Fortum Oyj (FOJCF.PK)

Q3 2010 Earnings Call Transcript

October 21, 2010 9:00 am ET

Executives

Tapio Kuula – President and CEO

Juha Laaksonen – EVP and CFO

Analysts

Benjamin Leyre – Exane BNP

Ingo Becker – Kepler Capital Markets

Lueder Schumacher – UniCredit

Martin Young – Nomura

Christopher Kuplent – Merrill Lynch

Presentation

Tapio Kuula

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Okay. Thank you, and good afternoon to everyone. I am here together with our CFO, Juha Laaksonen. And I hope that all of you have material available so that we are ready to start. And I start from Page Number 3, key events and highlights, and one of those key events is really the strategy work which we have done and as we and as many of you heard about our new strategy, which we actually published in our Capital Markets Day, 16

th

of September.

We can also say that one highlight of the period is clearly improve business environment, and from Fortum, we can certainly say that our solid performance continued. Now, we produced 87% of our power production in European Union, which was CO2-free, which was a bit less than it was last year, but still very high figures.

And then on next page, there is really summary about Fortum’s mission and strategy as we publish those, really the mission underlines our target to improve life for present and future generation with sustainable solutions and especially paying attention to low emissions, resource efficiency, and energy supply security, and always remembering our duty to deliver value to our shareholders.

We can say that our strategy really have three major areas, one can say, cornerstones. One is leverage the strong Nordic core in all of our power and heat businesses. Then the second one is to create solid earnings growth from Russia, and the third one is really to look a bit further for the future and to build platform for future growth. And I think that we have excellent opportunities in all of these three areas. And of course, we built our strategy based on our special competencies especially CO2-free nuclear, hydro and energy efficient CHP production, and of course using all competencies and experiences in operating competitive energy markets, especially Nord Pool.

And it’s obvious that, that we built our strategy based on our competencies and industry beliefs, and in that respect, as you can see from Page 5, we have two strong platforms for existing business to develop that further but for progress as well, the Nordic power wholesale and heat market as well as Russian power and heat market. And we believe that competitiveness is really the key for long-term value creation. So, we don’t believe that one should, and Fortum is not aiming to build significantly our businesses based on subsidies. We are ready to, and we tend to be competitive in open, well-functioning competitive markets.

One area which we believe that will give us also opportunities is integration European-wide energy markets and that will also gradually decrease the weight of Nordic power and Nordic power price, and of course also in this development, we are aiming to leverage our competencies in nuclear, hydro and CHP, and looking those industrial restructuring opportunities, which will apply.

We, in general, see that the Fortum is strong, and we see more attractive growth opportunities in generation, both in power and heat generation, but electricity solutions, which is electricity sales in practice and distribution, they are important part of our Nordic scope. Improved business environment, as I said, was really one of the key highlights, and that for example, Nordic power consumption went up by 3% during the third quarter, and now we are on the level of 388 terawatt hours, which is less than 3% to go to the level of 2008, 397 terawatt hours.

In Russia, the power consumption increased even a bit more about 5% during the third quarter, and also we could see really clearly positive price development, up by 34%. Also, we would see increased spot prices in Nordic areas, probably one reason also being tightening hydro pressure wash [ph].

On Page 7, we can see comparable operating being close to the last year’s figure, a bit lower. One reason being lower hydro volumes in power and also a bit lower achieved power price. Improvement in Russia, Distribution and Heat business and Swedish currency translation effect was positive EUR70 million.

Earnings per share developed clearly positively. They were EUR0.18 higher than last year and of course one reason was non-recurring items, about four times bigger than last year, and in that sense, of course, these doesn’t come without effort. So, we can also be very satisfied with the organization’s effort in this area.

Net cash flow from operations were lower than last year and now EUR1.2 billion, last year being more than EUR1.8 billion, and Juha will come back to that, and of course, the Swedish Krona is the main reason for that in our balance sheet.

Solid performance, you can really see the differences between different businesses on Page 8, and as you can see, really the biggest difference is clearly in power division. There is positive development, as said, in heat, distribution and Russia.

Increased power consumption on Page 9, you can see that especially a positive development was in Finland, in Nordic area. During the third quarter, Finnish industry used 13% more electricity than last year. Overall, in Nordic, we were consuming about 4%, close to 4% more electricity than last year. In Russia, as said, the overall general figure is 5%, but in Chelyabinsk, the increase was clearly bigger, which is the heavy metal industry and mining area. In Tyumen which is oil and gas production area, the volume seem to be about the same as last year, which means that also the electricity consumption was on the same level.

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