Fortum Corporation Interim report January-September 2013 23 October 2013
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.
Q3 2013 Result
Key figures (EUR) III/2013 III/2012 I-III/2013 I-III/2012 2012 LTM
Sales, million 1,148 1,140 4,466 4,325 6,159 6,300
Comparable EBITDA, million 364 391 1,650 1,650 2,416 2,416
Operating profit, million 97 226 1,138 1,251 1,874 1,761
Comparable operating profit,
million 166 223 1,114 1,161 1,752 1,705
Profit before taxes, million 23 150 970 1,043 1,586 1,513
Earnings per share 0.04 0.14 0.84 0.91 1.59 1.52
Items affecting comparability -0.05 0.01 0.03 0.11 0.14 0.06
Net cash from operating
activities, million 414 111 1,460 983 1,382 1,859
3
Key points of the third quarter in 2013
• Very strong cash flow
• Nearly all time low hydro volumes - Slightly higher nuclear and thermal production
• Decision to discontinue electricity production at the Inkoo coal-fired power plant in Finland
• Latvia’s first large-scale biomass CHP plant in Jelgava was inaugurated
• Test runs in Nyagan 2 are ongoing – Commissioning expected by year end 2013
• Finalisation of the two last units in the investment programme changed with some months
• Assessment of the electricity distribution business progressed
• Efficiency programme continued to develop well
• Fortum ranked at the top of the Nordic climate index (Carbon Disclosure Project)
4
Market conditions in the third quarter
Nordic countries • Power consumption in the Nordic countries almost at last year’s third quarter level
• Industrial demand decrease partly offset by increase in non-industrial consumption
• Water reservoir levels at low levels – considerably below last years record high levels • Precipitation clearly below last year’s level
• Nordic system spot prices approx. EUR 15 per MWh higher compared to Q3/2012
• Area prices higher mainly during annual maintenances and limitations in interconnections
• Slight recovery around CO2-emission allowance prices during Q3 – Backloading proposal finally approved in the European Parliament in July – final agreement
still needed before it can be executed Russia • Power consumption in Fortum’s operating areas increased marginally
• Spot price for power (excluding capacity price) increased by approx. 10% compared to
Q3/2012 in the First price zone
5
Nordic water reservoirs – from normal to low during Q3
6
Source: Nord Pool Spot
-15
-10
-5
0
5
10
15
20
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39
2012 2013
TWh
fro
m n
orm
al
I
Norway reservoir balance Sweden reservoir balance Finland reservoir balance
Weekly reservoir deficits compared to normal; High surplus in 2012 has changed to heavy deficit 2013
7
Fortum Q3/2013
hydro 3.9 TWh Fortum Q3/2012
hydro 6.3 TWh
Sources: NVE, Svensk Energi, SYKE, Fortum
0
10
20
30
40
50
60
70
80
90
100
2005 2007 2009 2011 2013 2015 2017
Wholesale price for electricity
8
Source: Nord Pool Spot, NASDAQ OMX Commodities Europe
8
EUR/MWh Nord Pool System Price Forwards
21 October 2013
33,1 30,9 30,6 31,1
33,8
0
7
14
21
28
35
42
Q3/2012 Q4/2012 Q1/2013 Q2/2013 Q3/2013
Achieved power price for Fortum Russia EUR/MWh
1 114
973 931 970
1 136
0
200
400
600
800
1 000
1 200
1 400
Q3/2012 Q4/2012 Q1/2013 Q2/2013 Q3/2013
Spot price for power (market price), Urals hub
RUB/MWh
20,8
37,3
42,0 38,7
35,8
0
8
16
24
32
40
48
Q3/2012 Q4/2012 Q1/2013 Q2/2013 Q3/2013
Spot price for power in NordPool power exchange EUR/MWh
39,7
46,8 45,7 44,7 47,4
0
10
20
30
40
50
60
Q3/2012 Q4/2012 Q1/2013 Q2/2013 Q3/2013
Power's Nordic power price EUR/MWh
Price development in the Nordic region and Russia
9
Includes capacity income
+72%
+2%
+2% +19%
Q3: Result burdened mainly by Power’s low hydro production and impairement loss
10
Comparable operating profit, EUR million
Jan-Sep: Efficiency programme gives support in the challenging business environment
11
Comparable operating profit, EUR million
12
Source: ICE
Market prices 21 October 2013; 2013-2014 future quotations
Fuel and CO2 allowance prices
020406080
100120140160
US
D /
bb
l
Crude oil price (ICE Brent)
2006 2007 20102008 2009 20122011 2013 20140
5
10
15
20
25
30
35
EU
R /
tC
O2
CO2 price (ICE ECX EUA)
2006 2007 20102008 2009 20122011 2013 2014
0
40
80
120
160
200
240
US
D /
t
Coal price (ICE Rotterdam)
2006 2007 20102008 2009 20122011 2013 20140
20
40
60
80
100
GB
p /
th
erm
Gas price (ICE NBP)
2006 2007 20102008 2009 20122011 2013 2014
Financials
13
Järvenpää CHP
Comparable and reported operating profit
III/2013 III/2012 III/2013 III/2012 I-III/2013 I-III/2012 I-III/2013 I-III/2012
Power 138 201 43 205 651 765 643 787
Heat -14 -9 -3 -10 167 177 180 225
Russia -15 -12 -15 -12 46 40 46 51
Distribution 57 57 75 58 254 218 272 227
Electricity Sales 13 9 14 11 41 29 45 33
Other -13 -23 -17 -26 -45 -68 -48 -72
Total 166 223 97 226 1,114 1,161 1,138 1,251
14
Comparable
operating profit
Comparable
operating profit
Reported
operating profit
Reported
operating profit MEUR
• Non-recurring items, IFRS accounting treatment (IAS 39) of derivatives and nuclear fund adjustments had an impact on the reported operating profit EUR -69 (3) million in the third quarter, EUR 24 (90) during January-September.
Power
MEUR III/2013 III/2012 I-III/2013 I-III/2012 2012 LTM
Sales 495 506 1,706 1,696 2,415 2,425
Comparable operating profit 138 201 651 765 1,146 1,032
Net assets 6,258 6,409 6,389
Comparable RONA % 18.5 16.3
Gross investments 48 66 118 126 190 182
15
Q3 2013 • Nearly all-time low hydro production
• Impairment loss from discontinued electricity
production in Inkoo
• Good achieved power price
Jan-Sep 2013 • Lower water reservoir levels and inflow
decreased hydro volume significantly
• Good nuclear availability (except
Oskarshamn 1)
• Higher operating costs –higher taxation
values of hydroplants in Sweden
Heat
MEUR III/2013 III/2012 I-III/2013 I-III/2012 2012 LTM
Sales 214 205 1,126 1,151 1,628 1,603
Comparable operating profit -14 -9 167 177 271 261
Net assets 4,235 4,199 4,286
Comparable RONA % 7.0 6.7
Gross investments 96 118 266 284 474 456
16
Q3 2013 • Seasonally weak quarter impacted
negatively by lower CO2 allowance sales
• Jelgava biomass CHP inaugurated
• The co-ownership agreement of Fortum
Värme renewed with the City of Stockholm
Jan-Sep 2013
• Lower CO2 allowance sales and lower
achieved power prices
Russia
MEUR III/2013 III/2012 I-III/2013 I-III/2012 2012 LTM
Sales 210 203 805 711 1,030 1,124
Comparable operating profit -15 -12 46 40 68 74
Net assets 3,795 3,639 3,848
Comparable RONA % 2.7 3.2
Gross investments 125 104 294 311 568 551
17
Q3 2013 • Bad debt losses for Energostream and
unplanned outages (lost capacity and
electricity income)
• Nyagan 2 currently under testing
Jan-Sep 2013 • Positive effect from CSA capacity totalled EUR
85 (61) million
• Nyagan 1 commissioned 1 April 2013
• Investment programme delayed with some
months, ready by mid-2015
Distribution
MEUR III/2013 III/2012 I-III/2013 I-III/2012 2012 LTM
Sales 219 225 791 756 1,070 1,105
Comparable operating profit 57 57 254 218 320 356
Net assets 3,786 3,826 3,889
Comparable RONA % 8.8 9.5
Gross investments 57 84 168 207 324 285
18
Assessment of the Distribution business
• The assessment was announced in Jan 2013
• Has no impact on Fortum’s electricity distribution customers – excludes the
electricity retail business
• Is progressing well according to plan - high interest towards the assets
• Expected to be concluded by the end of 2013
Electricity Sales
MEUR III/2013 III/2012 I-III/2013 I-III/2012 2012 LTM
Sales 133 119 548 501 722 769
Comparable operating profit 13 9 41 29 39 51
Net assets 8 1 51
Comparable RONA % 203.1 179.6
Gross investments 0 0 0 0 1 1
19
• A leading seller of CO2-free electricity in the Nordic countries
• Result improved because of favourable wholesale market conditions and
increased customer base
Income statement
MEUR III/2013 III/2012 I-III/2013 I-III/2012 2012 LTM
Sales 1,148 1,140 4,466 4,325 6,159 6,300
Expenses -982 -917 -3,352 -3,164 -4,407 -4,595
Comparable operating profit 166 223 1,114 1,161 1,752 1,705
Items affecting comparability -69 3 24 90 122 56
Operating profit 97 226 1,138 1,251 1,874 1,761
Share of profit of associates and jv’s 4 7 66 26 23 63
Financial expenses, net -78 -83 -234 -234 -311 -311
Profit before taxes 23 150 970 1,043 1,586 1,513
Income tax expense 4 -30 -177 -196 -74 -55
Net profit for the period 27 120 793 847 1,512 1,458
Non-controlling interests -4 -6 47 37 96 106
EPS, basic (EUR) 0.04 0.14 0.84 0.91 1.59 1.52
EPS, diluted (EUR) 0.04 0.14 0.84 0.91 1.59 1.52
20
Cash flow statement
MEUR III/2013 III/2012 I-III/2013 I-III/2012 2012 LTM
Operating profit before depreciations 295 394 1,684 1,740 2,538 2,482
Non-cash flow items and divesting activities 57 -38 -104 -157 -192 -139
Financial items and fx gains/losses 64 -161 -283 -435 -522 -370
Taxes -76 -85 -158 -252 -269 -175
Funds from operations (FFO) 340 110 1,139 896 1,555 1,798
Change in working capital 74 1 321 87 -173 61
Total net cash from operating activities 414 111 1,460 983 1,382 1,859
Paid capital expenditures -330 -342 -877 -919 -1,422 -1,380
Acquisition of shares 0 0 -12 -3 -14 -23
Other investing activities 66 -3 99 284 308 123
Cash flow before financing activities 150 -234 670 345 254 579
21
Key ratios
MEUR LTM 2012 2011
EBITDA 2,482 2,538 3,008
Comparable EBITDA 2,416 2,416 2,374
Interest-bearing net debt *7,897 7,814 7,023
Comparable net debt/EBITDA 3.3 3.2 3.0
22
Return on capital employed, ROCE (%) 9.5 10.2 14.8
Return on shareholders’ equity, ROE (%) 14.4 14.6 19.7
Good liquidity – committed credit lines total EUR 2.2 billion
*30.9.2013
Fortum's efficiency programme 2013-2014
23
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
• Efficiency programme proceeding well according to plan
• Cost savings – Visible in all divisions
• Divestments – EUR 200 million of non-core assets divested since the
start
Debt Maturity Profile
0
250
500
750
1000
1250
1500
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023+
Bonds Financial institutions Other long-term debt CPs Other short-term debt
MEUR
2013 669
2014 1.280
2015 1.109
2016 883
2017 589
2018 680
2019 830
2020 75
2021 562
2022 969
2023+
TOTAL
1.346
8.992
24
per 30 Sep, 2013 per 31 Dec, 2012
Average Interest Rate (incl. swaps and forwards) 4,0 % 4,5 %
Portion of floating / fixed debt 50 / 50 % 45 / 55 %
Outlook
Nyagan GRES
Outlook
• Nordic markets
‒ Annual electricity demand growth estimated to be on average 0.5%
‒ Electricity continues to gain share of total energy consumption
• Russia
‒ Fortum’s goal is to achieve an operating profit level (EBIT) of about EUR 500 million run-rate in its Russia Division during 2015
• Key drivers and risks
‒ Wholesale price of electricity and volumes • demand and supply • fuels
• hydrological situation • power plant availability
• CO2 emissions allowance prices
26
Outlook
• Annual capex estimate excluding potential acquisitions – 2013 EUR 1.1 to 1.4 billion
– 2014 EUR 0.9 to 1.1 billion
• Hedging – Rest of 2013 approximately 85% hedge ratio at approximately EUR 44/MWh
(Q2: 75% at EUR 45/MWh)
– 2014 approximately 65% hedge ratio at approximately EUR 42/MWh
(Q2: 50% at EUR 42/MWh)
– 2015 approximately 20% hedge ratio at approximately 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, corporate tax rate to be reduced from 24.5% to 20% starting 1 January 2014. The decrease would cause a one-time positive effect that would be booked in the fourth quarter 2013
– Fortum estimates that costs would increase by approximately EUR 45 million in 2013 compared to 2012 due to updated real estate taxation values in Sweden
– The Finnish Government have announced that a power plant tax (so-called windfall tax), to be introduced in 2014, will be cut to EUR 50 million from EUR 170 million annually
27
I have confidence that 2013 will be a good year for Fortum
• Distribution assessment to be concluded
• Efficiency programme continues
• Continued joint effort to mitigate external and internal challenges
• Hedges create stability
• Safety and sustainability in our daily work
• Strong cash flow– focus on shareholder value
28
For more information
www.fortum.com/investors