Fortum Oyj · OMXHEX:FORTUM
Fortum Oyj — Investor Presentation (April 2020)
60 slides from Fortum Oyj's investor presentation, April 2020
Slide 1: Equity story of FORTUM – For a cleaner world
Equity story of FORTUM – For a cleaner world Investor / Analyst material April 2020
Slide 2: Disclaimer
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. Any references to the fut
Slide 3: Content
Content Fortum in brief 4–5 Energy market transition 6 – 12 Fortum’s strategic route 13 – 21 Full year 2019 results 22 – 42 Appendices 43 European and Nordic power markets 44 – 50 Fortum’s power generation 51 – 55 Fortum’s Russian capacity and prices 56 – 57 Historical achieved prices 58 Dividend 59
Slide 4: Fortum at a glance
Fortum in brief Fortum at a glance Description of Fortum Key shareholders Finnish households 11.3% Financial and • A leading clean-energy company across the Nordic region, the Baltic • Listed on the Helsinki insurance institutions countries, Poland, and Russia Stock Exchange since 2.0% 1998 • A circ
Slide 5: Fortum's geographical footprint
Fortum in brief Fortum’s geographical footprint Nordic countries Russia Key figures 2019 Power generation PAO Fortum Sales EUR 5.4 bn #3 45.5 TWh Comparable #5 Heat sales #10 Power generation EBITDA EUR 1.8 bn 5.9 TWh 29.3 TWh Total assets EUR 23 bn #1 Electricity customers #7 Heat sales Personnel 8
Slide 6: Three main drivers are shaping the future electricity markets
Energy market transition Three main drivers are shaping the future electricity markets Climate and Politics and Technology Environment Regulation Development • Decarbonisation to • National and • Solar and wind reach Paris agreement international interests targets • Digitalisation and • Market model
Slide 7: Europe needs to eliminate CO2 emissions to reach climate goals
Energy market transition Europe needs to eliminate CO2 emissions to reach climate goals – this requires actions from all sectors MtCO2-eq 6 000 Greenhouse gas emissions 5 000 Coal 4 000 Power - 40% 3 000 Oil Transport1 -50…-55% - 60% 2 000 Old climate targets Industry2 Gas 1 000 - 80% Buildings3 Oth
Slide 8: The decades of electricity will affect several sectors
Energy market transition The decades of electricity will affect several sectors – and Fortum is well positioned for decarbonisation Global climate Electricity demand challenge (indicative) (2018-2050) Sector Future solutions, examples Fortum’s current offering, examples CO2-free generation, hydrogen
Slide 9: Building the utility of the future
Energy market transition Building the utility of the future FUTURE UTILITY Hydrogen and methane for Power-to-Gas Sustainable materials traffic and industrial use • Sustainable hydrogen Hydrogen, methane • Recycling production and excess heat Electricity • Energy recovery • Synthetic “clean” gas prod
Slide 10: Volatility and uncertainty in the European power market increases value of flexible assets
Energy market transition Volatility and uncertainty in the European power market increases the value of flexible assets Intermittent renewables Nuclear and coal closures Increasing role of gas Volatility and Supply-demand balance uncertainty Increased interconnection between Nordics and Continent Co
Slide 11: The MSR introduces tightness to carbon market
Energy market transition The MSR introduces tightness to carbon market Linear reduction factor (LRF) tightens the market Market stability reserve restores scarcity Abatement from coal to gas switching by reducing future auction volumes depends on coal and gas prices, together MtCO2 represented by a
Slide 12: Several Western European countries exiting coal over the next decade
Energy market transition Several Western European countries exiting coal over the next decade FI: Phase-out • France to phase out coal from power sector at latest in 2022 Germany: Phase- by 2029 out by 2038 • United Kingdom to exclude coal condense from capacity SE: Last coal plant to close market b
Slide 13: Positioning Fortum for the decade of electricity – For a cleaner world
Fortum’s strategic route Positioning Fortum for the decade of electricity – For a cleaner world 13
Slide 14: Fortum's strategic priorities in a changing energy market
Fortum’s strategic route Fortum’s strategic priorities in a changing energy market 1. Pursue operational excellence and 2. Ensure value creation from investments increased flexibility and portfolio optimisation • Ensure benchmark performance • Increase shareholder value from Uniper • Focus on cash f
Slide 15: Delivering on financial targets through operational excellence and portfolio optimisation
Fortum’s strategic route Delivering on financial targets through operational excellence and portfolio optimisation in the short to mid term Strategic priorities… … creating value Operational excellence • Continue productivity improvement • Benchmark performance • Prioritise capital expenditure • Opt
Slide 16: Fortum is now the majority owner in Uniper
Fortum’s strategic route Fortum is now the majority owner in Uniper, ownership to increase to a maximum of 73.4% • Fortum now holds 69.6% of the shares and voting rights in Uniper following the closing of the first tranche of the share purchase from Elliott and Knight Vinke on 26 March 2020 • Second
Slide 17: Consolidated Fortum is the third largest CO2 free generator in Europe
Fortum’s strategic route Consolidated Fortum is the third largest CO2 free generator in Europe 17 Source: Company information, Fortum analyses, 2018 figures pro forma. EPH incl. LEAG
Slide 18: Scale, competences and resources to lead European energy transition
Fortum’s strategic route Scale, competences and resources to prosper, grow and lead European energy transition 2019 combined Comparable Combined power generation assets(2) EBITDA(1) Fortum EUR 1.8 bln Nordics EUR 3.3 bln Russia #2 #3 Uniper EUR 1.6 bln Baltics Combined capacity split(3) UK Low + Zer
Slide 19: Fortum's CO2-free power generation to increase by ~60%
Full year 2019 results Fortum’s CO2-free power generation to increase by ~60% as Uniper will be consolidated in 2020 Fortum's power generation, TWh 200 Fortum and Uniper 175 consolidated*: 150 • CO2-free generation +60% 125 • Gas-fired power 100 generation triples 75 • Share of coal-fired CO2-free G
Slide 20: German coal phase-out law and related plans by Uniper
Full year 2019 results German coal phase-out law and related plans by Uniper • Law to phase out lignite and hard coal latest by 2038 Current1) 39 GW to be reduced to 30 GW by 2022 and to was approved by the government 17 GW by 2030 – The law still needs to be approved by the parliament 40,0 40 35,0
Slide 21: Fortum is a forerunner in sustainability
Fortum’s strategic route Fortum is listed in several Fortum is a forerunner in sustainability sustainability indices and ratings: We engage our customers and society to drive the change towards a cleaner world. Our role is to accelerate this change by reshaping the energy system, improving resource
Slide 22: Fortum's long-term financial targets and dividend policy
Fortum’s strategic route Fortum’s long-term financial targets and dividend policy Fortum’s dividend policy is Return on capital employed Comparable (ROCE) of at least Net debt/EBITDA ratio to pay a stable, at around sustainable, and over 10% 2.5x time increasing dividend of 50-80% of earnings per sh
Slide 23: Fortum's evolution and historical strategic route
Fortum’s strategic route Fortum’s evolution and historical strategic route Skandinaviska Birka Energi Länsivoima Elnova Østfold Elverk 50% Fortum →100% 50% → 100% 50% Stockholm Gullspång merged Shares in Divestment of with Stockholm Energi Hafslund Fingrid shares Gullspång Stora Kraft Birka Energi T
Slide 24: Financial Statements 2019
Financial Statements 2019 Fortum Corporation 6 February 2020
Slide 25: Strong operational performance in 2019 – Financial targets achieved
Full year 2019 results Strong operational performance in 2019 – Financial targets achieved • Fortum’s achieved power price at EUR 36.8, up 2.2 EUR/MWh – Nordic spot power price down, -12% • Comparable EBITDA at EUR 1,766 million, +16% • Comparable operating profit at EUR 1,191 million, +21% • Share
Slide 26: Solid and consistent strategy execution – determined coal phase-out actions
Full year 2019 results Solid and consistent strategy execution – determined coal phase-out actions New reduced target for specific CO2 Agreement to buy emissions of 180 >20% stake in g/kWh (200 g/kWh) Uniper – Fortum’s Commissioning of ownership a 250 MW solar to rise >70% Divestment of plant in Pav
Slide 27: Nordic water reservoirs
Nordic water reservoirs Reservoir content (TWh) 120 100 80 60 40 Norway 20 Sweden Average 2000 2003 2018 2019 2020 2000-2018 Finland 0 Q1 Q2 Q3 Q4 Source: Nord Pool, 2020 by country 27
Slide 28: Fuel and CO2 allowance prices
Fuel and CO2 allowance prices USD / bbl Crude oil price (ICE Brent) EUR / tCO2 CO2 price (ICE EUA) 120 30 100 25 80 20 60 15 40 10 20 5 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2019 2020 2018 2019 2020 USD / t Coal price (ICE Rotterdam) EUR / MWh Gas price (TT
Slide 29: Wholesale power price
Wholesale power price EUR/MWh Nordic spot and forward prices 70 Realised system price 60 Futures 31 March 2020 50 40 30 20 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2019 2020 2021 29 Source: Nord Pool, Nasdaq Commodities
Slide 30: Achieved power price up despite lower spot prices
Full year 2019 results Achieved power price up despite lower spot prices -19% -2% +8% +1% Changes refer to year-on-year difference (Q4 2019 versus Q4 2018) NOTE: Achieved power price (includes capacity payments) in roubles increased by 1% 30
Slide 31: Generation
Full year 2019 results Generation Q4 2019 2019 • Higher achieved power price, • Higher achieved power price, +0.4 EUR/MWh, +1% +2.2 EUR/MWh, +6% • Good operational performance • Good operational performance and load factor at a good level – Higher hydro and nuclear – Higher hydro and nuclear volumes
Slide 32: City Solutions
Full year 2019 results City Solutions Q4 2019 2019 • Positive one-time items • Strong result improvement in • Norwegian heating and cooling Norwegian heating and cooling business improved clearly business • Somewhat weaker performance • Recycling and waste business’ in the recycling and waste result
Slide 33: Consumer Solutions
Full year 2019 results Consumer Solutions Q4 2019 2019 • Higher sales margin • Higher sales margins – Active development of product and • Full synergies of EUR 10 million service offering from Hafslund integration • Continued competition with high achieved customer churn in the Nordics • Improving E
Slide 34: Russia
Full year 2019 results Russia Q4 2019 2019 • Improved result in heat • Higher electricity margins and business received CSA payments • Lower available CSA capacity • Lower bad-debt provisions and electricity volumes due to • FX impact EUR 4 million unplanned outages • FX impact EUR 6 million MEUR Q4
Slide 35: Q4 2019 – strong performance and improved results
Full year 2019 results Q4 2019 – strong performance and improved results Comparable operating profit EUR million • Higher sales • Improved result • Positive one- in heat business margins time effects • Lower • Norwegian availability of • 1.0 TWh higher heating and CSA capacity hydro volumes cooling
Slide 36: FY 2019 – solid operational performance in all businesses
Full year 2019 results FY 2019 – solid operational performance in all businesses Comparable operating profit EUR , million • Higher • Increased electricity spend on • EUR 26 million • Higher sales Business margin profit from sold margin, part of Technology • Lower bad- solar stake improvement includ
Slide 37: Key financials
Full year 2019 results Key financials MEUR Q4 Q4 Full year 2019 2019 2018 2019 2018 • Comparable operating profit supported by Sales 1,553 1,599 5,447 5,242 good results in Generation and Russia Comparable EBITDA 552 473 1,766 1,523 • Share of profits from associates driven by Uniper result contribu
Slide 38: Income statement
Full year 2019 results Income statement Q4 Q4 MEUR 2019 2018 2019 2018 Full year 2019 Sales 1,553 1,599 5,447 5,242 • Comparable operating profit +21% Other income 45 41 110 130 Materials and services -745 -870 -2,721 -2,795 • Reported operating profit impacted by Employee benefits -125 -119 -480 -4
Slide 39: Cash flow statement
Full year 2019 results Cash flow statement Q4 Q4 2019 2018 MEUR 2019 2018 Full year 2019 Comparable EBITDA 552 473 1,766 1,523 • Cash flow strengthened due to Realised FX gains/losses 3 26 14 231 • Improvement in comparable Paid net financial costs, income taxes and -73 -62 -327 -341 EBITDA of EUR 2
Slide 40: Long-term financial targets achieved
Full year 2019 results Long-term financial targets achieved 2019 2018 TARGET Total loans of EUR 6,580 million Comparable EBITDA, MEUR 1,766 1,523 • Average interest of 2.3% (2.4%) Interest-bearing net debt, MEUR 5,260 5,509 • Portfolio mainly in euros with average Comparable net debt/EBITDA ratio 1)
Slide 41: Key objective is a solid investment-grade rating of at least BBB
Full year 2019 results Fortum’s key objective is to have a solid investment-grade rating of at least BBB • Comparable EBITDA at EUR 1,766 million Fortum’s current rating and outlook – EPS at EUR 1.67 Rating agency Rating and outlook Valid from • Strong cash flow from operating activities of EUR Stan
Slide 42: Outlook
Full year 2019 results Outlook Demand growth Hedging 2020 estimated Targeted cost Taxation annual capital synergies of Electricity demand in the 2020: ~75% at In Sweden, hydro Nordics is expected to EUR 34 per MWh expenditure, Hafslund assets real estate tax grow by ~0.5% on (Q3: 70% at EUR 33) tran
Slide 43: Appendices
Appendices @fortum
Slide 44: Still a highly fragmented Nordic power market
European and Nordic power markets Still a highly fragmented Nordic power market Fortum has the largest electricity customer base in the Nordics Power generation in 2018 Electricity retail 400 TWh 16 million customers >350 companies ~350 companies Vattenfall Others Fortum Others Vattenfall 36% Statkr
Slide 45: Fortum mid-sized European power generation player – major producer in global heat
European and Nordic power markets Fortum mid-sized European power generation player – major producer in global heat Power generation Heat production Customers Largest producers in Europe and Russia, 2018 Largest global producers, 2018 Electricity customers in Europe, 2018 TWh TWh Millions EDF Gazpro
Slide 46: Wholesale power prices
European and Nordic power markets Wholesale power prices EUR/MWh Spot prices Forward prices 100 90 80 70 60 German 50 Nordic 40 Russian* 30 20 10 31 March 2020 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 * Including weighted average capacity price 46 Source: Nord Pool, Bloomberg Fi
Slide 47: Nordic year forwards
European and Nordic power markets Nordic year forwards Year10 Year11 Year12 Year13 Year14 Year15 Year16 Year17 Year18 Year19 Year20 Year21 Year22 €/MWh 31 March 2020 Year21 70 Year22 60 50 Dec Jan Feb Mar 2019 2020 2020 2020 40 30 20 10 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2
Slide 48: German and Nordic forward prices softened
European and Nordic power markets German and Nordic forward prices softened Spot price • During Q4 2019, the average spread was -2.1 EUR/MWh with the EUR/MWh Nordic and German daily spot prices in Jan 2018 – Feb 2020 Nordic system average price at 38.6 EUR/MWh and the German spot 100 price at 36.6 E
Slide 49: Nordic, Baltic, Continental and UK markets are integrating
European and Nordic power markets Nordic, Baltic, Continental and UK markets are integrating – Interconnection capacity growing to over 13 GW by end-2023 • Several interconnectors are currently 1 700 MW COBRAcable from DK to NL has been under construction or decided to be built Current Nordic/Baltic
Slide 50: Power Generation in the Baltic Rim in 2018 (2017)
European and Nordic power markets Power Generation in the Baltic Rim in 2018 (2017) Hydro NORDICS BALTICS Nuclear Sweden 2018 TWh % TWh % Fossil fuel 158 TWh Biomass (159) Hydro *212 53 3 17 Waste Wind Finland Nuclear 88 22 - - 67 TWh Solar (65) Fossil fuel 28 7 13 62 Others Norway 146 TWh Biomass 2
Slide 51: Fortum's power and heat production by source
Fortum’s power generation Fortum's power and heat production by source Fortum's power generation in 2019 Fortum's heat production in 2019 Natural gas 37% Natural gas 59% Total Others 1% Total Waste1% Nuclear Wind, solar 1% power generation power Peat 1% heat production Biomass 1% 76.3 TWh Heat pumps
Slide 52: Fortum's Nordic, Baltic and Polish generation capacity
Fortum’s power generation Fortum’s Nordic, Baltic and Polish generation capacity GENERATION CAPACITY MW NORWAY MW FINLAND MW Hydro 4,677 Price areas Hydro 1,553 NO4, Wind 82 Nuclear 1,487 Nuclear 2,821 NO4 SE1 NO1, CHP 20 CHP 452 CHP 831 Generation capacity 102 Other thermal 565 Other thermal 565 Ge
Slide 53: Fortum is growing towards gigawatt scale target in solar and wind
Fortum’s power generation Fortum is growing towards gigawatt scale target in solar and wind power generation PORTFOLIO FINLAND TECHNOLOGY STATUS CAPACITY MW 90 FORTUM SHARE, MW 90 SUPPLY STARTS/ STARTED Kalax Wind Under construction 90 90 Q1 2021 Ånstadblåheia 50 MW NORWAY 179 179 Nygårdsfjellet Win
Slide 54: Fortum's nuclear fleet
Fortum’s power generation Fortum’s nuclear fleet LOVIISA OLKILUOTO OSKARSHAMN FORSMARK Commercial Unit 1: 1977 Unit 1: 1978 Unit 1: 1972* Unit 1: 1980 operation started Unit 2: 1981 Unit 2: 1980 Unit 2: 1974* Unit 2: 1981 Unit 3: (Under construction) Unit 3: 1985 Unit 3: 1985 Generation Capacity Uni
Slide 55: Fortum's nuclear power in the Nordics
Fortum’s power generation Fortum's nuclear power in the Nordics LOAD 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 FACTOR (%) Oskarshamn 1* 80 51 63 85 68 77 72 1 12 74 60 81 82 0 0 Oskarshamn 2* 90 78 76 86 75 90 77 81 33 0 0 0 0 0 0 Oskarshamn 3 85 95 88 70 17 31 68 69
Slide 56: Thermal power generation capacity in Russia on 31 Dec 2019
Fortum’s Russian capacity and prices Thermal power generation capacity in Russia on 31 Dec 2019 YEAR SUPPLY POWER FUEL CCS CSA PRODUCTION TOTAL STARTS PLANT TYPE CAPACITY CAPACITY TYPE CAPACITY < 2011 Tyumen CHP-2 Gas 755 CHP/Condensing 755 Chelyabinsk CHP-2 Gas, coal 320 CHP/Condensing 320 Argayash
Slide 57: Day ahead wholesale market prices in Russia
Fortum’s Russian capacity and prices Day ahead wholesale market prices in Russia Key electricity, capacity and gas prices in the PAO Fortum area IV/19 IV18 2019 2018 Electricity spot price (market price), Urals hub, RUB/MWh 1,081 1,099 1,117 1,043 Average regulated gas price, Urals region, RUB 1000
Slide 58: Hedging improves stability and predictability
Historical achieved prices Hedging improves stability and predictability – principles based on risk mitigation 58 2009 onwards thermal and import from Russia excluded
Slide 59: Capital returns: 2019 EUR 1.10 per share
Dividend Capital returns: 2019 EUR 1.10 per share ~ EUR 1 billion Five year history of dividend per share Fortum's target is to pay a stable, sustainable, and over time increasing dividend of 50-80% of EUR earnings per share excluding one-off items 1,2 1.10 1.10 1.10 1.10 1.10 1,0 Fortum’s dividend
Slide 60: Fortum Investor Relations and Financial Communications
Next events: The AGM on 23 of April 2020 The ex-dividend date 24 of April 2020 The dividend payment day 5 of May 2020 January-March Interim Report on 15 May January-June Half-year Financial Report on 19 August January-September Interim Report on 17 November For more information, The CMD planned for