Positioning Fortum for the decade of electricity

Pekka Lundmark, President and CEO

13 November 2018

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

This is what Fortum launched in 2016…

3

4

… and has successfully delivered

• 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

Generation; 602

City Solutions; 105

Consumer Solutions; 53

Russia; 265

Other Operations; -77

1,070 1,085

808

644

811

949

2013 2014 2015 2016 2017 2018 LTM

Comparable

operating profit,

MEUR*

Fortum has transformed the company in line with its strategy and capital redeployment goals

5

~ EUR 7 billion… to acquisitions and investments (2016-2018)

~ EUR 10 billionfrom largest divestments (in 2013-2015) …

* from continued operations, excluding distribution network business

Achieved Nordic

power price,

EUR/MWh

46.441.4

33.0

31.031.8

33.2

Fortum’s assets are well positioned in prevailing market conditions

6

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 20181 November 2018

50

40

30

20

10

0

Nordic power price forwards

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

7

Fortum has a long green track record– ranking among the top utilities in Europe for low CO2 emissions

0

10

20

30

40

50

60

70

80

CO2-free Other

1990 1995 2000 2005 2010 20172014 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

0

200

400

600

800

1 000

DE

I

EP

H

RW

E

CE

Z

Unip

er

En

el

A2

A

Ga

s N

.F.

En

BW

ED

P

Dra

x

SS

E

Va

tte

nfa

ll

En

eco

Iberd

rola

E.O

N

Ve

rbu

nd

Sta

tkra

ft

g CO2/kWh electricity, 2016*

FORTUM

TOTALFORTUM

EU

* 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), Fortum

mainly CO2 low

Fortum’s vision is even more valid today– For a cleaner world

8

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

9

Fortum’s long-term financial targets and dividend policy remain unchanged

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

Three main drivers are shaping the future electricity markets

10

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

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

Eu

rop

ea

n e

mis

sio

ns

(MtC

O2

eq.)

Europe needs to eliminate CO2 emissions to reach climate goals

Greenhouse gas emissions

(minimum targets from 1990 level)- 40%

- 60%

- 80%

Other

Gas

Oil

Coal

1 including international aviation and marine2 residential and commercial heating & cooling3 iron & steel and chemicals are among the biggest contributors4 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

- 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

Decarbonisation will increase electricity demand

Electric vehicles,

hydrogen

Heat pumps,

hydrogen

Electrified processes,

hydrogen

Means to decarbonise

via electrification

Carbon neutrality could double

electricity demand by 2050

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 312

Demand for flexibility is increasing because stable and flexible capacity is being replaced by intermittent generation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2016e

European power generation (TWh)

Nuclear Coal OilGas Hydro Other renewablesWind Solar PV

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

Volatility and uncertainty in the European power market increases the value of flexible assets

14

Increasing role of gas

Increased interconnection between

Nordics and Continent

Supply-demand balance

Commodity and CO2 prices

Intermittent renewables

Nuclear and coal closures

Weather conditions

Volatility and

uncertainty

15

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

Fortum’s strategic priorities in a changing energy market

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

16

* = Consensus estimates as of 5 November 2018 for Uniper’s annual underlying net income 2018-2020

Generation volume, 121 TWh in 2017Accounting view

Gas

Coal

Hydro

Nuclear

Other

21

13

4818

82

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.

17

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

Fortum’s strategic priorities in a changing energy market

Cross-organisational development initiatives to ensure successful strategy execution

18 Continued development of existing, and step-change in new competences

Strengthen

Open Leadershipculture to boost

empowerment,

situation awareness

and agility

Become a

Digital Winner through data and analytics

leadership

Shape the

Regulatory Agendathrough

proactive dialogue

Develop

Sales and

Commercialisation excellence

Positioning Fortum for the decade of electricity– For a cleaner world

19

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