Stock exchange release

Fortum discusses revised strategy and financial position in Capital Markets Day

16 September 2010, 8:30 EEST

Fortum Corporation
Stock Exchange Release
16 September 2010 at 8.30 EETS

Fortum discusses revised strategy and financial position in Capital Markets Day Fortum Capital Markets Day for investors and analysts is held today on 16 September 2010 in Espoo, Finland. During the event, Fortum management will outline the company's strategy, financial targets and capital expenditure going forward. Revised strategy Fortum's revised strategy builds on the company's core competence in CO2-free nuclear and hydro power, energy and resource efficient combined heat and power production as well as the company's expertise and proven track-record in operating in competitive energy markets. In the coming years, Fortum will continue to leverage its strong position in the Nordic power and heat market while creating solid earnings growth in Russia. Further opportunities for future growth stem from the need for CO2-free and energy efficient solutions, and increasing demand in fast growing, liberalizing energy markets, especially in emerging Euro-Asian countries. Coupled with the integration of the European energy market and with Fortum's Russian business' increasing weight, the importance of the Nordic power price as the main driver of Fortum's earnings will gradually decrease. The existing electricity distribution and retail sales businesses will continue to have a substantial role in the Nordic market. In other regions, Fortum sees more attractive earnings and growth prospects in power and heat generation. President and CEO Tapio Kuula underlines competitiveness as the key to value creation: "I believe that our core competences provide a solid basis for the future value creation for Fortum. We are preparing for growth, which I see will take place through a right balance of faster returning acquisitions and slower returning green field investments. In the long run, positions taken and the solutions applied have to be financially sound on their own merits; basing decisions on a continuous high level of subsidies is not sustainable." Capital expenditure Fortum's capital expenditure in 2010 is estimated to be around EUR 1.4 billion - slightly less than indicated earlier. In 2011, Fortum currently expects capital expenditure of around EUR 1.6 billion, exceeding the earlier forecast range of EUR 0.8-1.2 billion. The annual level of Fortum's capital expenditure in 2012-13 is estimated to exceed the company's normal guidance of EUR 0.8-1.2 billion. The main reason for higher capital expenditures in 2010-2013 is the acceleration in Fortum's Russian investment programme, driven by the capacity payment legislation. In Russia, OAO Fortum's committed investment programme will increase its power capacity from the current approximately 2,800 MW to approximately 5,100 MW and is a key driver for solid earnings growth in Russia. New capacity will bring income from new volumes sold and is expected to receive at least 3-4 times higher price in the capacity market than old capacity. In light of the recovering post-crises demand and development of the Russian capacity market, Fortum has adjusted the schedule of the investment programme and plans to commission the new units by the end of 2014. The commissioning of the first three units is now estimated to take place during the first half of 2011. The value of the remaining part of the programme, calculated at the end of June 2010 exchange rates, is estimated to be EUR 1.7 billion from July 2010 onwards. In the long term, Fortum's financial targets in Russia are dictated by basic economic logic: Fortum's return on invested capital needs to be higher that its cost of capital in Russia. In 2009, Fortum's weighted average cost of capital (WACC) in Russia was approximately 12%. Having completed the investment programme, Fortum will have invested somewhat over EUR 4 billion into Russia by the end of 2014. Assuming an unchanged cost of capital, Fortum's comparable operating profit in Russia needs to be in excess of EUR 500 million shortly after the completion of the investment programme. Financial targets and dividend Maintaining Fortum's strong balance sheet and the flexibility of the capital structure will continue to be a priority also in the future. Signalling the importance of the strong balance sheet, Fortum has adjusted its net debt/EBITDA target to be around 3x. The earlier target was a range of 3.0x to 3.5x. Fortum's financial position and liquidity are strong. The group's key financial return targets remain unchanged. -------------------------------------------------------------------------------- | Return on capital employed | 12% | -------------------------------------------------------------------------------- | Return on shareholder's equity | 14% | -------------------------------------------------------------------------------- | Net debt/EBITDA | ~3 | -------------------------------------------------------------------------------- Fortum's dividend policy remains unchanged: the company aims to pay a dividend which corresponds to an average payout ratio of 50% to 60%. In the Capital Markets Day Fortum reminds investors and analysts that continuously providing an attractive dividend to investors is an integral part of Fortum's way of thinking - the dividend payment is not a residual. Fortum Corporation Anne Brunila Executive Vice President, Corporate Relations and Sustainability Further information: Mika Paloranta, Vice President, Investor Relations, +358 50 452 4138 Pauliina Vuosio, Vice President, Financial Communications, +358 50 453 2383 Management presentations and a webcast of the Fortum Capital Markets Day are available at Distribution: NASDAQ OMX Helsinki Key media