fortum · nr 3 power generation electricity sales nr 2 nr 1 heat distribution nr 1 key figures 2012...
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FORTUM Power and heat company in the Nordic area, Russia, Poland and the Baltics
Investor / Analyst material
August 2013
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.
Content
3
Fortum today, pages 4 -17
European and Nordic power markets, pages 19 - 32
Data on Fortum’s nuclear fleet, pages 33 - 37
Russia, pages 39 - 45
Data on capacity payments, pages 41 - 43
Fortum’s investment programme, page 45
Financials and outlook, pages 47 – 53
Hedges, pages 53 - 54
More than 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 ~13 billion euros
4
31 July 2013
Foreign investors 25.3% Finnish State 50.8%
Other Finnish investors 10.1%
Households 11.2%
Financial and insurance institutions 2.6%
Capital returns / Dividend for 2012 EUR 1.00 ~ EUR 0.9 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
1,00 1,00 1,00 1,00 1,00
200858%
200968%
201068%
201150%
201263%
5 year dividend per share (EUR) history
• Fortum Corporation's target is to pay a stable, 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 ~9,518 MEUR
Organisational structure
6
Business Divisions
President and CEO
Tapio Kuula
Electricity Solutions and Distribution (Espoo)
Executive Vice President Timo Karttinen
Power (Espoo) Executive Vice President
Matti Ruotsala
Heat (Stockholm) Executive Vice President
Per Langer
Russia (Chelyabinsk) Executive Vice President
Alexander Chuvaev
Finance Chief Financial Officer
Markus Rauramo
Corporate Communications Senior Vice President
Helena Aatinen
Corporate Human Resources Senior Vice President
Mikael Frisk
Staff Functions
Country responsibles: Timo Karttinen / Finland, Norway; Per Langer / Sweden, Poland, Baltics; Alexander Chuvaev / Russia
Fortum’s Mission and Strategy
7
Strategy
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.
Mission
Build on the strong
Nordic core
Create solid earnings
growth in Russia
Build a platform for
future growth
Strong competence in CO2-free hydro and nuclear, efficient CHP production and
energy markets
Our geographical presence today
8
TGC-1 (~25%)
Power generation ~7 TWh
Heat sales ~8 TWh
OAO Fortum
Power generation 19.2 TWh
Heat sales 26.4 TWh
Russia
Poland Power generation 0.8 TWh
Heat sales 4.3 TWh
Baltic countries Power generation 0.4 TWh
Heat sales 0.9 TWh
Nordic countries
Power generation 51.6 TWh
Heat sales 14.5 TWh
Distribution customers 1.6 million
Electricity customers 1.2 million
Nr 3 Power
generation
Electricity
sales
Nr 2
Nr 1 Heat
Distribution
Nr 1
Key figures 2012 Sales EUR 6.2 bn
Operating profit EUR 1.9 bn
Balance sheet EUR 25 bn
Personnel 10,400
Great Britain Power generation 1.1 TWh
Heat sales 1.8 TWh
Divisions of Fortum
9
Power Division
Fortum’s power generation,
physical operation and
trading as well as expert
services for power
producers.
Heat Division
Combined heat and power
generation, district heating
and cooling activities and
b- to-b heating solutions.
Electricity Solutions and
Distribution Division
Fortum's electricity sales and
distribution activities. Two
business areas: Distribution
and Electricity Sales.
Russia Division
Power and heat generation
and sales in Russia. It
includes OAO Fortum and
Fortum’s slightly over 25%
holding in TGC-1.
Business
description
Comparable
operating
profit
Net assets
Volume
(TWh)
Drivers
EUR 1,144 million
Distr.: EUR 3,911 million
El. sales: EUR 59 million
EUR 3,846 million
EUR 266 million Distr.: EUR 317 million
El. sales: EUR 38 million
EUR 68 million
Distr.net. 26.6, reg.net. 17.3
El. sales: 13.0
Heat sales 19.7
Power sales: 4.2 Nordic generation 49,2
EUR 6,454 million EUR 4,335 million
Fuel mix, heat and
power price
Nordic power price,
generation volumes New capacity, and price for
that, power and heat price
Power sales.: 23.3
Heat sales.: 26.4
Distr.: Regulated
El. sales: Sales margin
10
Fortum mid-sized European power generation player; major producer in global heat
* incl. Bashkirenergo, ** incl. RAO ES East, *** incl. TGC-5, TGC-6, TGC-7, TGC-9, **** incl. TGC-12, TGC-13, ***** incl. energy services
Source: Company information, Fortum analyses, 2011 figures pro forma, heat production of Beijing DH not available.
Largest global producers, 2011 TWh
Largest producers in Europe and Russia, 2011 TWh
Power generation Heat production
Electricity customers in EU, 2011 millions
Customers
GDF SUEZ
DEI
CEZ
Enel
Centrica
EDP
Iberdrola
SSE
EnBW
Fortum
EDF
E.ON
RWE
Gas Natural Fenosa
PGE
Tauron
Hafslund
Dong Energy
0 20 40 10 30
Vattenfall
KDHC, Korea
Quadra
Tatenergo Minskenergo
DTEK, Ukraine
EuroSibEnergo
MOEK
TGC-2
Fortum
Dong Energy
TGC-14
Lukoil
Gazprom
0 20 40 60 80 100 120 140
ELCEN, Rom.
Sibgenco ****)
***) IES
Vattenfall
PGNiG
Inter RAO UES *)
Dalkia *****)
RusHydro **)
***) IES
DEI
EuroSibEnergo Iberdrola
Fortum
EnBW
Vattenfall
CEZ
RWE
PGE
SSE Statkraft
Rosenergoatom Gazprom
NNEGC Energoat.
Enel E.ON EDF
0 100 200 300 400 500 600
GDF SUEZ
DTEK, Ukraine
Inter RAO UES *)
RusHydro **)
Biggest nuclear and hydro generators in Europe and Russia
11
TWh E
DF
Rosenerg
oato
m
E.O
N
NN
EG
C E
nerg
oato
m
Enel
RusH
ydro
Vattenfa
ll
GD
F S
UE
Z
Irkuts
kenerg
o
Sta
tkra
ft
RW
E
Iberd
rola
Fo
rtu
m
EnB
W
CE
Z
Verb
und
Kra
snoyars
kaya
HP
P
Axpo
Hid
roele
ctr
ica
ED
P
Gazpro
m
Alp
iq
Ukrh
ydro
energ
o
EP
S, S
erb
ia
Gas N
atu
ral F
enosa
E-C
O E
nerg
i
Nors
k H
ydro
DE
I
Agder
Energ
i
Edis
on
BK
K
Inte
r R
AO
UE
S
SS
E
PG
E
IES
0
50
100
150
200
250
300
350
400
450
500
550
600
Total generation
Other
Nuclear
Hydro
Figures 2010 pro forma
Fortum's carbon exposure among the lowest in Europe
12
0
200
400
600
800
1000
1200
DE
I
Dra
x
RW
E
CE
Z
SS
E
Edip
ow
er
Vatt
en
fall
Enel
ED
P
E.O
N
GD
F S
UE
Z
Do
ng
Un
ion
Feno
sa
EnB
W
Iberd
rola
Fort
um
tota
l
Verb
und
PV
O
Fort
um
EU
ED
F
Sta
tkra
ft
88
g CO2/kWh electricity, 2011
2012
68% of Fortum's total power generation CO2-free
93% of Fortum’s power generation in the EU CO2-free
Close to 100% of the ongoing investment programme
in the EU CO2-free
Average 338 g/kWh
192
Note:
Fortum’s specific emission of the power generation in 2012 in the EU were 42 g/kWh and in total 171 g/kWh.
Only European generation except “Fortum total“ which includes Russia.
Source:
PWC & Enerpresse, Novembre 2012
Changement climatique et Électricité, Fortum
Fortum’s strategic route
13
Divestment of
non-strategic
heat business
Länsivoima
→100% E.ON Finland
Separation of
oil businesses
Elnova
50%→100%
District heat
in Poland 2003 →
Østfold
Shares in
Hafslund
Shares in
Lenenergo
Starting
TGC-1
Divestment of
Lenenergo
shares
TGC-10
Divestment of
Fingrid shares
Divestment of
heat operations
outside of
Stockholm
2008 2005 2006 2007 2002 2003 2004 1999 2000 2001 1996 1998 2009 2010 2011
Länsivoima
45% → 65%
2012
Stockholm
Energi
Gullspång
Birka Energi 50% Fortum
50% Stockholm
Gullspång
Skandinaviska
Elverk
Birka Energi
50% → 100%
Stora
Kraft
Lenenergo
shares 1998→
IVO
1997
Neste
Divestment
of small
scale hydro
14
Fortum in the Nordic electricity value chain
Competitive businesses
Regulated businesses
Power generation
Nordic wholesale market
Power exchange and
bilateral agreements
Large customers
Retail customers
Private customers, small businesses
Independent transmission system
operator
Independent distribution companies
Distribution Transmission and
system services
Fortum's total power and heat production by source
15
Nuclear power 32%
Hydro power
34%
Coal 5%
Biomass 2%
Total generation 73.1 TWh
(Generation capacity 14,675 MW)
Natural gas 27%
Fortum's power generation
in 2012
Total production 43.3 TWh
(Production capacity 22,431 MW)
Fortum's heat production
in 2012
Oil 1%
Waste 5%
Heat pumps, electricity 8%
Peat 1%
Biomass
11%
Natural gas
62%
Coal 12%
Hydro power
47%
Coal 4%
Other 1%
Nuclear power 43%
Biomass 2%
European generation 53.9 TWh
(Generation capacity 11,271 MW)
Fortum's European
power generation in 2012
Natural gas 3%
European production 18.5 TWh
(Production capacity 9,035 MW)
Fortum's European
heat production in 2012
Peat 2%
Oil 2%
Heat pumps, electricity
18%
Waste 10%
Natural gas
21%
Coal 20%
Biomass
27%
Fortum's European power and heat production by source
16
Fortum a forerunner in sustainability
• Dow Jones Sustainability World Index
– Included for ten consecutive years
– Fortum the only Nordic power and heat company
• Carbon Disclosure Leadership Index
– Fortum globally third best company in the utility
sector 2012
– Fortum the only Nordic power and heat company
• SAM Sustainability Yearbook
• STOXX® Global ESG Leaders indices
• oekom
• OMX GES Sustainability Finland Index
• Storebrand SRI
17
European and Nordic power markets
18
Fortum today, pages 4 -17
European and Nordic power markets, pages 19 - 32
Data on Fortum’s nuclear fleet, pages 33 - 37
Russia, pages 38 - 45
Data on capacity payments, pages 41 - 43
Fortum’s investment programme, page 45
Financials and outlook, pages 47 – 53
Hedges, pages 53 - 54
Market coupling milestones - cross-border power flows optimised by power exchanges
• Market coupling between NL, BE and FR since 2006
• Germany – Nord Pool Spot coupling started 11/2009
• Market coupling for Central Western Europe (DE, FR, NL, BE) since 11/2010 with a continued coupling with Nord Pool Spot
• NorNed cable (NO-NL) included in January 2011
• Poland coupled with Nord Pool Spot since December 2010
• UK coupling started through BritNed cable in April 2011
• Czech, Slovakia and Hungary coupled since September 2012
• Estonian price area in Nord Pool Spot since April 2010, Lithuanian bidding area from 6/2012, Latvia joined in June 2013, with the whole Baltic market now in Nord Pool Spot
• The TSOs and power exchanges are developing a single market coupling for the whole north-western Europe by November 2013, with the Iberian market to join early 2014
• In addition to day-ahead coupling, intraday market coupling and balancing market integration targeted as well
• EU’s European Target Model for cross-border power trading sets 2014 as deadline for an EU-wide market coupling
19
2009
2013-
2014
2012
2010-
2013
Current transmission capacity from Nordic area to Continental Europe is over 4000 MW
20
Countries Transmission capacity MW
From Nordics To Nordics
Denmark - Germany 2,365 2,100
Sweden - Germany 610 600
Sweden - Poland 600 600
Norway - Netherlands 700 700
Total 4,275 4,000
• Theoretical maximum in transmission capacity ~35 TWh
per annum
• Net export from Nordic area to Continental Europe
during the Nordic wet year 2012 was ~18 TWh
• During 2011 net export was 7 TWh
• Approximately 20 TWh of net export is now reachable
700
2,365 610 600
350
Nordic and Continental markets are integrating – interconnection capacity will double by 2020
21
NO-UK link of 1,400 MW agreed to
be built by 2020; North Seas
Countries’ Offshore Grid Initiative
launched for supergrid development
First direct 1,400 MW NO-DE link
agreed to be built by 2018
EU financial support for a 700 MW
DK-NL link, due to be built by 2018
Jutland – DE capacity planned to
grow by 1,000-1,500 MW by 2018
EU support to connect Kriegers
Flak offshore wind area to DK&DE
by 2018
The Northern Seas Offshore Grid and the Baltic
Energy Market Integration Plan are included as
priority electricity corridors in EU’s Infrastructure
Guidelines, approved in April 2013
New interconnections will
double the capacity to
over 8,000 MW by 2020
LitPol Link (500+500 MW) to
connect the Baltic market to
Poland in 2015/20. It will open a
new transmission route from the
Nordic market to the Continent
EU’s European Energy Programme
for Recovery co-financing Estlink 2
(2014) and NordBalt (2015)
New internal Nordic and Baltic grid
investments provide for increased
available capacity for export to the
Continent and Baltics
Svenska Kraftnät is starting a
study to extend the South West DC
Link from Sweden to Germany
350 MW of export capacity from
Finland to Russia due to become
available from March 2014
Nordic water reservoirs
22
Source: Nord Pool Spot
2000 2003 2010 2012 2011 reference level 2013
Q1 Q2 Q3 Q4
20
40
60
80
100
120
rese
rvo
ir c
on
ten
t (T
Wh
)
0
Nordic year forwards
23
Source: NASDAQ OMX Commodities Europe
Year 15 Year 17 Year 09 Year 10 Year 11 Year 12 Year 13 Year 14 Year 16 Year 18
0
10
20
30
40
50
60
70
12 August 2013 €/MWh
2013
Q1
2007
Q2 Q3 Q4 Q1
2008
Q2 Q3 Q4 Q1
2009
Q2 Q3 Q4 Q1
2010
Q2 Q3 Q4 Q1
2011
Q2 Q3 Q4 Q1
2012
Q2 Q3 Q4 Q1 Q2 Q3
Wholesale price for electricity
24
Source: Nord Pool Spot, NASDAQ OMX Commodities Europe
24
0
10
20
30
40
50
60
70
80
90
100
110
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
EUR/MWh Nord Pool System Price Forwards
12 August 2013
Wholesale prices for electricity
25
Source: Nord Pool Spot, NASDAQ OMX Commodities Europe, APX-ENDEX, Bloomberg Finance LP, ATS, NP “Market Council”, Fortum
* Including weighted average capacity price
10
20
30
40
50
60
70
80
90
100
110
2008 2009 2010 2011 2012 2013 2014 2015
Dutch
German
Nordic
Russian*
Spot prices Forward prices EUR/MWh
12 August 2013 0
26
Source: ICE
Market prices 12 August 2013; 2013-2014 future quotations
Fuel and CO2 allowance prices
020406080
100120140160
US
D /
bb
l
Crude oil price (ICE Brent)
2006 2007 20102008 2009 20122011 2013 20140
5
10
15
20
25
30
35
EU
R /
tC
O2
CO2 price (ICE ECX EUA)
2006 2007 20102008 2009 20122011 2013 2014
0
40
80
120
160
200
240
US
D /
t
Coal price (ICE Rotterdam)
2006 2007 20102008 2009 20122011 2013 20140
20
40
60
80
100
GB
p /
th
erm
Gas price (ICE NBP)
2006 2007 20102008 2009 20122011 2013 2014
Nordic power generation – dominated by hydro, but fossil needed
27
Source: ENTSO-E Memo 2012 *) Normal annual Nordic hydro generation 200 TWh, variation +/- 40 TWh.
0
20
40
60
80
100
120
140
160
Denmark Norway Sweden Finland
Fossil fuels
Nuclear
Biomass
Wind
Hydro *
TWh/a
Total Nordic generation
406 TWh in 2012
Net import in 2012: -14 TWh
24
83
TWh %
43
237
19
6
21
10
58
5
28
Fortum’s Nordic generation capacity
SE1
SE2
SE3
SE4
MW Finland
Wind 3
Hydro 1 499
Nuclear 1 460
CHP 703
Other thermal 1 388
5 053
Generation capacity
in Finland
1 685
4 665
Other thermal
Hydro
Nuclear
CHP
3 247
Wind 17
Nordic capacity 10 929
1 315
Nordic MW
At the end of Q3 2012
Price areas MW
SE2 1 557
Hydro 1 543
Wind 14
SE3 4 022
Hydro 1623
Nuclear 1 787
CHP 612
Other thermal 297
SE4
Sweden
5 876
Generation capacity
in Sweden
Still a highly fragmented Nordic power market
29
Source: Fortum, company data, shares of the largest actors, pro forma 2011 figures.
Power generation
378 TWh
>350 companies
Electricity distribution
15 million customers
~500 companies
Electricity retail
15 million customers
~350 companies
Others
52%
E.ON
Vattenfall
Fortum
Dong Energy
Göteborg, DinEl
SEAS-NVE
Hafslund
Helsinki
Statkraft
Bixia
Fortum
Vattenfall
Others
E.ON
54%
SEAS-NVE
Hafslund
Helsinki
Göteborg
Syd Energi
Dong Energy
Elenia
33%
Fortum
Vattenfall
Dong Energy
Others
Statkraft
E.ON PVO
E-CO Energi
Helsinki
Norsk Hydro BKK
New capacity needed for increasing demand and retiring capacity replacements
• Growing global energy demand
will be increasingly fulfilled by
electricity in the future
• Substantial demand growth in
the emerging markets
• Retirements and moderate
demand growth in the EU
• Globally, 5,900 GW of new
capacity needed by 2035
30
1) Total new capacity needed for increasing demand and retiring capacity replacements Source: IEA WEO 2012 (New polices scenario)
384
606
548
923
153
245
190
1,487
70
666
631
1,964
1,976
5,891 New capacity,
total (1
Capacity changes, 2012-2035 (GW)
Retiring capacity
US Europe Russia China India Other
areas
World
total
0 %
50 %
100 %
150 %
200 %
250 %
~20%
~ 40%
~130%
~240%
Growth, 2010-2035
Primary energy demand
Electricity generation
New capacity will require over 60 EUR/MWh power price
31
Estimated lifetime average cost in nominal 2014 terms.
Large variations in cost of new hydro and wind due to location and conditions.
Gas Nuclear Hydro Wind Clean coal
EUR/MWh
0
10
20
30
40
50
60
70
80
90
100
110
Other costs ( variation)
CO2 cost
Coal 0
10
20
30
40
50
60
70
80
90
100
110
Source: Nord Pool spot, NASDAQ OMX Commodities Europe
EUR/MWh
Futures
12 August 2013
1995 2013 2023
Fortum’s investment programme – Nordic region and Baltic countries
Project Electricity, MW Heat, MW Commissioned
Olkiluoto 3, Finland 400
Swedish nuclear upgrades 290
Refurbishing of hydro power 10 annually
Additional electricity capacity around 870 MW 100% CO2-free
Total ~870 ~380
32
Blaiken, Sweden, wind power 30 Q1 2013
Brista, Sweden
(waste CHP)
20 57 Q4 2013
23 Järvenpää, Finland, biomass CHP 63 Q2 2013
Jelgava, Latvia
(biomass CHP)
23 45 Q3 2013
Värtan, Sweden
(biomass CHP)
130 280 Q2 2016
20 Klaipeda, Lithuania, waste CHP 60 Q2 2013
Already commissioned:
Overview of Fortum’s nuclear fleet
33
LOVIISA OLKILUOTO OSKARSHAMN FORSMARK
Commercial operation started
Unit 1: 1977
Unit 2: 1981
Unit 1: 1978
Unit 2: 1980
Unit 3: (Under construction)
Unit 1: 1972
Unit 2: 1974
Unit 3: 1985
Unit 1: 1980
Unit 2: 1981
Unit 3: 1985
Generation Capacity
Fortum’s share
Unit 1: 496 MW
Unit 2: 496 MW
Total: 992 MW
Unit 1: 880 MW
Unit 2: 880 MW
(Unit 3: 1,600 MW)
Total: 1,760 MW (3,360)
27% 468 MW
Unit 1: 473 MW
Unit 2: 638 MW
Unit 3: 1,400 MW
Total: 2,511 MW
43% 1,089 MW
Unit 1: 984 MW
Unit 2: 996 MW
Unit 3: 1,170 MW
Total: 3,150 MW
22% 699 MW
Yearly production
Fortum’s share of production
8 TWh
8 TWh
14 TWh
4 TWh
17 TWh
7 TWh
25 TWh
5.5 TWh
Share of Fortums Nordic production
18% 9% 16% 13%
Majority owner
Fortum’s share
Fortum
Pohjolan Voima
26.6%
E.ON
43.4%
Vattenfall
22.2%
Operated by Fortum Teollisuuden Voima (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.
Olkiluoto
Loviisa Forsmark
Oskarshamn
Fortum's nuclear power in the Nordics
34
• Finnish units world class in availability
• Overview of production and consumption: www.fortum.com/investors - energy related links
Source: Fortum
Variety of technologies and ages
35
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.
*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.
Unit Mwe (Net) Share (%) Share (Mwe) Commercial
operation
Age Type/
Generation *
Supplier
Loviisa 1
Loviisa 2
496
496
100,0
100,0
496
496
1977-05-09
1981-01-05
36
32
PWR / 1
PWR / 1
AEE (Atomenergoexport)
AEE (Atomenergoexport)
Olkiluoto 1
Olkiluoto 2
Olkiluoto 3
880
880
(1,600)
26,6
26,6
25,0
234
234
(400)
1979-10-10
1982-07-10
(?)
34
31
BWR / 3
BWR / 3
PWR / 3
Asea-Atom / Stal-Laval
Asea-Atom / Stal-Laval
Areva / Siemens
Oskarshamn 1
Oskarshamn 2
Oskarshamn 3
473
638
1,400
43,4
43,4
43,4
205
277
607
1972-02-06
1975-01-01
1985-08-15
41
38
28
BWR / 1
BWR / 2
BWR / 4
Asea-Atom / Stal-Laval
Asea-Atom / Stal-Laval
Asea-Atom / Stal-Laval
Forsmark 1
Forsmark 2
Forsmark 3
984
996
1,170
23,4
23,4
20,1
230
233
236
1980-12-10
1981-07-07
1985-08-18
33
32
28
BWR / 3
BWR / 3
BWR / 4
Asea-Atom / Stal-Laval
Asea-Atom / Stal-Laval
Asea-Atom / Stal-Laval
Third party nuclear liability in case of severe accident
36
Sweden
(new, not
in force)
Finland,
temporary
legislation
Current,
Sweden
700 M€
200 M€ 360 M€
500 M€ Responsibility of company
(insurance or guarantee)
Unlimited
company
responsibility
Convention
parties 300 M€
State
responsibility
300 M€
500 M€
700 M€
New Paris
convention
700 M€
145 M€
145 M€
Old,
Finland
240 M€
145 M€
Has been approved by the Parliament.
In force 1.1.2012 onwards.
Law approved by Parliament in
2010, requires separate decision
from Government to come into
force.
Requires ratification by 2/3
of member states to come
into force. In Finland
approved by Parliament in
2005
Nuclear upgrades in Sweden
37
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, 2015 30 + 180 95 355 ~3
OKG 3 2011 255 110 607 ~5
FKA 1 Decision 2013 120 ~25 257 ~2
FKA 2 2013 120 25 259 ~2
FKA 3 Decision 2013 170 ~35 270 ~2
Total ~290 ~2 ~1,950* ~15
Capacity increase and completion timetable based on recent estimate (Nord Pool). At 31.12.2012
* Fortum's share of Swedish nuclear capacity was 1,787 MW.
Russia
38
Fortum today, pages 4 -17
European and Nordic power markets, pages 19 - 32
Data on Fortum’s nuclear fleet, pages 31 - 37
Russia, pages 39 - 45
Data on capacity payments, pages 41 - 43
Fortum’s investment programme, page 45
Financials and outlook, pages 47 – 53
Hedges, pages 53 - 54
Russia is the World’s 4th largest power market
39
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
TWh
5,000
Power generation in 2012 based on gross output.
Source: BP Statistical Review of World Energy June 2013
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
• 19 TWh power generation, 25 TWh heat production in 2012;
more than Fortum’s Nordic heat sales (15 TWh)
• Investment programme to add 85%, almost 2,400 MW to power
generation capacity
TGC-1
• Slightly over 25% of territorial generating company TGC-1 operating in
north-west Russia
• ~6,800 MW electricity production capacity (more than 40% hydro),
~28 TWh electricity, ~31 TWh heat in 2012
40
OAO Fortum
Tyumen
Tobolsk
Chelyabinsk
Nyagan
TGC-1
St. Petersburg
Moscow
41
Day ahead wholesale market prices – increase driven by recovering demand and gas price
2
Key electricity, capacity and gas prices in the OAO Fortum area
II/13 II/12 I-II/13 I-II/112 2012 LTM
Electricity spot price
(market price), Urals hub,
RUB/MWh
970 888 950 869 956 997
Average regulated gas
price, Urals region, RUB
1000 m3
2,836 2,548 2,880 2,548 2,736 2,902
Average capacity price for
CCS ”old capacity”,
tRUB/MW/month
146 136 162 151 152 158
Average capacity price for
CSA ”new capacity”,
tRUB/MW/month
513 470 575 523 539 567
Average capacity price,
tRUB/MW/month
252 202 262 223 227 247
Achieved power price for
OAO Fortum, EUR/MWh 31.1 29.4 30.8 29.3 30.6 31.3
0
5
10
15
20
25
30
35
40
€/
MW
h
Day ahead power market prices for Urals
In addition to the power price generators receive a capacity payment.
Source: ATS
2008 2009 2010 2011 2012 2013
Power market liberalisation – two markets
42
Capacity wholesale market Electricity wholesale market
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
•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
43
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
Key factors behind the profitability improvement in Russia
44
Efficiency improvement programme 2008-2011
– Increasing heat production profitability
– Fuel efficiency improvement
– Cost savings
New CSA capacity commissioning 2011-2014
– Additional capacity 2,388 MW; +85%
– Capacity is sold at CSA (Capacity Supply
Agreement) contracts with guaranteed higher price
Pace of new capacity increase of Fortum investment programme in Russia
2011 - 638 MW
2012 - 0 MW
2013 - 836 MW
2014 - 914 MW
Total - 2,388 MW
85% increase in power generation capacity in Russia by the end of 2014 through the investment programme
45
Financials and outlook
46
Fortum today, pages 4 -17
European and Nordic power markets, pages 19 - 32
Data on Fortum’s nuclear fleet, pages 33 - 37
Russia, pages 39 - 45
Data on capacity payments, pages 41 - 43
Fortum’s investment programme, page 45
Financials and outlook, pages 47 – 53
Hedges, pages 53 - 54
Income statement
MEUR II/2013 II/2012 I-II/2013 I-II/2012 2012 LTM
Sales 1,327 1,284 3,318 3,185 6,159 6,292
Expenses -1,029 -1,000 -2,370 -2,247 -4,407 -4,530
Comparable operating profit 298 284 948 938 1,752 1,762
Items affecting comparability 140 2 93 87 122 128
Operating profit 438 286 1,041 1,025 1,874 1,890
Share of profit of associates and jv’s 33 26 62 19 23 66
Financial expenses, net -83 -74 -156 -151 -311 -316
Profit before taxes 388 238 947 893 1,586 1,640
Income tax expense -74 -47 -181 -166 -74 -89
Net profit for the period 314 191 766 727 1,512 1,551
Non-controlling interests 0 4 51 43 96 104
EPS, basic (EUR) 0.35 0.21 0.80 0.77 1.59 1.63
EPS, diluted (euroa) 0.35 0.21 0.80 0.77 1.59 1.63
47
Comparable and reported operating profit
II/2013 II/2012 II/2013 II/2012 I-II/2013 I-II/2012 I-II/2013 I-II/2012
Power 210 222 337 214 513 564 600 582
Heat 11 24 8 21 181 186 183 235
Russia 20 4 21 15 61 52 61 63
Distribution 60 51 61 52 197 161 197 169
Electricity Sales 13 11 26 11 28 20 31 22
Other -16 -28 -15 -27 -32 -45 -31 -46
Total 298 284 438 286 948 938 1,041 1,025
48
Comparable
operating profit
Comparable
operating profit
Reported
operating profit
Reported
operating profit MEUR
• Non-recurring items, IFRS accounting treatment (IAS 39) of derivatives and nuclear fund adjustments had an impact on the reported operating profit EUR 140 (2) million in the second quarter, EUR 93 (87) during the first half of the year.
Cash flow statement
MEUR II/2013 II/2012 I-II/2013 I-II/2012 2012 LTM
Operating profit before depreciations 617 449 1 389 1 346 2 538 2 581
Non-cash flow items and divesting activities -188 -18 -161 -119 -192 -234
Financial items and fx gains/losses -131 -132 -347 -274 -522 -595
Taxes -58 -89 -82 -167 -269 -184
Funds from operations (FFO) 240 210 799 786 1 555 1 568
Change in working capital 160 109 247 86 -173 -12
Total net cash from operating activities 400 319 1 046 872 1 382 1 556
Paid capital expenditures -260 -305 -547 -577 -1 422 -1 392
Acquisition of shares -11 -3 -12 -3 -14 -23
Other investing activities -10 32 33 287 308 54
Cash flow before financing activities 119 43 520 579 254 195
49
Key ratios
MEUR LTM 2012 2011
EBITDA 2,581 2,538 3,008
Comparable EBITDA 2,443 2,416 2,374
Interest-bearing net debt *8,035 7,814 7,023
Comparable net debt/EBITDA 3.3 3.2 3.0
50
Return on capital employed, ROCE (%) 10.5 10.2 14.8
Return on shareholders’ equity, ROE (%) 15.4 14.6 19.7
Good liquidity – committed credit lines total EUR 2.2 billion
*30.6.2013
0
250
500
750
1000
1250
1500
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023+
Bonds Financial institutions Other long-term debt CPs Other short-term debt
MEUR
2013 760
2014 1.274
2015 1.095
2016 881
2017 584
2018 667
2019 841
2020 74
2021 576
2022 971
2023+
TOTAL
1.340
9.063
51
per 30 Jun, 2013 per 31 Dec, 2012
Average Interest Rate (incl. swaps and forwards) 3.9 % 4.5 %
Portion of floating / fixed debt 54 / 46 % 45 / 55 %
Debt Maturity Profile
Outlook
Nordic markets
‒ Annual electricity demand growth estimated to be on average 0.5%
‒ Electricity continues 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 Division during 2015
Key drivers and risks
‒ Wholesale price of electricity and volumes • demand and supply • fuels
• hydrological situation • power plant availability
• CO2 emissions allowance prices
52
Outlook
Annual capex estimate excluding potential acquisitions – 2013 EUR 1.1 to 1.4 billion
– 2014 EUR 0.9 to 1.1 billion
Hedging – Rest of 2013 approximately 75% hedge ratio at approximately EUR 45/MWh
(Q1: 80% at EUR 45/MWh)
– 2014 approximately 50% hedge ratio at approximately EUR 42/MWh
(Q1: 45% at 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, corporate tax rate to be reduced from 24.5% to 20% starting 1 January 2014. The decrease would cause a one-time positive effect that would be booked in the fourth quarter 2013.
– Update of real estate taxation values is ongoing in Sweden and is expected to be finalised during the third quarter 2013. The proposal would increase Fortum’s costs by approximately EUR 40 million in 2013 compared to 2012.
– The Finnish Government have announced that a so-called windfall tax, to be introduced in 2014, will be cut to EUR 50 million from EUR 170 million.
53
54
Hedging improves stability and predictability
2009 onwards thermal and import from Russia excluded
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
EUR/MWh
Realised prices quarterly since 2000
Achieved power price Spot price, SE&FI avg.
Efficiency programme launched to maintain and strengthen the strategic flexibility and competitiveness
55
"The core of our activities is to fulfill our strategy of long-term
business operations, the aim of which is to strengthen our Nordic
core business, create solid earnings growth in Russia and build a
platform for future growth"
Fortum's efficiency programme 2013-2014
56
SPEED - Cash flow improved by EUR 1 billion - FLEXIBILITY
CAPEX EUR 250-350 million
DIVESTMENTS EUR 500 million
WORKING CAPITAL
Reduction
FIXED COSTS
Reduce EUR 150 million compared to 2012
WHY WHAT WHEN
2013-2014
• Efficiency programme proceeding well according to plan
• Cost savings
• Divestments
Assessment of Fortum’s electricity distribution business
• Fortum has decided to assess the future alternatives, including divestment, of its
electricity distribution business
• In accordance with its strategy, Fortum seeks growth in low-carbon power
generation, energy-efficient CHP production and customer offerings
57
Fortum Distribution • Customers: 1.6 million
• Distributed electricity: 43,954 GWh
• Length of network: 156,000 km
• Nr of employees: ~ 900
• Sales: 1,070 MEUR
• Comparable operating profit: 317 MEUR
• Comparable EBITDA: 526 MEUR
• Net assets: 3,911 MEUR
Finland Customers: 633,000
Distributed electricity:
12,624 GWh
Sweden Customers: 900,000
Distributed electricity:
28,925 GWh
Norway Customers: 102,000
Distributed electricity:
2,405 GWh
