fortum power and heat company in the nordic area, russia...

FORTUM Power and heat company in the Nordic area, Russia, Poland and the Baltics Investor/Analyst material

August 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 - 30

Data on Fortum’s nuclear fleet, pages 31 - 37

Russia, pages 39 - 46

Data on capacity payments, pages 42 - 43

Fortum’s investment programme, page 46

Financials and outlook, pages 48 – 56

Hedges, pages 54 - 55

Content

4

• 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 ~12 billion euros

More than 100,000 shareholders

31 July 2012

Foreign investors 26.8% Finnish State 50.8%

Other Finnish investors 10.1%

Households 9.0% Financial and insurance institutions 3.3%

5

Total ~ 8,630 MEUR

1999 2001 2003 2000 2002 2004

0.18 0.23 0.26

0.31 0.42

0.58

2005

1.12

Dividend per share

EUR

0.13

1998

0.5

8

0.5

4

2006

1.26

0.7

3

0.5

3

• 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

0.7

7

0.5

8

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 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 Executive Vice President and

Chief Financial Officer Juha Laaksonen

Corporate Relations and Strategy

Executive Vice President Anne Brunila

Corporate Human Resources Senior Vice President

Mikael Frisk

Staff Functions

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

7

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

Fortum’s Mission and Strategy

8

Strategy builds on our competences and industry beliefs

• Electricity

solutions and

distribution part of

the Nordic core

More attractive

growth prospects

in power and heat

generation

Two strong

platforms for

growth

• Nordic power

wholesale and

heat market

• Russian power

and heat

market

Competitiveness

key for long term

value creation

• Sustainable

business models

cannot rely on a

continuous high

level of subsidies

Integrating European

energy markets and

a gradual decrease

in the weight of the

Nordic power price

• Leverage our

competences in

nuclear, hydro and

CHP

• Industrial restructuring

opportunities

Strong focus on delivering value and stable returns to shareholders

9

Our geographical presence today

TGC-1 (~25%)

Power generation ~7 TWh

Heat sales ~8 TWh

OAO Fortum

Power generation 17.4 TWh

Heat sales 26.7 TWh

Russia

Poland Power generation 0.6 TWh

Heat sales 4.3 TWh

Baltic countries Power generation 0.4 TWh

Heat sales 1.1 TWh

Distribution cust. ~24,000*

Nordic countries

Power generation 53.1 TWh

Heat sales 17.2 TWh

Distribution customers 1.6 million

Electricity customers 1.2 million

Nr 2 Power

generation

Electricity

sales

Nr 2

Nr 1 Heat

Distribution

Nr 1

Key figures 2011 Sales EUR 6.2 bn

Operating profit EUR 2.4 bn

Balance sheet EUR 23 bn

Personnel 10,800

Great Britain Power generation 1.2 TWh

Heat sales 2.1 TWh

* Distribution business sold Jan 1, 2012

10

Divisions of Fortum

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 1,201 million

Distr.: EUR 3,589 million

El. 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. 16.7

El. 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 and

power 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.: Regulated

El. sales: Sales margin

11

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

Largest global producers, 2010 TWh

Largest producers in Europe and Russia, 2010 TWh

Power generation Heat production

Electricity customers in EU, 2010 millions

Customers

DEI

Irkutskenergo

*) IES

Iberdrola

RusHydro Fortum

EnBW

Vattenfall

CEZ

RWE

PGE SSE

Statkraft

Rosenergoatom Gazprom

NNEGC Energoat.

Enel

E.ON EDF

0 100 200 300 400 500 600

Inter RAO UES

GDF SUEZ ***)

Onexim

Tatenergo

Minsk Energo Kievenergo

Irkutskenergo Bashkirenergo

RAO ES East Inter RAO UES

TGC-2

Fortum

Dong Energy KDHC, Korea

TGC-14

Lukoil

Gazprom

0 20 40 60 80 100 120 140

ELCEN, Rom.

Dalkia

SUEK **)

*) IES

Vattenfall

PGNiG

0 20 40 10 30

DEI

CEZ

Enel

Centrica

EDP

Iberdrola

SSE

EnBW

Fortum

EDF

E.ON

RWE

Gas Natural Fenosa

PGE

Tauron

GDF SUEZ

Hafslund

Dong Energy

Vattenfall

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

Source: Company information, Fortum analyses, 2010 figures pro forma, heat production of Beijing DH not available.

12

Biggest nuclear and hydro generators in Europe and Russia

Figures 2010 pro forma

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

13

Fortum's carbon exposure among the lowest in Europe

Source:

PWC & Enerpresse, Novembre 2011

Changement 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

SS

E

Va

tten

fall

E.O

N

Enel

Dong

ED

P

GD

F S

UE

Z E

uro

pe

Unio

n F

enosa

Iberd

rola

PV

O

Fort

um

tota

l

ED

F

Verb

und

Fort

um

EU

Sta

tkra

ft

2011

65% of Fortum's total power generation CO2-free

85% of Fortum’s power generation in the EU CO2-free

Close to 100% of the ongoing investment programme

in the EU CO2-free

84 189

Note:

Fortum’s specific emission of the power generation in 2011 in the EU were 88 g/kWh and in total 192 g/kWh.

Figures for all other companies include only European generation.

14

Fortum’s strategic route

Divestment of

non-strategic

heat business

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

http://fi.wikipedia.org/wiki/Kuva:Flag_of_Russia.svg

http://fi.wikipedia.org/wiki/Tiedosto:Flag_of_Estonia.svg

http://upload.wikimedia.org/wikipedia/commons/4/4c/Flag_of_Sweden.svg

http://upload.wikimedia.org/wikipedia/commons/4/4c/Flag_of_Sweden.svg

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

http://www.nasdaqomx.com/

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 fuels

24%

Natural gas

22%

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)

Fortum a forerunner in sustainability

19 19

2009

2012- 2013

2010-

2013

2012

19

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, intraday market coupling

and balancing market integration targetted 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

20 20 20

700

2100 600 600

350

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

Countries Transmission capacity 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 21 21

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

New interconnections could

double the capacity to over

8000 MW by 2020

First direct 1400 MW NO-

DE link agreed to be built

by 2018

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 by 2020

Jutland – DE capacity to grow by

280 MW from October 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 TSO and merchant projects for links to the UK

by 2020; 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

rese

rvo

ir c

on

ten

t (T

Wh

)

0

20

40

60

80

100

120

2000 2003 2010 2012 2011 reference level

Q1 Q2 Q3 Q4

Source: Nord Pool Spot

23

Nordic year forwards

Year 15 Year 17 Year 09 Year 10 Year 11 Year 12 Year 13 Year 14 Year 16 10 August 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

Q2 Q3

Source: 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

Wholesale price for electricity

EUR/MWh Nord Pool System Price Forwards

10 August 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

* including capacity tariff estimate.

E.g 9.4 €/MWh for 2010, 6.8 for 2011 and 5.9 for 2012.

Dutch

German

Nordic

Russian*

Spot prices Forward prices EUR/MWh

0

10

20

30

40

50

60

70

80

90

100

110

2007 2008 2009 2010 2011 2012 2013

10 August 2012

26

Fuel and CO2 allowance prices

Source: ICE

Market prices 10 August 2012; 2012-2013 future quotations

Coal price (ICE Rotterdam)

0

40

80

120

160

200

240

US

D /

t

2006 2007 20102008 2009 20122011 2013

Gas price (ICE NBP)

0

20

40

60

80

100

GB

p /

th

erm

2006 2007 20102008 2009 20122011 2013

CO2 price (ICE ECX EUA)

0

5

10

15

20

25

30

35

EU

R /

tC

O2

2006 2007 20102008 2009 20122011 2013

Crude oil price (ICE Brent)

020406080

100120140160

US

D /

bb

l

2006 2007 20102008 2009 20122011 2013

27

Nordic power generation – dominated by hydro, but fossil needed

Source: ENTSO-E Memo 2011 *) 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

378 TWh in 2011

Net import in 2011: 3 TWh

24

80

TWh %

57

200

17

6

21

15

53

5

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.ON PVO

E-CO Energi

Agder Energi

Norsk Hydro Helsinki

Others

52%

Dong Energy

Vattenfall

Fortum

E.ON

Göteborg

Helsinki

Hafslund

SEAS-NVE

Statkraft

Bixia

Others

53%

Fortum

Vattenfall

E.ON

SEAS-NVE

Hafslund

Helsinki

Göteborg

Syd Energi

Dong Energy

Elenia

Power generation

382 TWh

>350 companies

Electricity distribution

15 million customers

~500 companies

Electricity retail

15 million customers

~350 companies

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

5896 New 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 Other

areas

World

total

Growth, 2009-2035

Primary energy demand

Electricity generation

30

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

Other costs ( variation)

CO2 cost

Coal Gas Nuclear Hydro Wind Clean coal

EUR/MWh

Estimated lifetime average cost in nominal 2014 terms.

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

0

10

20

30

40

50

60

70

80

90

100

110

0

10

20

30

40

50

60

70

80

90

100

110

Source: Nord Pool spot, NASDAQ OMX Commodities Europe

EUR/MWh

Futures

10 August 2012

1995 -97 -99 -01 -05 -07 -09 -11 -13 -03 -15 -17

31 31 31

Olkiluoto

LoviisaForsmark

Oskarshamn

Olkiluoto

LoviisaForsmark

Oskarshamn

Olkiluoto

LoviisaForsmark

Oskarshamn

Overview of Fortum’s nuclear fleet

Loviisa

Two 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 %

Olkiluoto

Two units, built 1978 and 1980 one under construction

880 + 880 MW = 1760 MW

Under construction 1600 MW

Fortum’s share: 27 % (468 MW)


Fortum’s share: 4 TWh


production: 9 %

Oskarshamn

Three units, built 1972,1974 and

1985

473 + 638 + 1400 = 2511 MW



Fortum’s share: 7 TWh


production: 16 %

Forsmark

Three units, built 1980,1981 and

1985

984 + 996 + 1170 = 3150 MW



Fortum’s share: 5,5 TWh


production: 13 %

32

Teollisuuden Voima Oyj

Karhu Voima

0,1

Mankala 8,1

Kemira 1,9

Fortum 26,6

Pohjolan

Voima 56,8

EPV Energia

6,5

Ownership structures and formal responsibilities

Forsmarks Kraftgrupp AB Forsmarks Kraftgrupp AB Forsmark

OKG Aktiebolag OKG Aktiebolag Oskarshamn

Teollisuuden Voima Oyj Teollisuuden Voima Oyj Olkiluoto

Fortum Power and Heat Oy Fortum Power and Heat Oy Loviisa

Operator Licensee Site

OKG Aktiebolag

E.ON 54,5

Fortum 43,4

Karlstad

kommun 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

Vattenfall

66,0

Fortum 22,2

E.ON 9,9

Skellefteå

Kraft 2,0

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.

33 33

Fortum's nuclear power in the Nordics

Olkiluoto

Loviisa Forsmark

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 12 July 2012

2012 (from July 12 onwards) Load factor (%) 2005 2006 2007 2008 2009 2010 2011

Planned annual outages days in

Oskarshamn 1 80 51 63 85 68 77 72 62

Oskarshamn 2 90 78 76 86 75 90 77 4

Oskarshamn 3 85 95 88 70 17 31 75

Forsmark 1 85 76 81 81 88 93 79 32

Forsmark 2 94 72 85 79 64 39 94

Forsmark 3 95 92 88 69 86 81 85 12

Loviisa 1 95 93 94 86 96 93 94 42

Loviisa 2 95 88 96 93 95 89 94 23

Olkiluoto 1 98 94 97 94 97 92 94 0

Olkiluoto 2 94 97 94 97 95 95 90 0

0

0

http://www.fortum.com/

34 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

operationAge

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-Laval

Olkiluoto-2 880 26,6 234 1982-07-10 29 BWR / 3 Asea-Atom / Stal-Laval

Olkiluoto-3 (1600) 25,0 (400) 2014 (?) PWR / 3 Areva / Siemens

Oskarshamn-1 473 43,4 205 1972-02-06 39 BWR / 1 Asea-Atom / Stal-Laval



Forsmark-1 984 23,4 230 1980-12-10 31 BWR / 3 Asea-Atom / Stal-Laval



35

Third party nuclear liability in case of severe accident

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€

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

Nuclear upgrades in Sweden

Capacity increase and completion timetable based on recent estimate (Nord Pool). At 31.12.2011 Fortum's share of Swedish

nuclear capacity was 1,787 MW.

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 2012 120 25 259 ~2

FKA 3 Decision 2013 170 ~35 270 ~2

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

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 2015

Swedish nuclear upgrades 290

Refurbishing of hydro power 10 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)

39

Russia is the World’s 4th largest power market

Power generation in 2011 based on gross output.

Source: BP Statistical Review of World Energy June 2012

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

TWh

5,000

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

Fortum - a major player in Russia

OAO Fortum

Tyumen

Tobolsk Moscow

St. Petersburg

Chelyabinsk

Nyagan

TGC-1

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/2008 II/12 II/11 LTM 2011

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

888 954 869 950 925 884

2,548 2,548 2,548 2,548 2,548 2,548

136 141 151 163 160 156

470 496 523 593 560 550

202 174 223 194 209 218

29.4 29.0 29.3 29.1 29.2 29.3

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.

2007 2008 2009 2010 2011 2012

Source: ATS

I-II/12 I-II/11

42

Power market liberalisation – two markets

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

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

44

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

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

~EUR 100 million improvement in

EBITDA through the efficiency

improvement programme

Invested capital

EUR

~2.5 bn

~4 bn

2011 ~2014

In 2009, WACC for Russia was ~12%

a

b

a

… and an unchanged

cost of capital b

The annual comparable

operating profit in Russia

needs to be ~EUR 500

million in order to beat the

cost of capital (WACC) after

the completion of the

investment programme

45

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 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 - 418 MW (Nyagan 1 in 2012 or 2013)

2013 - 836 MW

2014 - 496 MW

Total - 2,388 MW

46

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

Power generation capacity (MW)

Plant Fuel type Existing Planned Total

Tyumen CHP-2 Gas 755 755

Tyumen CHP-1 Gas 472 209 681

Tobolsk CHP Gas 452 213 665

Chelyabinsk CHP-3 Gas 360 216 576

Chelyabinsk CHP-2 Gas, coal 320 320

Argayash CHP Gas, coal 195 195

Chelyabinsk CHP-1 Gas, coal 149 149

Chelyabinsk GRES Gas 82 578

Nyagan GRES Gas 3*418 1,254

Boilers -

Total 2,785 2,388 5,173

(CHP/Condensing)

(CHP/Condensing)

(Condensing)

(Condensing)

Supply date

2012 or 2013, 2013, 2013

June/2011

Feb/2011

Oct/2011

2*248 (CHP/Condensing) 2014

48 48 48

Work continues according to our strategy

• Investment programme adds capacity

• Hedges create stability

• Strong financial position

49

Income statement

MEUR II/2012 II/2011 I-II/2012 I-II/2011 2011 LTM

Sales 1 284 1 316 3 185 3 350 6 161 5 996

Expenses -1 003 -968 -2 253 -2 353 -4 359 -4 259

Comparable operating profit 281 348 932 997 1 802 1 737

Items affecting comparability 2 261 87 512 600 175

Operating profit 283 609 1 019 1 509 2 402 1 912

Share of profit of associates and jv's 26 15 19 74 91 36

Financial expenses, net -73 -72 -149 -127 -265 -287

Profit before taxes 236 552 889 1 456 2 228 1 661

Income tax expense -46 -74 -165 -232 -366 -299

Net profit for the period 190 478 724 1 224 1 862 1 362

Non-controlling interests 4 6 43 74 93 62

EPS, basic (EUR) 0.21 0.53 0.77 1.29 1.99 1.46

EPS, diluted (EUR) 0.21 0.53 0.77 1.29 1.99 1.46

50 50 50

Comparable and reported operating profit

MEUR

II/2012 II/2011 II/2012 II/2011 I-II/2012 I-II/2011 I-II/2012 I-II/2011

Power 222 257 214 271 563 582 581 760

Heat 23 25 20 25 184 196 233 290

Russia 4 21 15 21 52 55 63 55

Distribution 49 60 50 252 159 184 167 377

Electricity Sales 11 10 11 23 20 21 22 3

Other -28 -25 -27 17 -46 -41 -47 24

Total 281 348 283 609 932 997 1 019 1 509

Comparable operating

profit

Reported operating

profit

Comparable operating

profit

Reported operating

profit

• Non-recurring items, IFRS accounting treatment (IAS 39) of derivatives and nuclear fund adjustments had an impact on the reported operating profit EUR 2 (261) million or earnings per share EUR 0.00 (0.27) in the second quarter, and EUR 87 (512) million or earnings per share EUR 0.10 (0.47) for January-June.

51 51 51

Cash flow statement

Note: EUR 888 million paid in dividends during the second quarter 2012

MEUR II/2012 II/2011 I-II/2012 I-II/2011 2011 LTM

Operating profit before depreciations 446 764 1 340 1 813 3 008 2 535

Non-cash flow items and divesting activities -16 -299 -115 -569 -726 -272

Financial items and fx gains/losses -131 12 -273 -290 -376 -359

Taxes -89 -144 -167 -258 -394 -303

Funds from operations (FFO) 210 333 785 696 1 512 1 601

Change in working capital 109 77 87 168 101 20

Total net cash from operating activities 319 410 872 864 1 613 1 621

Paid capital expenditures -305 -297 -577 -503 -1 285 -1 359

Acquisition of shares -3 -1 -3 -20 -62 -45

Other investing activities 32 331 287 541 522 268

Cash flow before financing activities 43 443 579 882 788 485

52 52 52

Key ratios

MEUR LTM 2011 2010Q2'12

EBITDA 2 535 3 008 2 271

Comparable EBITDA 2 348 2 374 2 396

Interest-bearing net debt 7 420* 7 023 6 826

Comparable Net debt/EBITDA 3.2 3.0 2.8

Return on capital employed (%) 11.3 14.8 11.6

Return on shareholders' equity (%) 14.0 19.7 15.7

*) as of 30 June 2012

Good liquidity – committed credit lines total EUR 2.7 billion

53 53 53

Outlook

• Key drivers and risks

– Wholesale price of electricity

• Demand and supply • Fuels

• Hydrological situation • Power plant availability

• CO2 emissions allowance prices

• Nordic markets

– Annual electricity demand growth estimated to be on average 0.5%

– Electricity continues to gain share of total energy consumption

• Russia

– The commissioning of the new units Nyagan 1 and 2 postponed

– Fortum’s goal is to achieve an operating profit level of about EUR 500 million and to create positive economic value added after completing the ongoing investment programme

54 54 54

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

– rest of 2012 approximately 65% hedge ratio at approximately EUR 49/MWh

(Q1: 70% at EUR 48/MWh)

– 2013 approximately 55% hedge ratio at approximately EUR 45/MWh

(Q1: 45% at EUR 46/MWh)

• Business environment still looks challenging during the coming months

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 2012

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

56 56 56

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

MEUR

2012 540

2013 639

2014 1,264

2015 1,093

2016 869

2017 591

2018 195

2019 903

2020 74

2021 576

2022+

TOTAL

1,080

7,824

per 30 Jun, 2012 per 31 Dec, 2011

Average Interest Rate (incl. swaps and forwards) 4.8% 4.4%

Portion of floating / fixed debt 37 / 63% 47 / 53%

fortum power and heat company in the nordic area, russia...

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