wind Cleancoal

EUR/MWh

Estimated lifetime average cost in nominal 2014 terms.Large variations in cost of new hydro and wind due to location and conditions.

0102030405060708090

100110

0102030405060708090

100110

Source: Nord Pool spot, NASDAQ OMX Commodities Europe

EUR/MWh

Futures1 February 2011

1995 -97 -99 -01 -05 -07 -09 -11 -13-03 -15

19

2006

2010

2009

2012

2010-

2013

2011

Market coupling milestones -

cross-border power flows optimised

by power exchanges

•

Market coupling between Netherlands (APX), Belgium (Belpex) and France (Powernext) since 2006

•

Market coupling Germany (EPEX Spot) –

Denmark (Nord Pool Spot) started in November 2009 with Baltic Cable (Germany –

Sweden) included in May 2010

•

Market coupling for Central Western Europe (DE, FR, BeNeLux) started in November 2010 combined with a continued coupling mechanism with Nord Pool Spot

•

NorNed

cable (NO-NL) included in January 2011•

Poland coupled with Nord Pool Spot in December 2010•

UK coupling to be started trough BritNed

cable in April 2011•

The TSOs

and power exchanges are developing a single

market coupling for the whole western Europe by end-2012

•

Estonian price area in Nord Pool Spot since April 2010

with full integration of the Baltic States during 2011–2013

•

EU’s European Target Model for cross-border power trading

sets 2015 as deadline for an EU-wide market coupling

20

700

2100 600 600

350

Current transmission capacity from Nordic area to Continental Europe is ~4000 MW

CountriesTransmissioncapacity MW

From Nordel To Nordel

Denmark -

Germany 2 100 1 550

Sweden -

Germany 600 600

Sweden -

Poland 600 600

Norway -

Netherlands 700 700

Total 4 000 3 450

•

Theoretical maximum in transmission capacity ~35 TWh per annum

•

Net export from Nordic area to Continental Europe in 2008 was ~15 TWh and in 2009 ~5 TWh

•

Approximately 20 TWh net export fairly easily reachable

21

Nordic and Continental markets are integrating – interconnection capacity could double by 2020

New interconnections could double the capacity to over

8000 MW by 2020

Additional 700 MW cable NO-NL, as well 1400 MW

NO-DE links studied

EU financial support for 700 MW DK-NL link to

connect offshore wind, too

EU support to connect Kriegers

Flak offshore wind area to DK&DE; new 400 kV

AC cable SE-DK by 2017

Jutland –

DE capacity to be increased by 500 MW in 2012

and by further 500 MW by 2018 LitPol

Link of 1000 MW to connect the Baltic market to Poland by

2015/20. It would open a new transmission

route from the Nordic market to the Continent

New internal Nordic grid investments provide for

increased available capacity for export to the

Continent and Baltics

EU’s European Energy Programme for Recovery to cofinance

to Estlink

2 and NordBalt

1400 MW link to the UK could connect offshore wind, too; North Seas Countries’

Offshore Grid Initiative launched for supergrid

development

In the EU's Second Strategic Energy Review the Commission focuses

strongly on interconnecting the Baltic states and Poland to form an electricity

market around the Baltic Sea

22

Nordic water reservoirs historically low

Source: Nord Pool Spot

rese

rvoi

r con

tent

(TW

h)

0

20

40

60

80

100

120

Q1 Q2 Q3 Q4

2003 2008 2009 20112010 reference level

23

Increased power consumption

Fortum currently expects Nordic power demand to recover back to the 2008 level by 2012-2014Temperature corrected power consumption in Nordic countries is still appr. 4% (~16 TWh

) lower than in 2008.

-1 %

3 %

7 %

11 %

15 %

Tyumen Chelyabinsk Russia Uralsarea

Russia

Q1 2010 vs

Q1 2009Q2 2010 vs

Q2 2009Q3 2010 vs

Q3 2009Q4 2010 vs

Q4 2009

0 %

5 %

10 %

15 %

Finland Sweden Norway Denmark Nordic

Q1 2010 vs

Q1 2009Q2 2010 vs

Q2 2009Q3 2010 vs

Q3 2009Q4 2010 vs

Q4 2009

24

Nordic year forwards

0

10

20

30

40

50

60

70

€/MWh Year 15Year 08 Year 09 Year 10 Year 11 Year 12 Year 13 Year 14 Year 161 February 2011

2007

Q1 Q2 Q3 Q4 Q1

2008

Q2 Q3 Q4 Q1

2009

Q2 Q3 Q4 Q1

2010

Q2 Q3 Q4 Q1

2011Source: NASDAQ OMX Commodities Europe

25

Wholesale price for electricity

0

10

20

30

40

50

60

70

80

90

100

110

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

EUR/MWh Nord Pool

System

Price Forwards

1 February 2011

Source: Nord Pool Spot, NASDAQ OMX Commodities Europe

26

Wholesale prices for electricity

Source: , ATS

Dutch

German

Nordic

Russian*

0

10

20

30

40

50

60

70

80

90

100

110EUR/MWh

2007 2008 2009 2010 2011 2012

2 February 2011

Spot prices Forward prices

* Including capacity tariff estimate. E.g

~9 €/MWh

for 2009 and 2010.

27

Gas price (ICE NBP)

0

20

40

60

80

100

GB

p / t

herm

2006 2007 20102008 2009 20122011

Crude oil price (ICE Brent)

020406080

100120140160

USD

/ bb

l

2006 2007 20102008 2009 20122011

Coal price (ICE Rotterdam)

04080

120160200240

USD

/ t

2006 2007 20102008 2009 20122011

CO2 price (NP EUA)

05

101520253035

EUR

/ tC

O2

2006 2007 20102008 2009 20122011

Fuel and CO2 allowance prices

Source: ICE, NASDAQ OMX Commodities Europe

Market prices 1 February 2011; 2011-2012 future quotations

2010 average:80 (63)

2010 average:14 (13)

2010 average:92 (70)

2010 average:41 (32)

28

Nordic power generation –

dominated by hydro, but fossil needed

Source: ENTSO-E Memo 2009, wind generation Eurostat *) Normal annual Nordic hydro generation 200 TWh, variation +/-

40 TWh.

0

20

40

60

80

100

120

140

Denmark Norway Sweden Finland

Fossil fuels

Nuclear

Biomass

Wind

Hydro *

TWh/a

Total Nordic generation 370 TWh in 2009

Net import in 2009: 5 TWh

20

73

TWh %

61

206

10

5

20

16

56

3

29

Still a highly fragmented Nordic power market

Power generation370 TWh

>350 companies

Statkraft

Vattenfall

Dong

Energy

Others

Fortum

32%

E.ONPVO

E-CO

Energi

Agder

EnergiNorsk

Hydro

Helsinki

Electricity distribution14 million customers

~500 companies

Syd

Energi

SEAS-NVE

Fortum

Vattenfall

Others

Hafslund

E.ON51%

HelsinkiStatkraftGöteborg

Dong

Energy

Electricity retail14 million customers

~350 companies

Öresunds-kraft

Vattenfall

Fortum

Helsinki

Others

53%

Hafslund

SEAS-NVE

Statkraft

Bixia

DongEnergy

E.ON

Source: Fortum, company data, shares of the largest actors, 2009

figures.

Fortum today


Russia


31

Data 2009 based on gross output.Source: BP Statistical Review of World Energy June 2010

Russia is the World’s 4th largest power market

South

Korea

Germ

any

0500

1,0001,500

2,0002,500

3,0003,500

4,0004,500

TWh

USCh

inaJa

pan

Russ

iaInd

iaCa

nada

Franc

e

Nordi

c UK

Braz

il

32

OAO Fortum (former

TGC-10)•

Operates in the heart of Russia’s oil and gas producing region, fleet mainly gas-fired CHP capacity

•

16

TWh power generation, 26 TWh heat production in 2010; more than Fortum’s Nordic heat sales

•

Investment programme to add 85%, almost 2,400 MW to power generation capacity

•

Annual efficiency improvement approximately

EUR 100 million in 2011

TGC-1•

Slightly over 25% of territorial generating company TGC-1 operating in north-west Russia

•

~6,350 MW electricity production capacity (appr. 50% hydro), ~27 TWh/a electricity, ~31 TWh/a heat

32

Fortum - a major player in Russia

OAO Fortum

Surgut

Tyumen

TobolskMoscow

St. Petersburg

Chelyabinsk

Nyagan

TGC-1

33

Power market liberalisation –

two markets

33

Capacity wholesale market Electricity wholesale market

•

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 prices-

Competitive capacity selection (CCS) and free bilateral agreements (FBA) -

A higher, fixed capacity price for new capacity (CSA* agreements, built after 2007)

-

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)

Electricity prices-

Day ahead (spot) market, financial market, free bilateral agreements (FBA) and regulated bilateral agreements (RBA)-

Fully liberalised from 1 Jan 2011 except for volumes intended for households priced by RBA (~10% of volume)

* Capacity supply agreement

3434

Day ahead wholesale market prices –

increase driven by recovering demand and gas price

2

III/2009 III/2008

Electricity spot price (market

price), Urals hub, RUB/MWh817 693

Average regulated electricity

price for OAO Fortum, RUB/MWh613

Average regulated capacity

price, RUB/MW/month167

Average regulated gas price

in Urals region, RUB/1000 m2,221 1,937

IV/2010 IV/2009


price), Urals hub, RUB/MWh


price for OAO Fortum, RUB/MWh536


price, t186

3

Key electricity, capacity and gas prices in the OAO Fortum area

2010

835

2,221

614

169

2009

633

1,781

533

187

31%

24%

15%

-9%

Change

Day ahead power market prices for Urals

0

5

10

15

20

25

30

35

40

€/M

Wh

2007 2008 2009 2010


2011

In addition to the power price generators receive a capacity payment.

353535

Capacity prices for new capacity 3-4 times current 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 likely remain relatively low; potentially price caps could limit price

•

“New”

capacity prices (under agreements) to be 3-4 times the “old”

capacity prices

35

36

New capacity will receive clearly higher payments than the old

Estimated capacity price for new capacity*, RUB/MW/monthGas condensing (CCGT) Coal condensing

Region >250 MW 150-250 MW 225 MW 250 MW 150-250 MW 225 MW 250 MW 150-250 MW 225 MW

3737

Long-term financial target will be dictated by basic economic logic

~EUR 100 million improvement in EBITDA through the efficiency

improvement programme

Invested capitalEUR

~2.5 bn

~4 bn

2011 ~2014

In 2009, WACC for Russia was ~12%

Assuming, having completed the investment programme, an invested capital of

a

b

a

… and an unchanged cost of capital

b

The annual comparable operating profit in Russia needs to be in excess of ~EUR 500 million in order to beat to cost of capital (WACC) …soon after the completion of the investment programme

38

The five key drivers for earnings improvement in Russia

Development of Heat business

Potential margin increase(power price vs. gas price)

Increased income from new volume sold

Increased income from new capacity(higher payments for new capacity)

Efficiency improvement programme

ILLUSTRATIVE

3939

• Purchasing

• Portfolio Management and Trading (PMT)

• Heat regulation

• Heat -

technical and business improvements

• Generation -

technical improvements

• Others

Efficiency improvement programme in Russia:~100 M€

EBITDA improvement in 2011

39

4040

85% increase in power generation capacity by the end of 2014 through the investment programme

Power generation capacity (MW)

Plant Fuel type Existing Planned Total

Tyumen CHP-2 Gas 755 755Tyumen CHP-1 Gas 472 231; 2*225 1153 Tobolsk

CHP Gas 452 200 652Chelyabinsk CHP-3 Gas 360 226 586Chelyabinsk CHP-2 Gas, coal 320 320Argayash

CHP Gas, coal 195 195Chelyabinsk CHP-1 Gas, coal 149 149Chelyabinsk GRES Gas 82 82 Nyagan

GRES Gas 3x418 1,254Boilers -

Total 2,785 2,361 5,146

(CHP/Condensing)

(CHP/Condensing)(Condensing)

(Condensing)

Supply date

2012, 2012, 2013

H1/2011

H1/2011; 2014

H1/2011

Fortum today


Russia


42

MEUR IV/2010 IV/2009 2010 2009

Sales 1 902 1 563 6 296 5 435Expenses -1 361 -993 -4 463 -3 547

Comparable operating profit 541 570 1 833 1 888

Other items affecting comparability -220 -48 -125 -106

Operating profit 321 522 1 708 1 782Share of profit of associates and jv's 21 22 62 21Financial expenses, net -57 -39 -155 -167

Profit before taxes 285 505 1 615 11 636Income tax expense -25 -74 -261 -285

Net profit for the period 260 431 1 354 1 351Non-controlling interests 29 25 54 39

EPS, basic (EUR) 0.26 0.46 1.46 1.48EPS, diluted (EUR) 0.26 0.46 1.46 1.48

Income statement

43

Comparable and reported operating profit

MEURIV/2010 IV/2009 IV/2010 IV/2009 2010 2009 2010 2009

Power 336 391 129 327 1 298 1 454 1 132 1 363Heat 122 104 124 109 275 231 303 252Distribution 91 80 93 81 307 262 321 263Electricity Sales 3 11 40 37 11 22 46 29Russia 17 8 16 8 8 -20 53 -20Other -28 -24 -81 -40 -66 -61 -147 -105Total 541 570 321 522 1 833 1 888 1 708 1 782

Comparable operating profit

Reported operating profit

Comparable operating profit

Reported operating profit

•

IFRS accounting treatment (IAS 39) of derivatives affected operating profit

44

MEUR IV/2010 IV/2009 2010 2009

Operating profit before depreciations 468 658 2 271 2 292

Non-cash flow items and divesting activities 222 -4 124 46

Financial items and fx gains/losses -192 -102 -641 146

Taxes -107 -34 -355 -239

Funds from operations (FFO) 391 518 1 399 2 245

Change in working capital -170 -122 38 19

Total net cash from operating activities 221 396 1 437 2 264

Paid capital expenditures -432 -266 -1 134 -845

Acquisition of shares -20 -28 -28 -87

Other investing activities -23 -27 60 -42

Cash flow before financing activities -254 75 335 1 290

Cash flow statement

45

MEUR 2010 2009EBITDA 2 271 2 292Comparable EBITDA 2 396 2 398Interest-bearing net debt 6 826 5 969Net debt/EBITDA 3.0 2.6Comparable Net debt/EBITDA 2.8 2.5

Return on capital employed (%) 11.6 12.1Return on shareholders' equity (%) 15.7 16.0

Key ratios

46

2011 February Nordic Power Exchange forward development −

Down by ~27 €/MWh

from 2010 year end

0

10

20

30

40

50

60

70

80

902.

8.20

10

16.8

.201

0

30.8

.201

0

13.9

.201

0

27.9

.201

0

11.1

0.20

10

25.1

0.20

10

8.11

.201

0

22.1

1.20

10

6.12

.201

0

20.1

2.20

10

3.1.

2011

17.1

.201

1

27.1.2011Last price at€58.1 per MWh

Change +63%30 Sept. -30 Dec. 2010

Change -32%30 Dec. 2010 -

27 Jan. 2011

30.12.2010Year high at€85.1 per MWh

47

Outlook

•

Key drivers and risks–

Wholesale price of electricity•

Fuel, CO2

emissions prices and water reservoirs

•

Nordic Markets–

Market continues to recover –

2008 level reached by 2012-2014–

Electricity continues to gain share of total energy consumption

•

Russia–

Wholesale market fully liberalised–

Achieved efficiency improvements compared to the time of the acquisition to be approximately EUR 100 million in 2011

–

Profits from Russia builds up in pace with the capacity increase

NOTE: Fuel, Co2

emissions prices and water reservoirs found in appendix

48

Outlook

•

Capex

(excluding potential acquisitions)–

2011-2012 around EUR 1.6 to 1.8 billion (mainly due to Russian investment programme)

–

2013-2014 around EUR 1.1 to 1.4 billion–

Preliminary divestments agreed: total approximately EUR 0.5 billion in 2011

•

Hedging–

2011 approximately 70% hedge ratio at approximately EUR 45/MWh–

2012 approximately 40% hedge ratio at approximately EUR 44/MWh

49

Debt maturity profile

per 31 Dec, 2010 per 31 Dec, 2009

Average interest rate (incl. swaps and forwards)

3,5 %

3,4 %Portion of floating / fixed debt

49 / 51 %

62 / 38 %

MEUR

2011 862

2012 624

2013 636

2014 1.191

2015 1.042

2016 870

2017 243

2018 93

2019 819

2020 43

2021+ 9590

250

500

750

1000

1250

1500

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021+Bonds Financial institutions Other long-term debt CPs

50

Liquidity at the end

of 2010

MEUR Available Outstanding Total amountSHORT TERM FINANCING

Commercial Paper ProgrammesFinnish CP Programme 352 148 500SEK 5.000 M Swedish CP Programme 171 386 558

524 534 1 058LIQUID FUNDS AND COMMITTED CREDIT LINES

Committed Credit Lines Short Term 1 418 0 1 418Long Term 1 500 0 1 500

2 918 0 2 918Liquid FundsCash and cash equivalents 285Bank Deposits over 3 months 271

556of which in Russia 348Total Available Cash and Committed Financing 3 474

51

Hedging improves stability and predictability

Realised prices quarterly since 2000

0

10

20

30

40

50

60

70

80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

EUR/MWh

Power's Nordic power price Spot price, SE&FI avg.

52

Summary on 2010

•

Strategy updated to support business actions–

Sustainable solutions at the core of the strategy•

Solid performance continued•

Russia–

Power reform proceeding, fully liberalised from January 2011–

Demand improved–

Fortum’s investment programme accelerated•

Nordic countries–

Demand recovered–

Water reservoirs historically low•

Strong financial position and liquidity

FORTUM�A leading power and heat company�in the Nordic area�DisclaimerSlide Number 3Slide Number 4Fortum mid-sized European power generation player; �Global #4 in heatSlide Number 6Fortum’s strategic routeSlide Number 8Slide Number 9Organisational structureA leading Nordic power and heat companyFortum in the Nordic electricity value chainA portfolio of hydro, nuclear and energy efficient CHP*�Fortum's carbon exposure among the lowest in EuropeFortum’s investment programme �– Nordic region, Poland and Baltic countriesFortum to get 290 MW CO2 free capacity through upgrades in SwedenSlide Number 17Slide Number 18Market coupling milestones�- cross-border power flows optimised by power exchanges Slide Number 20Nordic and Continental markets are integrating – interconnection capacity could double by 2020Nordic water reservoirs historically lowIncreased power consumptionNordic year forwardsWholesale price for electricityWholesale prices for electricityFuel and CO2 allowance pricesNordic power generation � – dominated by hydro, but fossil needed Still a highly fragmented Nordic power marketSlide Number 30Slide Number 31Slide Number 32Slide Number 33Day ahead wholesale market prices� – increase driven by recovering demand and gas priceCapacity prices for new capacity 3-4 times current old capacity pricesNew capacity will receive clearly higher payments than the oldSlide Number 37Slide Number 38Slide Number 39Slide Number 40Slide Number 41Income statementComparable and reported operating profitCash flow statementKey ratios2011 February Nordic Power Exchange forward development �− Down by ~27 €/MWh from 2010 year endOutlook OutlookDebt maturity profileLiquidity at the end of 2010Hedging improves stability and predictabilitySummary on 2010Slide Number 53

FORTUM

A leading power and heat company

in the Nordic area

Investor/Analyst material

February 2011

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.

Fortum today


Russia


Content

Our geographical presence today

Poland

Heat sales 4.0 TWh Electricity sales 0.1 TWh

Baltic countries

Heat sales 1.4 TWh

Electricity sales 0.3 TWh

Distribution cust. ~24,000

Nr 1

Nr 3

Heat

Electricity

sales

Distribution

Power generation

Nr 1

Nr 2

Nordic countries

Power generation 52.3 TWh

Heat sales 20.7 TWh

Distribution cust. 1.6 million

Electricity cust. 1.2 million

Key figures 2010

Sales EUR 6.3 bn

Operating profit EUR 1.7 bn Personnel 10,600

TGC-1 (~25%)

Power generation ~6 TWh

Heat sales ~8 TWh

OAO Fortum

Power generation 16.1 TWh

Heat sales 26.8 TWh

Russia

Fortum mid-sized European power generation player;

Global #4 in heat

* incl. TGC-5, TGC-6, TGC-7, TGC-9, ** incl. TGC-12, TGC-13. *** incl. International Power

Source Company information, Fortum analyses, 2009 figures pro forma, **** 2007

Dalkia

****)

SUEK

**)

Beijing DH

****)

*)

IES

Onexim

Tatenergo

Minsk Energo

Kievenergo

Irkutskenergo

Bashkirenergo

RAO ES East

Inter RAO UES

TGC-2

Fortum

Dong

KDHC, Korea

TGC-14

Lukoil

Gazprom

0

20

40

60

80

100

120

140

ELCEN, Rom.

Vattenfall

DEI

CEZ

Enel

Centrica

EDP

Iberdrola

SSE

EnBW

Fortum

EDF

E.ON

RWE

Vattenfall

Gas Natural

Fenosa

PGE

Tauron

GDF SUEZ

Hafslund

Dong

0

20

40

10

30

*)

IES

GDF SUEZ

***)

Irkutskenergo

Iberdrola

RusHydro

Fortum

EnBW

Vattenfall

CEZ

RWE

DEI

PGE

SSE

Statkraft

Rosenergoatom

Gazprom

NNEGC Energoat.

Enel

E.ON

EDF

0

100

200

300

400

500

600

Inter RAO UES

Largest global producers, 2009

TWh

Largest producers in Europe and Russia, 2009

TWh

Power generation

Heat production

Electricity customers in EU, 2009

millions

Customers

Total ~ 7,742 MEUR

1999

2001

2003

2000

2002

2004

0.18

0.23

0.26

0.31

0.42

0.58

2005

1.12

Dividend per share

EUR

0.13

1998

0.58

0.54

2006

1.26

0.73

0.53

Dividend 2010 EUR 1.00 per share, in total ~EUR 0.9 billion

Dividend policy of 50-60% payout of previous year's results on the average

2007

1.35

0.77

0.58

2008

1.00

Capital returns

72%

103%

78%

58%

1.00

2009

1.00

2010

68%

68%

Fortum’s strategic route

Stockholm

Energi

Gullspång

Birka Energi

50% Fortum

50% Stockholm

Gullspång

Skandinaviska

Elverk

District heat in Poland 2003 →

Østfold

Shares in Hafslund

Shares in Lenenergo

Starting TGC-1

Divestment of Lenenergo shares

TGC-10

2008

2005

2006

2007

2002

2003

2004

1999

2000

2001

1996

1997

1998

IVO

2009

2010

2011

Neste

Länsivoima

→100%

E.ON Finland

Separation of

oil businesses

Birka Energi

50% → 100%

Stora

Kraft

Länsivoima

45% → 65%

Elnova

50% → 100%

Lenenergo shares 1998 →

To sell Fingrid shares *

To divest heat operations outside of Stockholm **

* preliminary agreement

** expected to be finalised during Q1 2011

*

Strategy

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.

Mission

Leverage the strong

Nordic core

Create solid earnings

growth in Russia

Build platform for

future growth

Competence in CO2-free nuclear, hydro and energy efficient CHP production,

and operating in competitive energy markets

Fortum’s Mission and Strategy

*

Strategy builds on our competences and industry beliefs

*

*

Electricity

solutions and

distribution part of

the Nordic core

More attractive growth prospects in power and heat generation

Two strong platforms for growth

Nordic power

wholesale and

heat market

Russian power

and heat

market

Competitiveness key for long term value creation

Sustainable

business models

cannot rely on a

continuous high

level of subsidies

Integrating European energy markets and a gradual decrease in the weight of the Nordic power price

Leverage our

competences in

nuclear, hydro and

CHP

Industrial restructuring

opportunities

Strong focus on delivering value and stable returns to shareholders

*

*

Organisational structure

President and CEO

Tapio Kuula

Corporate Strategy and R&D

Senior Vice President

Maria Paatero-Kaarnakari

Electricity Solutions and

Distribution (Espoo)

Executive Vice President

Timo Karttinen

Power (Espoo)


Matti Ruotsala

Heat (Stockholm)


Per Langer

Russia (Chelyabinsk)


Alexander Chuvaev

Finance

Executive Vice President and

Chief Financial Officer

Juha Laaksonen

Corporate Relations

and Sustainability


Anne Brunila

Corporate Human Resources

Senior Vice President

Mikael Frisk

Business Divisions

Staff Functions

Country responsibles: Timo Karttinen / Finland, Norway; Per Langer / Sweden, Poland, Baltics; Alexander Chuvaev / Russia

Improved efficiency, accountability, simplicity

A leading Nordic power and heat company

Foreign investors 30.1%

Finnish State 50.8%

Other Finnish investors 9.0%

Households 7.5%

Financial and insurance institutions 2.6%

Leading power and heat company in Nordic countries

Listed at the Helsinki Stock Exchange 1998

Approximately 100,000 shareholders

Among the most traded shares in Helsinki stock exchange

Market cap ~19 billion euros

31 January 2011

Fortum in the Nordic electricity value chain

Private customers,

small businesses

Retail companies

Large customers

Competitive

businesses

Regulated

businesses

Independent transmission

system operator

Independent

distribution companies

Nordic

wholesale

market

Power exchanges and bilateral

Generation

Transmission and system services

Distribution

A portfolio of hydro, nuclear and energy efficient CHP*

* Combined heat and power

Hydro power 41%

Coal 8%

Other 3%

Nuclear power 41%

Biomass 3%

European generation 53.7 TWh

(Generation capacity 11,328 MW)

Fortum's European

power generation in 2010

Natural gas 4%

European production 26.1 TWh

(Production capacity 10,698 MW)

Fortum's European

heat production in 2010

Waste 4%

Peat 3%

Heat pumps, electricity 13%

Oil 7%

Coal

22%

Biomass fuels

21%

Other 8%

Natural gas

22%

Fortum's carbon exposure among the lowest in Europe

Source:

PWC & Enerpresse, Novembre 2010

Changement climatique et Électricité, Fortum

The share of CO2-free power generation was 69% of

Fortum's total power generation.

In the EU, the share was 91% of the power generation and

~100% of the capacity of the ongoing investment programme.

Note:

Fortum’s specific emission of the power generation in 2010 in the EU were 84 g/kWh and in total 189 g/kWh,

86 % (91 %) emission free in EU and 66 % (69 %) emission free overall.

Figures for all other companies include only European generation.

0

200

400

600

800

1000

1200

DEI

Drax

RWE

CEZ

SSE

EDP

Enel

Vattenfall

E.ON

Dong

Union Fenosa

GDF SUEZ Europe

Iberdrola

Fortum total

EDF

PVO

Verbund

Fortum EU

Statkraft

41

155

g CO2/kWh electricity, 2009

Average 346 g/kWh

Fortum’s investment programme

– Nordic region, Poland and Baltic countries

Electricity capacity around 750 MW

~100% CO2-free

Project

Electricity, MW

Heat,MW

Commissioned

Olkiluoto 3, Finland

400

2013

Swedish nuclear upgrades

260

by 2013

- Forsmark 3 upgrade (to be decided)

30

post 2013

Refurbishing of hydro power

20-30

annually

Brista, Sweden

20

60

2013

(waste CHP)

Klaipeda, Lithuania

20

60

2012

(biofuel/waste CHP)

Total by ~2013

~750

~120

Fortum to get 290 MW CO2 free capacity through upgrades in Sweden

Capacity increase and completion timetable based on recent estimate (Nord Pool). At 31.12.2009 Fortum's share of Swedish nuclear capacity was 1,778 MW.

Reactor

OKG 1Completion

-Increase 100% (MW)

0Fortum's capacity increase (MW)Additional generation for Fortum(TWh/a)Fortum's capacity after increase (MW)Fortum's generation after increase (TWh/a)

-205~2

OKG 22009, 201330 + 18095355~3

OKG 32011255110607~5

FKA 1Decision 2011120~25257~2

FKA 2201212025259~2

FKA 3Decision 2013170~35270~2

Total~290~2~1,950*~15

Fortum today


Russia


New capacity, except nuclear, will require

over 60 EUR/MWh power price

Coal

Gas

Nuclear

Hydro

Wind

Clean

coal

EUR/MWh

Estimated lifetime average cost in nominal 2014 terms.

Large variations in cost of new hydro and wind due to location and conditions.

Other costs

( variation)

CO2 cost

0

10

20

30

40

50

60

70

80

90

100

110

1995

-97

-99

-01

-05

-07

-09

-11

-13

-03

-15

Source: Nord Pool spot, NASDAQ OMX Commodities Europe

EUR/MWh

Futures

1 February 2011

Market coupling milestones

- cross-border power flows optimised by power exchanges

Market coupling between Netherlands (APX), Belgium (Belpex) and France (Powernext) since 2006

Market coupling Germany (EPEX Spot) – Denmark (Nord Pool Spot) started in November 2009 with Baltic Cable (Germany – Sweden) included in May 2010

Market coupling for Central Western Europe (DE, FR, BeNeLux) started in November 2010 combined with a continued coupling mechanism with Nord Pool Spot

NorNed cable (NO-NL) included in January 2011

Poland coupled with Nord Pool Spot in December 2010

UK coupling to be started trough BritNed cable in April 2011

The TSOs and power exchanges are developing a single

market coupling for the whole western Europe by end-2012

Estonian price area in Nord Pool Spot since April 2010

with full integration of the Baltic States during 2011–2013

EU’s European Target Model for cross-border power trading

sets 2015 as deadline for an EU-wide market coupling

2006

2010

2009

2012

2010-2013

2011

Current transmission capacity from Nordic area to Continental Europe is ~4000 MW

Theoretical maximum in transmission capacity ~35 TWh per annum

Net export from Nordic area to Continental Europe in 2008 was ~15 TWh and in 2009 ~5 TWh

Approximately 20 TWh net export fairly easily reachable

700

2100

600

600

350

Countries

Transmission

capacity

MW

From Nordel

To Nordel

Denmark - Germany

2 100

1 550

Sweden - Germany

600

600

Sweden - Poland

600

600

Norway - Netherlands

700

700

Total

4 000

3 450

Nordic and Continental markets are integrating – interconnection capacity could double by 2020

New interconnections could double the capacity to over 8000 MW by 2020

Additional 700 MW cable NO-NL, as well 1400 MW NO-DE links studied

EU financial support for 700 MW DK-NL link to connect offshore wind, too

EU support to connect Kriegers Flak offshore wind area to DK&DE; new 400 kV AC cable SE-DK by 2017

Jutland – DE capacity to be increased by 500 MW in 2012 and by further 500 MW by 2018

LitPol Link of 1000 MW to connect the Baltic market to Poland by 2015/20. It would open a new transmission route from the Nordic market to the Continent

New internal Nordic grid investments provide for increased available capacity for export to the Continent and Baltics

EU’s European Energy Programme for Recovery to cofinance to Estlink 2 and NordBalt

1400 MW link to the UK could connect offshore wind, too; North Seas Countries’ Offshore Grid Initiative launched for supergrid development

In the EU's Second Strategic Energy Review the Commission focuses strongly on interconnecting the Baltic states and Poland to form an electricity market around the Baltic Sea

Nordic water reservoirs historically low

Source: Nord Pool Spot

Q1

Q2

Q3

Q4

2003

2008

2009

2011

2010

reference level

reservoir content (TWh)

0

20

40

60

80

100

120

Increased power consumption

Fortum currently expects Nordic power demand to recover back to the 2008 level by 2012-2014

Temperature corrected power consumption in Nordic countries is still appr. 4% (~16 TWh ) lower than in 2008.

-1 %

3 %

7 %

11 %

15 %

Tyumen

Chelyabinsk

Russia Urals

area

Russia

Q1 2010 vs Q1 2009

Q2 2010 vs Q2 2009

Q3 2010 vs Q3 2009

Q4 2010 vs Q4 2009

0 %

5 %

10 %

15 %

Finland

Sweden

Norway

Denmark

Nordic

Q1 2010 vs Q1 2009

Q2 2010 vs Q2 2009

Q3 2010 vs Q3 2009

Q4 2010 vs Q4 2009

Nordic year forwards

Source: NASDAQ OMX Commodities Europe

Year 15

Year 08

Year 09

Year 10

Year 11

Year 12

Year 13

Year 14

Year 16

2007

Q1

Q2

Q3

Q4

Q1

2008

Q2

Q3

Q4

Q1

2009

Q2

Q3

Q4

Q1

2010

Q2

Q3

Q4

Q1

2011

0

10

20

30

40

50

60

70

€/MWh

1 February 2011

Wholesale price for electricity

Source: Nord Pool Spot, NASDAQ OMX Commodities Europe

Nord Pool System Price

Forwards

EUR/MWh

1 February 2011

Wholesale prices for electricity

Source: , ATS

Dutch

German

Nordic

Russian*

0

10

20

30

40

50

60

70

80

90

100

110

EUR/MWh

2007

2008

2009

2010

2011

2012

2 February 2011

Spot prices

Forward prices

* Including capacity tariff estimate. E.g ~9 €/MWh for 2009 and 2010.

Fuel and CO2 allowance prices

Source: ICE, NASDAQ OMX Commodities Europe

Market prices 1 February 2011; 2011-2012 future quotations

2010 average:

80 (63)

2010 average:

14 (13)

2010 average:

92 (70)

2010 average:

41 (32)

Nordic power generation

– dominated by hydro, but fossil needed

Source: ENTSO-E Memo 2009, wind generation Eurostat

*) Normal annual Nordic hydro generation 200 TWh, variation +/- 40 TWh.

20

73

TWh

%

61

206

10

5

20

16

56

3

TWh/a

Total Nordic generation

370 TWh in 2009

Net import in 2009: 5 TWh

Still a highly fragmented Nordic power market

Source: Fortum, company data, shares of the largest actors, 2009 figures.

Statkraft

Vattenfall

Dong Energy

Others

Fortum

32%

E.ON

PVO

E-CO Energi

Agder Energi

Norsk Hydro

Helsinki

Syd Energi

SEAS-NVE

Fortum

Vattenfall

Others

Hafslund

E.ON

51%

Helsinki

Statkraft

Göteborg

Dong Energy

Öresunds-

kraft

Vattenfall

Fortum

Helsinki

Others

53%

Hafslund

SEAS-NVE

Statkraft

Bixia

Dong

Energy

E.ON

Power generation

370 TWh

>350 companies

Electricity distribution

14 million customers

~500 companies

Electricity retail

14 million customers

~350 companies

Main Message

Fortum is a leading Nordic energy company.

Nevertheless, with a market share of about 10 per cent for each phase of the energy chain, Fortum is, in fact, a relatively minor actor from a Nordic point of view.

Facts

In the Nordic electricity market, Fortum is responsible for

13% of the electricity generation (in TWh)

11% of the electricity distribution (by number of electricity distribution customers)

8% of electricity retail (by number of electricity retail customers)

Fortum today


Russia


Data 2009 based on gross output.

Source: BP Statistical Review of World Energy June 2010

Russia is the World’s 4th largest power market

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

TWh

South Korea

Germany

US

China

Japan

Russia

India

Canada

France

Nordic

UK

Brazil

OAO Fortum (former TGC-10)

Operates in the heart of Russia’s oil and gas producing region, fleet mainly gas-fired CHP capacity

16 TWh power generation, 26 TWh heat production in 2010; more than Fortum’s Nordic heat sales

Investment programme to add 85%, almost 2,400 MW to power generation capacity

Annual efficiency improvement approximately

EUR 100 million in 2011

TGC-1

Slightly over 25% of territorial generating company TGC-1 operating in north-west Russia

~6,350 MW electricity production capacity (appr. 50% hydro), ~27 TWh/a electricity, ~31 TWh/a heat

*

Fortum - a major player in Russia

Surgut

Tyumen

Tobolsk

Moscow

St. Petersburg

Chelyabinsk

Nyagan

OAO Fortum

TGC-1

Power market liberalisation – two markets

*

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 prices

Competitive capacity selection (CCS) and free bilateral agreements (FBA)

A higher, fixed capacity price for new

capacity (CSA* agreements, built after 2007)

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)

Electricity prices

Day ahead (spot) market, financial market, free bilateral agreements (FBA) and regulated bilateral agreements (RBA)

Fully liberalised from 1 Jan 2011 except for volumes intended for households priced by RBA (~10% of volume)

* Capacity supply agreement

Capacity wholesale market

Electricity wholesale market

*

Day ahead wholesale market prices

– increase driven by recovering demand and gas price

2

III/2009

III/2008



817

693


price for OAO Fortum, RUB/MWh

613


price, RUB/MW/month

167

Average regulated gas price

in Urals region, RUB/1000 m

2,221

1,937

IV/2010

IV/2009




price for OAO Fortum, RUB/MWh

536


price, t

186

3

Key electricity, capacity and gas prices in the OAO Fortum area

2010

835

2,221

614

169

2009

633

1,781

533

187

31%

24%

15%

-9%

Change


In addition to the power price generators receive a capacity payment.

2007

2008

2009

2010


2011

*

*

*

Capacity prices for new capacity 3-4 times current 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 likely remain relatively low; potentially price caps could limit price

“New” capacity prices (under agreements) to be 3-4 times the “old” capacity prices

*

*

New capacity will receive clearly higher payments than the old

*

0

Long-term financial target will be dictated by basic economic logic

~EUR 100 million improvement in EBITDA through the efficiency improvement programme

Invested capital

EUR

~2.5 bn

~4 bn

2011

~2014

In 2009, WACC for Russia was ~12%

Assuming, having completed the investment programme, an invested capital of

a

b

a

… and an unchanged cost of capital

b

The annual comparable operating profit in Russia needs to be in excess of ~EUR 500 million in order to beat to cost of capital (WACC) …soon after the completion of the investment programme

*

0

The five key drivers for earnings improvement in Russia

Development of Heat business

Potential margin increase

(power price vs. gas price)

Increased income from new volume sold

Increased income from new capacity

(higher payments for new capacity)

Efficiency improvement programme

ILLUSTRATIVE

*

0

Purchasing

Portfolio Management and Trading (PMT)

Heat regulation

Heat - technical and business improvements

Generation - technical improvements

Others

Efficiency improvement programme in Russia:

~100 M€ EBITDA improvement in 2011

*

*

85% increase in power generation capacity by the end of 2014 through the investment programme

Power generation capacity (MW)

Plant

Fuel type

Existing

Planned

Total

Tyumen CHP-2

Gas

755

755

Tyumen CHP-1

Gas

472

231; 2*225

1153

Tobolsk CHP

Gas

452

200

652

Chelyabinsk CHP-3

Gas

360

226

586

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

Gas

3x418

1,254

Boilers

-

Total

2,785

2,361

5,146

(CHP/Condensing)

(CHP/Condensing)

(Condensing)

(Condensing)

Supply date

2012, 2012, 2013

H1/2011

H1/2011; 2014

H1/2011

Fortum today


Russia


Income statement

Sheet1

MEURQ1-Q3/00IV/2010IV/2009201020092007I-III/2007LTMLTM2004

Sales7,7321,9021,5636,2965,4355,6363,1595,35403,835

Expenses-7,109-1,361-993-4,463-3,547-3,673-1,832-3,4820-2,640

Comparable operating profit6235415701,8331,8881,9631,3271,87201,195

Other items affecting comparability-220-48-125-106

Operating profit3215221,7081,782

Share of profit of associates and jv's2122622112622396012

Financial expenses, net-209-57-39-155-167-239-117-2220-245

Profit before taxes02855051,61511,6361,8501,4331,74600

Income tax expense-83-25-74-261-285-254-218-3640-259

Net profit for the period-262604311,3541,3511,5961,2151,38200

Non-controlling interests29255439543135033

EPS, basic (EUR)0.390.260.461.461.481.741.331.521.711.48

EPS, diluted (EUR)0.260.461.461.481.741.331.521.710.79

0.69

&A

Page &P

Comparable and reported operating profit

IFRS accounting treatment (IAS 39) of derivatives affected operating profit

New English

MEURComparable operating profitReported operating profitComparable operating profitReported operating profit

IV/2010IV/2009IV/2010IV/20092010200920102009

Power3363911293271,2981,4541,1321,363

Heat122104124109275231303252

Distribution91809381307262321263

Electricity Sales311403711224629

Russia1781688-2053-20

Other-28-24-81-40-66-61-147-105

Total5415703215221,8331,8881,7081,782

Currency translation effects on comparable operating profit

I/2009I-III/2009

SEKOtherTotalSEKOtherTotal

Power Generation-55-3-58Power Generation-67-3-70

Heat-12-3-15Heat-10-2-12

Distribution-11-1-12Distribution-13-1-14

Markets-10-1Markets-1-1-2

Russia011Russia066

Other101Other011

Total-78-6-84Total-910-91

New Finnish

Liikevoitto 2007Liikevoitto 2006

Vert.kelp.RaportoituEroVert.kelpoinenRaportoituErocompop

Sähköntuotanto00000000

Lämpö00000000

Sähkönsiirto00000000

Markets00000000

Muu00000000

Yhteensä000000000

Liikevoitto I/2008Liikevoitto I/2007

Vert.kelpoinenRaportoituEroVert.kelpoinenRaportoituEro


Lämpö000000


Markets000000

Venäjä0000

Muu000000

Yhteensä000000

Vert.kelp.liikevoittoRaportoitu liikevoittoVert.kelp.liikevoittoRaportoitu liikevoitto

II/2010II/2009II/2010II/2009I-II/2010I-II/2009I-II/2010I-II/2009

Power3363911293271,2981,4541,1321,363

Heat122104124109275231303252

Distribution91809381307262321263

Sähkönmyynti311403711224629

Russia1781688-2053-20

Muut-28-24-81-40-66-61-147-105

Yhteensä5415703215221,8331,8881,7081,782

I-III/2009

SEKMuutYhteensä

Sähköntuotanto-67-3-70

Lämpö-10-2-12

Sähkönsiirto-13-1-14

Markets-1-1-2

Venäjä066

Muu011

Yhteensä-910-91

English

Operating profit II/2010Operating profit II/2009Operating profit I-II/2010Operating profit I-!!/2009

ComparableReportedComparableReportedComparableReportedComparableReported

Power271280340307695747755739

Heat33352639165194140154

Distribution53535454155166135135

Electricity Sales1023620-3-64-1

Russia-9-9-14-15723-8-9

Other-19-31-12-30-29-49-24-44

Total3393514003759901,0751,002974

Currency translation effects on comparable operating profit

I/2009I-III/2009

SEKOtherTotalSEKOtherTotal

Power Generation-55-3-58Power Generation-67-3-70

Heat-12-3-15Heat-10-2-12

Distribution-11-1-12Distribution-13-1-14

Markets-10-1Markets-1-1-2

Russia011Russia066

Other101Other011

Total-78-6-84Total-910-91

Finnish




Lämpö00000000


Markets00000000

Muu00000000

Yhteensä000000000




Lämpö000000


Markets000000

Venäjä0000

Muu000000

Yhteensä000000

Liikevoitto II/2010Liikevoitto II/2009Liikevoitto I-II/2010Liikevoitto I-II/2009

Vert.kelp.RaportoituVert.kelp.RaportoituVert.kelp.RaportoituVert.kelp.Raportoitu

Power271280340307695747755739

Heat33352639165194140154

Distribution53535454155166135135

Sähkönmyynti1023620-3-64-1

Russia-9-9-14-15723-8-9

Muut-19-31-12-30-29-49-24-44

Yhteensä3393514003759901,0751,002974

I-III/2009

SEKMuutYhteensä

Sähköntuotanto-67-3-70

Lämpö-10-2-12

Sähkönsiirto-13-1-14

Markets-1-1-2

Venäjä066

Muu011

Yhteensä-910-91

Swedish




Lämpö00000000


Markets00000000

Muu00000000

Yhteensä000000000




Lämpö000000


Markets000000

Venäjä0000

Muu000000

Yhteensä000000

Rörelseresultat II/2009Rörelseresultat II/2008Liikevoitto 2008Liikevoitto 2007

JämförbartRapporteratJämförbartRapporteratVert.kelp.RaportoituVert.kelp.Raportoitu

Kraftproduktion271280340307695747755739

Värme33352639165194140154

Distribution53535454155166135135

Markets1023620-3-64-1

Ryssland-9-9-14-15723-8-9

Övrigt-19-31-12-30-29-49-24-44

Summa3393514003759901,0751,002974

Cash flow statement

Sheet1

MEURIV/2010IV/2009201020092007I-III/2007LTMLTM

Operating profit before depreciations4686582,2712,2922,4781,6632,3700

Non-cash flow items and divesting activities222-412446-275-268-560

Financial items and fx gains/losses-192-102-641146233

Taxes-107-34-355-239-332-231-5340

Funds from operations (FFO)3915181,3992,2452,1041,1641,7800

Change in working capital-170-1223819-10216150

Total net cash from operating activities2213961,4372,2642,0021,3251,7850

Paid capital expenditures-432-266-1,134-845-1,018-341-9310

Acquisition of shares-20-28-28-87-1,243-257-1,2430

Other investing activities-23-2760-42-21258-340

Cash flow before financing activities-254753351,290-280985-4230

&A

Page &P

Key ratios

Sheet1

MEUR20102009200820062005

EBITDA2,2712,2922,4781,884

Comparable EBITDA2,3962,3981,1511,271

Interest-bearing net debt6,8265,9696,1794,3453,158

Net debt/EBITDA3.02.62.58,161

Comparable Net debt/EBITDA2.82.516,83915,130

2.31.8

Return on capital employed (%)11.612.115.013.413.5

Return on shareholders' equity (%)15.716.018.714.413.5

Sheet2

Sheet3

2011 February Nordic Power Exchange forward development

− Down by ~27 €/MWh from 2010 year end

27.1.2011

Last price at

€58.1 per MWh

Change +63%

30 Sept. -30 Dec. 2010

Change -32%

30 Dec. 2010 -27 Jan. 2011

30.12.2010

Year high at

€85.1 per MWh

Outlook

Key drivers and risks

Wholesale price of electricity

Fuel, CO2 emissions prices and water reservoirs

Nordic Markets

Market continues to recover – 2008 level reached by 2012-2014

Electricity continues to gain share of total energy consumption

Russia

Wholesale market fully liberalised

Achieved efficiency improvements compared to the time of the acquisition to be approximately EUR 100 million in 2011

Profits from Russia builds up in pace with the capacity increase

NOTE: Fuel, Co2 emissions prices and water reservoirs found in appendix

Outlook

Capex (excluding potential acquisitions)

2011-2012 around EUR 1.6 to 1.8 billion (mainly due to Russian investment programme)

2013-2014 around EUR 1.1 to 1.4 billion

Preliminary divestments agreed: total approximately EUR 0.5 billion in 2011

Hedging



Debt maturity profile

per 31 Dec, 2010 per 31 Dec, 2009

Average interest rate (incl. swaps and forwards)3,5 %3,4 %

Portion of floating / fixed debt 49 / 51 % 62 / 38 %

MEUR

2011862

2012624

2013636

20141.191

20151.042

2016870

2017243

201893

2019819

202043

2021+959

Liquidity at the end of 2010

Hedging improves stability and predictability

Summary on 2010

Strategy updated to support business actions

Sustainable solutions at the core of the strategy

Solid performance continued

Russia

Power reform proceeding, fully liberalised from January 2011

Demand improved

Fortum’s investment programme accelerated

Nordic countries

Demand recovered

Water reservoirs historically low

Strong financial position and liquidity

0

10

20

30

40

50

60

70

80

90

100

110

MEUR20102009

EBITDA2 2712 292

Comparable EBITDA2 3962 398

Interest-bearing net debt6 8265 969

Net debt/EBITDA3.02.6

Comparable Net debt/EBITDA2.82.5

Return on capital employed (%)11.612.1

Return on shareholders' equity (%)15.716.0

0

5

10

15

20

25

30

35

40

€/MWh

MEUR

Available

Outstanding

Total amount

SHORT TERM FINANCING

Commercial Paper Programmes

Finnish CP Programme

352

148

500

SEK 5.000 M Swedish CP Programme

171

386

558

524

534

1 058

LIQUID FUNDS AND COMMITTED CREDIT LINES

Committed Credit Lines

Short Term

1 418

0

1 418

Long Term

1 500

0

1 500

2 918

0

2 918

Liquid Funds

Cash and cash equivalents

285

Bank Deposits over 3 months

271

556

of which in Russia

348

Total Available Cash and Committed Financing

3 474

Gas price

(ICE NBP)

0

20

40

60

80

100

GBp / therm

2006200720102008200920122011

Crude oil price

(ICE Brent)

0

20

40

60

80

100

120

140

160

USD / bbl

2006200720102008200920122011

Coal price

(ICE Rotterdam)

0

40

80

120

160

200

240

USD / t

2006200720102008200920122011

CO

2

price

(NP EUA)

0

5

10

15

20

25

30

35

EUR / tCO

2

2006200720102008200920122011

Realised prices quarterly since 2000

0

10

20

30

40

50

60

70

80

20002001200220032004200520062007200820092010

EUR/MWh

Power's Nordic power priceSpot price, SE&FI avg.

0

10

20

30

40

50

60

70

80

90

2.8.2010

16.8.201030.8.201013.9.201027.9.2010

11.10.201025.10.2010

8.11.2010

22.11.2010

6.12.2010

20.12.2010

3.1.2011

17.1.2011

0

250

500

750

1000

1250

1500

20112012201320142015201620172018201920202021+

BondsFinancial institutionsOther long-term debtCPs

MEURIV/2010IV/200920102009

Sales1 902

1 5636 296

5 435

Expenses-1 361-993-4 463-3 547

Comparable operating profit5415701 8331 888

Other items affecting comparability-220-48-125-106

Operating profit3215221 7081 782

Share of profit of associates and jv's21226221

Financial expenses, net-57-39-155-167

Profit before taxes2855051 61511 636

Income tax expense-25-74-261-285

Net profit for the period2604311 3541 351

Non-controlling interests29255439

EPS, basic (EUR)0.260.461.461.48

EPS, diluted (EUR)0.260.461.461.48

0

20

40

60

80

100

120

140

DenmarkNorwaySwedenFinland

Fossil fuels

Nuclear

Biomass

Wind

Hydro *

Estimated capacity price for new capacity*, RUB/MW/month

Gas condensing (CCGT) Coal condensing

Region

>250 MW150-250 MW225 MW250 MW150-250 MW225 MW250 MW150-250 MW225 MW

fortum a leading power and heat company in the nordic area · natural gas 4%. european production...

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