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1 Fortum – Power and heat company in the Nordic countries, Russia, Poland and the Baltics Anne Brunila Executive Vice President Fortum Corporation 31 January.

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Presentation on theme: "1 Fortum – Power and heat company in the Nordic countries, Russia, Poland and the Baltics Anne Brunila Executive Vice President Fortum Corporation 31 January."— Presentation transcript:

1 1 Fortum – Power and heat company in the Nordic countries, Russia, Poland and the Baltics Anne Brunila Executive Vice President Fortum Corporation 31 January 2012

2 2 Our geographical presence today TGC-1 (~25%) Power generation ~6 TWh Heat sales ~8 TWh OAO Fortum Power generation 16.1 TWh Heat sales 26.8 TWh Russia Poland Power generation 0.1 TWh Heat sales 4.0 TWh Baltic countries Power generation 0.2 TWh Heat sales 1.4 TWh Distribution cust. ~24,000 Nordic countries Power generation 52.3 TWh Heat sales 20.7 TWh Distribution customers 1.6 million Electricity customers 1.2 million Nr 2 Power generation Electricity sales Nr 2 Nr 1 Heat Distribution Nr 1 Key figures 2010 Sales EUR 6.3 bn Operating profit EUR 1.7 bn Personnel 10,600 Great Britain Power generation 1.1 TWh Heat sales 2.0 TWh

3 3 Fortum mid-sized European power generation player; Global #4 in heat * incl. TGC-5, TGC-6, TGC-7, TGC-9, ** incl. TGC-12, TGC-13, *** incl. International Power Source: Company information, Fortum analyses, 2010 figures pro forma, heat production of Beijing DH not available. Largest producers in Europe and Russia, 2010 TWh Power generation DEI Irkutskenergo *) IES Iberdrola RusHydro Fortum EnBW Vattenfall CEZ RWE PGE SSE Statkraft Rosenergoatom Gazprom NNEGC Energoat. Enel E.ON EDF 0100200300400500600 Inter RAO UES GDF SUEZ ***) Largest global producers, 2010 TWh Heat production Onexim Tatenergo Minsk Energo Kievenergo Irkutskenergo Bashkirenergo RAO ES East Inter RAO UES TGC-2 Fortum Dong Energy KDHC, Korea TGC-14 Lukoil Gazprom 020406080100120140 ELCEN, Rom. Dalkia SUEK **) *) IES Vattenfall Electricity customers in EU, 2010 millions Customers DEI CEZ Enel Centrica EDP Iberdrola SSE EnBW Fortum EDF E.ON RWE Gas Natural Fenosa PGE Tauron GDF SUEZ Hafslund Dong Energy 020401030 Vattenfall

4 4 Electricity Solutions and Distribution Division is responsible for Fortum's electricity sales and distribution activities. It consists of two business areas: Distribution and Electricity Sales. Russia Division consists of power and heat generation and sales in Russia. It includes OAO Fortum and Fortum’s slightly over 25% holding in TGC-1. Power Division consists of Fortum’s power generation, physical operation and trading as well as expert services for power producers. Heat Division consists of combined heat and power generation (CHP), district heating and cooling activities and business-to- business heating solutions.

5 5 Our mission and strategy going forward

6 6 Production and investments 6

7 7 Fortum's European power generation based on hydro and nuclear power – wide flexibility in heat production Hydro power 41% Coal 8% Other 3% Nuclear power 41% Biomass 3% European generation 53.7 TWh (Generation capacity 11,328 MW) Fortum's European power generation in 2010 Natural gas 4% European production 26.1 TWh (Production capacity 10,698 MW) Fortum's European heat production in 2010 Waste 4% Peat 3% Heat pumps, electricity 13% Oil 7% Coal 22% Biomass fuels 21% Other 8% Natural gas 22%

8 8 Fortum's power and heat production by source Hydro power 32% Coal 7% Other 2% Nuclear power 32% Biomass 2% Total generation 69.8 TWh (Generation capacity 14,113 MW) Natural gas 25% Fortum's power generation in 2010 Total production 52.1 TWh (Production capacity 24,494 MW) Fortum's heat production in 2010 Peat 2% Oil 3% Heat pumps, electricity 6% Waste 2% Biomass fuels 11% Natural gas 59% Other 4% Coal 13%

9 9 Fortum’s operational excellence is visible in above industry average power plant availabilities Energy availability: bio/peat/lignite power plants Availability - load factor: nuclear power plants

10 10 Fortum’s investment programme – Nordic region, Poland and Baltic countries Additional electricity capacity around 800 MW ~100% CO 2 -free Project Electricity, MW Heat, MW Commissioned Olkiluoto 3, Finland4002013 Swedish nuclear upgrades290 Refurbishing of hydro power20-30annually Brista, Sweden2057 Q4 2013 (waste CHP) Klaipeda, Lithuania2060Q1 2013 (waste CHP) Total~800~225 Jelgava, Latvia2345Q3 2013 (biomass CHP) Järvenpää, Finland2363Q2 2013 (biomass CHP)

11 11 Extensive investment programme in ОАО Fortum Total amount of investments EUR 2.5 billion Of which EUR 1.1 billion still to be invested as of October 2011 Increasing capacity by almost 85% by the end of 2014 More than any other Russian generating company Three new units (657 MW) in commercial operation during 2011 2010 2014 MW +85 % +2 361 MW 2 785 0 1 000 2 000 3 000 4 000 5 000 6 000 5 146 Tyumen Chelyabinsk OAO Fortum Nyagan Tobolsk Moscow St. Petersburg Nyagan 3x 418 MW2 x 225 MW Under construction Tyumen Tobolsk 200 MW Chelyabinsk 226 MW (October)(February)(June) Tyumen 231 MW Commissioned during 2011

12 12 Sustainability 12

13 13 Fortum's sustainability approach Environmental Competence in CO 2 free hydro and nuclear and energy-efficient CHP production Development of new climate and environmentally benign energy systems and solutions Economic Competitiveness, high performance and responsible business operations generate long-term value and growth Sustainability at the core of the strategy: economic, environmental and social responsibility Social Security of supply of electricity and heat Responsible business conduct Good corporate citizenship Employee wellbeing, development of professional skills Occupational safety

14 14 Transition towards Solar Economy Copyright © Fortum Corporation Resource & system efficiency Finite fuel resources Large CO2 emissions Infinite fuel resources Emissions free production High Low Solar Economy Inexhaustible and emissions-free, solar-based production Geothermal Hydro Wind Sun Ocean Bio Traditional energy production Exhaustible fuels and production that burdens the environment Coal Gas Oil Advanced energy production Energy efficient and/or low-emission production Nuclear today Nuclear tomorrow CHP All rights reserved by Fortum Corporation and shall be deemed the sole property of Fortum Corporation and nothing in this slide or otherwise shall be construed as granting or conferring any rights, in particular any intellectual property rights

15 15 Fortum's carbon exposure among the lowest in Europe Note: Figures for all other companies include only European generation. Source: PWC & Enerpresse, Novembre 2011 Changement climatique et Électricité, Fortum Average 337 g/kWh g CO 2 /kWh electricity, 2010 0 200 400 600 800 1000 DEI Drax RWE CEZ SSE Vattenfall E.ON Enel Dong EDP GDF SUEZ Europe Union Fenosa Iberdrola PVO Fortum total EDF Verbund Fortum EU Statkraft 2010: 66% of Fortum's total power generation CO 2 -free 86% of Fortum’s power generation in the EU CO 2 -free Close to 100% of the ongoing investment programme in the EU CO2-free 84 189

16 16 Wave power to commercial use Biomass pyrolysis Advancing a rapid adoption of electric vehicles New solutions to district heating Decentralised energy production and smart grids Increased nuclear safety and lifetime, nuclear CHP Towards sustainable societies and urban living – Environmentally-benign R&D

17 17 Fortum in the vanguard of sustainability Strengths –economic responsibility, economic performance measurement and scorecard system –climate change mitigation –occupational safety –customer relationship management –resource efficiency –comprehensive third-party assured responsibility reporting Areas for further development –management of water related risks –market opportunities –biodiversity –corporate citizenship / philantrophy DJSI 2011: 2,500 of world's largest companies 342 companies selected for the index Fortum the only Nordic power and heat company CDLI 2011: 52 Global 500 Index companies Fortum ranked as the world's best utility company in climate issues Fortum the only Nordic company

18 18 Energy market

19 19 Nordic power market structure Retail companies Large customers Retail companies Competitive businesses Regulated businesses Independent transmission system operator Independent distribution company Generation Export, import, market coupling Nordic wholesale market Power exchanges and bilateral Private customers, small businesses Transmission and system services Distribution

20 20 National Nordic European Today Tomorrow Yesterday Wider market area - more competition - increased service level Increased utilisation of existing power production capacity Increased security of supply and less volatile price development Environmental targets reached in a most efficient way (CO2, renewables etc.) Towards a functioning European power market

21 21 A competitive Nordic electricity market - hundreds of actors Source: Fortum, company data, shares of the largest actors, 2010 figures. 30% Fortum Vattenfall Dong Energy Others Statkraft E.ON PVO E-CO Energi Agder Energi Norsk Hydro Helsinki Fortum Vattenfall Others E.ON 52% Statkraft SEAS-NVE Hafslund Helsinki Göteborg Syd Energi Dong Energy Power generation 382 TWh >350 companies - competitive Electricity distribution 15 million customers ~500 companies - regulated Electricity retail 15 million customers ~350 companies - competitive Others 52% Dong Energy Vattenfall Fortum E.ON Göteborg Helsinki Hafslund SEAS-NVE Statkraft Bixia

22 22 Comparison of Nordic and Turkish Power Market Nordic power market Finland, Denmark, Norway and Sweden with ca. 450 TWh/a demand Slow organic demand growth Liberalized with working power exchange Hydro, nuclear and CHP -driven CO 2 price Turkish power market One Turkish market with ca. 230 TWh/a demand High organic demand growth Liberalization on-going and power exchange developing Gas power plants -driven No CO 2 price

23 Lessons learned from the market liberalization: key comparison 23 Regulated power market 100% long-term Power Purchase Agreement (PPA) contracts Cost trough clauses and price reviews defined in the regulation Regulated profit level Horizontal-vertical integration as of common business approach No competition, no driver for efficiency improvements N.a. Liberalized power market Almost 80% of production currently sold via power exchange NordPool Energy only market pricing: lower production costs and higher plant availability to secure profit margins Value reduction of retail sales segment due to tough competition Distribution as of ”natural monopoly” under regulation Increased value of flexible production and energy storage – renewables, i.e. wind

24 24 Lessons learned from market liberalization: renewables and CO2 price Renewables in Nordic Power Market Various support systems: –Sweden and Norway: common green certificates –Finland and Denmark: national Feed- In-Tariffs Wind and storage hydro mutually supportive technologies Best wind conditions in Norway, Southern Sweden and in the Baltic States (between. 2.600 – 3.000 h/a). Offshore wind limited due to sea icing New wind needs back-up power and new transmission lines Bioenergy CO 2 price CO 2 pricing based on EU emission trading system Enhances CO 2 -free renewables (wind, biomass, solar) and new hydro and nuclear Reduce competitiveness of thermal condensing producers with coal, lignite and natural gas fuels Forces thermal generators to improve fuel efficiency Focus on “clean technologies”

25 25 Lessons learned from market liberalization: implications to Fortum Operations Conventional thermal plant fuel efficiency and availability improvement programs Nuclear plant availability improvement programs Hydro plant availability improvements due to optimized maintenance programs and cascade/river cooperation with other producers Increased focus on short- and long term price forecasting Utilization of financial market tools for production hedge Strategic Focus on CO 2 free production in different geographical areas R&D focussed on nuclear safety and CO2-free technologies and solutions Benefit of high quality power plant operation and process engineering to secure competitiveness of existing thermal assets on liberalized market environment

26 26 Backup

27 27 Foreign investors 28.7% Finnish State 50.8% Other Finnish investors 9.7% Households 7.6%Financial and insurance institutions 3.2% Power and heat company in Nordic countries, Russia, Poland and Baltics Listed at the Helsinki Stock Exchange 1998 Among the most traded shares in Helsinki stock exchange Market cap ~14 billion euros More than 100,000 shareholders 30 November 2011

28 28 Fortum’s strategic route Stockholm Energi Gullspång Birka Energi 50% Fortum 50% Stockholm Länsivoima →100% E.ON Finland Separation of oil businesses Gullspång Skandinaviska Elverk Birka Energi 50% → 100% Stora Kraft Länsivoima 45% → 65% Elnova 50% → 100% District heat in Poland 2003 → Østfold Shares in Hafslund Shares in Lenenergo Starting TGC-1 Divestment of Lenenergo shares TGC-10 Lenenergo shares 1998 → To sell Fingrid shares Divestment of heat operations outside of Stockholm 2008200520062007200220032004199920002001199619971998 IVO 200920102011 Neste

29 29 New capacity needed for increasing demand and retiring capacity replacements Source: IEA WEO 2011 (New polices scenario) Growing global energy demand will be increasingly fulfilled by electricity in the future Substantial demand growth in the emerging markets Retirements and moderate demand growth in the EU Globally, 5 900 GW of new capacity needed by 2035 1)Total new capacity needed for increasing demand and retiring capacity replacements 464 708 544 938 159 204 217 1605 65 657 552 1784 2001 5896 New capacity, total (1 Capacity changes, 2011-2035 (GW) Retiring capacity ~30% ~ 50% ~170% ~260% 0% 50% 100% 150% 200% 250% 300% USEuropeRussiaChinaIndiaOther areas World total Growth, 2009-2035 Primary energy demand Electricity generation

30 30 Russia is the World’s 4th largest power market South Korea Germany US China Japan Russia India Canada France Nordic UK Brazil 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 TWh Data 2010 based on gross output. Source: BP Statistical Review of World Energy June 2011

31 31 Economic development in Fortum’s market area – Fastest growth expected in Russia, Baltics and Poland Index: 2000=100 GDP expectations in Fortum Market Area Russia Baltics Poland Sweden Norway, Finland Eurozone Pre-crisis wealth levels in Russia and Nordic countries to be reached in 2011-2013, Baltics 2015 Source: IMF World Economic Outlook, October 2010 to 2015, and GDP forecast for 2016-2020 based on *0.97 the previous year

32 32 Fortum - a major player in Russia OAO Fortum (former TGC-10) Operates in the heart of Russia’s oil and gas producing region 16 TWh power generation, 26 TWh heat production in 2010; more than Fortum’s Nordic heat sales 2,361 MW investment programme will add 85% of power generation capacity TGC-1 Territorial generating company in north-west Russia Fortum owns slightly over 25% of the company ~6,400 MW electricity generation capacity (appr. 50% hydro), ~25 TWh/a electricity, ~29 TWh/a heat in 2010 OAO Fortum Surgut Tyumen Tobolsk Moscow St. Petersburg Chelyabinsk Nyagan TGC-1

33 33 Royal Seaport of Stockholm – A prime example of sustainable urban development Vision Royal Seaport – an international benchmark of sustainable urban development Mission and goals Build 10 000 new apartments, 30 000 work spaces and a wide harbour in 2009-25 Fossil fuel free-zone in 2030 CO 2 -emissions less than 1.5 tonne/person by 2009-2025 (currently 4.5 tonne/person) Focus areas Efficient use of energy Climate-benign transport solutions Life style -issues

34 34 Sustainable district solution in Espoo District heating network Heat pump facility District cooling network Server centre CHP plant 34

35 35 Lighting projects, Finland and Sweden Social Center helping children and families, Tyumen, Russia John Nurminen Foundation/ Clean Baltic Sea Fortum Tutor programme, supporting junior football coaching, Finland Skansen, Sweden Ice Hockey club Traktor, Russia Hammarby Sjöstad, Norra Djurgårdsstad, Sweden Joensuu, Loviisa, Finland Athletics Association, Sweden Cycling-Recycling tour around the Baltic Sea, Poland Paralympic Committee, Finland We take responsibility for our neighbours

36 36 Financial information

37 37 Operating profit MEUR

38 38 Sales MEUR

39 39 Earnings per share EUR

40 40 Key ratios Q3 ‘11

41 41 Q3: Income statement

42 42 Comparable and reported operating profit IFRS accounting treatment (IAS 39) of derivatives had a positive impact on the reported operating profit EUR 23 (-16) million or earnings per share EUR 0.02 (-0.01) in the third quarter and EUR 272 (5) million or earnings per share EUR 0.23 (0.00) for January-September 2011.

43 43 Q3: Cash flow statement

44 44 Thank you!

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