presentation for investors...presentation for investors april 2006. 2 disclaimer ... towards an open...

- a leading energy companyin the Nordic area

Presentation for investorsApril 2006

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.

3

• Fortum today• Nordic power market• Russia• Financials / outlook• Supplementary material

4

Fortum's strategy

Become the leadingpower and heat

company

Become theenergy supplier

of choice

Benchmark business performance

Fortum focuses on the Nordic and Baltic Rim markets as a platform for profitable growth

5

Towards an open European power market

• Market-based development • Increased competition• Increased efficiency

EU Directive: Market liberalisation, i.e., free choice of supplier

EU Commission Integration of national power strategy: markets through regional

markets into one European power market

1990's 2000 - 2010 -

6

Nr 1 Nr 2Power generation

Heat Electricity sales

Distribution

A leading Nordic power and heat company

7

Baltic countriesHeat sales 1.2 TWhDistribution cust. 22,000Poland

Heat sales 3.9 TWhElectricity sales 20 GWh

NW Russia(in associated companies)Generation ~6 TWhHeat production ~10 TWh

NordicGeneration 51.2 TWhElectricity sales 58.2 TWhDistribution cust. 1.4 mill.Electricity cust. 1.2 mill.Heat sales 19.4 TWh

Presence in focus market areas

8

Operations throughout the entire power and heat energy chain

• Best-in-class physical and financial market operations

• Efficient operation and maintenance services for industry and energy companies

Portfolio Mgmt & Trading

Generation

Heat / Värme

Distribution

Service

• Nordic leader in district heating with strong industrial co-operation and a developing presence in the Baltics and Poland

• Leading Nordic distribution company with 1.4 million customers in Finland, Sweden, Norway and Estonia

• One of Europe’s most efficient generators with a approximately 14% market share of Nordic consumption

• Wide product offering for 1.2 million business and private electricity sales customers Markets

9

Power and heat production in Fortum

20.6 TWh in 2005Total production capacity 8,252 MW

Fortum’s Nordic heat production

Oil 10%

Peat 7%

Heat pumps, electricity16%

Waste 6%

Biomass fuels 24%

Natural gas 9%

Other 11%

Coal 17%Hydro power 42%

Peat 1%

Coal 3%

Other 2%

Nuclear power 50%

Biomass 2%

51.2 TWh in 2005Total generation capacity 11,136 MW

Fortum’s Nordic power generation

10

Strong dividend growth

Fortum aims at paying a dividend that corresponds to an average payout ratio of

50% to 60%

Total ~ 2,750 MEUR

* 0.58 from continuing operations

1999 2001 20032000 2002 2004

0.18 0.23 0.26 0.310.42

0.58

2005*

1.12

Dividend per shareEUR

0.13

19980.

580.

54

11

Excellent share performance

Market valueEUR billion

4.05.3

6.9

11.8

31 Dec2001

31 Dec 2004

31 Mar2005

Neste Oil as

dividends

21 Apr 2006

13.1

-3.3

31 Dec2000

3.4

31 Dec2002

31 Dec2003

20.4Share priceIndex

0

50

100

150

200

250

300

350

400

450

1/01 1/02 1/03 1/04 1/05 1/06

500

Dow Jones 600

Fortum

12


13

wholesale priceSupply Demand

retail price

The wholesale market is liquid and Nordic, but retail markets are local

GenerationNordic wholesale market (Nordpool)

RetailLocal retail markets

Retail customers

Industry

DemandSupply

14

2005 figures; the effect of the structural changes in Denmark have been considered.

Fortum

Dong Energy

Vattenfall

others E.ON

53%Hafslund

PlusenergiSEAS-NVE

HelsinkiFjordkraft

Östkraft

Fortum

Vattenfall

Dong Energy

others

Hafslund

E.ON51%

HelsinkiSEAS-NVE

StatkraftGöteborg

BKK

Fortum

Vattenfall

Dong Energy

others

Statkraft

29%

E.ON

PVO

E-CO Energi

Helsinki

Norsk Hydro

BKK

Still a highly fragmented Nordic power market

Distribution

14 million customers>500 companies

Retail

14 million customers ~450 companies

Generation

395 TWh> 350 companies

15

New capacity will be needed

Demand and capacity development in the Nordic market

Existing/remaining capacityCommitted new capacity

0

100

200

300

400

500

2000 2004 2005 2010 2015 2020

TWh

• Electricity demand is expected to increase by around 55 TWh to 2020

• Committed plans of new capacity approx. 20 TWh

• Additionally:– effect increases in Swedish

nuclear may bring up to 8 TWh more capacity

– possible closures of current capacity may take away up to 10 TWh by 2020

16

New capacity will require an EUR 35+ price

Source: Nord Pool, Fortum Source: NEA & IEA "Projected Cost of Generating Electricity", 2005 update (average of European projects); Elforsk: "El från nya anläggningar", 2003.

Coal Gas Nuclear Hydro Wind0

10

20

30

40

50

60

70

80EUR/MWh

Fuel costs, excl. CO2 costs

Fixed costs( variation)

0

10

20

30

40

50

60

-94 -04-02-00-98-96 -06 -08

FuturesApril 24, 2006

EUR/MWh

17

Spot history and forwards in Europe

Source: Reuters, OMEL

Yearly moving average spot price ForwardsEUR/MWhEUR/MWh

2001 2002 2003 2004 2005 2006 2007 20080

10

20

30

40

50

60

70

80

90

100

April 24, 2006

UK

Dutch

German

Nord Pool

Spanish

18

Nordic market becoming more integrated into Europe

• Nord Pool introduced in 2005 a spotmarket area "KONTEK" to facilitatemarket coupling on the Kontek cable

• NorNed (Norway-the Netherlands)by 2008

• Estlink (Estonia-Finland) by 2007• Nordel priority projects enhance

Nordic power market integration

PresentUnder construction

DiscussedPlanned

2750 1500

1300

300

5060

900

2200

900

1200600

1000 200

125

600

10001600

2500

35001700

1500800

500

2050

70

1040630 (490)+901600

550600

1200

3800

700

350

600

+100

100+ 200

1000

600

600

+200

1000

550

+300

+800

1000

19

Source: , ; market prices April 21, 2006 ; 2006-2008 future quotations

Fuel and CO2 allowance prices

020406080

100120

GB

p / t

herm

2004 2005 20082006 2007

Gas price (UK)

0102030405060708090

USD

/ t

2004 2005 20082006 2007

Coal price

01020304050607080

USD

/ bb

l

2004 2005 20082006 2007

Oil price

05

101520253035

EUR

/ tC

O2

2004 2005 20082006 2007

CO2 price

20

Nordic water reservoirs

Source: Nord Pool

0

20

40

60

80

100

120

1 5 9 13 17 21 25 29 33 37 41 45 49 53

2000 2005 2006 reference level

week

rese

rvoi

r con

tent

(TW

h)

21


22

The large Russian power market is undergoingmajor change

Source: IEA

• A major need for new capacity

• Big potential for efficiency improvement

Power generation 2003

0

500

1 000

1 500

2 000

USChin

aJa

pan

Russia Ind

iaGerm

any

Canad

aFran

ce UKNord

icBras

il

> 4,000TWh

23

Development of Russian power industry –a Nordic/Western analogy

Unbundling of businesses by type of activity

Competitive businesses:

Market liberalisation in competitive businesses

• Generation• Sales

Pricing model reform – from tariff regulation to competitive pricing

Regulated monopolies:

• Transmission• Distribution

24

• "Power industry law" approved• Restructuring of regional energos (P&H companies)• Formation of new companies• Establishment of Russian power exchange (ATS) • Launch of the free-trade sector of the wholesale market• Introduction of vested bilateral contracts for a transitional

period to replace the regulated sector of the wholesale market• Launch of balancing power market• Competitive market of ancillary services and generating capacity• Gradual liberalisation of the retail market

Key steps in the reform

25

Reform impacts industry structure

Competitive businesses

14 territorial

generation companies

(TGCs)

6 thermal wholesale generation companies

(WGCs)

1 hydro wholesale generation company (WGC)

<49% 65 -100%

System operator

0% 75 -100%

Holdings of guaranteeing

suppliers, isolated energos

48%

Federal Grid

Company (FGC)

4-5 inter-regional

distribution companies

(IDCs)

<25% 48%

49%

Holding of

IDCs

Regulated monopolies

Share of private ownership

Target structure planned to emerge in

2008

49 - 100%

Sales companies

Privatised companiesState-controlled companies

Ownership share

RAO UES restructuring

26

Prices of fuel and electricity in Russia are currently low

Source: IEA, RAO UESAverage prices Jan - Oct 2005

Hydro 17%

156 TWh

Nuclear16%

150 TWh

Oil 3%

Gas 45%407 TWh

Coal 19% 172 TWh

Russian power generation914 TWh in 2003

• Liberalisation of price of gas as fuel is important in setting the electricity price in Russia

• So far, the implicit price cap set by the tariff in the regulated sector prevents free price formation in the free-trade sector of the wholesale market

0

10

20

30

40

50

Russia Germany

Electricity price and typical marginal costs for gas-fired power plant

Gas cost

CO2 cost

Electricity price

27

Lenenergo shareholding

Fortum has a long experience of successful co-operation

1950 1960 1970 1980 1990 2000

Nuclear fuel import

Electricity import

Loviisa NPP constructionConstruction of hydro power plants in Kola area

Construction of North-West CHP in St Petersburg

Automation & information systemdeliveries to thermal power plants

Safety improvements for nuclear power plants

Permanent presence in Moscow/St Petersburg

28

Fortum's strong foothold in NW Russia today originates from stake in Lenenergo

• Largest utility in northwest Russia• 9 thermal and 6 hydro plants• Power generation

– capacity ~3,240 MW – production ~13.4 TWh/a

• Heat generation – capacity ~13,900 MW – production ~25.2 TWh/a

• Personnel ~12,500 • Fortum's share of the company

about one third

29

Hydro power generation Hydro power capacityShare of TGC-1's hydro capacity

Thermal power generation Thermal power capacityHeat sales

Electricity sales

Distribution volumeNumber of customers

Key financials in 2004Net sales Total assetsInterest-bearing debt

Number of employees

Ownership of Kolenergo:Fortum 24.8%, RAO UES 49.2% and others 26.0%

Kolenergo – northwest Russian power company

TWh/aMW

TWh/aMW

TWh/a

TWh/a

TWh/a

MEURMEURMEUR

6.51,59355%

1335

4

11

11200,000

24840415

3,330

Key figures of Kolenergo

Interregional DistributionCompany

InterregionalTransmissionCompany *)

Territorial GeneratingCompany TGC-1

Electricity salescompany

Kola DistributionCompany

Kola BackboneNetworks Company

KolaPower Generation

Companies

ElectricitySale Company

Exchange rate EUR/RUB 25.11.2005*) Owned by Federal Grid Company

Unbundled companieswith the same shareholding

structure as Kolenergo

Companies are planned to be merged with territorial or

interregional companies

30

TGC-1 operating as of 1 October 2005

Finland 16,500

Installed capacity MW

Norway 28,300

Sweden 33,600

Denmark 12,700

Territorial Generating Company TGC-1• Production capacity ~ 5,750 MW,

of which hydro 2,874 MW • Third largest territorial generation

company in Russia• Started operation on 1 October 2005

based on a leasing model• Transfer of assets into TGC-1's owner-

ship targeted at the beginning of 2007• Fortum's calculated share ~26% *)

• On TGC-1's Board of Directors Fortum has 3 representatives out of a total of 11 members

*) Direct owners of TGC-1 are initially Lenenergo 63%, Kolenergo 25%, Karelenergo 12%

31


32

• EUR 486 (393) million comparable operating profit from continuing operations, up by 24%

• All segments excluding Markets improved their performance

• From continuing operations

– earnings per share EUR 0.39 (0.28), up by 39%

– net cash from operating activities EUR 303 (62) million

• Agreements to acquire E.ON Finland shares from the city of Espoo and E.ON Nordic

A good start to the year

Comparison: I/2005 financial results

33

• 75% increase in Nord Pool system area price to 45.4 EUR/MWh in Q1/2006

• Fortum Power Generation's achieved Nordic power price increased by 17% to 37.1 EUR/MWh in Q1/2006

• Increase in CO2 price to 22-27 EUR/tonne in Q1

Development of prices

34

MEUR I/2006 I/2005 2005 LTMPower Generation 293 224 854 923Heat 126 107 253 272Distribution 81 66 244 259Markets 0 7 30 23Other -14 -11 -47 -50Comparable operating profit 486 393 1 334 1 427Non-recurring items 0 6 30 24Other items effecting comparability -14 7 -17 -38OP from continuing operations 472 406 1 347 1 413

Comparable operating profit

35

MEUR I/2006 I/2005Sales 1 343 1 133

Expenses -871 -727Operating profit 472 406

Share of profit of associates and joint ventures 35 15Financial expenses, net -15 -35

Profit before taxes 492 386Income tax expense -120 -116

Profit for the period from continuing operations 372 270Profit for the period from discontinued operations 0 84Net profit for the period 372 354

Of which minority interest 26 25

EPS, Total Fortum Group (EUR) 0.39 0.38EPS, continuing operations (EUR) 0.39 0.28EPS, discontinued operations (EUR) - 0.10

Income statement

36

MEUR I/2006 I/2005 2005

Operating profit before depreciations, continuing operations 570 509 1 754Non-cash flow items and divesting activities 24 -14 15Financial items and taxes -110 -205 -405

Funds from operations, continuing operations (FFO) 484 290 1 364Change in working capital -181 -228 -93

Net cash from operating activities, continuing operations 303 62 1 271Net cash from operating activities, discontinued operations - 152 133Total cash from operating activities 303 214 1 404Capital expenditures -71 -49 -346Other investing activities -59 4 -52Investing activities, discontinued operations - -137 1 155Cash flow before financing activities 173 32 2 161

Cash flow statement

37

Balance sheet

MEUR Mar 31 Mar 312006 2005

Non-current assets 13 106 13 170Current assets 1 595 2 875ASSETS 14 701 16 045

Total equity 6 498 6 855 of which minority interest 231 171Interest-bearing liabilities 4 107 5 036Non-interest bearing liabilities 4 096 4 154EQUITY AND LIABILITIES 14 701 16 045

Equity per share (EUR) 7.11 7.67Net debt, (MEUR) 3 900 4 878

38

Nord Pool year forwards

€/MWh Year 06 Year 07 Year 08 Year 09Year 05

2004 2005 2006Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q224

2628303234363840424446485052

April 24, 2006

39

Hedging of Power Generation's Nordic sales

Fortum has hedged Power Generation's Nordic sales volume at the beginning of April 2006:

4-12 / 2006

Hedge ratio Hedge price

~ 80 % ~ EUR 33 per MWh

Calendar year 2007

~ 55 % ~ EUR 37 per MWh

40

• A strong start to the year

• Continued focus on the Nordic and Baltic Rim countries

• Competitive corporate structure, costs and production portfolio

• Strong financial position and cash flow

Fortum well positioned for 2006 and 2007

Fortum has the foundations for good performance

41


42

Internationalinvestors 34.0%

Finnish State 51.1%

Other Finnishinvestors 7.4%

Households 5.2% Financial and insuranceinstitutions 2.3%

• Leading power and heat company in Nordic• Founded and listed at the Helsinki Stock Exchange 1998• More than 50,000 shareholders• Among the most traded shares in Helsinki stock exchange

Fortum - a listed company

31 March 2006

43

Current Fortum Group financial targets

• ROE >12%• ROCE >12%• Net debt / EBITDA 3.0 - 3.5• Normal CAPEX <depreciation

44

Credit ratings

• Moody's long-term rating A2 (stable outlook)• Standard & Poor's long-term rating A- (stable outlook)

"Due to the cash outflows, which in 2006 total €2.23 billion, Fortum’s debt is expected to increase significantly and credit measures are likely to weaken as a

result, thereby markedly reducing rating headroom. Nevertheless, given the company's very strong financial results in 2005 that led to a low adjusted debt-to-total-capital ratio of 33% at year-end, we expect credit metrics to remain in

line with our previously indicated ratio targets."Standard & Poor's

45

Funding sources and maturity profile

• Funding and treasury risk management centralised to Group Treasury

• Transparent loan portfolio

• Access to all relevant debt markets

Interest bearing loans at the end of March 2006Average interest rate disclosed at the end of 2005 for the year 2005 was 4%.

2006 2007 2008 2009 2010 2011 2012

Bonds Bank loans Other long-term debt Short-term debt

828

355

580

41

542

81

1,506

Total 4,107 MEUR

33

2013+

46

Heat key figures

Nr 1

Heat

DistributionEUR million 2005 2004

Net sales 1,063 1,025Comparable operating profit 253 207

Employees 2,385 2,146Production plants

CHP plants 23heat plants and stations abt 700

·

····· ····· ··

····

····

·

···

·

·

· ······

·

· ········· ········

··········

····· ·

·

···

···· ··

·· ····· ···

· ······

··· ·0.19.5

9.8

1. 2

1.1(3.9**)

0.03

-

-

Fortum's heat and steam sales, TWh, 2005** including Wroclaw and PEC Plock (acq.2005)

47

Polish power and heat markets

• Population 38 million• GDP growth around 4.5% in 2004• Total electricity consumption 130-140

TWh/a• Polish generation approx. 150 TWh/a• Number of electricity customers around

15.6 million• 8 distribution companies• Energy sector privatisation ongoing in

generation, district heating and distribution• Size of the heating markets around 165

TWh/a

Source: EIU, Eurelectric/Eurprog; 2004 or 2003 estimates, Fortum

Existing operations of Fortum HeatWrocław Płock

Płock

Operations of Fortum Heat in Poland

48

Baltic countries' power and heat markets

• Population 1.3 million (Estonia), 2.3 million (Latvia) and 3.4 million (Lithuania)

• GDP growth 6.0% (Estonia), 5.5% (Latvia), 6.5% (Lithuania)

• Total electricity consumption; Estonia and Latvia 6-7 TWh/a, Lithuania 10 TWh/a

• Total generation; Estonia 9-10 TWh/a, Latvia 4-5 TWh/a, Lithuania 18 TWh/a

• Three larger distribution companies in Estonia, one in Latvia, two in Lithuania

• Privatisation not active in generation or distribution, privatisation of district heating started in 2000

• Size of the heating markets around 30 TWh/a

Source: EIU, Eurelectric/Eurprog; 2004 or 2003 estimates

49

Distribution regulation differ country by country

Finland

Maximum allowed rate ofreturn based on actualdefined cost data

Sweden Norway

Maximum annual income limitbased on historical or definedcost data

Regulation authority has supervised 41 areas for 2003 and 55 areas for 2004 due to claimed overpricing. All companies that have received a decision to reimburse customers have appealed to court.

Status

Regulation principle

Allowed return

New model for period 2005 - 2007

New regulatory model is being applied to 2003 and 2004 tariffs

The regulator has proposed a model for the next 5-year period starting in 2007.

Rate of return,ex-post regulation

Yardstick, ex-post regulation, with benchmarking based on hypothetical efficient company

Revenue cap, ex-ante regulation

Actual operation vs.fictious network parametersdefines return

presentation for investors...presentation for investors april 2006. 2 disclaimer ... towards an open...

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