- a leading energy company in the nordic area...company no. 1(tgc-1) – based on the stake in st....
TRANSCRIPT
- a leading energy companyin the Nordic area
Timo KarttinenSenior Vice President, Fortum Corporation
EEI International Utility Conference, LondonMarch 5, 2007
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• Fortum today• Financials / hedging• Russia• Energy demand and climate change
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Fortum's strategy
Become the leadingpower and heat
company
Become theenergy supplier
of choice
Benchmark business performance
Fortum focuses on the Nordic and Baltic Rim markets as a platform for profitable growth
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Baltic countriesHeat sales 1.0 TWhDistribution cust. 23,000Poland
Heat sales 3.6 TWhElectricity sales 8 GWh
NW Russia(in associated companies)Power generation ~6 TWhHeat production ~7 TWh
NordicGeneration 53.2 TWhElectricity sales 60.2 TWhDistribution cust. 1.6 mill.Electricity cust. 1.3 mill.Heat sales 20.1 TWh
Presence in focus market areas
2006 numbers
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Capital structure
• Fortum wants to have a prudent and efficient capital structure, which at the same time allows the implementation of its strategy
• Access to flexible funding sources is key
• Dividend policy of 50 - 60% payout on the average for Fortum continuing operations' results
• In the medium term, allowing the implementation of strategy and the returns of capital, Fortum expects to have its net debt to EBITDA around 3.0x
Beased on 2006: Net debt/EBITDA 2.3
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Growing capital returns
Total ~ 3,775 MEUR
* from continuing operations** Proposal of the Board of Directors*** with 60% payout ratio
1999 2001 20032000 2002 2004
0.18 0.23 0.26 0.310.42
0.58
2005
1.12
Dividend per shareEUR
0.13
1998
0.58
*0.
54
2006**
1.26
0.73
***
0.53
• Proposed dividend of EUR 1.26 per share, in total over EUR 1.1 billion
• Proposed mandate for repurchasing of the company’s own shares; maximum EUR 300 million
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• Fortum today• Financials / hedging• Russia• Energy demand and climate change
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• Strong financial performance
• Fortum Espoo integrated
• Investment programme accelerated
• Good progress in Russia
– TGC-1 ownership increased to over 25%
• Markets' customer flow continued to develop positively during 2006
Another good year for Fortum
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• From continuing operations– comparable operating profit EUR 1,437 (1,334) million , + 8% – earnings per share EUR 1.22 (1.01), + 21%– net cash from operating activities EUR 1,151 (1,271) million
• The key financial targets exceeded
• Fortum’s net debt to EBITDA 2.3 at year end
Strong financial performance
Comparison: 2005 financial results
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Hedging of Power Generation's Nordic sales
Hedge ratio Hedge price
Calendar year 2007
~ 65 % ~ EUR 42 per MWh
Calendar year 2008 ~ 35 % ~ EUR 42 per MWh
Status at the beginning of January 2007:
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• Fortum today• Financials / hedging• Russia• Energy demand and climate change
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Unbundling of businesses by type of activity
Competitive businesses
Regulated monopolies
GenerationSales
TransmissionDistribution
Market liberalisation in competitive businesses
Pricing model reform – from tariff regulation to competitive pricing
A new structure in generation ownershipA Nordic/Western analogy
Russian power industry reform plan includes both restructuring and liberalisation
Rosenergoatom
RAO UES
Other standalone co's and stations
Irkutskenergo
Krasnoyarskaya GES
6 thermal WGCs
1 hydro WGC 14 TGCs
Other standalone co'sand stations
Rosenergoatom
IrkutskenergoKrasnoyarskaya GES
Before reform
After reform
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Fortum's current operations in Russia
TGC-1• Electricity production capacity
~6,070 MW(of which hydro 2,874 MW)
• Production volume of electricity ~22 TWh and heat ~29TWh
• Third largest TGC• Started operation on 1
October 2005 based on a leasing model
• Merged on 1 November 2006• On TGC-1's Board of Directors
Fortum has 3 representatives out of a total of 11 members
• ~25% stake in Territorial Generating Company No. 1(TGC-1)
– based on the stake in St. Petersburg Generating Company (Lenenergo generation)
• ~1/3 stake in other companies spun off from Lenenergo
– earlier the largest utility in northwest Russia
• Operation & maintenance services
• Electricity imports
• Nuclear fuel and coal importsOwners of TGC-1:RAO UES ~56%Fortum ~25%Norilsk Nickel ~7%Others ~12%
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• Fortum today• Financials / hedging• Russia• Energy demand and climate change
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A huge foreseen increase in energy demand...
Source: IEA World Energy Outlook 2006 (the Reference Scenario)
0 2,000 4,000 6,000 8,000
Total
Coal
Oil
Gas
Nuclear
Hydro
Biomassand waste
Other RES
10,000 14,000 18,000
200420152030
* million tons oil equivalent
Mtoe*
+420%
+40%
+69%
+21%
+68%
+42%
+60%
+53%
• By 2030, globally, it is estimated that
– demand for primary energy grows 50% +
– demand for power more or less doubles
– power sector share of primary energy demand grows from 37% to 41%
Primary energy demand until 2030
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... and a need for significant investments in...
... Europe ...
Existing/remaining capacityDemand
Source: Eurprog 2005; Europe: EU25
0500
1,0001,5002,0002,5003,0003,500
2000 2005 2010E2015E2020E
TWh
900 TWh
... the Nordic market... ... and in Russia
Source: Ministry of Energy; Russian Energy Strategy 2020
Demand growth~300-400+ TWh by 2020(lately, also higher estimates presented)
80 TWh
Committed new capacityExisting/remaining capacity
Demand
TWh
0
100
200
300
400
500
2000 2005 2010E2015E2020E
Source: Fortum
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New capacity will require an EUR 40+ power price
Source: Nord PoolSource: IEA "World Energy Outlook 2006"; Elforsk "El från nya anläggningar", 2003 and Fortum
Adjusted to indicate nominal costs year 2011.Large variations in cost of new hydro and wind due to location and conditions
1995 -97 -99 -01 -03 -05 -07 -09 -11
Fuel costsFixed costs( variation)
CO2 cost 15 €/ton
EUR/MWh
0
10
20
30
40
50
60
70
80
Cleancoal
Coal Gas Nuclear Hydro Wind
EUR/MWh
0
10
20
30
40
50
60
70
80
Futures27 Feb 2007
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Increasing use of energy will impact emissions dramatically
Greenhouse gases
Energy emissions 65%
Other emissions 35%
Source: Stern: Review on the economics on climate change, 2006; data from World Resources Institute Climate Analysis Indicators Tool (CAIT), 2000; IEA World Energy Outlook 2006 (the Reference Scenario)
Energy related CO2 emissions estimated to grow 55% by 2030Mill. tonnes CO2 2004 2030Power generation 10,587 17,680Industry 4,742 7,255Transport 5,289 8,246Resid. & services 3,297 4,298Other 2,165 2,942Total 26,079 40,420
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Fortum's carbon exposure among the lowest in Europe
Source: PWC and Enerpresse 2005
Carbon exposure – European power companies
g/kWh
0
200
400
600
800
1000
1200
DE
I
Dra
x
RW
E
Ener
gi E
2
ED
P
Uni
on F
enos
a
CE
Z
Edis
on
Ende
sa
Scot
tish&
Sout
hern
Esse
nt
EN
EL
E.O
N
Els
am
Vatte
nfal
l
Elec
trabe
l
Hel
sink
i
PVO
Iber
drol
a
Verb
und
Fort
um
Briti
sh E
nerg
y
ED
F
Sta
tkra
ft
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• Olkiluoto 3• Swedish nuclear• Suomenoja• Värtan• Refurbishing of existing hydro assets• Peak load gas turbine
In addition• Automated meter management (EUR 240 million)• Security of supply in distribution (EUR 700 million)
Fortum's accelerated investment programme
Value of the investment programme around EUR 2,800* million of which 90% CO2-free
Total~ 1,500 MW
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Other(peat, gas, coal, other)
CO2 -free production(nuclear power, hydro power, bio fuels)
• ~9 TWh increase in CO2 -free production*
• ~10 TWh increase in total production*
Continued increase in CO2 -free power production
0
10
20
30
40
50
60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
TWh
2006 After theinvestmentprogramme
Fortum's power production
* compared to 2006;with normal utilisation
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The climate challenge requires actions
• Investments in climate benign generation, carbon exposure to be retained among the lowest in Europe
• Participation in carbon funds• Joint implementation (JI) agreements in Russia• Future energy technologies • Increasing energy efficiency - e.g., AMM
A price for emissions
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• Continued focus on the Nordic and Baltic Rim countries
• Competitive corporate and cost structure
• Flexible and climate-benign production portfolio
• Strong financial position
• Promising opportunities in Russia
Fortum is well positioned
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