fortum power and heat company in the nordic area, russia, …€¦ · nr 2. power generation....
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FORTUM Power and heat company in the Nordic area, Russia, Poland and the Baltics
Investor/Analyst materialMarch 2012
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, pages 4 -17
European and Nordic power markets, pages 19 - 30Data on Fortum’s nuclear fleet, pages 31 - 37
Russia, pages 39 - 46Data on capacity payments, pages 42 - 43Fortum’s investment programme, page 46
Financials and outlook, pages 48 – 56Hedges, pages 54 - 55
Content
4
Foreign investors 27.8%Finnish State 50.8%
Other Finnish investors 9.9%
Households 8.3% Financial and insurance institutions 3.2%
• 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 ~17 billion euros
More than 100,000 shareholders
29 February 2012
5
Total ~ 8,630 MEUR
1999 2001 20032000 2002 2004
0.18 0.23 0.26 0.310.42
0.58
2005
1.12
Dividend per shareEUR
0.13
1998
0.58
0.54
2006
1.26
0.73
0.53
• Proposed dividend 2011 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%
1.00
2011
50%
6
Organisational structure
Business Divisions
President and CEOTapio Kuula
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 President
Alexander Chuvaev
FinanceExecutive Vice President and
Chief Financial OfficerJuha Laaksonen
Corporate Relations and Strategy
Executive Vice PresidentAnne Brunila
Corporate Human ResourcesSenior Vice President
Mikael Frisk
Staff Functions
Country responsibles: Timo Karttinen / Finland, Norway; Per Langer / Sweden, Poland, Baltics; Alexander Chuvaev / Russia
77
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 hydro, nuclear and energy efficient CHP production,and energy markets competence
Fortum’s Mission and Strategy
8
Strategy builds on our competences and industry beliefs
88
• 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
9
Our geographical presence today
TGC-1 (~25%)Power generation ~7 TWhHeat sales ~8 TWh
OAO Fortum Power generation 17.4 TWhHeat sales 26.7 TWh
Russia
PolandPower generation 0.6 TWhHeat sales 4.3 TWh
Baltic countriesPower generation 0.4 TWhHeat sales 1.1 TWhDistribution cust. ~24,000*
Nordic countriesPower generation 53.1 TWhHeat sales 17.2 TWhDistribution customers 1.6 millionElectricity customers 1.2 million
Nr 2 Power generation
Electricity sales
Nr 2
Nr 1 Heat
DistributionNr 1
Key figures 2011Sales EUR 6.2 bnOperating profit EUR 2.4 bn Personnel 10,800
Great BritainPower generation 1.2 TWhHeat sales 2.1 TWh
* Distribution business sold Jan 1, 2012
10
Power DivisionFortum’s power generation, physical operation and trading as well as expert services for power producers.
Heat DivisionCombined heat and power generation, district heating and cooling activities and b- to-b heating solutions.
Electricity Solutions and Distribution DivisionFortum's electricity sales and distribution activities. Two business areas: Distribution and Electricity Sales.
Russia DivisionPower and heat generation and sales in Russia. It includes OAO Fortum and Fortum’s slightly over 25% holding in TGC-1.
Businessdescription
Comparableoperating profit
Net assets
Volume (TWh)
Drivers
EUR 1,201 million
Distr.: EUR 3,589 millionEl. sales: EUR 11 million
EUR 3,273 million
EUR 278 million Distr.: EUR 295 million El. sales: EUR 27 million
EUR 74 million
Distr.net. 26.1, reg.net. 14.1El. sales: 14.4
Heat sales 22.6 Power sales: 6.2
Nordic generation 48.1
EUR 6,247 million EUR 4,191 million
Fuel mix, heat andpower price
Nordic power price,generation volumes
New capacity, and price for that, power and heat price
Power sales.: 20.2 Heat sales.: 26.7
Distr.: RegulatedEl. sales: Sales margin
Divisions of Fortum
11
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, 2010 figures pro forma, heat production of Beijing DH not available.28.2.2012 Vattenfall deal pro forma
Largest global producers, 2010 TWh
Largest producers in Europe and Russia, 2010TWh
Power generation Heat productionElectricity customers in EU, 2010
millions
Customers
DEI
Irkutskenergo*) IES
Iberdrola
RusHydroFortum
EnBW
Vattenfall
CEZ
RWE
PGESSE
Statkraft
RosenergoatomGazprom
NNEGC Energoat.
EnelE.ONEDF
0 100 200 300 400 500 600
Inter RAO UES
GDF SUEZ***)
Onexim
Tatenergo
Minsk EnergoKievenergo
IrkutskenergoBashkirenergo
RAO ES EastInter RAO UES
TGC-2
Fortum
Dong EnergyKDHC, Korea
TGC-14
Lukoil
Gazprom
0 20 40 60 80 100 120 140ELCEN, Rom.
Dalkia
SUEK**)
*) IES
Vattenfall
PGNiG
0 20 4010 30
DEICEZ
Enel
CentricaEDP
Iberdrola
SSEEnBW
Fortum
EDFE.ONRWE
Gas NaturalFenosa
PGE
Tauron
GDF SUEZ
HafslundDong Energy
Vattenfall
12
Biggest nuclear and hydro generators in Europe and Russia
Figures 2010 pro forma
TWhE
DF
Ros
ener
goat
om
E.O
N
NN
EGC
Ene
rgoa
tom
Enel
Rus
Hyd
ro
Vatte
nfal
l
GD
F S
UE
Z
Irkut
sken
ergo
Sta
tkra
ft
RW
E
Iber
drol
a
Fort
um
EnBW CE
Z
Verb
und
Kras
noya
rska
ya H
PP
Axpo
Hid
roel
ectri
ca
ED
P
Gaz
prom
Alpi
q
Ukr
hydr
oene
rgo
EPS,
Ser
bia
Gas
Nat
ural
Fen
osa
E-C
O E
nerg
i
Nor
sk H
ydro
DE
I
Agde
r Ene
rgi
Edis
on
BKK
Inte
r RAO
UES
SSE
PGE
IES
050
100150200250300350400450500550600
Total generationOtherNuclearHydro
13
Fortum's carbon exposure among the lowest in Europe
Source: PWC & Enerpresse, Novembre 2011Changement climatique et Électricité, Fortum
Average 337 g/kWh
g CO2 /kWh electricity, 2010
0
200
400
600
800
1000
DE
I
Dra
x
RW
E
CE
Z
SSE
Vat
tenf
all
E.O
N
Ene
l
Don
g
EDP
GD
F S
UE
Z E
urop
e
Uni
on F
enos
a
Iber
drol
a
PVO
Fortu
m to
tal
ED
F
Ver
bund
Fortu
m E
U
Sta
tkra
ft
2011*64%
of Fortum's total power generation CO2 -free86%
of Fortum’s power generation in the EU CO2 -free
Close to 100%
of the ongoing investment programmein the EU CO2-free
84189
Note:Fortum’s specific emission of the power generation in 2011 in the EU were 88 g/kWh and in total 192 g/kWh (*preliminary 2011 numbers).Figures for all other companies include only European generation.
14
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 →
Divestment of Fingrid
shares
Divestment of heat operations
outside of Stockholm
20082005 2006 20072002 2003 20041999 2000 20011996 1997 1998
IVO
2009 2010 2011
Neste
15
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
16
Fortum's European power and heat production
Nuclear power 45%
Coal 9%
Other 1%
Hydro power 38%
Biomass 3%
European generation 55.3 TWh (Generation capacity 11,422 MW)
Fortum's
European power generation in 2011
Natural gas 4%
European production 22.0 TWh (Production capacity 10,625 MW)
Fortum's European heat production in 2011
Waste 4%Peat 3%
Heat pumps, electricity 12%
Oil 5%
Biomass fuels24%
Natural gas22%
Other 4%
Coal 26%
17
• Dow Jones Sustainability Index World– Fortum is the only Nordic power and heat company
listed in the index
• SAM Sustainability Yearbook 2010, 2011 and 2012
• STOXX®
Global ESG Leaders indices
• oekom
• OMX GES Sustainability Finland Index
• Storebrand
SRI (Fortum, the most responsible electricity company globally in 2006 and 2009)
• Carbon Disclosure Project (sector leader in CDLI index in 2011)
1717
Fortum a forerunner in sustainability
Fortum today, pages 4 -17
European and Nordic power markets, pages 19 -
30Data on Fortum’s nuclear fleet, pages 31 -
37
Russia, pages 38 - 45Data on capacity payments, pages 42 - 43Fortum’s investment programme, page 46
Financials and outlook, pages 48 – 56Hedges, pages 54 - 55
19
2006
2010
2009
2012
2010-
2013
2011
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, BeNeLux)
since 11/2010 with a continued coupling mechanism with Nord Pool Spot
• NorNed cable (NO-NL) included in January 2011• Poland coupled with Nord Pool Spot since December 2010• UK coupling 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• In addition to day-ahead coupling, Nordic-CWE intraday market
coupling is due to be realised during 2012 as well• Estonian price area in Nord Pool Spot since April 2010
with full integration of the Baltic States during 2012–2013• EU’s European Target Model for cross-border power trading
sets 2014 as deadline for an EU-wide market coupling
2012
20
700
2100 600 600
350
Current transmission capacity from Nordic area to Continental Europe is ~4000 MW
CountriesTransmissioncapacity MW
From Nordics To Nordics
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 2011 was ~6 TWh
• During Nordic dry year 2010 net import was ~8 TWh• Approximately 20 TWh net export fairly easily reachable
21
Nordic and Continental markets are integrating – interconnection capacity could double by 2021
New interconnections could double the capacity to over
8000 MW by 2021
First direct 1000 MW NO- DE link could be built by
2018/2021
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 also studied
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 cofinancing Estlink 2 and
NordBalt
Both merchant and TSO projects for links to the UK by 2018/21; North Seas Countries’ Offshore
Grid Initiative launched for supergrid development
European Commission included the Northern Seas Offshore Grid and the
Baltic Energy Market Integration Plan as priority electricity corridors in its 2011
Infrastructure Package proposal
22
Nordic water reservoirs
Source: Nord Pool Spot
0
20
40
60
80
100
120
rese
rvoi
r con
tent
(TW
h)
2000 2003 2010 20122011 reference level
Q1 Q2 Q3 Q4
23
Nordic year forwards
Year 15 Year 17Year 09 Year 10 Year 11 Year 12 Year 13 Year 14 Year 161 March 2012
€/MWh
0
10
20
30
40
50
60
70
2007
Q1 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
Source: NASDAQ OMX Commodities Europe
24
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 2017
EUR/MWh Nord Pool System Price Forwards
1 March 2012
Source: Nord Pool Spot, NASDAQ OMX Commodities Europe
25
Wholesale prices for electricity
Source: Nord Pool Spot, NASDAQ OMX Commodities Europe, EEX, APX-ENDEX, Bloomberg Finance LP, ATS, Fortum
Dutch
German
Nordic
Russian*
EUR/MWh Spot prices Forward prices
0
10
20
30
40
50
60
70
80
90
100
110
2007 2008 2009 2010 2011 2012 2013* including capacity tariff estimate. E.g 9.4 €/MWh for 2010, 6.8 for 2011 and 5.9 for 2012.
1 March 2012
26
Fuel and CO2 allowance prices
Source: ICE
Market prices 1 March 2012; 2012-2013 future quotations
Coal price (ICE Rotterdam)
04080
120160200240
USD
/ t
2006 2007 20102008 2009 20122011 2013
Gas price (ICE NBP)
0
20
40
60
80
100
GB
p / t
herm
2006 2007 20102008 2009 20122011 2013
CO2 price (ICE ECX EUA)
05
101520253035
EUR
/ tC
O2
2006 2007 20102008 2009 20122011 2013
Crude oil price (ICE Brent)
020406080
100120140160
USD
/ bb
l
2006 2007 20102008 2009 20122011 2013
27
Nordic power generation – dominated by hydro, but fossil needed
Source: ENTSO-E Memo 2010 *) 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 382 TWh in 2010
Net import in 2010: 18 TWh
25
78
TWh %
71
196
12
7
20
19
51
3
28
Still a highly fragmented Nordic power market
Source: Fortum, company data, shares of the largest actors; pro forma 2010 figures.
30%Fortum
Vattenfall
Dong Energy
Others
Statkraft
E.ONPVO
E-CO Energi
Agder Energi
Norsk HydroHelsinki
Power generation382 TWh
>350 companies
Electricity distribution15 million customers
~500 companies
Electricity retail15 million customers
~350 companies
Others
52%
DongEnergy
Vattenfall
Fortum
E.ON
Göteborg
Helsinki
Hafslund
SEAS-NVE
Statkraft
Bixia
Fortum
Vattenfall
OthersE.ON
53%
SEAS-NVE
Hafslund
HelsinkiGöteborgSyd Energi
DongEnergy
LNI Verkko
29
New capacity needed for increasing demand and retiring capacity replacements
Source: IEA WEO 2011 (New polices scenario)
• 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
1) Total new capacity needed for increasing demand and retiring capacity replacements
464
708
544
938
159
204
217
1605
65
657
552
1784
2001
5896New capacity, total (1
Capacity changes, 2011-2035 (GW)
Retiring capacity
~30%~ 50%
~170%
~260%
0%
50%
100%
150%
200%
250%
300%
US Europe Russia China India Otherareas
Worldtotal
Growth, 2009-2035Primary energy demandElectricity generation
30
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 March 2012
1995 -97 -99 -01 -05 -07 -09 -11 -13-03 -15 -17
3131
Olkiluoto
LoviisaForsmark
Oskarshamn
Olkiluoto
LoviisaForsmark
Oskarshamn
Olkiluoto
LoviisaForsmark
Oskarshamn
Overview of Fortum’s nuclear fleet
LoviisaTwo units, built 1977 and 1981
2 × 488 MW = 976 MW
Fortum’s share: 100 %
Yearly production 8 TWh
Share of Fortum’s Nordic power production: 18 %
OlkiluotoTwo units, built 1978 and 1980 one under construction
880 + 880 MW = 1760 MWUnder construction 1600 MW
Fortum’s share: 27 % (468 MW)
Yearly production 14 TWh Fortum’s share: 4 TWh
Share of Fortum’s Nordic power production: 9 %
OskarshamnThree units, built 1972,1974 and 1985473 + 638 + 1400 = 2511 MW
Fortum’s share: 43 % (1089 MW)
Yearly production 17 TWh Fortum’s share: 7 TWh
Share of Fortum’s Nordic power production: 16 %
ForsmarkThree units, built 1980,1981 and 1985984 + 996 + 1170 = 3150 MW
Fortum’s share: 22 % (699 MW)
Yearly production 25 TWhFortum’s share: 5,5 TWh
Share of Fortum’s Nordic power production: 13 %
32
Teollisuuden Voima Oyj
Karhu Voima0,1
Mankala 8,1
Kemira 1,9
Fortum 26,6 Pohjolan
Voima 56,8
EPV Energia6,5
Ownership structures and formal responsibilities
Forsmarks Kraftgrupp ABForsmarks Kraftgrupp ABForsmark
OKG AktiebolagOKG AktiebolagOskarshamn
Teollisuuden Voima OyjTeollisuuden Voima OyjOlkiluoto
Fortum Power and Heat OyFortum Power and Heat OyLoviisa
OperatorLicenseeSite
OKG Aktiebolag
E.ON 54,5Fortum 43,4
Karlstadkommun 2,1
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
Forsmarks Kraftgrupp AB
Vattenfall66,0
Fortum 22,2
E.ON 9,9
SkellefteåKraft 2,0Other 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.
33
Fortum's nuclear power capacity in Nordics
Olkiluoto
LoviisaForsmark
Oskarshamn
• Finnish units world class in availability
• Availability improved in Swedish units
• Overview of production and consumption:www.fortum.com – investors - energy related links
Source: IAEA, NordPool. Rounded numbers.Situation on 5 March 2012
Load factor (%) 2005 2006 2007 2008 2009 2010 2011Planned annual outages days in
2012 (from Jan 1st onwards)Oskarshamn 1 80 51 63 85 68 77 72 24Oskarshamn 2 90 78 76 86 75 90 77 24Oskarshamn 3 85 95 88 70 17 31 75 26
Forsmark 1 85 76 81 81 88 93 79 23Forsmark 2 94 72 85 79 64 39 94 39Forsmark 3 95 92 88 69 86 81 85 16Loviisa 1 95 93 94 86 96 93 94 42Loviisa 2 95 88 96 93 95 89 94 23
Olkiluoto 1 98 94 97 94 97 92 94 16Olkiluoto 2 94 97 94 97 95 95 90 8
24
2012 (from
March
5th onwards)
34
Variety of technologies and ages
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-1 488 100,0 488 1977-05-09 34 PWR / 1 AEE (Atomenergoexport)Loviisa-2 488 100,0 488 1981-01-05 30 PWR / 1 AEE (Atomenergoexport)Olkiluoto-1 880 26,6 234 1979-10-10 32 BWR / 3 Asea-Atom / Stal-LavalOlkiluoto-2 880 26,6 234 1982-07-10 29 BWR / 3 Asea-Atom / Stal-LavalOlkiluoto-3 (1600) 25,0 (400) 2014 (?) PWR / 3 Areva / SiemensOskarshamn-1 473 43,4 205 1972-02-06 39 BWR / 1 Asea-Atom / Stal-LavalOskarshamn-2 638 43,4 277 1975-01-01 36 BWR / 2 Asea-Atom / Stal-LavalOskarshamn-3 1400 43,4 607 1985-08-15 26 BWR / 4 Asea-Atom / Stal-LavalForsmark-1 984 23,4 230 1980-12-10 31 BWR / 3 Asea-Atom / Stal-LavalForsmark-2 996 23,4 233 1981-07-07 30 BWR / 3 Asea-Atom / Stal-LavalForsmark-3 1170 20,1 236 1985-08-18 26 BWR / 4 Asea-Atom / Stal-Laval
35
Third party nuclear liability in case of severe accident
35
Sweden(new, not in force)
Finland,temporarylegislation
Current, Sweden
700 M€
200 M€360 M€
500 M€Responsibility of company(insurance or guarantee)
Unlimited companyresponsibility
Convention parties 300 M€
State responsibility
300 M€
500 M€
700 M€
New Parisconvention
700 M€
145 M€
145 M€
Law approved by Parliament in 2010, requires separate decision from Government to come into force.
Has been approved by the Parliament. In force 1.1.2012 onwards.
Current,Finland
240 M€
145 M€ Requires ratification by 2/3 of member states to come into force. In Finland approved by Parliament in 2005.
36
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, 2015 30 + 180 95 350 ~3
OKG 3 2011 250 110 607 ~5FKA 1 Decision 2013 120 ~25 257 ~2FKA 2 2012 130 30 264 ~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 31.12.2010 Fortum's share of Swedish nuclear capacity was 1,778 MW.
37
Fortum’s investment programme – Nordic region, Poland and Baltic countries
Additional electricity capacity around 800 MW~100% CO2
-free
Project Electricity,
MW Heat,
MW Commissioned
Olkiluoto
3, Finland 400 2014
Swedish nuclear upgrades 290
Refurbishing of hydro power 10-20 annually
Brista, Sweden 20 57 Q4 2013(waste CHP)
Klaipeda, Lithuania 20 60 Q1 2013(waste CHP)
Total ~800 ~225
Jelgava, Latvia 23 45 Q3 2013(biofuel CHP)
Järvenpää, Finland 23 63 Q2 2013(biofuel CHP)
Fortum today, pages 4 -17
European and Nordic power markets, pages 19 - 30Data on Fortum’s nuclear fleet, pages 31 - 37
Russia, pages 39 -
46Data on capacity payments, pages 42 -
43
Fortum’s investment programme, page 46
Financials and outlook, pages 48 – 56Hedges, pages 54 - 55
39
Russia is the World’s 4th largest power market
South
Korea
German
yUSChin
aJa
pan
Russia
India
Canad
a
France
Nordic UK
Brazil
0500
1,0001,500
2,0002,500
3,0003,500
4,0004,500
TWh
Data 2010 based on gross output.Source: BP Statistical Review of World Energy June 2011
40
OAO Fortum (former
TGC-10)• Operates in the heart of Russia’s oil and gas producing
region, fleet mainly gas-fired CHP capacity• 17 TWh power generation, 27 TWh heat production in 2011;
more than Fortum’s Nordic heat sales• Investment programme to add 85%, almost 2,400 MW to
power generation capacity • Annual efficiency improvement reached
EUR 100 million in Q2 2011 (compared to 2008 level)
TGC-1• Slightly over 25% of territorial generating company TGC-1
operating in north-west Russia• ~6,400 MW electricity production capacity (appr. 50% hydro),
~26 TWh/a electricity, ~30 TWh/a heat
40
Fortum - a major player in Russia
OAO Fortum
Tyumen
TobolskMoscow
St. Petersburg
Chelyabinsk
Nyagan
TGC-1
41
0
5
10
15
20
25
30
35
40
€/M
Wh
Day ahead power market prices for Urals
In addition to the power price generators receive a capacity payment.
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
III/2009 III/2008IV/2011 IV/2010 20102011
Electricity spot price (market price), Urals hub, RUB/MWh
Average regulated gas price, Urals region, RUB 1000 m3
Average capacity price for CCS ”old capacity”, tRUB/MW/month
Average capacity price for CSA ”new capacity”, tRUB/MW/month
Average capacity price,tRUB/MW/month
Achieved power price for OAO Fortum, EUR/MWh
858 817 925 835
2,548
2,221 2,548 2,221
174
251 160 191
534 n/a 560 n/a
246 251 209 191
28.9 30.5 29.2 27.0
42
Power market liberalisation – two markets
42
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
434343
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 likely remain relatively low; potentially price caps could limit price
43
4444
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
4545
Key factors behind the profitability improvement in Russia
* Capacity Supply Agreement
Efficiency improvement programme 2008-2011– Increasing heat production profitability– Fuel efficiency improvement– Cost savings
New capacity commissioning 2011-2014– Additional capacity 2,388 MW; +85%– Capacity is sold at CSA* contracts with
guaranteed higher price
Pace of new capacity increase of Fortum investment programme
in Russia
2011 -
638 MW 2012 -
836 MW2013 -
418 MW2014 -
496 MWTotal
-
2,388 MW
4646
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 472 209; 2*248 1177 Tobolsk CHP Gas 452 213 665Chelyabinsk CHP-3 Gas 360 216 576Chelyabinsk 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 2,388 5,173
(CHP/Condensing)
(CHP/Condensing)(Condensing)
(Condensing)
Supply date
2012, 2012, 2013
June/2011
Feb/2011; 2014
Oct/2011
Fortum today, pages 4 -17
European and Nordic power markets, pages 19 - 30Data on Fortum’s nuclear fleet, pages 31 - 37
Russia, pages 39 - 46Data on capacity payments, pages 42 - 43Fortum’s investment programme, page 46
Financials and outlook, pages 48 –
56Hedges, pages 54 -
55
4848
Strong financial position
• Electricity will continue to gain a higher share of the total energy consumption
• Annual electricity demand growth approximately 0.5%
• Good production portfolio going forward- Growth in Russia
• Hedges create stability
4949
Income statementMEUR IV/2011 IV/2010 2011 2010
Sales 1 667 1 902 6 161 6 296Expenses -1 159 1 361 -4 359 -4 463
Comparable operating profit 508 541 1 802 1 833
Items affecting comparability 71 -220 600 -125
Operating profit 579 321 2 402 1 708Share of profit of associates and jv's 19 21 91 62Financial expenses, net -66 -57 -265 -155
Profit before taxes 532 285 2 228 1 615Income tax expense -88 -25 -366 -261
Net profit for the period 444 260 1 862 1 354Non-controlling interests 23 29 93 54
EPS, basic (EUR) 0.47 0.26 1.99 1.46EPS, diluted (EUR) 0.47 0.26 1.99 1.46
5050
Comparable and reported operating profit
MEURIV/2011 IV/2010 IV/2011 IV/2010 2011 2010 2011 2010
Power 351 336 443 129 1 201 1 298 1 476 1 132Heat 96 122 100 124 278 275 380 303Russia 35 17 35 16 74 8 74 53Distribution 49 91 41 93 295 307 478 321Electricity Sales 2 3 -6 40 27 11 3 46Other -25 -28 -34 -81 -73 -66 -9 -147Total 508 541 579 321 1 802 1 833 2 402 1 708
Comparable operating profit
Reported operating profit
Comparable operating profit
Reported operating profit
• IFRS accounting treatment (IAS 39) of derivatives had a positive impact on the reported operating profit. In the fourth quarter EUR 72 (-221) million, or earnings per share EUR 0.06 (-0.18) In 2011, EUR 344 (-216) million or earnings per share EUR 0.29 (-0.18) 2011.
5151
Cash flow statement
MEUR IV/2011 IV/2010 2011 2010
Operating profit before depreciations 734 468 3 008 2 271
Non-cash flow items and divesting activities -126 222 -726 124
Financial items and fx gains/losses -86 -192 -376 -641
Taxes -32 -107 -394 -355
Funds from operations (FFO) 490 391 1 512 1 399
Change in working capital -18 -170 101 38
Total net cash from operating activities 472 221 1 613 1 437
Paid capital expenditures -421 -432 -1 285 -1 134
Acquisition of shares -18 -20 -62 -28
Other investing activities -38 -23 522 60
Cash flow before financing activities -5 -254 788 335
5252
Key ratios
MEUR 2011 2010 2009EBITDA 3 008 2 271 2 292Comparable EBITDA 2 374 2 396 2 398Interest-bearing net debt 7 023 6 826 5 969Comparable Net debt/EBITDA 3.0 2.8 2.5
Return on capital employed (%) 14.8 11.6 12.1Return on shareholders' equity (%) 19.7 15.7 16.0
Good liquidity – committed credit lines total EUR 2.7 billion
5353
Outlook
• Key drivers and risks– Wholesale price of electricity
• Demand• Fuels• CO2 emissions prices• Water reservoirs• Nuclear availability
• Nordic markets– Annual electricity demand growth estimated to be approximately 0.5%– Electricity continues to gain share of total energy consumption
• Russia– Profits from Russia build up in pace with the capacity increases– Two new units during 2012 in Nyagan– Fortum targets a positive economic value added after completing the ongoing
investment programme
5454
Outlook
• Annual capex (excluding potential acquisitions)– 2012 around EUR 1.6 to 1.8 billion – 2013 and 2014 around EUR 1.1 to 1.4 billion annually
• Hedging– 2012 approximately 65% hedge ratio at approximately EUR 48/MWh(Q3: 55% at EUR 47/MWh)– 2013 approximately 40% hedge ratio at approximately EUR 46/MWh(Q3: 25% at EUR 46/MWh)
• In Finland, the Government budget for 2012 does not include windfall or uranium taxes
• Increase in nuclear waste costs in 2012 - 2014 amounting to EUR 15 million per annum
55
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 2011
EUR/MWh
Power's Nordic power price Spot price, SE&FI avg.
2009 onw ards thermal and import from Russia excluded
Hedging improves stability and predictability
2009 onwards new definition
5656
Debt Maturity Profile
0
250
500
750
1000
1250
1500
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022+
Bonds Financial institutions Other long-term debt CPs Other short-term debt
per 31 Dec, 2011 per 31 Dec,
2010Average
Interest
Rate
(incl. swaps
and forwards)
4.4%
3.5%Portion
of floating
/ fixed
debt
47 / 53%
49 / 51%
MEUR
2012 925
2013 637
2014 1,247
2015 1,077
2016 873
2017 273
2018 192
2019 894
2020 74
2021 559
2022+ 1,019
57