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Fortum-yhtiöesittely Nordnetissä 20.11.2018

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Fortumin talousjohtaja Markus Rauramon esitys Nordnetin yhtiöesittelytapahtumassa 20.11.2018

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Fortum-yhtiöesittely Nordnetissä 20.11.2018

  1. 1. Positioning Fortum for the decade of electricity Markus Rauramo, CFO 20 November 2018
  2. 2. Positioning Fortum for the decade of electricity – For a cleaner world 2 Ensure value creation from investments and portfolio optimisation Competitive benchmark portfolioPursue operational excellence and increased flexibility Drive focused growth in the power value chain Build options for significant new businesses Today Profitability Time Increasing uncertainty 3. 4. Illustrative 2. 1. 2020’s 2030’s
  3. 3. Our current geographical presence 3 NORDIC COUNTRIES Power generation 45.4 TWh Heat sales 5.0 TWh Electricity customers 2.4 million RUSSIA PAO Fortum Power generation 26.3 TWh Heat sales 19.8 TWh KEY FIGURES 2017 Sales EUR 4.5 bn Comparable operating profit EUR 0.8 bn Balance sheet EUR 22 bn Personnel 8,800 POLAND Power generation 0.5 TWh Heat sales 3.7 TWh BALTIC COUNTRIES Power generation 0.7 TWh Heat sales 1.4 TWh INDIA Power generation 0.3 TWh
  4. 4. This is what Fortum launched in 2016… 4
  5. 5. … and has successfully delivered 5 • Largest shareholder in Uniper • Top benchmark performance in hydro, nuclear, trading and Russia • Active fleet development and capacity upgrades • EUR 100 million fixed cost reduction • Successful lobbying • Russian EBIT target reached • Restructuring of Hafslund and Fortum Oslo Varme • Creating recycling and waste solutions by Ekokem acquisition • New CHP plants • Forming Consumer Solutions with 2.5 million customers • Acquisition of Polish Duon • Restructuring of heat business in Russia • >140 MW of operational wind and 220 MW of operational solar • >1 GW solar and wind pipeline • Russia’s first industrial scale windfarm • Largest roof-top solar B2B contract in Nordics • Charge&Drive and Plugsurfing, 200,000 e-mobility users today • Increasing business in Horse Power and Smart Living • Venture investments • Demand response with 5 MW flex capacity and ~2,000 households • Chempolis investments in biotechnology
  6. 6. Fortum has transformed the company in line with its strategy and capital redeployment goals Comparable operating profit, MEUR* ~ EUR 7 billion … to acquisitions and investments (2016-2018) ~ EUR 10 billion from largest divestments (in 2013-2015) … * from continued operations, excluding distribution network business Achieved Nordic power price, EUR/MWh 46.4 41.4 33.0 31.0 31.8 33.2 6
  7. 7. Fortum’s assets are well positioned in prevailing market conditions Source: Nasdaq Commodities, Bloomberg 0 10 20 30 40 50 2.1.2013 2.1.2014 2.1.2015 2.1.2016 2.1.2017 2.1.2018 Year 18 Year 19 Year 20 EUR/MWh Year 2019Year 2018 Year 2020 20142013 2015 2016 2017 2018 1 November 2018 50 40 30 20 10 0 Nordic power price forwards 7
  8. 8. Among the lowest specific emissions Fortum: 96% of the power generation in the EU and 61% of its total power generation is CO2-free Electricity specific emissions for European generators Growing in solar and wind Fortum is targeting a multi gigawatt portfolio in solar and wind Fortum’s wind and solar power generation capacity, MW Increasing CO2-free power generation Annual CO2-free power generation has tripled from 15 TWh in 1990 to 45 TWh in 2017 Fortum’s power generation, TWh 0 10 20 30 40 50 60 70 80 CO2-free Other 1990 1995 2000 2005 2010 2017 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Wind Solar Projects under development g CO2/kWh electricity, 2016* FORTUM TOTAL FORTUM EU mainly CO2 low 0 200 400 600 800 1,000 DEI EPH RWE CEZ Uniper Enel A2A GasN.F. EnBW EDP Drax SSE Vattenfall Eneco Iberdrola E.ON Verbund Statkraft Fortum has a long green track record – ranking among the top utilities in Europe for low CO2 emissions * Note: All figures, except “Fortum total”, include only European power generation. Fortum’s specific emissions of the power generation in 2017 in the EU were 28 g/kWh and in total 174 g/kWh, same as in the previous year. Source: PwC, December 2017, Climate Change and Electricity (including those companies with data for power generation available only), Fortum8
  9. 9. Fortum’s vision is even more valid today – For a cleaner world 9 Ensure value creation from investments and portfolio optimisation Competitive benchmark portfolioPursue operational excellence and increased flexibility Drive focused growth in the power value chain Build options for significant new businesses Today Profitability Time Increasing uncertainty 3. 4. Illustrative 2. 1. 2020’s 2030’s
  10. 10. Three main drivers are shaping the future electricity markets Technology Development Politics and Regulation • Solar and wind • Digitalisation and artificial intelligence • Short-term and seasonal storage • E-mobility ecosystem • Demand response • Decarbonisation to reach Paris agreement targets • Electrification in heating, transportation and key industrial processes • Resource efficiency • National and international interests • Market models • Emission trading • Geopolitical uncertainty Climate and Environment 10
  11. 11. Europe needs to eliminate CO2 emissions to reach climate goals 11 1 including international aviation and marine 2 residential and commercial heating & cooling 3 iron & steel and chemicals are among the biggest contributors 4 non-energy related emissions: industrial processes and product use, waste management, agriculture, fugitive emissions Source: IEA World Energy Outlook 2017, Eurostat, Eurelectric, Fortum Industrial Intelligence 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Europeanemissions(MtCO2eq.) Greenhouse gas emissions (minimum targets from 1990 level) - 40% - 60% - 80% Other Gas Oil Coal - 95% TODAY Power Transport1 Buildings2 Other4 Industry3 Energy-related emissions EU 2050 roadmap target -100% 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
  12. 12. Decarbonisation will increase electricity demand 12 Carbon neutrality could double electricity demand by 2050 Electric vehicles, hydrogen Heat pumps, hydrogen Electrified processes, hydrogen Means to decarbonise via electrification Other Industry Buildings Transport Power Today By 2050 Indirect electrification, e.g. hydrogen production Industry Transport Buildings Electricity demand (TWh) +100% 3,000 6,000 Source: Eurelectric study, May 2018, Scenario 3
  13. 13. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2016e European power generation (TWh) Nuclear Coal Oil Gas Hydro Other renewables Wind Solar PV Demand for flexibility is increasing because stable and flexible capacity is being replaced by intermittent generation Source: IEA World Energy Outlook 2017 13 Intermittent Flexible Stable • Higher share of intermittent solar and wind capacity • Reduced share of flexible coal and oil - partly compensated by increased gas • Decline of stable nuclear generation • Coal and nuclear phase-out in Europe will accelerate the shift • Stable share of flexible hydro production • There is a need to increase the share of flexible assets in the European power mix • All sources of flexibility will be needed • … and the value of flexible assets will increase
  14. 14. Fortum’s strategic priorities in a changing energy market 3. Drive focused growth in the power value chain • Grow in CO2-free power generation • Develop value-adding offerings and solutions for customers 4. Build options for significant new businesses • Create new sizeable profit contributor independent of power prices • Build on industrial logic and synergies with current businesses and competences 1. Pursue operational excellence and increased flexibility • Ensure benchmark performance • Focus on cash flow and efficient use of balance sheet 2. Ensure value creation from investments and portfolio optimisation • Increase shareholder value from Uniper • Optimise portfolio to fit the changing business environment 14
  15. 15. Fortum’s investment in Uniper supports Europe’s energy transition and secures a valuable cash flow contribution Fortum is the single largest shareholder in Uniper • CFO Markus Rauramo appointed Vice Chairman of Uniper’s Supervisory Board • Supervisory Board mandates extend until 2022 • The Russian regulatory decision limits Fortum’s shareholding to a maximum of 50% • Dividend and new Supervisory Board members are single majority decisions at Uniper’s AGM The Uniper investment is creating shareholder value • Based on consensus estimates*, Uniper’s result is expected to contribute by EUR 0.33-0.44 to Fortum’s EPS • Uniper’s future dividends will contribute to Fortum’s cash flow • Shareholder value created on higher Uniper share price compared to offer price of EUR 21.31 15 * = Consensus estimates as of 5 November 2018 for Uniper’s annual underlying net income 2018-2020 Generation volume, 121 TWh in 2017 Accounting view Gas Coal Hydro Nuclear Other 21 13 48 18 8 2 10 Pie charts on map indicative of generation. Figures from Uniper and Unipro annual reports 2017. Some figures might not add up due to rounding.
  16. 16. The decades of electricity will affect several sectors – and Fortum is well positioned for decarbonisation 16 4°C 1.5°C Global climate challenge (indicative) Electricity demand (2018-2050) + +++ DH/CHP = District heating/combined heat and power CCS = Carbon capture and storage Sector CO2-free generation, hydrogen, batteries, demand response Electric vehicles, hydrogen/biofuels for heavy transport Low-CO2 DH/CHP, heat pumps, hydrogen Recycling, biomaterials (e.g. fractioning) Electrified processes, hydrogen, resource efficiency, CCS Other Industry Heating & cooling Transport Power Fortum’s current offering, examplesFuture solutions, examples Nuclear, hydro, solar, wind E-mobility, pyrolysis Biofuel, waste-to-energy DH/CHP B2B solutions Plastic recycling
  17. 17. Building the utility of the future Decarbonising power generation Decarbonising heat production UTILITY TODAY Customer solutions • Sustainable hydrogen production • Synthetic “clean” gas production Power-to-Gas Electricity • Carbon capture and storage • Carbon capture and utilization CO2-sink CO2 • Recycling • Energy recovery Sustainable materials • Traffic fuels • Bio-based material production Bio economy Electricity Heat Electricity Electricity Hydrogen, methane and excess heat Heat Raw material FUTURE UTILITY Hydrogen and methane for traffic and industrial use 17
  18. 18. Cross-organisational development initiatives to ensure successful strategy execution 18 Strengthen Open Leadership culture to boost empowerment, situation awareness and agility Become a Digital Winner through data and analytics leadership Shape the Regulatory Agenda through proactive dialogue Develop Sales and Commercialisation excellence Continued development of existing, and step-change in new competences
  19. 19. Fortum’s long-term financial targets and dividend policy remain unchanged 19 Return on capital employed (ROCE) of at least 10% Comparable Net debt/EBITDA ratio at around 2.5x Fortum’s dividend policy is to pay a stable, sustainable, and over time increasing dividend of 50-80% of earnings per share, excluding one-time items
  20. 20. Fortum's target is to pay a stable, sustainable and over time increasing dividend of 50-80% of earnings per share excluding one-time items CEO Pekka Lundmark on 2 February 2018: “Our ambition is to pay a stable, sustainable and over time increasing dividend now and in the future, and given the prevailing market conditions, our goal is to avoid a temporary dividend cut.” 20 Fortum has a solid track record of delivering stable dividends Fortum’s dividend policy: Five year dividend per share history 1.10 1.30 1.10 1.10 1.10 0.20* 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 2013 2014 2015 2016 2017 81% 37% 24% 196% 112% 1.10 Payout ratio * additional dividend EUR/share 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0
  21. 21. 21 Execution of updated strategy will support deleveraging towards the target level of ~2.5x Capital redeployment Measures to deleverage over 2-3 years 2.5x Net debt / EBITDA Illustrative • Prioritised capital expenditure • Improving business performance through operational excellence and increased flexibility • Optimised business portfolio Today
  22. 22. 22 Declining capital expenditure for growth investments – capital recycling in solar and wind projects 20142013 20162015 2018e2017 2019e Growth Maintenance Gross investments excluding acquisitions MEUR 1) 1) 1) Continuing operations, excluding Distribution 600-700 600-650 Solar and wind investments for capital recycling Capital expenditure excluding acquisitions and including maintenance are expected to be: • 2018: EUR ~600-700 million • 2019: EUR ~600-650 million • 2020: to decline from 2019 level 690
  23. 23. Investments and portfolio optimisation creates value and strengthens Fortum’s competitive position Deliver on synergies from acquisitions • Ensure continuous profitability improvement – Hafslund synergies of EUR 15-20 million to gradually materialise by end of 2020 – Acquisitions of Duon, Ekokem, Tureberg and Fincumet Uniper contributing to Fortum’s EPS and cash flow • Based on analyst estimates*, Fortum’s share of Uniper results contributes to Fortum annual EPS by appr. EUR 0.33-0.44 • Based on analysts estimates**, dividends of appr. EUR 150-250 million Optimise asset portfolio • Optimal asset base for future markets – Flexible and low-cost with low/no emissions • Focus on core businesses – Hafslund Produksjon divestment of EUR 160 million • Capital recycling business model – Indian solar divestment EUR 147 million * = Consensus estimates as of 5 November 2018 for Uniper’s annual underlying net income 2018-2020 ** = Consensus estimates as of 5 November 2018 for Uniper’s annual dividend 2018-2020 23

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