fortum power and heat company in the nordic area, russia, poland and...
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FORTUM Power and heat company in the Nordic area, Russia, Poland and the Baltics Investor / Analyst material September 2014
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 – 18
European and Nordic power markets, pages 19 – 30 Data on Fortum’s nuclear fleet, pages 31 – 35
Russia, pages 36 – 41 Data on capacity payments, pages 39 – 40 Fortum’s investment programme, page 41
Financials and outlook, pages 42 – 47 Hedges, pages 48 – 49
Efficiency programme, page 50
Facts of Distribution, page 51
Appr. 120,000 shareholders
• Power and heat company in the Nordic countries, Russia, Poland and the Baltics • Listed at the Helsinki Stock Exchange since 1998 • Among the most traded shares on the NASDAQ OMX Helsinki stock exchange • Market cap ~17 billion euros
4
31.8.2014
Foreign investors 31.4% Finnish State 50.8%
Other Finnish investors 7.7%
Households 8.7% Financial and insurance institutions 1.4%
Capital returns : 2013 EUR 1.10 per share ~ EUR 1.0 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
5 year dividend per share (EUR) history
• Fortum Corporation's target is to pay a stable, sustainable and over time increasing dividend
of 50-80% of earnings per share excluding one-off items
Fortum has since 1998 annually paid
dividends in total ~10,493 MEUR
1.1 1.0 1.0 1.0 1.0
Fortum Executive Management
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 President and CEO Tapio Kuula
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 geographical presence
8
* incl. Fortum Värme; power generation 1.3 TWh and heat sales 8.2 TWh.
OAO Fortum Power generation 20.0 TWh Heat sales 24.2 TWh
Russia
Poland Power generation 0.6 TWh Heat sales 4.0 TWh
Baltic countries Power generation 0.5 TWh Heat sales 1.1 TWh
Nordic countries Power generation* 46.5 TWh Heat sales* 13.9 TWh Distribution customers in Sweden 0.9 million Electricity customers 1.2 million
Power generation
Electricity sales
Heat
Distribution
Key figures 2013 Sales EUR 5.3 bn Operating profit EUR 1.5 bn Balance sheet EUR 23 bn Personnel 9,200
Great Britain Power generation 1.0 TWh Heat sales 1.8 TWh
India Power generation ~9 GWh
In addition, ~25% share in TGC-1
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 25% 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 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
Fortum mid-sized European power generation player; major producer in global heat (incl. Fortum Värme)
10
* incl. MOEK, ** incl. Bashkirenergo, *** incl. TGC-5, TGC-6, TGC-7, TGC-9, **** incl. TGC-12, TGC-13, ***** figure 2011, Fortum incl. Fortum Värme; power generation (1.2 TWh) and heat production (8 TWh). Source: Company information, Fortum analyses, 2012 figures pro forma, heat production of Beijing DH not available.
Largest global producers, 2012 TWh
Largest producers in Europe and Russia, 2012 TWh
Power generation Heat production Electricity customers in EU, 2012
Millions
Customers
DEI
EuroSibEnergo Iberdrola
Fortum
EnBW
Vattenfall
CEZ
RWE
***) IES
DTEK PGE
Rosenergoatom
NNEGC Energoat.
Enel E.ON EDF
GDF SUEZ
Statkraft
Gazprom *)
RusHydro Inter RAO UES **)
0 100 200 300 400 500 600
KDHC, Korea
Quadra
Tatenergo
Minskenergo
DTEK, Ukraine
EuroSibEnergo
TGC-2
Fortum
Dong Energy
TGC-14
Lukoil
Sibgenco ****)
***) IES
Vattenfall
PGNiG
Inter RAO UES **)
ELCEN. *****)
RusHydro
Dalkia
Gazprom *)
0 20 40 60 80 100 120 140
GDF SUEZ
DEI
CEZ
Enel
Centrica
EDP
Iberdrola
SSE EnBW
Fortum
EDF E.ON RWE
Gas Natural Fenosa
PGE Tauron
Hafslund Dong Energy
Vattenfall
0 20 40 10 30
Biggest nuclear an hydro generators in Europe and Russia
11
Figures 2012 pro forma * incl. Fortum Värme (CHP 1.2 TWh), ** incl. MOEK, *** incl. Bashkirenergo, **** incl. TGC-5, TGC-6, TGC-7, TGC-9
TWh
Total generation
050
100150200250300350400450500550600
EDF
Ros
ener
goat
om
NN
EG
C E
nerg
oato
m
Rus
Hyd
ro
Vatte
nfal
l
E.O
N
Enel
Euro
SibE
nerg
o
GD
F SU
EZ
Stat
kraf
t
Fortu
m
Iber
drol
a
RW
E
EnBW CE
Z
Axpo
Verb
und
Gaz
prom
Hid
roel
ectri
ca
Cen
trica
Alpi
q
E-C
O E
nerg
i
Ukr
hydr
oene
rgo
Nor
sk H
ydro
EPS,
Ser
bia
BKK
Agde
r Ene
rgi
EDP
Gas
Nat
ural
Fen
osa
DE
I
SSE
Inte
r RAO
UE
S
PGE
DTE
K
IES
Other
Nuclear
Hydro
**
****
***
*
Fortum a forerunner in sustainability
• Carbon Disclosure Nordic Leadership Index
– Fortum no. 1, scores 100/100
• SAM Sustainability Yearbook
• STOXX® Global ESG Leaders indices
• oekom
• OMX GES Sustainability Finland Index
• ECPI® Indices
12
0
200
400
600
800
1000
1200
DE
I
Dra
x
RW
E
SS
E
ED
P
E.O
N
Vat
tenf
all
Ene
l
Edi
pow
er
Uni
on F
enos
a
CE
Z
EnB
W
GD
F S
UE
Z
Don
g E
nerg
y
Iber
drol
a
Fortu
m to
tal
ED
F
Ver
bund
Fortu
m E
U
PV
O
Sta
tkra
ft
42
g CO2/kWh electricity, 2012
2013 63% of Fortum's total power generation CO2-free 88% of Fortum’s power generation in the EU CO2-free Close to 100% of the ongoing investment programme in the EU CO2-free
Average 350 g/kWh
171
Fortum's carbon exposure among the lowest in Europe
13
Note: Fortum’s specific emission of the power generation in 2013 in the EU were 70 g/kWh and in total 202 g/kWh. Only European generation except “Fortum total“ which includes Russia.
Source: PWC & Enerpresse, November 2013 Climate Change and Electricity, Fortum
Fortum’s strategic route
14
Divestment of non-strategic heat business
Länsivoima →100%
District heat in Poland
2003 →
Østfold
Shares in Hafslund
Shares in Lenenergo
Starting TGC-1
Divestment of Lenenergo
shares
TGC-10
Divestment of heat operations outside
of Stockholm
Stockholm Energi
Gullspång
Birka Energi 50% Fortum
50% Stockholm
Gullspång
Skandinaviska Elverk
Birka Energi 50% → 100%
Stora Kraft
Lenenergo shares 1998 →
IVO
Neste
Divestment of small
scale hydro
E.ON Finland Separation of oil businesses
Elnova 50% → 100%
Divestment of Fingrid
shares, 2011
Länsivoima 45% → 65%
2008 2005 2006 2007 2002 2003 2004 1999 2000 2001 1996 1998 2009 2010 2011 2012 1997 2013 2014
Divestment of electricity
distribution business
Divestment of electricity distribution
and heat businesses
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 29%
Nuclear power 35%
Coal 7%
Biomass 2%
Total generation 68.7 TWh (Generation capacity 15,128 MW)
Hydro power 26%
Fortum's power generation in 2013
Other 1%
Total production 42.8 TWh (Production capacity 21,659 MW)
Fortum's heat production in 2013
Oil 1%
Waste 5% Heat pumps, electricity 7%
Peat 1%
Biomass 12%
Natural gas 61%
Coal 13%
Incl. Fortum Värme; power generation 1.3 TWh (capacity 610 MW) and heat production 8.2 TWh (capacity 3,626 MW).
Nuclear power 48%
Coal 7%
Other 2%
Hydro power 37%
Natural gas 3%
European generation 48.7 TWh (Generation capacity 10,873 MW)
Fortum's European power generation in 2013
Biomass 3%
European production 18.6 TWh (Production capacity 8,193 MW)
Fortum's European heat production in 2013
Peat 2% Oil 1%
Heat pumps, electricity 16%
Waste 12%
Coal 22%
Natural gas 19%
Biomass 28%
Fortum's European power and heat production
17
Incl. Fortum Värme; power generation 1.3 TWh (capacity 610 MW) and heat production 8.2 TWh (capacity 3,626 MW).
18
Fortum’s Nordic generation capacity
MW Finland
Wind 0.4
Hydro 1 500 Nuclear 1 460 CHP 438 Other thermal 1 127
4 525 Generation capacity in Finland
1 139
4 590
Other thermal
Hydro Nuclear CHP *
3 276
Wind 30
Nordic capacity 10 083
1 048
Nordic MW Price areas MW
SE2 Hydro 1 550 Wind 30
SE3 Hydro 1 540 Nuclear 1 816
Sweden
5 558 Generation capacity in Sweden
Other 12 CHP * 610
SE1
SE2
SE3
SE4
31 March 2014 * incl. Fortum Värme 610 MW
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 to join in November 2014 • A common day-ahead market coupling for the whole north-
western Europe was started 4 February 2014. Iberia (Spain & Portugal) joined 13 May 2014, and Italy joining early 2015
• CEE market coupling region to join in 2015, with flow-based cross-border capacity allocation for further trade optimisation
• In addition to day-ahead coupling, intraday market coupling and balancing market integration targeted as well
19
2009
2/2014
2012
2010-2013
2015
5/2014
Current transmission capacity from Nordic area is over 5000 MW
20
• Theoretical maximum in transmission capacity ~40 TWh per annum
• Net export from Nordic area to Continental Europe and Estonia during the Nordic dry year 2013 was 3 TWh
• During 2012 net export was 18 TWh • Approximately 25 TWh of net export is now reachable
700
2,365 615 600
1000
Countries Transmission capacity MW
From Nordics To Nordics
Denmark - Germany 2,365 2,100
Sweden - Germany 615 600
Sweden - Poland 600 600
Norway - Netherlands 700 700
Finland - Estonia 1000 1,016
Finland - Russia 0 (1/2015: 350) 1,300
Total 5,280 6,316
Nordic, Baltic and Continental markets are integrating – interconnection capacity will double by 2020
21
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 agreed to be built by 2018
EU financial support for a 700 MW DK-NL link, due to be built by 2019
Jutland – DE capacity planned to grow by 720 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 in 2015/20. It will open a new transmission route from the Nordic market to the Continent
EU’s European Energy Programme for Recovery co-financing Estlink 2 (2/2014) and NordBalt (12/2015)
New internal Nordic and Baltic grid investments provide for increased available capacity for export to the Continent and Baltics
350 MW of export capacity from Finland to Russia due to become available from January 2015
Nordic water reservoirs
22
Source: Nord Pool Spot
Q1 Q2 Q3 Q4
20
40
60
80
100
120
rese
rvoi
r con
tent
(TW
h)
0
2000 2003 2013 2012 reference level 2014
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
Year 15 Year 17 Year 19 Year 10 Year 11 Year 12 Year 13 Year 14 Year 16 Year 18 1 September 2014
0
10
20
30
40
50
60
70
€/MWh
Nordic year forwards
23
Source: NASDAQ OMX Commodities Europe
Wholesale price for electricity
24
Source: Nord Pool Spot, NASDAQ OMX Commodities Europe
0
10
20
30
40
50
60
70
80
90
100
110EUR/MWh Nord Pool Spot System Price Forwards
1 September 2014
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
Wholesale prices for electricity
25
Source: Nord Pool Spot, NASDAQ OMX Commodities Europe, APX-ENDEX, Bloomberg Finance LP, ATS, NP “Market Council”, Fortum
* Including weighted average capacity price
10
20
30
40
50
60
70
80
90
100
110
2008 2009 2010 2011 2012 2013 2014 2015
Dutch
German
Nordic
Russian*
Spot prices Forward prices EUR/MWh
1 September 2014
2016 0
0
30
60
90
120
150
USD
/ bb
l
Crude oil price (ICE Brent)
2006 2007 20102008 2009 20122011 2013 2014 20150
7
14
21
28
35
EUR
/ tC
O2
CO2 price (ICE ECX EUA)
2006 2007 20102008 2009 20122011 2013 2014 2015
0
50
100
150
200
250
USD
/ t
Coal price (ICE Rotterdam)
2006 2007 20102008 2009 20122011 2013 2014 20150
20
40
60
80
100
GB
p / t
herm
Gas price (ICE NBP)
2006 2007 20102008 2009 20122011 2013 2014 2015
26
Source: ICE
Market prices 1 September 2014; 2014-2015 future quotations
Fuel and CO2 allowance prices
Nordic power generation – dominated by hydro, but fossil needed
27
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
28
0102030405060708090
100110
Source: Nord Pool spot, NASDAQ OMX Commodities Europe
EUR/MWh
Futures 1 September 2014
1995 2014 2024 0
102030405060708090
100110
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
29
* incl. Fortum Värme (1.2 TWh). Source: Fortum, company data, shares of the largest actors, pro forma 2012 figures.
Power generation 406 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
BKK
Others
52%
E.ON
Vattenfall
Fortum
Dong Energy
Göteborg, DinEl
SEAS-NVE
Hafslund
Helsinki Statkraft
Bixia
Fortum
Caruna
Others
56%
SEAS-NVE Helsinki Göteborg
Elenia
Vattenfall
E.ON
Hafslund
Dong Energy
New power generation capacity needed for increasing demand and retiring capacity replacements
30
• 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, ~6 000 GW of new capacity needed by 2035
Source: IEA WEO 2013 (New polices scenario) 1) Total new capacity needed for increasing demand and replacements of retiring capacity
377
234
611
530
340
870
149
73
222
205
1328
1533
68
649
717
612
1487
2099
1941
4111
6052 New capacity, total (1
Capacity changes, 2013-2035 (GW)
Retiring capacity
US Europe Russia China India Other areas
World total
0%
50%
100%
150%
200%
250%
16%
44%
110%
221% Growth, 2011-2035 Primary energy demand Electricity generation
Capacity increase
Overview of Fortum’s nuclear fleet
31
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
32
• 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
Osakarshamn 1 80 51 63 85 68 77 72 1 13
Oskarshamn 2 90 78 76 86 75 90 77 81 33
Oskarshamn 3 85 95 88 70 17 31 75 69 77
Forsmarks 1 85 76 81 81 88 93 79 88 87
Forsmark 2 94 72 85 79 64 39 94 82 89
Forsmark 3 95 92 88 69 86 81 85 93 88
Loviisa 1 95 93 94 86 96 93 94 84 92
Loviisa 2 95 88 96 93 95 89 94 91 93
Olkiluoto 1 98 94 97 94 97 92 94 90 97
Olkiluoto 2 94 97 94 97 95 95 90 96 93
Variety of technologies and ages
33
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
34
Sweden (new, not in force)
Finland, temporary legislation
Current, Sweden
700 M€
200 M€ 360 M€
500 M€ Responsibility of company (insurance or guarantee)
Unlimited company responsibility Convention parties 300 M€
State responsibility
300 M€
500 M€
700 M€
New Paris convention
700 M€
145 M€
145 M€
Old, Finland
240 M€
145 M€
Has been approved by the Parliament. In force 1.1.2012 onwards.
Law approved by Parliament in 2010, requires separate decision from Government to come into force.
Requires ratification by 2/3 of member states to come into force. In Finland approved by Parliament in 2005
Nuclear upgrades in Sweden
35
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, 2017 30 + 180 95 355 ~3
OKG 3 2011 255 110 607 ~5 FKA 1 Decision 2014 120 ~25 257 ~2
FKA 2 2013 120 25 259 ~2 FKA 3 Decision 2014 170 ~35 270 ~2 Total ~290 ~2 ~1,950* ~15
Capacity increase and completion timetable based on recent estimate (Nord Pool).
*At 31.12.2013 Fortum's share of Swedish nuclear capacity was 1,817 MW.
Russia is the World’s 5th largest power market
36
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 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 • 20 TWh power generation, 24 TWh heat production in 2013;
more than Fortum’s Nordic heat sales (14 TWh, incl. Fortum Värme) • Investment programme to add 85%, almost 2,400 MW to power
generation capacity
TGC-1 • Slightly over 25% of territorial generating company TGC-1 operating
in north-west Russia • ~6,800 MW electricity production capacity (more than 40% hydro),
~27 TWh electricity, ~29 TWh heat in 2013
37
OAO Fortum
Tyumen
Tobolsk
Chelyabinsk
Nyagan
TGC-1
St. Petersburg
Moscow
38
Day ahead wholesale market prices – increase driven by recovering demand and gas price
2
Key electricity, capacity and gas prices in the OAO Fortum area
II/14 II/13 I-II/14 I-II/13 2013 LTM
Electricity spot price (market price), Urals hub, RUB/MWh
1,132 970 1,075 950 1,021 1,074
Average regulated gas price, Urals region, RUB 1000 m3
3,362 2,836 3,362 2,880 3,131 3,362
Average capacity price for CCS ”old capacity”, tRUB/MW/month
129 146 156 162 163 160
Average capacity price for CSA ”new capacity”, tRUB/MW/month
493 513 553 575 576 563
Average capacity price, tRUB/MW/month
256 252 296 262 276 293
Achieved power price for OAO Fortum, EUR/MWh
31.7 31.1 31.2 30.8 32.1 32.3
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.
Source: ATS
2008 2009 2010 2011 2012 2013 2014
Power market liberalisation – two markets
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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
40
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
41
Income statement MEUR II/2014 II/2013 I-II/2014 I-II/2013 2013 LTM
Sales 1,016 1,205 2,489 2,858 5,309 4,940
Other income and expenses 761 916 1,758 2,046 3,906 3,618
Comparable operating profit 255 289 732 813 1,403 1,322
Items affecting comparability 41 140 1,897 93 106 1,910
Operating profit 295 429 2,629 905 1,508 3,232
Share of profit of associates and jv’s 37 34 109 112 178 175
Financial expenses, net -48 -75 -113 -140 -289 -262
Profit before taxes 284 388 2,626 878 1,398 3,146
Income tax expense -37 -74 -124 -160 -186 -150
Net profit for the period 247 314 2,502 718 1,212 2,996
Non-controlling interests 0 0 4 3 8 9
EPS, basic (EUR) 0.28 0.35 2.81 0.80 1.36 3.36
EPS, diluted (EUR) 0.28 0.35 2.81 0.80 1.36 3.36
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Comparable and reported operating profit
II/2014 II/2013 II/2014 II/2013 I-II/2014 I-II/2013 I-II/2014 I-II/2013
Power and Technology 183 210 151 338 434 513 413 600 Heat, Electricity Sales and Solutions 11 13 67 24 59 70 112 75
Russia 28 20 28 20 102 61 101 61
Distribution 45 60 63 61 164 197 2,030 197
Other -13 -14 -13 -14 -27 -28 -28 -28
Total 255 289 295 429 732 813 2,629 905
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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 41 (140) million in the second quarter and 1,897 (93) million in the first half year.
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 II/2014 II/2013 I-II/2014 I-II/2013 2013 LTM
Operating profit before depreciations 427 579 2,909 1,196 2,129 3,842
Non-cash flow items and divesting activities -58 -189 -1,921 -163 -262 -2,020
Financial items and fx gains/losses 29 -100 4 -309 -188 125
Taxes -67 -51 -95 -81 -210 -224
Funds from operations (FFO) 330 240 897 641 1,469 1,725
Change in working capital 125 42 125 107 79 97
Total net cash from operating activities 455 282 1,022 749 1,548 1,821
Paid capital expenditures -168 -201 -330 -411 -1,004 -923
Divestments of shares * 316 2 2,817 37 144 2,924
Other investing activities 171 18 219 126 -83 10
Cash flow before financing activities 774 101 3,727 501 604 3,830
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* Including Proceeds from the interest-bearing receivables relating to divestments
Key ratios
MEUR LTM 2013 EBITDA 3,843 2,129 Comparable EBITDA 1,892 1,975 Interest-bearing net debt 5,008 7,793 Comparable net debt/EBITDA 2.6 3.9
45
Return on capital employed, ROCE (%) 18.4 9.0 Return on shareholders’ equity, ROE (%) 28.2 12.0
Good liquidity – committed credit lines total EUR 2.2 billion
Debt Maturity Profile
0
250
500
750
1000
1250
1500
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024+
Bonds Financial institutions Other long-term debt CPs Other short-term debt
MEUR
2014 286
2015 1,014
2016 862
2017 544
2018 628
2019 821
2020 76
2021 545
2022 1,033
2023 112
2024+
TOTAL
1,245
7,166
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per 30 Jun, 2014 per 31 Dec, 2013 Average Interest Rate (incl. swaps and forwards) 4.0 % 3.6 % Portion of floating / fixed debt 39 / 61 % 51 / 49 %
Outlook
Nordic markets • Fortum continues to expect that the annual electricity demand growth will average
0.5% in the coming years • Electricity is expected to continue to gain share of total energy consumption
Russia • The target for the Russia Segment in Russian roubles (RUB 18.2 billion) to be reached
during 2015 is intact, but the euro result level will be volatile and with current exchanges rates lower than EUR 500 million
Key drivers and risks • Wholesale price of electricity and volumes
• demand and supply • fuels • hydrological situation • power plant availability • CO2 emissions allowance prices
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Outlook
Annual capex estimate excluding potential acquisitions • 2014 EUR 0.9 to 1.1 billion (incl. Finnish distribution Q1/2014, Norway 1H/2014, excluding
Fortum Värme)
Hedging • Rest of the year 2014 approx. 55% hedge ratio at approx. EUR 45/MWh • 2015 approx. 30% hedge ratio at approx. EUR 41/MWh
Target for efficiency programme is to improve cash flow by EUR 1 billion during 2013-2014
Taxation
• Effective tax rate for the Group 19-21% • In Finland, the power plant tax (so called windfall tax) has been revoked
48
Hedging improves stability and predictability
49
2009 onwards thermal and import from Russia excluded
• Efficiency programme proceeding according to plan
• Total annual cost savings visible in all divisions • Improved working capital efficiency • Divestments of non-core assets totalling approximately EUR 400 million
Fortum's efficiency programme 2013-2014
50
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 Distribution MEUR Fortum’s
Swedish distribution operations in 2013
Operating profit 263
Comparable operating profit 246
Comparable EBITDA 384
Capital expenditure 121
Number of employees 515
Volume of distr. Electricity, TWh 27.8
Number of el. Distr. Custom. (‘000) 903
51
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: Evaluation of divestment opportunities by country
Closed by the end of Q2/2014:
Divestment of Distribution Norway
For more information, please visit www.fortum.com/investors