fortum investor material march...
TRANSCRIPT
FORTUM Power and heat company in the Nordic area, Russia, Poland and the Baltics
Investor / Analyst material
March 2015
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 18 – 29
Data on Fortum’s nuclear fleet pages 30 – 33
Russia pages 34 – 39
Data on capacity payments pages 37 – 38
Fortum’s investment programme page 39
Financials and outlook pages 40 – 45
Hedges pages 46 – 47
Efficiency programme page 48
Facts of Distribution page 49
Appr. 110,000 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 Helsinki stock exchange
• Market cap ~18 billion euros
4
28 February 2015
Foreign investors 30.7% Finnish State 50.8%
Other Finnish investors 7.9%
Households 8.3%
Financial and insurance institutions 2.3%
Capital returns : 2014 EUR 1.30 per share ~ EUR 1.2 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
Fortum'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 ~11,648 MEUR
2010
68%
2011
50% 2012
63%
2013
81%
2014
37%*
1.0 1.0 1.0 1.1
1.3*
* Board’s proposal for the AGM
5 year dividend per share (EUR) history
Fortum Executive Management as of 1st February 2015
6
Country responsibles: Timo Karttinen/Finland, Norway; Per Langer/Sweden;
Alexander Chuvaev/Russia; Markus Rauramo/Poland, Baltics, India
Human Resources and IT
Senior Vice President
Mikael Frisk
Finance
Chief Financial Officer
Timo Karttinen
Strategy and M&A
Senior Vice President
Kari Kautinen
Communications
Senior Vice President
Helena Aatinen
Corporate Relations
Senior Vice President
Esa Hyvärinen
Legal
General Counsel
Sirpa-Helena Sormunen
Business divisions
Corporate staff functions Interim President and CEO
Timo Karttinen
Chief Operating
Officer
Matti Ruotsala
Distribution
Executive Vice
President
Timo Karttinen
Russia
Executive Vice
President
Alexander Chuvaev
Nuclear and Thermal
Power
Executive Vice
President
Tiina Tuomela
Hydro Power and
Technology
Executive Vice
President
Per Langer
Heat, Electricity
Sales and Solutions
Executive Vice
President
Markus Rauramo
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 current geographical presence
8
Nordic countries
Power generation 48.0 TWh
Heat sales 3.3 TWh
Electricity customers 1.3 million
Distribution customers
in Sweden 0.9 million
Distribution
Power
generation
Electricity
sales
Heat
OAO Fortum
Power generation 23.3 TWh
Heat sales 26.0 TWh
Russia
Poland Power generation 0.7 TWh
Heat sales 3.4 TWh
Baltic countries Power generation 0.7 TWh
Heat sales 1.2 TWh
India Power generation 9 GWh
Key figures 2014 Sales EUR 4.8 bn
Comparable operating profit EUR 1.4 bn
Balance sheet EUR 21 bn
Personnel 8,600
Fortum’s reporting segments and divisions
9
Distribution
• Electricity distribution
activities
Russia
• Power and heat
generation and sales in
Russia
• Includes OAO Fortum
and Fortum’s slightly
over 29% holding in
TGC-1
Power and Technology
• Hydro, nuclear and
thermal power generation
• Power Solutions with
expert services
• Portfolio management and
trading
• Technology and R&D
functions
The segment incorporates
two business divisions:
• Hydro Power and
Technology
• Nuclear and Thermal
Power
Heat, Electricity Sales
and Solutions
• Combined heat and
power (CHP) production
• District heating activities
and business to business
heating solutions
• Solar business
• Electricity sales and
related customer offering
• Corporate Sustainability
10
Fortum mid-sized European power generation player; major producer in global heat
1) Veolia incl. Dalkia International and EDF incl. Dalkia's activities in France
Source: Company information, Fortum analyses, 2013 figures pro forma, heat production of Beijing DH not available.
Largest global producers, 2013 TWh
Largest producers in Europe and Russia, 2013 TWh
Power generation Heat production
Electricity customers in EU, 2013 Millions
Customers
Gazprom
DEI
EuroSibEnergo Iberdrola
Fortum EnBW
Vattenfall
CEZ
RWE
IES
DTEK
PGE
Rosenergoatom
NNEGC Energoat.
Enel E.ON EDF
GDF SUEZ
Statkraft
Inter RAO UES RusHydro
EDP
0 100 200 300 400 500 600
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
0 20 40 60 80 100 120 140
KDHC
Quadra
Tatenergo
Minskenergo
DTEK
EuroSibEnergo
TGC-2
Fortum
Dong Energy
Enel
Lukoil
Sibgenco
IES
Vattenfall
PGNiG
Inter RAO UES
1) EDF
RusHydro
1 ) Veolia
Gazprom
Fortum Värme
Biggest nuclear an hydro generators in Europe and Russia
11
Figures 2012 pro forma
* incl. MOEK, ** incl. Bashkirenergo, *** incl. TGC-5, TGC-6, TGC-7, TGC-9
TWh
Total generation
0
50
100
150
200
250
300
350
400
450
500
550
600
ED
F
Ro
sen
erg
oa
tom
NN
EG
C E
nerg
oato
m
Ru
sH
ydro
Vatt
enfa
ll
E.O
N
Enel
Euro
Sib
Energ
o
GD
F S
UE
Z
Sta
tkra
ft
Fo
rtum
Iberd
rola
RW
E
EnB
W
CE
Z
Axpo
Verb
und
Gazpro
m
Hid
roele
ctr
ica
Centr
ica
Alp
iq
E-C
O E
nerg
i
Ukrh
ydro
energ
o
Nors
k H
ydro
EP
S, S
erb
ia
BK
K
Agder
Energ
i
ED
P
Ga
s N
atu
ral F
en
osa
DE
I
SS
E
Inte
r R
AO
UE
S
PG
E
DT
EK
IES
Other
Nuclear
Hydro
*
***
**
Fortum a forerunner in sustainability
• Nordic Climate Disclosure Leadership Index (CDLI)
• STOXX® Global ESG Leaders indices
• oekom
• OMX GES Sustainability Finland Index
• ECPI® Indices
12
0
200
400
600
800
1 000
1 200
DE
I
RW
E
Dra
x
SS
E
CE
Z
E.O
N
Vatt
en
fall
ED
P
Enel
Edip
ow
er
EnB
W
Gas N
atu
ral F
enosa
GD
F S
UE
Z
Do
ng
En
erg
y
Fo
rtu
m to
tal
Iberd
rola
PV
O
ED
F
Verb
und
Fort
um
EU
Sta
tkra
ft
64
g CO2/kWh electricity, 2013
2014
64% of Fortum's total power generation CO2-free
94% of Fortum’s power generation in the EU CO2-free
Close to 100% of the ongoing investment programme
in the EU CO2-free
Average 328 g/kWh
200
Fortum's carbon exposure among the lowest in Europe
13
Note: : Fortum’s specific emissions of the power generation in 2014 in the EU were 39 g/kWh and in total 177 g/kWh.
Only European generation except “Fortum total“ which includes Russia.
Source:
PWC & Enerpresse, December 2014
Climate Change and Electricity, Fortum
Our strategic route
14
Birka Energi
50% → 100%
Østfold
Shares in
Lenenergo
Shares in
Hafslund
Gullspång
Neste
Divestment of
non-strategic
heat business
Oil business
spin-off
2007
Skandinaviska
Elverk
Länsivoima
45% → 65%
Birka Energi
50% Fortum
50% Stockholm Gullspång merged
with Stockholm Energi
E.ON
Finland
TGC-10
District heating
in Poland →
Divestment of
Fingrid shares
Divestment of
heat operations
outside of
Stockholm
TGC-1
established
Divestment
of Lenenergo shares
1996
IVO Fortum
Divestment of
small scale
hydro
2012 2008 2006
1997
Lenenergo
shares →
Stora Kraft
Länsivoima
→100%
2000
Elnova
50% → 100%
2003 2005
2011
1998 2002
Divestment of electricity
distribution and heat
businesses
Divestment of electricity
distribution business
Divestment of
Grangemouth power plant
Divestment
of Gasum
shares
2014
15
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 power and heat production by source
16
Natural gas 31%
Nuclear power
33%
Coal 5%
Biomass 1%
Total generation 73.4 TWh
(Generation capacity 14,624 MW)
Hydro power 30%
Fortum's power generation
in 2014
Total production 34.6 TWh
(Production capacity 17,402 MW)
Fortum's heat production
in 2014
Peat 1% Waste 1%
Biomass 6%
Natural gas
77%
Coal 15%
Nuclear power
48%
Coal 4%
Hydro power 44%
Natural gas 2%
European generation 50.1TWh
(Generation capacity 9,851 MW)
Fortum's European
power generation in 2014
Biomass 2%
Natural gas
29%
Fortum's European
heat production in 2014
Peat 3%
Oil 1%
Waste 3%
Biomass 25%
Heat pumps, electricity 1%
Coal 38%
European production 8.2 TWh
(Production capacity 3,936 MW)
Fortum's European power and heat production
17
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
• Estonian price area in Nord Pool Spot since 2010 and Lithuanian area since 6/2012. Latvia joined in June 2013
• Czech, Slovakia and Hungary coupled together since September 2012. Romania joined in November 2014
• A common day-ahead market coupling for the whole north-western Europe was started in February 2014. Iberia (Spain & Portugal) joined in May 2014. Italy and Slovenia joined on 24 February 2015. Switzerland waiting for agreement with EU
• CEE market coupling region to join in 2016, with flow-based cross-border capacity allocation for further trade optimisation
• In addition to day-ahead coupling, intraday market coupling and balancing market integration under development as well
18
2009
2/2015
2012-2014
2010-
2013
2016
2014
Current transmission capacity from Nordic area is over 5000 MW
19
• Theoretical maximum in transmission capacity ~40 TWh
per annum
• Net export from Nordic area to Continental Europe and
Estonia during year 2014 was 14 TWh
• During the dry year 2013 net export was 3 TWh
• Approximately 25 TWh of net export is now reachable
Countries Transmission capacity MW
From Nordics To Nordics
Denmark - Germany 2,225 2,100
Sweden - Germany 615 600
Sweden - Poland 600 600
Norway - Netherlands 700 700
Finland - Estonia 1000 1,016
Finland - Russia 320 1,300
Total 5,460 6,316
700
2,225 615 600
1000
320
Nordic, Baltic and Continental markets are integrating – interconnection capacity will double by 2020
20
Two 1400 MW NO-UK links as EU
Projects of Common Interest: NSN
link to England agreed to be built by
2020, NorthConnect to Scotland still
requiring Norwegian permission
First direct 1,400 MW NO-DE link
contracted to be built by end-2019
EU financial support for a 700 MW
DK-NL link, due to be built by 2019
Jutland – DE capacity planned to
grow by 860 MW by 2019, with
further 500 MW increase by 2022
Svenska Kraftnät agreed 3/2014
with 50Hertz to study a new Hansa
PowerBridge DC link between
Sweden and Germany
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 export capacity
to over 10,000 MW by 2020
LitPol Link (500+500 MW) to
connect the Baltic market to
Poland by end-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 700 MW
NordBalt (ready 12/2015)
New internal Nordic grid
investments provide for increased
available capacity for export to the
Continent and Baltics
320 MW of export capacity
available on the 1300 MW RU-FI
link since December 2014
EU’s Connecting Europe Facility
co-financing 3rd EE-LV transmission
line, due to be ready by 2020
Q1 Q2 Q3 Q4
20
40
60
80
100
120
rese
rvo
ir c
on
ten
t (T
Wh
)
0
2000 2003 2014 2013 reference level 2015
Nordic water reservoirs
21
Source: Nord Pool Spot
Nordic year forwards
22
Source: Nasdaq Commodities
0
10
20
30
40
50
60
70
€/MWh 2 March 2015
2014
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
2013
Q2 Q3 Q4 Q1 Q2 Q3 Q4
2015
Q1
Year15 Year17 Year19 Year10 Year11 Year12 Year13 Year14 Year16 Year18 Year20
Wholesale price for electricity
23
Source: Nord Pool Spot, Nasdaq Commodities
0
10
20
30
40
50
60
70
80
90
100
110
EUR/MWh Nord Pool Spot System Price Forwards
2 March, 2015
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Wholesale prices for electricity
24
Source: Nord Pool Spot, Nasdaq Commodities, APX-ENDEX, Bloomberg Finance LP, ATS, NP “Market Council”, Fortum
* Including weighted average capacity price
Dutch
German
Nordic
Russian*
Spot prices Forward prices EUR/MWh
10
20
30
40
50
60
70
80
90
100
110
0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2 March 2015
0
30
60
90
120
150
US
D /
bb
l
Crude oil price (ICE Brent)
2007 2008 20112009 2010 20132012 2014 2015 20160
7
14
21
28
35
EU
R /
tC
O2
CO2 price (ICE ECX EUA)
2007 2008 20112009 2010 20132012 2014 2015 2016
0
50
100
150
200
250
US
D /
t
Coal price (ICE Rotterdam)
2007 2008 20112009 2010 20132012 2014 2015 20160
20
40
60
80
100
GB
p /
th
erm
Gas price (ICE NBP)
2007 2008 20112009 2010 20132012 2014 2015 2016
25
Source: ICE
Market prices 2 March 2015; 2015-2016 future quotations
Fuel and CO2 allowance prices
Nordic power generation – dominated by hydro, but fossil needed
26
Source: ENTSO-E Statistical Factsheet 2013 *) 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
383 TWh in 2013
Net export in 2013: 0.4 TWh
23
86
TWh %
48
203
23
6
23
13
53
6
Wholesale electricity price too low to attract investments
27
0
10
20
30
40
50
60
70
80
90
100
110
Source: Nord Pool spot, Nasdaq Commodities
EUR/MWh
Futures
2 March 2015
1995 2015 2025 0
10
20
30
40
50
60
70
80
90
100
110
Onshore wind
Nuclear Utility scale Solar PV In Italy
Large hydro
Offshore wind
EUR/MWh
Average levelised costs of new electricity generation
Coal condensing
Gas
NOTE: The presented figures are calculated based on data from recent public reports and do not represent Fortum’s view. Average achieved price (€/MWh) for the production
type depends on availability and flexibility. There are large variations in the cost of hydro, wind and solar depending on location and conditions. Commodity prices are forward
prices as of August 2014.
Still a highly fragmented Nordic power market
28
Power generation
384 TWh
>350 companies
Electricity distribution
15 million customers
~500 companies
Electricity retail
15 million customers
~350 companies
Vattenfall
33%
Statkraft
Dong Energy
Others
Fortum
E.ON PVO
E-CO Energi Agder Energi
Norsk Hydro
Helen
Others
53%
Vattenfall
Fortum
Dong Energy
Hafslund
E.ON
Göteborg, Din El
SEAS-NVE
Helen
Statkraft
Bixia
Caruna
Vattenfall
Fortum
Others E.ON
57%
SEAS-NVE
Hafslund
Helen
Syd Energi
Dong Energy
Elenia
Source: Fortum, company data, shares of the largest actors, pro forma 2013 figures.
New power generation capacity needed for increasing demand and retiring capacity replacements
29
• 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, ~7,000 GW of new
capacity needed by 2040
Source: IEA WEO 2014 (New polices scenario) 1) Total new capacity needed for increasing demand and replacements of retiring capacity
479
257
736
632
354
986
172
72
244
281
1,435
1,716
91
814
905
787
1,833
2,620
2,442
4,765
7,207 New capacity, total (1
Capacity changes, 2014-2040 (GW)
Retiring capacity
Capacity increase
19%
41%
114%
225%
0%
50%
100%
150%
200%
250%
US Europe Russia China India Other
areas
World total
Growth, 2012-2040
Primary energy demand
Electricity generation
Overview of Fortum’s nuclear fleet
30
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: 1,120 MW
Unit 3: 1,170 MW
Total: 3,274 MW
22% 720 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
31
• Finnish units world class in availability
• Overview of production and consumption:
www.fortum.com/investors - energy related links
Source: Fortum
Load factor (%) 2005 2006 2007 2008 2009 2010 2011 2012 2013
2014
Osakarshamn 1 80 51 63 85 68 77 72 1 13 74
Oskarshamn 2 90 78 76 86 75 90 77 81 33 0
Oskarshamn 3 85 95 88 70 17 31 75 69 77 75
Forsmarks 1 85 76 81 81 88 93 79 88 87 94
Forsmark 2 94 72 85 79 64 39 94 82 89 89
Forsmark 3 95 92 88 69 86 81 85 93 88 82
Loviisa 1 95 93 94 86 96 93 94 84 92 92
Loviisa 2 95 88 96 93 95 89 94 91 93 89
Olkiluoto 1 98 94 97 94 97 92 94 90 97 94
Olkiluoto 2 94 97 94 97 95 95 90 96 93 97
Variety of technologies and ages
32
Planned capacity increases
• Oskarshamn 2 in 2017, capacity increase 180 MW (Fortum’s share 78 MW), Fortum’s share of total capacity after increase 355 MW
• Forsmark 1 in 2017-2020, capacity increase 120 MW (Fortum’s share 27 MW), Fortum’s share of total capacity after increase 257 MW
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
33
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
42
39
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
1,120
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
33
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€
In force since 1.1.2012.
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
Russia is the World’s 5th largest power market
34
Power generation in 2013 based on gross output.
Source: BP Statistical Review of World Energy June 2014
0
1,000
2,000
3,000
4,000
5,000
6,000
TWh
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
• 23 TWh power generation, 26 TWh heat production in 2014
• Investment programme to add 85%, almost 2,400 MW to power
generation capacity
TGC-1
• 29.5% of territorial generating company TGC-1 operating in north-
west Russia
• ~7,200 MW electricity production capacity (more than 40% hydro),
~24 TWh electricity, ~28 TWh heat in 2014
35
OAO Fortum
Tyumen
Tobolsk
Chelyabinsk
Nyagan
TGC-1
St. Petersburg
Moscow
36
Day ahead wholesale market prices – increase driven by recovering demand and gas price
Key electricity, capacity and gas prices in the OAO Fortum area
IV/14 IV/13 2014 2013
Electricity spot price (market
price), Urals hub, RUB/MWh
1,041 1,043 1,089 1,021
Average regulated gas price, Urals
region, RUB 1000 m3
3,362 3,423 3,362 3,131
Average capacity price for CCS
”old capacity”, tRUB/MW/month
180 181 167 163
Average capacity price for CSA
”new capacity”, tRUB/MW/month
603 635 552 576
Average capacity price,
tRUB/MW/month
331 326 304 276
Achieved power price for OAO
Fortum, EUR/MWh 28.0 33.3 30.4 32.1
0
200
400
600
800
1 000
1 200
1 400
RU
B /
MW
h
0
5
10
15
20
25
30
35
40
€/
MW
h
2008 2009 2010 2011 2012 2013 2014 2015
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 2014 2015
Power market liberalisation – two markets
37
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
38
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
85% increase in power generation capacity in Russia by 2015 through the investment programme
39
Year Supply
starts
Power plant Fuel type Existing
capacity
2,785 MW
New
investments
2,388 MW
Production type Total
capacity
5,173 MW
< 2011 Tyumen CHP-2 Gas 755 CHP/Condensing 755
Chelyabinsk CHP-2 Gas, coal 320 CHP/Condensing 320
Argayash CHP Gas, coal 195 CHP/Condensing 195
Chelyabinsk CHP-1 Gas, coal 149 CHP/Condensing 149
2011 Feb/2011 Tyumen CHP-1 Gas 472 209 CHP/Condensing 681
June/2011 Chelyabinsk CHP-3 Gas 360 216 CHP/Condensing 576
Oct/2011 Tobolsk CHP Gas 452 213 CHP/Condensing 665
2013 April/2013 Nyagan 1 GRES Gas 418 Condensing 418
Dec/2013 Nyagan 2 GRES Gas 418 Condensing 418
2015 Jan/2015 Nyagan 3 GRES Gas 418 Condensing 418
1H/2015 Chelyabinsk GRES Gas 82 248 CHP/Condensing 330
1H/2015 Chelyabinsk GRES Gas 248 CHP/Condensing 248
2,785 MW 2,388 MW 5,173 MW
Income statement
MEUR IV/2014 IV/2013 2014 2013
Sales 1,285 1,390 4,751 5,309
Other income and expenses 849 967 3,400 3,906
Comparable operating profit 436 423 1,351 1,403
Capital gains and other items affecting
comparability 213 83 2,077 106
Operating profit 650 507 3,428 1,508
Share of profit of associates and jv’s 38 63 149 178
Financial expenses, net -48 -77 -217 -289
Profit before taxes 639 493 3,360 1,398
Income tax expense -64 -29 -199 -186
Net profit for the period 575 465 3,161 1,212
Non-controlling interests 4 6 7 8
Net profit for the owners of the parent 571 458 3,154 1,204
EPS, basic (EUR) 0.64 0.52 3.55 1.36
40
Comparable and reported operating profit
IV/2014 IV/2013 IV/2014 IV/2013 2014 2013 2014 2013
Power and Technology 276 207 318 278 877 859 855 922
Heat, Electricity Sales
and Solutions 49 42 221 51 104 109 337 134
Russia 59 110 59 111 161 156 161 156
Distribution 67 76 66 75 266 332 2,132 349
Other -14 -12 -14 -8 -57 -54 -58 -53
Total 436 423 650 507 1,351 1,403 3,428 1,508
41
Comparable
operating profit
Reported
operating profit MEUR
• Non-recurring items (mainly to the sale of the Finnish electricity distribution business), IFRS accounting treatment (IAS 39) of derivatives and nuclear fund adjustments had an impact on the reported operating profit EUR 213 (83) million in the fourth quarter and 2,077 (106) million in January-December 2014
Comparable
operating profit
Reported
operating profit
Note: The divested distribution operations are included in the segment information until the closing of the transactions.
Cash flow statement
MEUR IV/2014 IV/2013 2014 2013
Operating profit before depreciations 769 668 3,954 2,129
Non-cash flow items and divesting activities -209 -158 -2,111 -262
Financial items and fx gains/losses 125 54 176 -188
Taxes -47 -61 -211 -210
Funds from operations (FFO) 638 503 1,808 1,469
Change in working capital -186 -106 -46 79
Total net cash from operating activities 452 398 1,762 1,548
Paid capital expenditures -244 -334 -768 -1,004
Divestments of shares* 376 15 3,193 144
Other investment activities 7 -128 391 -84
Cash flow before financing activities 591 -49 4,578 604
42
* Including Proceeds from the interest-bearing receivables relating to divestments
Key ratios
MEUR 2014 2013
Comparable EBITDA 1,873 1,975
Interest-bearing net debt 4,217 7,793
Comparable net debt/EBITDA 2.3 3.9
excluding Värme financing 2.0 3.4
43
Return on capital employed, ROCE (%) 19.5 9.0
Return on shareholders’ equity, ROE (%) 30.0 12.0
Good liquidity – committed credit lines total EUR 2.2 billion
Debt Maturity Profile, 31 December, 2014
0
250
500
750
1000
1250
1500
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025+
Bonds Financial institutions Other long-term debt CPs Other short-term debt
MEUR
2015 1,103
2016 860
2017 530
2018 614
2019 820
2020 75
2021 548
2022 1,076
2023 109
2024 3
2025+
TOTAL
1,245
6,983
44
per 31 Dec, 2014 per 31 Dec, 2013
Average Interest Rate (incl. swaps and forwards) 3.7% 3.6%
Portion of floating / fixed debt 46 / 54% 51 / 49%
Outlook
Nordic markets
• Fortum continues to expect that the average annual electricity demand growth will be on average
approximately 0.5% in the coming years
• Electricity is expected to continue to gain share of total energy consumption
Russia
• The run-rate operating profit (EBIT) target for the Russia Segment; RUB 18.2 billion, is expected to
be reached during 2015, but the euro result level will be volatile, mainly due to the translation effect
Key drivers and risks
• Economic
• Political
• Currency
• Wholesale price of electricity and volumes
• demand and supply • fuels
• hydrological situation • power plant availability
• CO2 emissions allowance prices
45
Outlook
Annual capex estimate, excluding potential acquisitions
• 2015 approximately EUR 0.9 billion
Hedging
• 2015 approx. 50% hedge ratio at approx. EUR 40/MWh
• 2016 approx. 10% hedge ratio at approx. EUR 39/MWh
Taxation
• Effective tax rate for 2015 for the Group 19-21%
• In Finland, the power plant tax (“windfall tax”) was revoked
• The Swedish Government proposal to increase the tax on installed nuclear
capacity as of 2015 is on hold – not in the current budget
46
Hedging improves stability and predictability
47
2009 onwards thermal and import from Russia excluded
• The efficiency programme successfully finalised during 2014
• Total annual cost savings visible in all divisions
• Improved working capital efficiency
• Divestments of non-core assets totalling approximately EUR 800 million
Fortum's efficiency programme 2013-2014
48
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
Facts of Fortum’s Distribution business
MEUR Fortum’s
Swedish
distribution
operations in
2014
Operating profit 236
Comparable operating profit 235
Comparable EBITDA 366
Capital expenditure 134
Number of employees 390
Volume of distr. Electricity, TWh 26.9
Number of el. Distr. Custom. (‘000) 906
49
January 2013:
Strategic assessment
commenced
December 2013:
Assessment has been
completed, divestment the
best alternative
– Evaluation of divestment
opportunities country by
country
Closed by the end of
Q1/2014:
Divestment of Distribution
Finland
Ongoing:
Preparation and evaluation
of divestment possibilities
in Sweden
Closed by the end of
Q2/2014:
Divestment of Distribution
Norway
Annual General Meeting 2015 and dividend distribution proposal
• The Board of Directors’ dividend proposal EUR 1.10 per share, and in addition extra
dividend EUR 0.20 per share for 2014
• Dividend-related dates planned for 2015
• Ex-dividend date 1 April 2015
• Record date for dividend payment 2 April 2015
• Dividend payment date 14 April 2015
50
Fortum’s Annual General Meeting will be held at 14:00 on 31 March 2015,
in Helsinki, Finland