Fortum Corporation Interim report January-September 2013€¦ · Sales 495 506 1,706 1,696 2,415...

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

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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)

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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

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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

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Includes capacity income

+72%

+2%

+2% +19%

Q3: Result burdened mainly by Power’s low hydro production and impairement loss

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Comparable operating profit, EUR million

Jan-Sep: Efficiency programme gives support in the challenging business environment

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Comparable operating profit, EUR million

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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

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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

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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

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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


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



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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


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



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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


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



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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


Sales 133 119 548 501 722 769

Comparable operating profit 13 9 41 29 39 51

Net assets 8 1 51



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• 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


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

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Cash flow statement


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

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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

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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

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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

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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

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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

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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

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For more information

www.fortum.com/investors

Fortum Corporation Interim report January-September 2013€¦ · Sales 495 506 1,706 1,696 2,415...

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