Balance sheet strenght enables growth and value creation Capital Markets Day

5 November 2014

Timo Karttinen, CFO

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Agenda

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• January-September results

• Efficiency programme

– Fixed costs

• Market outlook

• Financial targets

• Cash flow - Net debt

• Summary

Summary of January-September 2014

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• Good results in continuously demanding market environment

• Flexible hydro production partly offset weak electricity price

• Strong cash flow from operations

• Finnish and Norwegian electricity distribution business sales completed. The

evaluating and planning of the possible future divestment of the Swedish

electricity distribution business continued

• The target for the Russia segment in Russian roubles (RUB 18.2 billion) to be

reached during 2015 is intact, but the euro result level will be volatile

• Finnish Government decided not to introduce the power plant tax (so called

windfall tax)

• Efficiency programme close to completion – successfully finalised

January-September 2014 Results

Key figures (EUR) III/14 III/13 I-III/14 I-III/13 2013 LTM

Sales, million 976 1,060 3,466 3,918 5,309 4,857

Comparable EBITDA, million 309 336 1,317 1,429 1,975 1,863

Operating profit, million 149 96 2,778 1,002 1,508 3,284

Comparable operating profit,

million 183 167 915 979 1,403 1,339

Profit before taxes, million 95 27 2,721 904 1,398 3,215

Earnings per share 0.10 0.04 2.91 0.84 1.36 3.42

Items affecting comparability -0.03 -0.05 2.11 0.03 0.10 2.19

Net cash from operating

activities, million 288 401 1,310 1,150 1,548 1,708

Cash flow before financing

activities, million 259 152 3,987 653 604 3,938

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• The efficiency programme will be finalised during Q4 – focus will stay

• Total annual cost savings visible in all divisions

• Improved working capital efficiency

• Divestments of non-core assets totalling more than EUR 500 million

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 reductions starting from Q3 2012

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SPEED - Cash flow improved by EUR 1 billion – FLEXIBILITY

0

50

100

150

200

250

2012 2013 E2014

Divestments

700

750

800

850

900

950

2012 2013 E2014

Fixed costs

CAPEX

EUR 250-350 million

DIVESTMENTS

EUR 500 million

WORKING CAPITAL

Reduction

FIXED COSTS

Reduce EUR 150 million compared to 2012

NOTE! LTM (last twelve months) used for 2014 in investments and fixed costs.

NOTE! Working capital excluding Distribution, derivatives related

receivables and liabilities and unpaid investments

Sa

vin

gs

CA

PE

X

NOTE! Fixed cost development excluding Distribution, Heat

Norway, property tax increase and Caruna charges

-100

0

100

200

300

0

500

1000

1500

2000

2012 2013 E2014

CAPEX Savings

200

250

300

350

2012 2013 E2014

Working Capital

Tax environment; predictability – how to meet future challenges

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• Take total taxes into consideration early

– When making investment analysis, orders, agreements

– When restructuring operations

• Synchronise legal decision making with operative decision making

– Tax authorities formalistic&regard governance&operative document to be tax based.

• Compliance

– Compliance can be expensive, however, non-compliance is expensive x 10

– Documentation

• Tax audit readiness

• Communication

– External communication => public and tax authorities

High attention

Low attention

+

V

a

l

u

e

c

r

e

a

t

i

o

n

_

Market outlook remains flat The power market opportunity shifts from volume to price volatility

• Electricity price scenario in the

Nordics is flattish

– Moderate demand growth on average

– Renewable supply continues to grow

– Slow appreciation of the carbon and fuel

prices

• …but intraday price volatility

expected to increase driven by RES

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* Average spot price = Average price of area spot prices SE2 20%, SE3 40% and HEL 40% (Fortum’s production fleet in average year)

20

25

30

35

40

45

50

55

60

200

8

201

0

201

2

201

4

201

6

201

8

202

0

202

2

202

4

€/MWh

Nord Pool electricity price

Market forwards forSYS (mid-Oct)SYS spot price

Area spot price*

Financial targets

LTM 2013 Target

Return on capital employed, ROCE (%) 18.9 9.0 12

Return on shareholders’ equity, ROE (%) 29.0 12.0 14

Comparable net debt/EBITDA 2.6 3.9 ~3

- excluding Värme 2.2 3.4

9

0

5

10

15

20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 LTM

Over the cycle ROCE%

10 Y FIN Bond

ROCE target

0

0,5

1

1,5

2

2,5

3

3,5

4

2008 2009 2010 2011 2012 2013 LTM

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Fortum has invested heavily, keeping capital structure and dividends at a good level

• By investing we maintain the current

assets and create growth for future

• Strong balance sheet and capital structure

stronger than target

• Healthy dividends - capital structure target

and dividend policy intact

Dividend per share

Capital expenditure and gross investments in shares

Comparable debt/EBITDA

0

500

1000

1500

2000

2500

3000

2008 2009 2010 2011 2012 2013 LTM

0

0,2

0,4

0,6

0,8

1

1,2

2008 2009 2010 2011 2012 2013

MEUR

EUR

* *

* *

* Restated

Fortum’s maintenance investments (excluding Distribution) clearly below depreciation with current portfolio

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0

50

100

150

200

250

300

350

400

450

MEUR

E2016 E2015 E2014 2013

Depreciation excl. Distribution Fortum Group

Note: Excluding Distribution

Cash flow increasing post the efficiency programme

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0

500

1000

1500

2000

2500

2008 2009 2010 2011 2012 2013 LTM

Cash flow from operating activities MEUR

Diversified funding base – net debt EUR 4.8 billion at the end of September 2014

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per 30 Sep, 2014 per 31 Dec, 2013

Average interest rate (incl. swaps and forwards) 3.9% 3.6%

Portion of floating / fixed debt 47 / 53% 51 / 49%

0

250

500

750

1000

1250

1500

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024+

Bonds Financial institutions Other long-term debt CPs Other short-term debt

MEUR

2014 32

2015 1,035

2016 863

2017 548

2018 629

2019 821

2020 76

2021 547

2022 1,057

2023 112

2024+

TOTAL

1,249

6,969

113 140

Change in net debt during Q1- Q3 2014

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Net debt Q314

-3,003 (-39%)

Fx and other

4,790 6

Dividend Divest

977

Ch.in rec

425

2,836 584

Ch. in WC

Finance cost

and tax

Non cash

Capex & acq

EBITDA

3,185

Net debt Q413

7,793

1,903

In Q1-Q3 2014 • Generated cash from operations

EUR 1.3 billion (bn)

• Invested with EUR 0.6 bn

• Divested with EUR 2.8 bn

• Received from Värme EUR 467 million from interest-bearing receivables

• Paid dividends approx. EUR 1 bn

• Paid back loans with EUR 2.1 bn

• Increased cash with EUR 0.9 bn

Access to liquidity

• Fortum has a strong financial position

• Good liquidity – committed credit lines total EUR 2.2 billion

• Good interest in Fortum among investors

LIQUID FUNDS AND COMMITTED CREDIT LINES Available Outstanding Total amount

1) Valid until further notice

2) Maturity dates,;EUR 2 billion until July 2016 , EUR 1.9 billion July, 2017

217 0 217 2,000 0 2,000

2,217 0 2,217

Committed Credit Lines

Short Term 1)

Long Term 2)

Total

Liquid Funds Total 2,178 of which in Russia 259

Total Available Cash and Committed Financing 4,395

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Fortum achieved price premium driven by right type of capacity and actions

We utilise our competences and flexibility in all markets – from intra-day to financial markets

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0

10

20

30

40

50

60

70

80

90

-25

-20

-15

-10

-5

0

5

10

15

20

Sp

ot a

nd

ach

ieve

d p

rice

(E

UR

/MW

h)

Ach

ieve

d p

rice

pre

miu

m v

s.

ma

rke

t (E

UR

/MW

h)

Achieved premium Spot price, SE&FI avg. Achieved power price

Annual average electricity prices and hedging levels at the end of September 2014

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Hedging policy targets • Decrease volatility in company comparable

operating profit

• Secure EBITDA to meet company’s financial

obligations

• Hedging should in average contribute positively

• Focus on current portfolio

– Flexibility - Profitability - Scrutinize investments in current portfolio

– Cost control

– Continuous efficiency improvements

– Working capital optimisation

– Further divestments of non-core assets or ones with limited potential

– Hedges

• Growth investments

– Profitable projects with fast pay-back in focus

– Successfull divestments create platform to execute growth

Efficiency, cash flow and investments in focus

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Business builds on current portfolio – in addition, we will select the most profitable new

investments to support our financial targets and deliver excellent value to our

shareholders

Summary

• Efficiency programme has been finalised and the work continues…

– Cost control

– Efficiency - Working capital optimisation

– Cash flow

– Investments – both current and growth

– Hedging to capture the increasing volatility

• Stong balance sheet and operational cash flow

– Strenght in demanding enviroment

– Ready for the future

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For more information, please visit www.fortum.com/investors