a leading energy company in the nordic area · net sales 1,460 1,501 comparable operating profit...
TRANSCRIPT
– a leading energy companyin the Nordic area
Presentation for investorsOctober 2005
2
Disclaimer
This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Fortum shares.
Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.
3
Fortum's strategy
Fortum focuses on the Nordic and Baltic rim marketsas a platform for profitable growth
Become the leading Power and Heat
company
Become the energy supplier
of choice
Benchmark business performance
4
Restructuring worth 13 billion euro in 2000 – 2005
Acquisitions
Divestments
Elnova
Birka Energi
HafslundØstfoldFredrikstads Energi
LenenergoLänsivoima
Stora EnsoElectricity production
Humber
Brigg
GermanyElectricity operations
Edenderry SmålandDistribition
NorwayE&P
Budapesti Erömü
Oman
Espoon Sähkö
Laem Chabang
EPV
WesertalDZT, PESC
Tartu Energia
Transmission Engineering Power Plant
Engineering
5
Electricitydistribution
Powergeneration
Retail sales of electricityHeat
# 1 # 2
Leading market positions in the Nordic area
6
FortumVattenfall
Elsam
others
StatkraftE.ON
EONVattenfall
Steag
others
British Energy
E.ONRWE
Scottish&Southern
EdF
others
Source: Eurelectric, Nordel, Fortum estimates, Company data
A large and fragmented Nordic marketGeneration, 2004
379 TWh
385 TWh
570 TWhEnBW
RWE
7
Fragmented Nordic market
Distribution14 million customers
Retail14 million customers
Generation379 TWh
2004 figures
Source: Fortum, Company data
FinlandSweden
NorwayDenmark
>350 companies >500 companies120
702*
160
90
18080**
160
~450 companies70
12040
220* 2 major generators; in addition hundreds of
small CHP and wind generators
Fortum
Vattenfall
Nesa
others
Hafslund
E.ON
FortumVattenfall
Hafslund
others
E.ON
Fortum
Vattenfall
Elsam
others
Statkraft
45%
E.ON
64% 66%
** excl. 40 minor transformer associations
Nesa
8
Power flows to and from the Nordic marketGWh, 2004
Source: Nordel
– 11.6 TWh net power imports to the Nordic countries in 2004
– only ~5% of Nordic demand can currently be met by imports due to limited interconnection capacity
Regional integrated market with limited import capacities
3,400
5,400
1,400
1300 200
2,400
11,100
200
Today only limited interconnection capacity
9
New capacity will be required
• Generation capacity is needed– to cover increasing
demand– to replace old capacity
• Stable and predictable investment environment is required to guarantee– security of supply– efficient capacity also in
the future0
100
200
300
400
500
1990 2000 2004 2005E 2010E 2015E 2020E
CommittedRemainingExisting
TWh/a
Demand
10
• Investments are made on rational financial basis
• Price signals and confidence in regulatory framework are necessary for investment decisions
• New capacity requires a long-term price of at least 35-40+ €/MWh
Price signals guide new capacity investments
0
10
20
30
40
50
60
-94 -04-02-00-98-96 -06 -08
ForwardsOct 14, 2005
€/MWh
0
10
20
30
40
50
60
-94 -04-02-00-98-96 -06 -08
ForwardsOct 14, 2005
€/MWh
11
Market prices for electricity
German Spot Nord Pool SystemGerman futures Nord Pool futures
UK SpotUK futures
0
10
20
30
40
50
60
70
80
90€/MWh
Source: Reuters
2002 2003 2004 2005 2006 2007
Futures18 Oct 2005
German Spot Nord Pool SystemGerman futures Nord Pool futures
UK SpotUK futures
German Spot Nord Pool SystemGerman futures Nord Pool futures
UK SpotUK futures
0
10
20
30
40
50
60
70
80
90
10
20
30
40
50
60
70
80
90€/MWh
Source: Reuters
2002 2003 2004 2005 2006 20072002 2003 2004 2005 2006 2007
Futures18 Oct 2005
12
Price of EU emission allowances
Source: Reuters
0
5
10
15
20
25
30
2003 2004 2005Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
€/tCO2
0
5
10
15
20
25
30
2003 2004 2005Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2003 2004 2005Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
€/tCO2
13
Russia is an emerging opportunity
Power and heat sector reform
Strong growth potential
Need for investments
Efficiency improvementpotential
14
Population in key geographicalmarketsMillion
• Largest utility in north-western Russia
• 10 thermal and 6 hydro plants
• Power generation capacity ~3,245 MW and production ~13.5 TWh/a
• Heat generation capacity ~13,900 MW and production ~26.9 TWh/a
• Personnel ~12,500• Fortum's share 33,2% of
outstanding voting shares
1 2 7
3
Lenenergo – a strong foothold for Fortum in NW Russia
15
Kolenergo
Karelenergo
Lenenergo
Total electricity production ~25 TWh, of which ~14 TWh hydroTotal heat production ~28 TWh
CapacityMW
Finland13 400
Norway 23 000
Sweden 27 500
Denmark 7 900
Territorial Generation Company 1 (TGC-1)
TGC-1TGC-1 (in North-West Russia) started its operation in October
• Fortum is an indirect owner of TGC-1 through its ownership in Lenenergo
• Fortum's ownership in Lenenergo has increased to 33.2% of its outstanding voting shares
Interim resultsJanuary - September 2005
17
• Good third quarter performance with strong cash flow and clearly higher operating profit
• EUR 874 (799) million comparable operating profit from continuing operations
• Earnings per share EUR 0.65 (0.58) from continuing operations
• Net cash from operating activities EUR 980 million– net debt EUR 3,333 million
Comparison: I-III/2004 financial results
Strong performance continues
18
MEUR I-III/2005 I-III/2004 2004 LTMPower Generation 557 498 730 789Heat 156 132 207 231Distribution 168 183 240 225Markets 22 24 23 21Other -29 -38 -52 -43Comparable operating profit 874 799 1 148 1 223Non-recurring items 20 -11 18 49Other items effecting comparability -21 44 29 -36OP from continuing operations 873 832 1 195 1 236
Comparable operating profit
19
• 1% decrease in Nord Pool system area price to 29.7 EUR/MWh in Q3
• Fortum's achieved Nordic Generation power price increased by 6% to EUR 29.9 in Q3
• 92% (82%) of Nordic own production CO2-free in the first nine months, 96% (84%) in Q3
• CO2 price is at the moment 23-24 EUR per ton, average 23 EUR per ton in Q3
Development of key market drivers
20
Comparable and reported operating profit
Operating profit I-III/2005 Operating profit I-III/2004Comparable Reported Diff. Comparable Reported Diff.
Power Generation 557 529 28 498 522 -24Heat 156 175 -19 132 143 -11Distribution 168 175 -7 183 183 0Markets 22 21 1 24 34 -10Other -29 -27 -2 -38 -50 12Total 874 873 1 799 832 -33
Operating profit Q3/2005 Operating profit Q3/2004Comparable Reported Diff. Comparable Reported Diff.
Power Generation 161 181 -20 135 128 7Heat 12 13 -1 7 12 -5Distribution 47 48 -1 51 45 6Markets 7 7 0 10 13 -3Other -7 -9 2 -12 -21 9Total 220 240 -20 191 177 14
21
MEUR I-III/2005 I-III/2004Net sales 2 765 2 751
Expenses -1 892 -1 919Operating profit 873 832
Share of profit of associates and joint ventures 28 9Financial expenses, net -100 -167
Profit before taxes 801 674Income tax expense -206 -163
Profit for the period from continuing operations 595 511Profit for the period from discontinued operations 474 432Net profit for the period 1 069 943
Of which minority interest 31 19
EPS, Total Fortum Group (EUR) 1.19 1.09EPS, continuing operations (EUR) 0.65 0.58EPS, discontinued operations (EUR) 0.54 0.51
Income statement
22
MEUR I-III/2005 I-III/2004 2004
Operating profit before depreciations continuing operations 1 206 1 123 1 595
Non-cash flow items and divesting activities -41 -51 -49
Financial items and taxes -288 -187 -341
Funds form operations continuing operations (FFO) 877 885 1 205
Change in working capital -30 104 27
Net cash from operating activities continuing operations 847 989 1 232Net cash from operating activities discontinued operations 133 314 526Total cash from operating activities 980 1 303 1 758Capital expenditures -207 -201 -335Other investing activities 50 -173 -124Investing activities discontinued operations 1 155 -176 -277Cash flow before financing activities 1 978 753 1 022
Cash flow statement
23
• CO2-free production increased to 96% of Fortum's Nordic production in Q3
• Accelerated efforts to improve reliability of distribution networks– Total investment of EUR 700 million over a 5-year period
• Arbitration process going on to buy E.ON Finland shares owned by E.ON– Extended offer to the city of Espoo
• Territorial Generation Company 1 (TGC-1) started its operations on the first of October
Key developments during the quarter
24
• In mid-October power forward prices for the rest of 2005 were at the level of 38-40 EUR/MWh and for the year 2006 around 37-38 EUR/MWh
• Government budget proposals in Sweden and Finland include an additional cost element for nuclear and hydro power production– Fortum estimates that the additional generation costs due to these
taxes, if accepted, will be approximately EUR 60 million in 2006
• At the beginning of October, the hedge ratio for 2006 was approximately two thirds and for the last quarter of 2005 around70%
Outlook
25
Hedging of Nordic Power Generation sales
At the beginning of October, Fortum had hedged its Nordic Power Generation sales volume as follows:
Calendar year 2006
Q4/2005
Hedge ratio Hedge price
Approximately two thirds
Slightly higher than the achieved Nordic Generation power price during the last 12 months (EUR 30.4 per MWh)
Approximately 70%
Approximately the same as the achieved Nordic Generation power price during the last 12 months(EUR 30.4 per MWh)
26
• Continued focus on Nordic countries and Baltic rim
• Solid business performance
• Strong financial position
• Favourable market fundamentals
Foundations for good performance in place
Supplementary material
28
Business
units
Reportin
g
segmen
ts
Fortum corporation
Corporate structure
Power Generation
Markets
MarketsHeat Distribution
DistributionHeatVärmeServicePortfolio
Managementand
Trading
Generation
29
Nordic water reservoirs
0
2 0
4 0
6 0
8 0
10 0
12 0
1 5 9 13 17 2 1 2 5 2 9 3 3 3 7 4 1 4 5 4 9 53
2000 2004 2005 Reference level
rese
rvoi
r con
tent
(TW
h)
week
30
Nordic and German Forward Prices (19.10.2005)
30
32
34
36
38
40
42
44
46
EUR
/MW
h
0
20
40
60
80
100
120
140
160
MW
/day
(ind
icat
ive)
NP & Nordic OTC trading vol. EEX trading vol. NP forw ards EEX (German) forw ards
2006 2007 2008 2009 2010 2011
31
Power Generation
MEUR I-III/2005 I-III/2004
Net sales 1,460 1,501
Comparable operating profit 557 498
Net assets 6,037 6,183
Comparable RONA, % 12.5 10.5
Business units: Generation, Portfolio Management and Trading, Service
+ Better production mix and improved Nordic Generation power price
32
Heat
MEUR I-III/2005 I-III/2004
Net sales 738 709
Comparable operating profit 156 132
Net assets 2,336 2,362
Comparable RONA, % 9.3 8.0
Business units: Heat, Värme
+ Good results in Fortum Värme- Higher prices of fuels such as oil and coal
33
Distribution
MEUR I-III/2005 I-III/2004
Net sales 511 513
Comparable operating profit 168 183
Net assets 3,033 3,086
Comparable RONA, % 7.9 8.3
Business units: Distribution
- Storms in Norway and Sweden in thebeginning of the year
34
Markets
MEUR I-III/2005 I-III/2004
Net sales 974 1,009
Comparable operating profit 22 24
Net assets 143 137
Comparable RONA, % 16.4 26.7
Business units: Markets
+ Positive inflow of customers - Increased customer service costs
35
MEUR Sep 30 Dec 312005 2004
Non-current assets 12 942 15 213Current assets 1 899 2 354ASSETS 14 841 17 567
Total equity 7 039 7 650 of which minority interest 177 150Interest bearing liabilities 4 115 5 240Non-interest bearing liabilities 3 687 4 677EQUITY AND LIABILITIES 14 841 17 567
Gearing (%) 47 67Equity per share (EUR) 7.86 8.62Net debt, (MEUR) 3 333 5 095
Balance sheet
36
Nord Pool power price€/MWh
10
20
30
40
50
60
0
2003 2004 2005Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
€/MWh
10
20
30
40
50
60
0
10
20
30
40
50
60
0
2003 2004 2005Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2003 2004 2005Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Source: Reuters
37
2001
September 2001The City sells about 34% of its shares to E.ON (EUR 30/share). E.ON and the City make a shareholders' agreement.
January-March 2005Subscription period of Fortum'scall option
E.ON Finland's current owners :
E.ON Nordic AB 65.6%The City of Espoo 34.2% Other 0.2%
Market value ~ EUR 500 m
2002 2003 2004 2005
Previous events• 1994: IPO of Espoon Sähkö, about 74% of the shares
remain with the City• 1996: the City sells a stake of about 6% on the stock
exchange• 1999: Länsivoima purchases a stake of about 28%• 2000: Fortum and Länsivoima merge and
Fortum becomes a shareholder in Espoon Sähkö
March 2002Fortum sells its stake of about 28% to E.ON.
November 2003E.ON and the City make a new agreement, which is in conflict with the agreement between E.ON and Fortum.
April 2002As part of the Wesertal deal, Fortum receives a call option from E.ON for all shares of E.ON Finland owned by E.ON. The agreement is not contradictory to the previous agreements.
April, July and September 2005Extended offer to the city of Espoo
Espoon Sähkö's ownership arrangements
38
Hydro power 35%Natural gas 1%
Peat 2%
Coal 11%
Others 2%
Nuclear power 47%
Biomass 2%
Fortum’s Nordic power generation 54.4 TWh in 2004
Fortum’s Nordic generation capacity 11,220 MW
Power generation by energy source
39
Total generation capacity 8,290 MWIncludes 100 % of Fortum Värme samägt med Stockholm stad
Oil 13%
Peat 7%
Heat pumps, electricity 17%
Waste 5%
Bio fuels 23%
Natural gas 6%
Fortum’s Nordic heat production 21.7 TWh in 2004
Others 12%
Coal 17%
Heat production by energy source
40
0
2
4
6
8
10
12
14
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
MtC
O2/
a
Emissions from the EU ETS* installations Allocation to Fortum's ETS installations**)Fortum's total emissions
*) EU ETS = EU Emissions Trading Scheme started in the beginning of 2005**) Preliminary, POL and UK allocations still unclearNOTE! ETS emissions in the past not fully comparable because of the changes in plants’ ownerships
Fortum's CO2 Emissions and preliminary allocation
41
0100200300400500600700800900
1000D
EI
Sco
ttish
Dra
x
ES
B
Elk
raft
RW
E
Uni
on F
enos
a
ED
P
Edi
son
EN
EL
End
esa
Vat
tenf
all
Ele
ctra
bel
PV
O
Sco
ttish
&S
outh
ern
E.O
N
Iber
drol
a
Fortu
m
Ver
bund
ED
F
Brit
ish
Ene
rgy
Sta
tkra
ft
2001200220032004
Source: PWC 2003, Carbon factor of power companies
Carbon exposure - Power companies[kgCO2/MWh]
42
0
50
100
150
200
250
300
350
400
450
01/01 07/01 01/02 07/02 01/03 07/03 01/04 07/04 01/05 07/05
Fortum closing value index DJ600 index
18.10.2005Divident pay out:• 0,58 eur cash• Neste Oil shares
Quotation of Fortum share
, utilities
43
• Leading power and heat company in Nordic• Founded and listed at the Helsinki Stock Exchange 1998• More than 50,000 shareholders• Among the most traded shares in Helsinki stock exchange
Internationalinvestors 33.3%
Finnish State 51.7%
Other Finnishinvestors 7.6%
Households 5.2% Financial and insuranceinstitutions 2.2%
Fortum - a listed company
30 September 2005
44
BirkaFortum
1996
1997
1998
Länsivoima
Stora Kraft
Neste
IVO
2000
SkandinaviskaElverk
Gullspång
StockholmEnergi
2002
Østfold
Separation of oil businesses disclosed
Shares inLenenergoShares in Hafslund
2003
2003
2004
Separation of oil businesses through a share dividend and
a sale of shares disclosed
History
45
Industrial and energy companiesas well as private consumers
1.2 million electricity customers
1.4 million electricity distributioncustomers
Broad customer base
46
Group financial targets
• ROE >12%• ROCE >12%• CAPEX <depreciation
47
Comparable operating profit represents the underlying business performance by excluding items effecting comparability
These are mainly:– accounting effects from fair valuation of financial
derivatives for future cash flows where hedge accounting is not applied (IAS 39)
– non-recurring items
Comparable operating profit
48
Financing and Liquidity situation - Sept 30, 2005
Funding Sources MEUR
Long-Term Financing
EMTN bonds (Euro) 2 042
Other Bonds Fortum Oyj & others 377
Loans from financial institutions 446
Other long term debt 1 248
Total Long Term Financing 4 113
Short Term Financing
Commercial paper 0
Other short term loans 3
TOTAL 4 116
Cash and Back-up Facilities Rating Financial MEUR Amount Undrawn Trigger Covenenants MAC
Cash and short term deposits 782 782 n.a n.a n.a
Syndicated loan due 2009 1 200 1 200 None None None (1)
Overdrafts 185 185 None None NoneTOTAL 2 167 2 167
(1) Under events of default (requires 2/3majority banks)
Maturity profile external debt
0
500
1000
1500
2000
2500
2005 2006 2007 2008 2009 2010 ->
MEUR
49
Ratings upgrade in 2005 by both Moody's and Standard and Poors
• Moody's long term rating A2 (stable outlook)• Standard & Poor's long term rating A- (stable outlook)
"The upgrade of the long term ratings on Fortum reflects the group's decreased business risk following the demerger of its oil business, continuing strong operating performance, and its solid financial prospects."
Standard & Poor's