Fortum Oyj (FOJCF) Q4 2022 Earnings Call Transcript

Fortum Oyj (OTCPK:FOJCF) This fall 2022 Earnings Convention Name March 2, 2023 4:00 AM ET

Firm Individuals

Ingela Ulfves – Head of Investor Relations

Markus Rauramo – Chief Government Officer

Bernhard Gunther – Chief Monetary Officer

Convention Name Individuals

Artem Beletski – SEB

Iiris Theman – Carnegie

Harry Wyburd – Exane BNP Paribas

Wanda Serwinowska – Credit score Suisse

James Model – Deutsche Financial institution

Sam Arie – UBS

Louis Boujard – ODDO BHF

Deepa Venkateswaran – Bernstein

Piotr Dzieciolowski – Citi

Ingela Ulfves

Good morning, everybody, each right here on the headquarters in Espoo and people of you who’re watching on-line. A heat welcome to Fortum’s joint webcast and information convention for the investor group and media on our full 12 months outcomes for 2022 and our new technique.

My identify is Ingela Ulfves, and I am Head of Investor Relations at Fortum. This occasion is being recorded and a replay will probably be offered afterward our web site.

With me right here within the auditorium are our CEO, Markus Rauramo; and CFO, Bernhard Gunther, who will current to you at the moment. Additionally, the IR group is current right here with me at the moment and our new Fortum management group.

The agenda is the next: Markus and Bernhard will first current the outcomes figures and the group’s efficiency and thereafter Markus will replace you on our technique. Solely after each shows, we are going to open up for questions for buyers, analysts and media, worldwide media, each over the teleconference and viewers right here in Espoo. So, there won’t be any separate Q&A session after the consequence presentation. After the Q&A, we thank the worldwide viewers. After which, we swap the Finnish and we’ll take questions from the Finnish media. We have now reserved a complete of two.5 hours for this occasion with roughly two hours for the shows for the worldwide viewers after which the remaining half-hour is for the Finnish media.

As we extremely worth your opinions, we’d very very like to have your immediate feedback and suggestions on our new technique. Subsequently, we are going to conduct a brief ballot for our personal use. This will probably be carried out each right here within the viewers and in addition with these on you on-line. So, right here within the auditorium, every of you discover a small notice with a QR code for this function. For everybody on-line, in the course of the Q&A session, you will note three popup home windows in your display screen, so please be energetic and vote.

Additionally, form reminder to our company right here that you just swap your mobiles on silence.

And as a final remark for the company right here, I’m comfortable to ask you to a buffet lunch outdoors of this venue after the worldwide name.

So, with this, I’ll now hand over to Markus to begin.

Markus Rauramo

Thanks very a lot, Ingela. A heat welcome to our investor name additionally from my aspect.

Right this moment marks an essential milestone in Fortum’s historical past. We have now returned dwelling and opened a brand new chapter as a prudent Nordic energy generator and one of many cleanest vitality firms in Europe. In 2022, we managed via unprecedented turbulences, and may now shut our books for ’22 with a sturdy set of financials.

I’ll current our persevering with operations that exclude Uniper. However to offer you an understanding of the underlying earnings functionality and efficiency of the renewed group, I may also present the headline KPIs excluding Russia. Bernhard will stroll you thru the numbers in all particulars as normal. Within the second part, I’ll introduce our new technique and provides insights into how we are going to implement it and what the respective monetary and environmental targets are. I may also current our new working mannequin and our management group. Lastly, I’ll shut with the abstract.

Now let’s begin with the monetary statements for fiscal 12 months 2022. Russia’s assault on Ukraine and the choice of the Russian Authorities to make use of vitality as a weapon is an unprecedented problem for contemporary Europe. For us as a bunch, the geopolitical disaster had two basic penalties.

On one hand, it was an enormous blow. The end result is understood. We needed to acknowledge that the implications of the Russian invasion materially hit Fortum Group with substantial worth deterioration of our Russian uncovered companies, Uniper and Fortum Russia. We offered Uniper to the German State for a fraction of our preliminary funding, recorded losses of a number of billions of euros. On the identical time, we acknowledged that the end result might have been a lot worse and we did obtain our shareholder mortgage and our ensures again.

The worth of our Russian belongings has taken a toll in a sequence of impairments as we recorded further pre-tax impairments within the fourth quarter of roughly €990 million associated to our Russia phase. This provides as much as €1.7 billion in whole for the 12 months. Following Russia’s assault struggle on Ukraine, we determined to pursue a managed exit from the Russian market, with potential divestments of our Russian operations as the popular path. Finishing the exit is more likely to take additional time and there may be nonetheless important uncertainties together with regulatory approvals associated to the continued divestment course of.

Alternatively, the elemental relevance of our operations within the Nordics has elevated considerably. I see two areas for our distinctive relevance. First, our accountability for safety of provide. Our prospects and the society worth this greater than ever. On this respect, our precedence within the brief time period is to keep up excessive availability, effectivity and security of our Nordic fleet. Secondly, our accountability for decarbonization, and our alternative to help demand progress within the Nordics.

The present vitality disaster is a provide disaster of fossil fuels. It has made apparent that Europe has to cut back its dependencies and to extend its effort in decarbonization. Fortum has the proper expertise and capabilities to ship zero carbon energy era at scale and may entice a brand new energy demand to the Nordics, one thing just one or two gamers within the Nordic enviornment can match.

Consequently, if we wish to stay as much as our duties, safety of provide and decarbonization must be within the middle of our considering, and it’ll repay. Fortum is already now again on secure footing. Regardless of the substantial setback that we had to deal with in 2022, we managed to ship a sturdy set of figures in our continued operations that underline the strong earnings energy of our CO2 free Nordic hydro and nuclear fleet. We have now regained a wholesome monetary place on this nonetheless unstable market surroundings. And we’ve got additionally been capable of cut back our gross debt considerably.

One of many key drivers for that is the Nordic energy worth. Though the Nordic energy system is essentially decarbonized, it isn’t proof against skyrocketing commodity costs. Continental fuel fired era is an anchor additionally for the Nordic energy worth. Elevated energy costs are actually prevalent, not solely within the spot markets, but in addition in ahead costs throughout the curb. Uncertainty about fuel provide availability and the brand new geopolitical situations and the necessity to refill fuel storages in preparation for winter drove European fuel costs to ranges that we’ve got by no means seen earlier than within the spring and summer time of 2022. However costs began to ease with storage injections in the course of the summer time and provide was stabilized with LNG imports.

Decrease fuel costs in This fall and consequently decrease energy costs have been supported by a gentle autumn and heat starting of the winter. With fuel storages nearly untapped, the market is way calmer now about the remainder of the winter. And that is mirrored in decrease fuel ahead costs. The Nordics system worth, each spot and futures, have declined strongly in lockstep with the continental European and U.Ok. energy costs and the 2024 product is presently buying and selling at round €74 per megawatt hour, 23 merchandise are presently buying and selling between €60 and €90 per megawatt hour for the remainder of the 12 months. Though we’re speaking about a lot decrease ranges than within the autumn, ahead costs are nonetheless clearly elevated in comparison with the historic worth vary.

The elevated costs proven on the earlier slide are successfully the end result of the availability demand state of affairs and challenges with fuel provides, however there has not been any main energy blackouts. Regardless of the distinctive state of affairs with traditionally excessive costs, the bodily energy market is and has been functioning. The most cost effective type of energy era which is able to fulfill the demand on the time varieties the ability worth. Additionally it is good to do not forget that the well-functioning bodily energy market is the bottom for the derivatives market.

To sort out the impacts of the vitality disaster on societies, EU nations have agreed on a set of emergency actions. Whereas disaster measures that assist prospects take care of hovering vitality costs have undoubtedly been obligatory, it’s essential to maintain them short-term and implement them in a way that doesn’t result in exclusion of capability from the market and thereby even rationing of electrical energy. We should always now shift the main target to long-term market improvement points and guarantee that we’ll have an electrical energy market framework that permits investments in clear electrical energy wanted for the decarbonization of our societies. Subsequently, we observe the method on the EU electrical energy market design with highest consideration.

Now over to the operational efficiency. What you see listed here are the appropriate headline KPIs from Fortum Group’s persevering with operations. So, these exclude Uniper, which is able to deconsolidated within the third quarter following the settlement with the German State. 2021 figures are restated accordingly.

As well as, we present the underlying earnings excluding Russia throughout the earnings metrics. That is of significance for 2 causes. First, we’re clearly dedicated to exit the Russian market. To get a clearer image of the underlying efficiency of Fortum’s core actions, one has to exclude the Russian operations to grasp the underlying earnings energy going ahead. Second, we’ve got no entry to earnings or funds from Russia, particularly with regards to the funds out there for dividend distribution. The metrics need to be adjusted with the Russian impression.

The final quarter of 2022 was once more one other terribly unstable quarter, characterised by extraordinary market fundamentals. Total, we had a really sturdy group efficiency throughout the headline KPIs in each the fourth quarter and the complete 12 months.

Ranging from the steadiness sheet, and most significantly, our leverage, outlined as monetary web debt to comparable EBITDA, it was at 0.4x for the group’s persevering with operations and 0.6x excluding the impression from Russian operations. It once more improved versus the 0.8x that we confirmed you final time. There are two causes for this. First, the wholesome working money circulation within the fourth quarter, and secondly, the roughly €500 million gross sales proceeds we acquired from the Uniper transaction. The very low leverage offers a superb start line to proceed to develop Fortum going ahead.

Close to the earnings, the Technology phase was operationally very sturdy within the fourth quarter, due to excessive energy costs within the Nordics and profitable bodily optimization. Comparable EPS for persevering with operations was €1.74 per share. And when excluding Russia, it was €1.21 per share, considerably up in comparison with 2021 restated figures.

So, these are very strong outcomes, contemplating that they exclude Uniper and respective losses of just about €6 billion from the Uniper divestment, and recorded impairments of €1.7 billion within the Russia phase, neither mirrored clearly within the comparable EPS.

Contemplating all of this, Fortum’s Board of Administrators is proposing to the 2023 Annual Common Assembly a dividend of €0.91 per share for the 12 months 2022. The proposed dividend of €0.91 per share relies on the comparable EPS for persevering with operations adjusted with the Russian impression, as we do not need entry to the Russian earnings and money circulation. The proposed dividend interprets right into a payout ratio of 75%. I’ll come again to the dividend coverage within the technique part. Going ahead, we are going to calibrate the steadiness between dividend, progress CapEx and steadiness sheet power, which has the best precedence for us.

I wish to spotlight that even after the robust 12 months with large losses and impairments, the Board is proposing a money dividend. There have been exterior views that we won’t pay or should not pay a dividend in any respect. On this context, it’s also good to notice that Fortum Group’s reported EPS together with discontinued operations was detrimental €2.72 per share. However the e-book loss on our Uniper participation, which is driving this quantity, is simply the accounting reflection of the share worth decline our shareholders have already suffered in 2022. Subsequently, we expect its proper to deal with the comparable EPS for persevering with operations adjusted for the Russia impression.

It’s true that the dividend proposal is a rebase from final 12 months’s dividend of €1.14 per share. Nonetheless, it nonetheless displays our good earnings degree and stabilized monetary place in Fortum’s continued operations.

To sum it up, I am happy with the sturdy group efficiency in a unstable commodity market throughout a really robust 12 months. Our group has given its best possible in serving our prospects, securing availability of energy vegetation and sustaining monetary flexibility.

So, with this, I conclude my half on this first part and hand over to you, Bernhard.

Bernhard Gunther

Thanks, Markus, and a heat welcome additionally from my aspect.

Right this moment I’ll begin, as normal, with an outline of our persevering with operations, key comparable numbers, excluding Uniper. I may also provide you with some insights on underlying earnings excluding our Russian operations. As well as, I’ll briefly dive into the segmental overview and present you the way this interprets into our reported figures. And eventually, I’ll shut the monetary statements part with an outlook for 2023.

What you see right here is the important thing overview summarizing our key comparable indicators of the consolidated Fortum Group’s persevering with operations, as stated, all figures excluding Uniper because it was deconsolidated and categorized as discontinued operation within the third quarter already. To have a good reflection of the group’s underlying earnings, it’s smart to exclude the Russian operations as our divestment course of continues to be ongoing and the enterprise operations in apply are disconnected from our group operations. Finishing the exit is more likely to take further time and there are nonetheless important uncertainties together with regulatory approvals. That is why we present you the figures excluding Russia in a separate column for the fourth quarter and for the complete 12 months.

Let me touch upon a few of these KPIs excluding the impression from the Russian operations. Comparable working revenue was up greater than 50% on the quarter and up 38% for the complete 12 months. That is primarily pushed by the Technology phase as a consequence of excessive market costs, which elevated the achieved energy worth. Additionally, bodily optimization enabled by the ability worth volatility contributed to the nice consequence.

Earnings per share excluding Russia for the complete 12 months consequently elevated by 26% in 2021. The rise just isn’t as pronounced as the rise in comparable working revenue as we had larger financing prices. Comparable EPS for the complete 12 months excluding Russia was €1.21 and, as Markus stated, that is the bottom for the dividend proposal.

And eventually, money circulation. In 2022, web money from working actions elevated by €985 million to €2.1 billion, primarily because of the improved comparable EBITDA in addition to the change in working capital and decrease paid earnings taxes in comparison with the identical interval in 2021.

Now over to the phase overview. The reconciliation on phase degree confirms what I stated earlier than, the year-on-year delta is principally attributable to the Technology phase, which clearly is and can proceed to be the most important phase in Fortum standalone. Let me run you briefly via the segments on full 12 months reconciliation.

Technology: Comparable working revenue was up €477 million regardless of decrease energy era within the Nordics, particularly decrease hydropower volumes. The decrease volumes have been attributable to decrease inflows that left the hydro reservoir ranges under common. Reservoir ranges have been clearly under common ranges throughout many of the 12 months, nonetheless, improved in the direction of the top of the 12 months, particularly within the fourth quarter.

For 2022, hydro volumes are 4 terawatt hours under the extent in comparison with the 12 months earlier than. The operational efficiency and manufacturing volumes for nuclear era have been strong, and on the identical good degree as in 2021. The achieved energy worth within the Technology phase elevated by €17.1 per megawatt hour. That is up 40% following a really profitable bodily optimization and better spot costs. This can be a very sturdy efficiency contemplating that we had pretty excessive hedge ranges and have been negatively impacted by the numerous worth variations in Sweden between the excessive system worth and the decrease SE2 space spot worth within the Sundsvall worth space with low liquidity.

Metropolis Options: Comparable working revenue was down by €107 million for 2 causes. First, operational. Clearly larger fossil gasoline, pellet and CO2 emission allowance costs in addition to decrease steel costs that would not be offset by larger energy and district heating gross sales costs. Second impact is structural. We divested moderately massive components of our Metropolis Options enterprise. Our share in Fortum Oslo Varme, the Baltic district heating enterprise, and our photo voltaic vegetation in India.

To Shopper Options: The comparable working revenue went up by €45 million, primarily as a consequence of larger electrical energy and fuel margins in addition to optimistic one-offs from fuel storage gross sales. The optimistic impact was partly offset by larger prices and decrease gross sales of value-added providers. Additionally, good to needless to say one cause for the massive delta is that within the fourth quarter of 2021, the consequence was clearly detrimental as a consequence of larger electrical energy buy prices and detrimental margins.

And eventually, one phrase to the Different Operations segments, not seen right here, however price mentioning, we divested our e-mobility enterprise Plugsurfing and our remaining possession in recharge and recorded tax-exempt capital positive aspects of a complete of €138 million in different operations third quarter ’22 outcomes. As these have been recorded as objects affecting comparability, they aren’t seen right here.

Now over to the P&L. This can be a reconciliation of the complete 12 months comparable working revenue for our persevering with operations on the prime all the best way right down to the reported web revenue. Please notice that as we’ve got not discontinued the Russian operations, they’re now included right here. There are a sequence of components to spotlight.

As you’re conscious, throughout 2022, we recorded a complete of €1.7 billion of impairments in our Russia segments within the first and within the fourth quarter. The impairments affected a number of line objects within the earnings assertion, relying on the character of the asset being impaired. Recorded impairment prices are thus mirrored as follows for the complete 12 months.

Within the objects affecting comparability, we’ve got impairment prices and reversals of €905 million. Impairments recorded in This fall have been €535 million, together with the impact from the change within the ruble fee. Along with this, we’ve got impairment prices within the share of revenue and lack of associates and joint ventures, primarily from the TGC-1 possession. Capital positive aspects embrace the divestment of our stake in Fortum Oslo Varme that we’ve got closed in Q2 and the divestment of recharge and Plugsurfing.

Then, we’ve got the adjustments in honest worth of derivatives from hedging. For the complete 12 months, these have been €393 million detrimental. Final quarter, we had the same dimension optimistic impact. If the excessive market volatility continues like now, it would additionally, in future, imply substantial volatility to this particular line merchandise. Nonetheless, it’s good to notice that that is solely a fraction of the impact that we noticed when nonetheless consolidating Uniper.

Finance price web of minus €193 million relates primarily to the online curiosity bills and a sequence of results from the Russian operations like anticipated credit score losses, write-down of shares and overseas alternate positive aspects from ruble receivables and the closing of ruble hedges. As you’ll be able to see, we even have a optimistic impact of €556 million from tax loss carry forwards associated to impacts primarily attributable to the Uniper divestment.

Consequently the 2022 reported web revenue for persevering with operations was at €1 billion.

Now over to our monetary place. On this slide, I’ve in essence, three messages for you.

First, our leverage state of affairs is excellent. Leverage decreased considerably following the closing of the Uniper deal in December ’22. We acquired in whole €4.5 billion, which comprised of the payback of the €4 billion shareholder mortgage and the roughly €500 million consideration for the Uniper shares.

Second, the working money circulation of €2.1 billion was very sturdy and in addition supported by our efforts to deliver down our gross debt. We used most of those funds to repay some debt already on the finish of 2022, which explains why our gross debt quantity at year-end is at €7.5 billion, and that is €5.4 billion decrease in comparison with the earlier reported €12.9 billion.

And third, we’ve got fairly some monetary flexibility on our debt maturities as we’ve got choices to increase roughly €1.6 billion of our loans with one 12 months into 2024. Subsequently, though at first look, our contractual maturities profile appears very a lot frontloaded, the monetary place is moderately good. Additionally notice that we presently have adequate liquidity reserves.

Let me briefly run you thru the reconciliation for the event of our monetary web debt, seen within the higher graph on this slide. The start line with the opening steadiness sheet in the beginning of 2022 consists of €2.5 billion of Uniper debt and was the drawdown from the €4 billion shareholder mortgage. As well as, the place to begin consists of €2 billion of deconsolidation results, primarily Uniper liquid funds and margin receivables.

Throughout the 12 months, Uniper drew an extra — drew down an extra €1.5 billion on the shareholder loans to the complete quantity be repaid in This fall. The web impact is proven within the change in receivables, you see. This, along with divestment results, Fortum’s dividend fee for 2021 and the consideration for the Uniper shares brings our monetary web debt to a degree of barely under €1.1 billion at year-end 2022.

As rates of interest have gone up and the rate of interest for our debt portfolio is consequently up in comparison with our final quarter, that is additionally affected by the €350 million that we’ve got drawn on the Solidium mortgage at considerably larger borrowing price. The plan is to repay the drawn €350 million and on the identical time cancel the complete bridge financing mortgage of €2.35 billion by the top of March 2023.

The credit standing nonetheless continues to be a key goal to us. Our BBB score with detrimental outlook continues to be unchanged. In reference to the Uniper exit, our score companies communicated that they anticipate progress on the Russia exit and readability on Fortum’s new technique, on which we at the moment have offered an replace, and Markus will come to this in a minute. We’re in dialogue with the score companies and await choices from them within the close to future.

So, with this, now coming to the ultimate outlook part. The outlook part includes in essence, three components: Steerage on hedging, CapEx for ’22 and tax charges.

Through the years, Fortum’s profitable hedging of the outright era place has created predictability and visibility. The hedge costs for the Technology phase elevated for this 12 months by €9 per megawatt hour to €58 and the hedge ratio was 75% on the finish of 2022. Hedge costs for 2024 elevated by €4 per megawatt hour to €42, and the respective hedge ratio was 45% on the finish of ’22.

Our CapEx steering for 2023 for persevering with operations, we anticipate to spend in whole €700 million in 2023, together with upkeep CapEx, however excluding potential acquisitions. Upkeep CapEx will probably be roughly €300 million, which continues to be clearly under our depreciation ranges.

And eventually, to our tax steering. The windfall tax in Finland is a component that must be thought-about. Recently, the Finnish Ministry of Finance has lowered their estimate of the windfall tax being collected from Finnish industries from a variety of €0.5 billion to €1.3 billion to now €0.3 billion to €0.4 billion. The ultimate final result will naturally depend upon the ability costs and consequence developments of the affected firms.

Considering this short-term windfall, the comparable efficient earnings tax fee, excluding objects affecting comparability for the group is estimated to be within the vary of 21% to 24%. Excluding the windfall tax, the comparable earnings tax fee, once more, with out objects affecting comparability is estimated to be within the vary of 20% to 22%. For ’24, the comparable efficient earnings tax fee, excluding objects affecting comparability, is estimated to be within the vary of 19% to 21%.

With this, I conclude the primary part of our presentation, and I now hand again, Ingela, to you.

Ingela Ulfves

Thanks, Bernhard, and thanks additionally, Markus. This truly concludes Bernhard’s period as CFO in our outcomes shows, as a result of subsequent time we can have our new CFO, Tiina Tuomela, on stage with the Q1 outcomes.

Okay. Let’s then transfer on. As stated, the time — this time, we won’t open for the Q&A at this level, however we are going to instantly now proceed with the technique, and solely after that take your questions.

So, Markus, the ground is yours once more.

Markus Rauramo

Thanks, Ingela.

Final 12 months, the world was turned the wrong way up and essentially modified us. We have now labored diligently to realign the corporate to this new actuality, and now we’re prepared to maneuver ahead.

I’ll begin the technique part with an outline of the important thing components of our technique. Our holistic method relies on our stakeholders’ wants and interprets into clear strategic priorities. As a subsequent step, I’ll share our understanding of the working surroundings and the way our technique was right down to clear drivers of worth creation. That is embedded in our monetary agenda that focuses on profitability and monetary power. Lastly, I’ll current to you the way the concrete implementation of our new technique is mirrored in our new working mannequin and introduce our new management group who’re dedicated to ship on the brand new technique. I’ll then shut with a abstract.

So, let’s begin with our technique on the look. Our new technique is designed to ship on our new function, the ability of world the place individuals, companies and nature thrive collectively. It crystallizes our worth proposition to our stakeholders. We have now a singular potential to reliably ship clear vitality from trusted sources at scale. And with our energy, we assist our prospects to decarbonize their processes and societies to succeed in carbon neutrality in steadiness with nature.

I am absolutely satisfied that Europe’s vitality transformation will get additional traction and that the electrification and decarbonization of commercial processes will speed up, pushed by customers, by regulation and in addition by capital markets. Dependable, clear vitality at scale will probably be scarce for lengthy. Subsequently, we’re satisfied that there’s substantial inherent worth that may be lifted for the good thing about us and our stakeholders.

First, Fortum can contribute with its greatest power. We’re constructing on our belongings and our sturdy competence to optimize our extremely aggressive energy era fleet. And we keep and develop our best-in-class operations to continually safe prime effectivity and suppleness.

Second, industries are confronted with enormous challenges, as they should decarbonize and reply their prospects’ demand for cleaner merchandise. As a number one supplier of fresh vitality within the Nordics, we, at Fortum, wish to be the associate of alternative for our industrial prospects. We imagine we may also help them obtain aggressive benefit from bringing clear merchandise to the market. These strategic partnerships may also facilitate our progress in the long term. Additional we are going to discover alternatives in clear hydrogen and over time additionally alternatives in new nuclear, for instance, in small modular reactors along with industrial prospects. Our progress will occur within the Nordics and our capital allocation will probably be prudent.

Lastly, to safe the profitable execution of our technique, we, as Fortum, will develop the best way we work and enhance our effectivity. We have now modified our working mannequin accordingly. We have now to rigorously handle the present unstable and unsure working surroundings, need to handle and cut back our dangers whereas concurrently benefiting from prevailing good energy market situations. And all it will occur in a prudent and dependable method. We have now set ourselves boundaries that foster worth creation as an alternative of simply including gigawatts.

So, how does renewed Fortum post-Uniper and post-Russia appear like? The renewed Fortum is constructed on sturdy earnings energy, clear energy era at scale and particular emissions which are very low. In my introduction, I identified that Fortum’s operations have distinctive relevance for the Nordics and that this relevance has elevated considerably. Our uniqueness is constructed on a portfolio delivering as much as 45 terawatt hours of CO2-free energy yearly. The success of the European vitality transition in addition to additional industrialization of the Nordics, will, in essence, depend upon three components.

First, a adequate quantity of fresh vitality. Electrification and industrial decarbonization requires important quantities of fresh vitality in addition to dependable companions that may ship it in terawatt hour scale. We have now the dimensions that makes us engaging for industrial companions.

Second, the necessity of fresh vitality as dependable base load, that is what particularly our nuclear fleet offers. The supply of our nuclear vegetation is finest at school. Our absolutely owned Loviisa nuclear energy plant operates with a load issue of near 93%.

Third, flexibility to the system when wanted, that is what our versatile hydro fleet gives. We’re working exhausting to increase the pliability of our CO2 free vegetation, for instance, with battery options.

Final, the frequent floor on which we stand. We have now the proper expertise and capabilities to ship. This makes us distinctive.

To sum it up, our aggressive portfolio delivers clear and safe energy at its finest and is effectively positioned for the long run.

What does this future then appear like? On the subject of our working surroundings, it’s clear that we face fairly some uncertainty within the brief time period, however there may be tangible and concrete upside within the midterm for structural demand progress. Within the brief time period, the vitality sector continues to be impacted by geopolitical tensions, normal weaker financial outlook with larger inflation and better rates of interest, tightening and unclear regulation together with unstable commodity markets.

Subsequent to the geopolitical state of affairs, the market regulation is the most important uncertainty within the brief time period, however as provide is scarce, any form of regulatory method should incentivize new and current capability if safety of provide is excessive on the agenda.

Regardless that the vitality disaster grew to become the defining factor of 2022, the vitality transition tendencies demonstrated resilience in Europe. For the primary time, the share of wind and photo voltaic within the EU energy combine was above each coal and fuel. The development is more likely to be sustained within the near-term future.

As well as, the deal with vitality safety is right here to remain and defines the way forward for our sector. The mega development of additional electrification will speed up and is pushed by the brand new industrial age of fresh expertise. Nonetheless, the tempo of execution is dependent upon vitality safety.

Consequently, electrification gives substantial alternatives for financial progress, particularly within the Nordics. Let me now let you know why. The Nordic market is extraordinarily aggressive with regards to clear and reasonably priced energy. Taking a look at 2024 forwards, the continent is pricing energy 4 occasions larger than the Nordics. This isn’t new per se, however the absolute delta is of serious relevance for vitality intense industries.

As well as, the vitality combine within the Nordics is completely different in comparison with the continent, the place there nonetheless is a big share of fossil fuels used for energy era. Subsequently, within the mid to long run, electrical energy is predicted to proceed to realize a considerably larger share of whole vitality consumption, bringing many years of demand progress for the Nordics.

The electrical energy demand progress will largely be decided by traditional drivers reminiscent of macroeconomic improvement, but in addition more and more by decarbonization of energy-intensive industrial, transport and heating sectors via direct electrification and clear hydrogen. About half of the rise is predicted to come back from industrial decarbonization initiatives via hydrogen. That is consistent with a sequence of publicly disclosed initiatives, taking form in Finland and Sweden that may eat electrical energy at terawatt hour scale every supporting these forecasts.

To sum it up, it’s apparent that the implementation of our technique should do each, put together for the alternatives within the mid-term, but in addition handle the uncertainty within the brief time period. And that is precisely what our strategic priorities are addressing. We handle the uncertainty by doing very well what we do finest. We run our current portfolio effectively, and we prioritize the dependable supply of our clear energy. Crucially, we additionally step up our local weather and environmental targets. On the identical time, we are going to do the proper issues by driving the decarbonization of industries and pave the best way for progress. However as uncertainty nonetheless prevails, our progress will probably be prudent and selective.

Our first precedence is to ship dependable clear vitality. We create worth with our best-in-class operations. As you already know, we’ve got a powerful monitor report of optimizing our portfolio efficiently, each in high and low worth eventualities. These are our core competencies. We even have the experience and the flexibility to additional develop our portfolio and to make sure a sustainable degree of earnings. That is within the core of our DNA.

Our second precedence is to drive the decarbonization for industries. We extract worth from progress alternatives within the vitality transition. This won’t solely require experience, but in addition funding self-discipline. We have now regained a strong monetary place that we’ll protect and subsequently, need to be prudent in our capital allocation and be selective with progress initiatives. Thus, we wish to develop, however not at any worth. Because of this you shouldn’t anticipate to see any gigawatt build-out projections within the brief time period. That is additionally associated to the prevailing uncertainty how the market will develop within the subsequent couple of years.

Our third precedence is to rework and develop. We are going to carry worth by growing our effectivity. That is multidimensional and begins with the best way we work, how we are able to recalibrate our price base, and the way we are able to higher handle dangers to additional enhance our competitiveness.

Along with our strategic priorities, we’ve got now additionally tightened our local weather and environmental targets. Sustainability is the inspiration for our bold function to energy a world the place individuals, companies and nature thrive collectively. We have now a big CO2-free era fleet that’s related for the Nordics. We have now to guide by instance and wish to be a frontrunner in sustainability to allow the vitality transition, attain carbon neutrality and handle our impression on biodiversity.

Let me provide you with extra particulars on the weather of worth creation on the next a number of slides. As stated, Fortum’s greatest power and a strategic precedence is the flexibility to ship clear vitality to prospects and to the Nordic vitality system. However that is extra than simply our bread-and-butter enterprise. Greatest-in-class operations is the bottom for fulfillment and is constructed on our potential for substantial bodily and monetary worth creation as costs and volatility within the Nordics are nonetheless on elevated ranges.

The chart on the proper reveals that we’ve got managed to have pretty secure and over time growing at common achieved energy costs, whereas market costs have been very unstable. Market worth strikes, in fact, feed into our achieved energy costs solely over time due to hedging with the consequence that earnings volatility is by far decrease than that of the market costs. On this respect, our precedence within the brief time period is to keep up the excessive availability, effectivity and security of our Nordic fleet and to proceed to play a key position within the Nordic electrical energy system.

We spend money on productiveness and lifelong extension. The Finnish authorities simply granted a brand new working license for our Loviisa nuclear energy plant till the top of 2050. The extension potential of operations till 2050 gives as much as 170 terawatt hours of further CO2-free energy with a capital expenditure of roughly €1 billion over some 25 years. This CapEx is predicted to be moderately evenly distributed over time.

We additionally spend money on decarbonization and modernization of our operations. To attain our bold carbon neutrality targets, we are going to proceed the decarbonization of heating and cooling in Finland and Poland. That is, in essence, what we’ve got carried out earlier than with different district heating belongings because it additionally lifts hidden worth.

Having stated this, now I transfer over to our selective progress ambitions. Decarbonization of heavy industries is a key hurdle on the best way to carbon impartial and extra sustainable societies. The event of applied sciences to switch fossil fuels within the manufacturing processes is accelerating. With our sturdy place primarily based on our asset portfolio, we are going to work to seek out options for industrial prospects to decrease their carbon footprint.

The intention is to develop and construct new clear energy in partnerships with strategic prospects and actively develop a undertaking pipeline to allow future progress. Additional, the intention is to discover enterprise alternatives in nuclear. The business, social and regulatory feasibility of small modular reactors is an avenue we’re presently exploring in cooperation with prospects and companions. Our nuclear feasibility research will probably be prepared by the top of 2024.

In an effort to drive the event of fresh hydrogen within the Nordics, Fortum will discover initiatives along with industrial prospects. On the identical time, we’re aware about our monetary restraints. As rates of interest and inflation are nonetheless on the best way up, we should be very selective and disciplined with our capital allocation.

As you’ll be able to see on the proper, we allocate a progress CapEx price range of as much as €1.5 billion in whole till the top of 2025 for our progress ambitions, excluding acquisitions. As uncertainty within the working surroundings continues to be excessive, we are going to rigorously assess any funding initiatives to additionally guarantee adequate profitability. Half of the expansion CapEx till 2025 is already dedicated to initiatives just like the Pjelax wind park or the Loviisa nuclear energy plant lifetime extension. The uncommitted half is on the market for decarbonization initiatives, hydro and nuclear effectivity enhancements, renewables initiatives or hydrogen initiatives.

In new construct initiatives, it is sensible to have a associate, particularly a buyer on board, who commits to long-term offtake agreements in PPAs and/or long-term contracts. Service provider renewable initiatives are usually not our choice. As well as, we’ve got a monetary framework that ensures selective progress. I’ll come again later to this.

On the subject of the agreed write-off first for Uniper nuclear and hydro belongings, our urge for food would very a lot depend upon the valuation, if this is sensible to us. The settlement goes till 2026, and we’ve got no visibility what’s Uniper’s or their new proprietor’s, the German State’s place on this.

To summarize, we’re wanting into progress initiatives within the Nordics that supply engaging returns with an funding price range of as much as €1.5 billion, which isn’t insignificant for a corporation our dimension or the Nordic context. Consequently, we’re not committing to construct our targets as reminiscent of the danger return profile is of excessive significance to us.

Having touched our best-in-class portfolio ambitions and our selective progress plans, let me now come to the supporting enablers. To achieve our enterprise priorities and to navigate the uncertainty in our present working surroundings, we have to proceed to rework and develop, and with this, guarantee worth creation.

Throughout the previous years, our focus was on Uniper. Now we have to be sure that the inspiration is match for our technique execution. This isn’t solely about the best way we work as a company; it’s also about effectivity enchancment. We have now to calibrate and recalibrate our price base, enhance our competitiveness and create a setup that’s rebased to swimsuit the renewed group.

As well as, we’ve got to handle and cut back our enterprise danger. With the divestment of most of our district heating enterprise and the exit from Uniper and Russia, the group will probably be comparatively much more uncovered to Nordic energy costs. Right this moment’s market worth surroundings continues to be pretty excessive and with common costs within the Nordics above historic ranges, however this case can change. Subsequently, we’re engaged on methods to increase our hedging past energy exchanges and short-term bilateral offers. An apparent different long run are long-term offtake agreements and PPAs with industrial prospects.

As one other driver for worth creation, we see that our local weather and environmental targets are a powerful basis for our bold function. We have now to guide by instance and wish to be a frontrunner in sustainability to allow the vitality transition and to do our half in preserving the fragile steadiness of nature. Subsequently, we’ve got set a brand new and extra bold environmental targets.

We have now tightened our goal to succeed in carbon neutrality by a number of many years from earlier 2050 to 2030. This consists of Scopes 1, 2 and three. Additional, we are going to exit all coal already by the top of 2027. We may also decide to set emission discount targets primarily based on the local weather science SBTI 1.5 levels. This dedication assumes a full exit from Russia first. To measure the progress, midpoint targets have additionally been set for particular emissions at under 20 grams CO2 per kilowatt-hour for whole vitality manufacturing and at under 10 grams CO2 kilowatt-hour for energy era by 2028.

Final, however positively not least, Fortum is committing to an bold goal of no web lack of biodiversity from direct operations, together with not solely new, but in addition our current operations from 2030 onwards for our terrestrial impression. This presently excludes our aquatic impacts the place instruments to measure such impacts are but to be developed.

As a serious hydro operator, we’re, in fact, working in collaboration with companions and consultants to assist develop these instruments utilizing science-based methodologies and proceed with the native initiatives. Naturally, we additionally proceed with the native initiatives in hydropower manufacturing to reinforce biodiversity. As well as, we are going to cut back our terrestrial impacts via our upstream provide chain by 50% by the 12 months 2030 in comparison with the bottom 12 months 2021.

I am very happy that we might considerably elevate the bar for our local weather and environmental ambitions. This goal setting locations us very effectively in comparison with our friends and can information us on our path in creating sustainable shareholder worth. Identical applies to our monetary targets that we up to date on the following slide.

Because the working surroundings has modified essentially, and as Fortum’s earnings profile will be extra unstable sooner or later, we’ve got reviewed our monetary targets with the intention for a powerful monetary basis that goes hand-in-hand with monetary self-discipline. The rationale is to handle between steadiness sheet power, progress investments and dividend payout. That is tightly linked to our key goal of sustaining a credit standing of not less than BBB flat. Consequently, we up to date our leverage steering, which long run, provides us extra monetary flexibility. And we’ve got a brand new dividend coverage in place that displays the unstable nature of our earnings and provides a sure diploma of flexibility and on the identical time, transparency to our shareholders.

Beginning with the steadiness sheet. Following the divestment of Uniper, it’s a lot stronger and the leverage has been lowered to a comparably low degree. This offers a superb buffer to accommodate ongoing unsure and unstable market situations. In affirming our dedication to a secure credit standing of not less than BBB flat, we’d be comfy with monetary web debt to comparable EBITDA of two.0x to 2.5x in the long term. Earlier, our leverage steering was to be under 2x. However please notice this extra flexibility is to not cater for added progress within the brief time period as we restrict our progress CapEx till 2025. There are nonetheless some uncertainties.

Following the substantial adjustments to our enterprise construction, we’ve got to acknowledge that our earnings profile will be extra unstable sooner or later as it’s much more a perform of the Nordic energy costs in comparison with the previous. That is the explanation for the brand new dividend coverage. The renewed dividend coverage, a payout ratio of 60% to 90% of comparable earnings per share, displays the potential earnings fluctuations of Fortum’s energy era portfolio that we would see going ahead and aligns the earnings and dividend profile.

The proposed dividend for 2022 of €0.91 per share corresponds to a payout of 75% of the group’s comparable EPS for persevering with operations. That is on the midpoint of our new dividend coverage. On this calculation, we’ve got excluded the impression from the Russian operations. As well as, the dividend is proposed to be paid in two installments in the course of the second and the fourth quarters. That is higher aligned with our money circulation and earnings profile.

As I already talked about, subsequent to the sturdy monetary basis, we are going to deal with monetary self-discipline with a complete CapEx price range of €2.4 billion till the top of 2025, together with €1.5 billion of progress CapEx. So, this consists of upkeep, the €2.4 million. This excludes any potential acquisitions.

Our monetary self-discipline is complemented by funding hurdles which are added on the undertaking weighted common price of capital in a variety of 150 foundation factors to 400 foundation factors relying on initiatives or, for instance, how mature the utilized expertise is. Within the present excessive inflation surroundings, the visibility on price components within the worth chain is comparably low, particularly for longer undertaking lead occasions.

Lastly, the sustainability targets give us course in our decision-making. Delivering on this makes us a greater firm and finally, once more, lifts hidden worth. We are going to proceed to take care of the individuals and communities round us, with us additionally sustainability commitments, together with security, worker engagement, simply transition and our provide chains.

As I already stated, we stay dedicated to sustaining a credit standing of not less than BBB flat. Fortum’s steadiness sheet is stronger and leverage has been lowered at a reasonably low degree, offering a considerable buffer to accommodate ongoing unsure and unstable market situations.

At year-end, our monetary web debt to comparable EBITDA was at a really wholesome degree of 0.6x, excluding the impression from Russian operations. When wanting once more at our maturity profile, you’ll be able to see that in February, we repaid a €1 billion Eurobond. The corresponding impression is to be seen in our liquidity place. Additionally it is important to notice that we’ve got the proper to increase the maturities of a complete of €1.6 billion of debt from 2023 to 2024. Taking all this under consideration, our liquidity place is strong.

In an effort to refinance our debt portfolio, we intend to return to the bond markets in the end to allow a extra sustainable debt construction to increase maturities and additional enhance monetary flexibility, which is able to in flip help technique execution and progress within the mid and the long run.

To recap our method to progress and technique execution. In an effort to handle the short-term uncertainty in our working surroundings, we are going to take a extra cautious method within the brief time period. Nonetheless, the intention is to make sure that we’re in a superb place to make the most of engaging progress alternatives. Due to this, we have a look at the technique implementation in phases.

It is very important guarantee strong efficiency. Thus, the main target within the first stage will probably be on optimizing the best-in-class operations, concentrating on earnings and money circulation in addition to returning to the bond markets to refinance the group’s debt portfolio. This requires steadiness between capital expenditure, steadiness sheet and dividends. We are going to concurrently construct capabilities for future progress by exploring alternatives and growing a undertaking pipeline along with industrial prospects.

Within the second stage, and this is likely to be within the mid of this decade, we are going to contemplate bigger scale progress choices, which could require elevated capital expenditure. Having stated that, over to the concrete implementation of our new technique, how is the technique mirrored in our new working mannequin and who’re the management group which are dedicated to ship on the brand new technique.

Very briefly on our renewed working mannequin. The brand new enterprise construction mirrors the important thing worth drivers in Fortum’s clear era portfolio, sturdy gross sales and buying and selling capabilities, and buyer orientation.

Our Shopper Options enterprise continues to supply a aggressive providing of vitality options to customers and small and medium-sized enterprises, predominantly within the Nordics and Poland. Shopper Options will proceed to be reported as its personal reporting phase.

Our former Technology division will now create worth via 4 distinct enterprise items. Company Prospects and Markets will probably be liable for hedging and worth creation in each bodily and monetary energy markets and managing provide for the Shopper Options unit. This unit may also be the shopper interface for giant industrial prospects. Hydro Technology and Nuclear Technology, which respectively will probably be liable for operating and growing Fortum’s Nordic era fleet. And eventually, Renewables and Decarbonization will probably be liable for driving progress in wind and solar energy in addition to growing decarbonization initiatives with industrial prospects. This unit can also be liable for Fortum’s district heating and cooling enterprise and decarbonization, in fact, of the warmth manufacturing belongings. All these 4 items that I discussed will probably be reported as one Technology phase going ahead.

The opposite phase will embrace our Round Options enterprise unit, which is liable for working, sustaining, and growing Fortum’s recycling and waste belongings. These companies are usually not within the core of Fortum’s new technique, and thus the unit will proceed to develop the enterprise standalone. The Different phase additionally consists of our enabling features and company administration.

As our exit from Russia continues to be ongoing, Fortum may also proceed to report its Russian operations as a separate reporting phase in the meanwhile.

I might now wish to introduce my new management group. Howdy? I am going to begin with the companies. Shopper Options will proceed to be led by Mikael Ronnblad. Company Prospects and Markets will probably be led by Simon-Erik Ollus, who’s presently heading Fortum’s Technology division. Renewables and Decarbonization will probably be led by Peter Strannegard, who’s presently Vice President, Strategic Tasks at Fortum. Hydro Technology will probably be led by Mikael Lemstrom, who’s presently Vice President, Hydro at Fortum. And Nuclear Technology will probably be led by Petra Lundstrom, who’s presently heading our Nuclear Engineering Providers & Co-owned Belongings.

Persevering with then, with the enabling features. Our incoming CFO, Tiina Tuomela, just isn’t right here at the moment, she’s going to be part of us from Uniper on the finish of the month. Sustainability and Company Relations will proceed to be led by Nebahat Albayrak. Folks and Procurement by Eveliina Dahl. And Authorized by Nora Steiner-Forsberg. Our present CFO, Bernhard Gunther, will tackle a brand new position. He’ll head Fortum’s Transformation Workplace and IT.

Thanks very a lot, colleagues. I am very happy with this group. Thanks.

Let me now briefly summarize the important thing takeaways from an investor perspective. Our new technique is constructed on the expectation of considerable demand progress within the Nordics within the mid and long run, whereas on the identical time it’s addressing the present uncertainty within the working surroundings. And this isn’t a sit-and-wait technique. We will actively drive the decarbonization of industrials with our choices and allow the acceleration of the vitality transition. Fortum has what it takes to drive this. Consequently, renewed Fortum is constructed on three pillars.

First, a really aggressive Nordic era portfolio that delivers clear energy era at terawatt-hour scale, making us the popular associate for industrial companions. Fortum is one in all solely two gamers in Nordics who can present the aggressive, dependable and clear vitality at scale to allow the reindustrialization of the Nordics. Subsequently, we are going to deal with best-in-class operations, keep the excessive availability, effectivity and security of our Nordic fleet and safe and optimize the income from the nonetheless elevated worth ranges.

Secondly, we wish to be a frontrunner in sustainability to allow the vitality transition and to do our half in preserving the steadiness of nature. With very low particular emissions, we might considerably elevate the bar for our local weather and environmental ambitions. This goal place us very effectively in comparison with our friends and can information us on our path in creating sustainable shareholder worth.

And eventually, we’ve got regained a strong monetary place that we’ll protect to handle the present uncertainty, and we will probably be prudent in our capital allocation and selective with progress initiatives, prioritizing profitability. This will probably be ensured by a transparent monetary framework with a deal with steadiness sheet power, CapEx and dividend to make sure worth creation.

With this, I shut the technique part and hand over to Ingela for the Q&A session.

Ingela Ulfves

Thanks, Markus. At first, I discussed the moment suggestions ballot. So, simply as a reminder, please scan the QR code. And for these on-line, while you see the pop-up seem in your display screen, please be energetic and provides your opinions. Already upfront, I wish to thanks for offering your priceless views.

And now then over to the Q&A.

Query-and-Reply Session

Ingela Ulfves

So, I stated we had reserved some half-hour. We even have a bit extra for that. So, let’s start right here with the viewers within the auditorium. Please elevate your hand when you have a query, and we are going to deliver you a microphone. Earlier than the query, please state your identify and firm. And we additionally ask you to restrict your self to 2 questions every to begin with. After that, we are going to then proceed with the teleconference. Please go forward.

Artem Beletski

Sure, Artem Beletski from SEB. Thanks for the presentation and certainly the questions from my aspect. So, the primary one is expounded to gross CapEx and principally €0.7 billion, which isn’t but dedicated. How we should always give it some thought when it comes to areas of allocation? Is it predominantly renewables that may be fulfilling your principally return necessities? Or do you see that, for instance, clear hydrogen is already there?

And referring to the identical matter truly, what involves doable funding acceleration in the course of the latter a part of this decade? What — to illustrate, what must be driving it? Is it principally lowered uncertainty or some applied sciences like SMRs or hydrogen, for instance, being so, to illustrate, extra mature? Thanks.

Markus Rauramo

Okay. I can take that. So, thanks for the query. And thanks, by the best way, for all coming right here as soon as once more and listening to our presentation. So, like I defined within the presentation, first in line is what’s technologically mature and the place there may be demand. So, renewables are a transparent case. That is the place we’re — we’ve got developed already a pipeline and we’re executing.

I did inform that almost about hydrogen, offshore wind or new nuclear, there we’re within the discover mode. And nuclear, clearly, if it will be a brand new construct, that is dependent upon the findings from our feasibility research. On hydrogen, it’s extra primarily based on that we have to study what are literally the technological options, what’s the buyer demand to get there, however within the short-term, renewables.

Then almost about the funding acceleration, then we take a two-stage method. So, we’ve got now set the body for the approaching three years. And naturally, even throughout these three years, we are going to assess our monetary situation. We are going to assess the funding alternatives and what would then be the headroom going ahead, sustaining the steadiness between steadiness sheet, dividend and progress CapEx. So, satisfying all these three corners, conserving the corporate in steadiness.

Our focus within the brief time period is on environment friendly supply, environment friendly operations and disciplined allocation of progress CapEx.

Artem Beletski

Nice. Thanks.

Iiris Theman

That is Iiris Theman from Carnegie. So, firstly, are you able to share any ideas in regards to the timeline of the Russian divestment? Do you suppose that it could possibly be accomplished this 12 months? And will you simply exit the enterprise if it is not doable to divest it?

After which, secondly, do you suppose that this elevated energy costs are principally sustainable? And — or maybe you’ll be able to share your ideas in regards to the Nordic energy demand provide state of affairs sooner or later? Thanks.

Markus Rauramo

Close to the timeline of the Russian divestment, we’ve got been reporting a number of occasions on the progress, and what I can say is that we have had a moderately regular M&A course of. The belongings are in good condition. There are — there have been a number of events. However as we’ve got stated, an approval of any transaction in our case is dependent upon the Russian Authorities Fee and the president’s approval. And on that time, I can’t, sadly, give any timetable.

Close to what we’re doing with our Russian belongings, we’re very dedicated to that we’ll exit Russia. In order that course we’re taking. However within the meantime, we are going to proceed to take excellent care of the belongings. We are going to deal with the governance and the effectivity and availability of the asset as a result of that can also be essential from our standpoint that we are able to protect worth in no matter situation is going through us.

Then for the elevated worth ranges that we’re seeing at the moment, I did point out that even when worth ranges have come down, there are nonetheless a a number of of what they have been traditionally. And the very excessive costs they did put stress on the commercial prospects and customers, and this trigger quite a lot of turbulence. Now we’re in a state of affairs the place as an final result of all this turbulence, we truly see what I used to be referring to loads in my presentation, which is that, even with elevated worth ranges, the Nordic worth ranges are extra aggressive than the continent. And Nordics have nice potential going ahead for energy-intensive industries to find within the Nordics and the demand outlook appears superb. So, I might not remark as such on the costs as such aside from that extra aggressive than most of Europe.

Bernhard, something out of your standpoint on the costs or observations?

Bernhard Gunther

No, I feel — sure, you additionally requested about provide/demand, I feel that is definitely a problem which may also drive commodity costs in Europe, which we’ve got seen to have massive impacts on the Nordic energy costs as effectively. So, it stays to be seen, for instance, the Continental European fuel costs will go after important LNG capability turns into out there and the place the worldwide fuel markets go.

So — and that is possibly additionally referring to the query in regards to the second half of the last decade that we had earlier, sure. So, I feel it is even good that we now have a bit time to see how issues will play out and the way demand progress will come to the Nordics and to what extent and the way the framework round that regulatory and political will develop.

Ingela Ulfves

Thanks. Any additional questions? [Carlo] (ph).

Unidentified Analyst

Howdy, [Carlo Karpan] (ph), Nordea Asset Administration. Two questions. Easy one or a brief one on the windfall tax, the impression on steering on a 1.5 proportion factors on midpoint. And if we have a look at like consensus pre-tax, that translate like €30 million, which may be very little in comparison with the federal government estimates for a way a lot they anticipate to get. So, is {that a} appropriate calculation? How can it’s so low?

After which, the second query on the renewable investments. What’s the geographical scope of that? Is that strictly Nordics? Or is that extra vast? What’s your view on the produce India photo voltaic vegetation you’ve got been doing and so forth? How ought to we consider the scope of that CapEx price range?

Markus Rauramo

Sure, I can begin on the renewables, and the windfall tax calculation is so complicated that I am going to fortunately hand that over to Bernhard. I am going to make an general remark there.

However on renewables, definitely, the main target is on Nordics. After which I am serious about new renewables construct out. And the purpose there may be that we see Nordics being actually aggressive. We all know roughly the place the levelized price of vitality for Nordic wind is — and it’s globally engaging. On a worldwide scale, it’s engaging. And due to these pure situations, we see that Nordics for wind, Iberian Peninsula for photo voltaic, I am not saying that that is our core space, however this would be the areas in Europe that can have an vitality surplus and the continent, each for truly nonetheless reducing provide causes will probably be in vitality deficit. So, from our standpoint, with the CapEx quantities we’ve got, then Nordic definitely provides us quite a lot of alternatives.

In India, we’ve got been studying do photo voltaic in industrial scale. So, I am truly moderately happy with what we’ve got discovered. This can be a Finnish expression, moderately happy. So, I am very happy about what we’ve got discovered in India, actually good execution of multi-hundred megawatt photo voltaic park. So, we’ve got gained competencies that we might by no means have discovered right here within the circumstances. Then the query is that what — how would we make the most of these competencies going ahead. However for now, Nordics and wind appear like, to illustrate, have been the place the place you could possibly anticipate that issues are occurring.

Then with the windfall tax, I am going to simply give a form of a high-level view. So, the Finnish authorities initially said sure ambitions on what they might elevate with the windfall tax. After which, the federal government has taken this down considerably. In order that already recalibrates the numbers. After which, the complication I used to be referring to that it is the capital base, et cetera, and profitability and what are the income and so forth that matter, however comfortable to offer Bernhard the phrase right here.

Bernhard Gunther

Sure. So, we do not present any quantitative steering, however I might possibly give some qualitative course to your estimate. In fact, the windfall tax will apply to 2023 numbers. And for those who have a look at present consensus of the presently prevailing energy costs, you’d see that ’23 numbers is likely to be larger than the ’22 numbers. So simply from that perspective, I might suppose it is likely to be a bit too low what your estimate presently is. However I feel the primary message is wherever precisely it would land and all of us do not know the way energy costs will finally prove. It is within the greatest scheme of issues, I feel not one thing which adjustments the entire fairness story of Fortum as an organization.

Ingela Ulfves

Thanks. Any additional questions right here? If not, then we are able to shift over to the teleconference. So, operator, we are actually prepared to your questions. Please go forward.

Operator

[Operator Instructions] The following questions comes from Harry Wyburd from Exane BNP Paribas. Please go forward.

Harry Wyburd

Hello, everybody. Thanks for taking my questions, and thanks loads for the presentation this morning. I am going to preserve to the allotted two. So, the primary one is on steadiness sheet deployment and particularly on the timing of it. So, you talked about that your CapEx packages or your main CapEx choices have been ones that will probably be taken in the course of the last decade. Would you — what would your choice be between M&A now and enormous natural CapEx deployment afterward within the decade? Or in different phrases, ought to we in all probability received a number of billion euros of spare steadiness sheet capability? Ought to we anticipate that you just wish to get to your 2x to 2.5x web debt-to-EBITDA goal fairly rapidly? Or might we keep effectively under 2x to 2.5x till type of 2025 and then you definitely’ll decide on steadiness sheet deployment? That is the primary one.

The second is a really particular one on Russia. I imagine within the Russian press, and it type of appears to match your native Russian accounts as a RUB75 billion intercompany mortgage between Fortum Russia and Fortum. And I imagine [Thomson] (ph) was saying that the minimal worth you’d anticipate for the enterprise could be the compensation of that intercompany mortgage, which is clearly what you bought with Uniper, which has put a flooring of simply one other €1 billion on the worth of Russian enterprise. So, is that one thing you could possibly touch upon? Would you anticipate to get that intercompany mortgage repaid in an exit from Russia? Thanks.

Markus Rauramo

Okay. So, I can begin with the steadiness sheet deployment. So, I feel I used to be actually stressing the purpose about now being disciplined about capital allocation, in regards to the boundaries, each the steadiness sheet after which the funding hurdles. And it is because the working surroundings has modified. We have not seen this type of rate of interest surroundings. We have not seen this type of inflation surroundings. And we all know that additionally it is tougher, for instance, tools suppliers now to commit firmly to provides, and we are going to take this very rigorously.

We’re not in a rush to deploy CapEx or we’re not — definitely not in a rush to do M&A. The main focus actually is on serving to our prospects with their decarbonization and be sure that we are able to ship the clear energy reliably, flexibly when wanted. And supporting the decarbonization does not solely imply CapEx deployment, it may be different issues. For instance, the Microsoft knowledge middle funding within the capital area in Finland is an effective instance. They’re investing with the warmth off-taker. We’re offering area for LNG tanker, not owned by us, however we offer the infrastructure for the operators to do this and hook up with the fuel grid.

So, our curiosity is that the Nordics can stay as much as its full potential on the industrialization on attracting industries that require a secure working surroundings and dependable clear vitality.

Then almost about Russia, on that I might remark that any transaction, both repatriating dividends or compensation of loans or doing a sale of shares that requires the federal government fee and probably the presidential approval. So, to illustrate that that applies to no matter element we’re speaking about. That is the knowledge and understanding we do have.

Harry Wyburd

Okay. That is clear. Thanks.

Operator

The following query comes from Wanda Serwinowska from Credit score Suisse. Please go forward.

Wanda Serwinowska

Hello. Wanda Serwinowska, Credit score Suisse. Thanks very a lot for taking my questions. I’ll persist with the 2. The primary one is on Russia. I feel the e-book worth of the online asset is €1.7 billion. That means 5x to 6x EBIT to EBITDA, particularly on condition that the brand new capability fee will expire. So, what makes you assured that you would be able to obtain principally a a number of above the friends given that you’re underneath stress to promote the asset?

And the second query is on the dividend payout ratio. Are you going to make use of the dividend payout ratio to clean the dividend as a result of, as you talked about, earnings is likely to be unstable since you’ll be extra uncovered to the ability costs within the Nordics. So, ought to we principally assume that this 12 months 75 subsequent 12 months as earnings will enhance, will probably be under. I am simply making an attempt to grasp what would result in a 60% payout ratio and what would result in 90% payout ratio? Thanks very a lot.

Markus Rauramo

Okay. On the valuation of Russian belongings, I feel that is one thing that Bernhard can provide you as a result of this falls into impairments and so forth, into his territory. After which, for the dividend payout ratio, so the purpose there may be that we are able to even higher handle the steadiness between the steadiness sheet power, the dividend and progress CapEx. And naturally, the earnings capability of the corporate impression all these three corners. So, I feel this dividend, we’ve got debated loads within the firm that how will we take into consideration this. How will we finest place ourselves to reward our stakeholders and our shareholders, and are ready then to seize these progress alternatives.

So, now we’ve got proposed a dividend that’s proper in the course of the vary. There’s a vary. After which relying on the corporate’s state of affairs, the prospects, the probabilities, steadiness sheet progress, alternatives, investor preferences, we as administration will suggest to the Board yearly what’s our evaluation of the state of affairs, and the Board then comes to a decision what they suggest to the Annual Common Assembly. So, that is the best way we’ll method it. At this second, I can’t preempt what would occur subsequent 12 months. However our key message is that there is a vary and that then connects the dividend tighter to the earnings capability of the corporate.

And for Russia?

Bernhard Gunther

On Russia. So, as you’ll be able to see from the numbers we have printed, the EBITDA of Russia is above €400 million. So, the a number of you’d get dividing the 1.7 by — sure, 400 plus is moderately within the 4x order of magnitude, which we expect, given the standard of our Russian may be very a lot consistent with our earlier valuations. I imply, everyone knows that this valuation finally in relative will hinge upon the progress we make in exiting Russia underneath which concrete situations and circumstances, it would materialize.

Wanda Serwinowska

Sorry, however I’ve a really fast follow-up. I do know that it is €400 million for 2022, however the brand new capability funds are expiring, and it will hit your EBITDA in Russia fairly severely. So, I imply, I see it extra like 5x to 6x EBIT to EBITDA.

And a really fast follow-up to Markus, if I’ll, on the dividend. Are you comfy with the declining dividend within the brief time period, medium time period, long run? As a result of up to now you was — you have been principally highlighting an significance of the rising dividend. So, as you hyperlink it to the EPS, is it doable the dividend sooner or later will go down? Thanks a log.

Markus Rauramo

Sure. On the — if I begin with Russia half. So, we consider the methodologies that the Russian authorities is now making use of unbiased valuations, et cetera, that are the generic means that they have a look at issues and potential haircuts and so forth after which the inherent worth of the enterprise. So, in fact, for the impairment testing, we have needed to closely scrutinize the values. And we expect it is a honest illustration of the worth of the asset taking all of this under consideration.

And certainly, it’s so that the dividend per share would then transfer with the earnings per share. However in fact, the Board will then have the discretion to maneuver inside that vary. However then the purpose is like you make that we’re not saying any extra secure or referring to time beyond regulation rising, however moderately saying that the dividend is now linked to the earnings per share in a tighter means. And our intention is to remain inside this vary.

Wanda Serwinowska

Thanks very a lot.

Operator

The following query comes from James Model from Deutsche Financial institution. Please go forward.

James Model

Hello. Good morning for remainder of you, and good afternoon to you in Finland, and thanks for the presentation. I’ve two, probably is likely to be interpreted as three questions. Apologies for that. First one is on the waste enterprise or Round Options, I feel, you are calling it now, you’ve got moved that into different, and also you’re saying it is now not core. Why is that? Wasn’t that way back that you just acquired the enterprise and it is doable to see how some issues like form of waste offtakes might doubtlessly match into your technique of serving to business decarbonize? That is the primary query.

The second is that offer and the district heating form of operations, clearly, form of not non-core, so I suppose they’re core. However it wasn’t that way back that you just have been seeking to promote these operations, nevertheless it looks as if they might doubtlessly each match fairly effectively into the concept of serving to business by supplying them with energy and fuel or doubtlessly via a warmth offtake. So, are they form of definitively core now, there will be no return to need to return to form of a disposal course of sooner or later?

After which, the form of doubtlessly third one, my apologies, is on the renewable belongings the place you are saying that is the main target space for progress, do you might have a lot of a form of established pipeline in Nordic wind? Thanks very a lot.

Markus Rauramo

Okay. So, ranging from the Round Options, so it’s a appropriate commentary that how did we describe it. And the purpose there may be that once we speak about clear Nordic vitality, we check with electrical energy, we check with the — how that’s related now to the — shifting from fossil processes to wash processes, from fossil fuel, for instance, to wash fuel. Round Options to realize the society’s targets is an important enterprise for all of us, nevertheless it’s very completely different from all the remainder of our companies. It has its very personal traits and really completely different sort of buyer calls for.

And possibly the purpose in regards to the district heating precisely makes this level. So, what we see there may be that the heating enterprise is tightly tied to electrification and sector integration, once we speak about cleansing the gases and cleansing the processes that could possibly be electrified. One instance of that is truly the Microsoft undertaking that I referred to already, enormous knowledge middle undertaking, which would require large quantities of electrical energy, after which it would have large output of extra warmth that to a district heating community we are able to truly use. And this alone, this one firm’s initiatives will provide, once they’re all carried out, 40% of the warmth for the Espoo system, Espoo financial system system, which is likely one of the greatest — effectively, second greatest in Finland and one of many greatest in Europe. In order that’s once we discuss in regards to the sector integration and Clear Nordic Power. So, then the Round Options enterprise is sort of completely different from this.

On the renewables aspect, we do certainly have — we’ve got been working for a very long time on renewables. So, we’ve got carried out initiatives in Finland and Sweden and Norway, in fact, traditionally in Russia. We had the renewables in India. So, we’ve got a good quantity of information and competence on this enterprise. We have now truly executed already gigawatts of initiatives. And we’ve got been doing the work on the pipelines of initiatives. So, we’ve got carried out land acquisitions and planning and zoning and so forth. So sure, there’s a pipeline that’s commensurate with the CapEx headroom that I commented on earlier. However then if we’d make any funding choices, they’ve to satisfy the targets that I specified by the monetary KPIs part.

Bernhard Gunther

Perhaps one addition to the macro theme about this, sure, not simply district heating but in addition the entire progress prospect within the Nordics that Markus alluded to. And that is now me speaking as someone who has solely come to the Nordic nations fairly just lately. I feel typically I am questioning to what extent everyone right here is realizing on what potential gold mine for reindustrialization of your — within the inexperienced reindustrialization of your nations, you’re sitting right here. Sure, coming from a rustic like Germany, which continues to be closely industrialized, however now hit very, very badly by quickly growing vitality costs and large challenges to rework this to inexperienced in an affordable reasonably priced method, I feel it is a enormous alternative.

And for me, that is additionally the massive sport changer during the last two years or in order even accelerated to all of the unlucky geopolitical developments that the Nordics are simply pulling forward doubtlessly of many of the remainder of Europe as an affordable inexperienced and clear vitality, together with hydrogen hub. And these alternatives, in fact, it would take time. However I feel that is one thing which may be very exceptional in comparison with many different nations and their present progress.

Markus Rauramo

Okay. So, within the spirit of sector coupling, we depend James’ questions as one query.

James Model

That is good at the moment. Thanks very a lot for the solutions.

Operator

The following query comes from Sam Arie from UBS. Please go forward.

Sam Arie

Hello. Thanks very a lot for the presentation at the moment. Very, very useful and quite a lot of nice materials in there for us. I am simply going to ask one query, and really, all my questions have been requested already. So, my query is a form of follow-up on Wanda’s query, which I believed was completely spot on. However I used to be a bit — I will admit, I used to be a bit shocked by the reply, Markus.

And so, I simply puzzled for those who might discuss to us a bit extra about why you’d transfer away from the outdated language of a secure dividend. Some individuals would have a look at the rebasing that you have carried out at the moment and suppose, “Nicely, okay, there is a good logic for it.” If you happen to rebase for the €0.90-ish, €0.91 after which your payout ratio can go as much as 90%, then there is not any must the dividend to go down in absolute phrases until your earnings ex-Russia go under €1.00 or so. So that would have been fairly a pleasant optimistic. However I hear you saying truly, you are not serious about it in that means. So, I would just love to listen to your type of logic for that.

And simply to be a bit controversial. After I’m simply operating this via my head, the one factor I can consider why you would not use the payout ratio to clean the dividend and preserve it secure, is possibly you are serious about inorganic, you are serious about the Uniper belongings in Sweden, you wish to retain flexibility on CapEx, as you stated, as a result of in any other case, you could possibly preserve the dividend secure and what you could possibly choose because the leverage, the place as you identified, you might have meters at headroom? So, sorry to come back again to the subject we have already touched on, however I would love to listen to some extra from you on that one. Thanks.

Markus Rauramo

Sure. Thanks for the query. I absolutely perceive the query and the place we’re coming from. And I might say that utilizing a variety to smoothen and stabilize in a form of slender body that may work if we’d assume that energy costs would transfer in some form of a hall. However the place to begin is now that with out Uniper and finally with out Russia, we will probably be extra uncovered to the Nordic energy costs, and we’re an outright producer within the Nordics. So, our consequence may be very topic to the ability worth.

Then what we’ve got been anticipating for years, and I suppose most others as effectively is that when renewables are the massive different and large chance for progress in clear energy era, there will probably be extra volatility. And the programs will change into extra unstable. And what we’ve got seen already now’s that, effectively, this has occurred for a lot of causes, and we might anticipate that the volatility will proceed and amplify until there’s some form of regulatory change available in the market going ahead. And due to this, we expect that it’s then prudent balancing between the steadiness sheet power between progress CapEx and between dividend that we now reintroduce a payout ratio and that we observe the payout ratio as effectively. So not go underneath not go over.

Then, in fact, inside that vary, there’s flexibility for administration and for the Board to suggest the place the dividend would in any given 12 months be. And naturally, there, we’re — as normal, we’re in tight dialogue with the fairness markets, with our shareholders to see what’s the choice inside this framework. However then all these three corners need to work in order that we are able to credibly keep behind how we have described what we intend to do within the coming years, and the way we are going to ship a long-term worth creation by using our competencies in a great way to create new earnings. So, that is actually facilitating to make that occur higher.

Sam Arie

Okay. I’ve like 10 follow-up questions, however I suppose I’ve to take them far later, however thanks to your reply. I admire it.

Markus Rauramo

Thanks, Sam.

Operator

The following query comes from Louis Boujard from ODDO BHF. Please go forward.

Louis Boujard

Sure. Hello. Good morning. Thanks for taking my query. Perhaps a follow-up nonetheless on this CapEx plan, which appears to be a bit cautious to us apparently. And it is exhausting to grasp exactly what prevents you from being extra aggressive at the moment. Perhaps if we rank the completely different components at this stage, what we are able to say is uncertainty almost about the regulation framework, the credit score companies and which we’re nonetheless with a detrimental outlook with the BBB score at this stage. Perhaps you might have additionally in thoughts some M&A alternatives or new nuclear investments. Might you rank on these 4 matters, which one are crucial for you on which it is advisable to have extra readability and extra visibility so as to be possibly a bit extra aggressive going ahead in your CapEx plan? Through which order would you rank them, a regulation framework, credit standing company, M&A alternatives and new nuclear investments?

Close to the second query, possibly on the Company Buyer and Market enterprise line, are you going to suggest some earnings on this line? Is it going to be seen going ahead? And we could contemplate that this line goes to be one thing like a buying and selling hub so they’ll seize possibly new PPAs options and ongoing improvement with the way forward for buyer base? Is it the best way we should always have a look at it going ahead? Thanks very a lot.

Markus Rauramo

Sure, I am sorry, I did not — I missed one thing from the second query to start with. What have been you referring to? I received the latter a part of it, however for those who can repeat the start?

Louis Boujard

Sure, certain. Concerning the Company Buyer and Markets, I needed to make sure if we had — we’re going to have any earnings visibility on this particular line? Or is it going to be embedded into the worldwide era enterprise? And if we should always see it as a form of a buying and selling hub in your portfolio?

Markus Rauramo

Sure. I can begin with that. So, like we stated, the — this and the three era companies, Nuclear, Hydro, Renewables and Decarbonization and the Company Prospects and Markets, this could be reported as one phase going ahead. So, I feel that solutions that one. After which on the possibly — please…

Bernhard Gunther

On the buying and selling, sure. So, if buying and selling refers to prop buying and selling, there is not any change in our present stance that there is no such thing as a prop buying and selling at Fortum. I might moderately say it’s a business hub, not a buying and selling hub.

Markus Rauramo

Sure, good addition.

Louis Boujard

That was the sense of the query. So, it must be seen as a business hub in truth.

Markus Rauramo

Sure.

Louis Boujard

Okay.

Markus Rauramo

Sure. Then on the CapEx, possibly — I imply, the massive query was why aren’t you extra aggressive? The numbers look good, steadiness sheet is sweet, earnings are good. Issues are actually wanting very good. We have carried out an infinite quantity of labor to stabilize the corporate and to be very, very sincere, our individuals have carried out extraordinary good work. The supply of the ability vegetation has been good, actually good. They’ve been operated secure. There was actually not unavailability to be talked about or to be famous. So nice work and former generations have carried out good work in investing on this.

So why aren’t we then leaning extra ahead almost about the numbers? Nicely, to begin with, we wish to be disciplined. We actually wish to be sure that the bottom is strong. Okay. We now reported on final 12 months. However for those who have a look at the entire of final 12 months, it was extraordinarily turbulent and unstable, and we have been in tough conditions. Taking a look at the place we stand proper now, issues look good internally. Our tools appears good, however we’ve got struggle in Ukraine occurring. There may be inflation. We have not seen all of that; how that each one will play out? How will the availability chains work? How will all of the geopolitics work? What do the upper rates of interest, what do they trigger then for companies, our prospects, for the suppliers and so forth?

However then, wanting from via this lens, then I might check with for those who can seize what I used to be simply going via, so via this framework, we’re considering that there’s nice potential and Bernhard was simply accentuating that together with his observations that there’s superb potential. There’s like basic potential within the Nordics to produce clear vitality and clear vitality derivatives, chemical compounds, artificial fuels, et cetera, artificial hydrogen in massive scales for industries to find right here. So, that is the potential we’re specializing in, however doing that very rigorously. And each buyer dialogue will probably be aggressive finally. And we want to consider steadiness dangers and so forth.

So, if I take into consideration the priorities that what is going on there, our key precedence actually is now to be sure that we provide our prospects at the moment with the clear energy successfully and safely and really reliably. And if doable, given our funding standards, if there are potentialities, then we are able to make investments in order that it helps our prospects to do their decarbonization. And in that line of considering the primary precedence, naturally with the technical maturity and value degree, then renewables are the issues that would present new megawatt hours to prospects. Then we all know that there would be the query about manufacturing profile and so forth. After which the worth of our versatile hydro fleet and our dependable nuclear fleet change into crucial.

Different issues in related scale will observe later in the event that they observe. In order that’s as much as if the hydrogen financial system develops, if the expertise matures. If it turns into aggressive on nuclear, it’s in regards to the nuclear feasibility research, technical, business, regulatory situations. It is nice to have this enthusiasm now available in the market, however there’s quite a lot of work for the tools suppliers to do to essentially reliably truly present new capacities. And SMR suppliers are themselves speaking about having the primary items commercially out there someplace within the late ’20s, 2028, 2030. So then for an operator to essentially have the consolation that, effectively there may be expertise that you would be able to then decide to — and decide to your buyer, there’s quite a lot of work to do earlier than we’d get there that we’d be ready to take any choices on that entrance.

Louis Boujard

Thanks very a lot.

Operator

[Operator Instructions] The following query comes from Deepa Venkateswaran from Bernstein. Please go forward.

Deepa Venkateswaran

Hello. Thanks a lot for giving me the chance. I’ve two questions. Firstly, simply in your hurdle charges, you’ve got communicated that you just’re focusing on 150 bps to 400 bps over WACC, beforehand underneath the outdated technique it was 100 bps to 200 bps. So, I simply needed to make sure that have your WACC modified considerably, hopefully, they’ve gone up however not come down. However are you able to verify that you’re being rather more disciplined now than earlier than as a result of I feel that may give much more reassurance to buyers given the monitor report, notably on M&A?

And second query on Russia. Might you make clear what could be the online debt of Fortum for those who deconsolidated the Russian operations? And is it doable, for instance, if these approvals do not come for 2 years or three years that you would be able to stroll away from these belongings, clearly, realizing nothing in return. However simply questioning whether or not there could possibly be like an exit time we might pencil in case you do not get the approvals? Thanks.

Markus Rauramo

Sure. I can begin with the method on the investments after which remark typically on the Russia after which Bernhard, if you wish to touch upon the deconsolidation.

However on the hurdle charges, sure, that is supposed to point that we’ll be extra scrutinous and extra cautious with our investments. We’re elevating the hurdle charges and weighted common price of capital have gone up. Although there may be — we are able to see once we have a look at the idea, we are able to see fairly an enormous differentiation between initiatives the place you might have agency offtakes and purely service provider initiatives. So that can mirror them into the weighted price of capital. However generally, clearly, WACCs have gone up.

The purpose in regards to the hurdle charges is also to point that like beforehand, we had inexperienced and non-green initiatives, and we weren’t terribly eager to do one thing with fossil content material. Now that is extra in regards to the — if we discuss in regards to the higher finish of the dimensions, then we’re referring to instances the place we’d do one thing the place the business fashions or technological maturity just isn’t very excessive. Then in fact, one can ask the query that for those who want 400 foundation factors, is that this undertaking you need to be doing in any respect for a enterprise like ours? However this offers the indication that internally, once we scrutinize the initiatives, sure, we are going to apply extra scrutiny.

Then for the Russian query, I’ll simply take this — I feel it was requested already earlier that may we simply stroll away. And there, the query is that how are you going to do a useful switch of possession that requires a allow. So even for those who would say that, effectively, we do not wish to be an proprietor of the enterprise, then the query is, effectively, who else will be the proprietor of the enterprise as a result of we’re the registered proprietor of the shares. So this, in essence, is the query in the long term. However the background for all of that is that we don’t see that we’d proceed to do enterprise in Russia, and subsequently, we’re dedicated to exiting the Russian enterprise. However we are going to do it prudently and in the best way as a prudent firm like we’ve got labored in Russia additionally. So, we’ll take the proper steps and exit in the best way that then the desk is clear after that.

For the deconsolidation, if you wish to add.

Bernhard Gunther

Sure. Within the monetary bulletin, which I feel goes to be printed tomorrow.

Ingela Ulfves

[indiscernible]

Bernhard Gunther

So, on Web page 91, you will note that the online debt — web monetary debt for Russia is near zero. So, deconsolidation impact on our web debt would accordingly even be near zero. In fact, you might have seen within the shows we have proven at the moment that the optimistic EBITDA from Russia not being counted then will increase barely our web debt over EBITDA KPI on the score aspect. However it’s solely the numerator shifting, not the — sorry, solely the denominator shifting, not the numerator.

Deepa Venkateswaran

Okay. And the intercompany mortgage, would that not have any impression on the deconsolidation?

Bernhard Gunther

Nicely, I feel that is the bundle of the general proceeds we get from Russia. It does not — from that perspective, then matter if it is regardless of the buy worth could be once we notice an exit. Sure, finally, web debt clever, it does not make a distinction if it is booked towards the mortgage or towards the money place of the corporate as gross sales proceeds for the shares.

Deepa Venkateswaran

Okay. Thanks.

Operator

The following query comes from Piotr [from] (ph) Dzieciolowski. Please go forward.

Piotr Dzieciolowski

Hello. No, it is Piotr Dzieciolowski from Citi. I simply have one query. I needed to grasp what’s your view on how Fortum could possibly be impacted by the European energy market design reform? And do you suppose a few of your belongings, to illustrate, inframarginal applied sciences could possibly be reregulated, particularly from the plant would it not be optimistic or detrimental? Thanks.

Markus Rauramo

We’re following the reform dialogue very carefully to, in fact, instantly and to EU electrical. And what our key level there may be that for any sort of change in regulation, it must be actually rigorously analyzed that what’s the impression on provide, what’s the impression on demand? Does it actually have the supposed penalties? And with a number of the considering we’ve got seen, you get fairly rapidly to some sort of rationing sort of dialogue. If you happen to begin to categorize that there is sure sort of capability that will probably be first allotted and secondly, one thing else, then the query is, effectively, who’s going to get that first capability and who has to pay extra for the second capability? And really rapidly, you get right into a dialogue about having to arrange a marketplace for these completely different sort of merchandise. So general, not less than I am not ready but to begin to touch upon what it appears like for us. We have now seen completely different form of laws and measures put in place in varied nations, however not fairly there but the place the European reform goes.

Piotr Dzieciolowski

Okay. And if I can observe up then on Loviisa’s extension initiatives. So, do I perceive you appropriate you’re okay to do it on the service provider foundation? Or on condition that the time horizon is till 2050, you’d nonetheless would favor the choice of form of [CFD] (ph) or some regulated return on this extension?

Markus Rauramo

We’re okay to do it on a service provider foundation. That is the place we’re at the moment. So Loviisa may be very, very environment friendly and really efficient. So effectively run, good belongings. However general, the query is that I feel we’re shifting extra in the direction of a setup the place prospects will wish to lock in long run availability of manufacturing. So, we might finally get right into a place the place we begin to take a look at even particular belongings, however that is someplace sooner or later.

Piotr Dzieciolowski

Perceive. Thanks very a lot.

Operator

The following query comes from Sam Arie from UBS. Please go forward.

Sam Arie

Hello, once more. Thanks for letting me bounce again on. I believed I might check Markus, one follow-up query with you out of your earlier reply, possibly combining it with a solution that Bernhard gave in regards to the gold mine of alternative of low-cost energy manufacturing within the Nordic area. And so, I simply needed to hitch that remark together with your remark in regards to the outright publicity. And also you additionally made a type of aspect remark about, I feel you stated until there was any adjustments in laws. So, I used to be simply serious about whether or not we should always anticipate your outright publicity to stay margin publicity indefinitely? And whether or not you are seeing any form of curiosity from a few of these corporates that you just’re partnering with to possibly take hydro PPAs over an extended interval? Or if there’s any sense that you just suppose in this type of European market redesign dialogue that there is likely to be any strikes to make longer-term PPAs type of obligatory for some sorts of patrons? It is simply — we all the time take as a right that your publicity is out proper. However I am simply questioning the place we’ve got the possibility to speak to you whether or not you see any course of journey that would will let you repair a few of that publicity? And how much ranges you may have the ability to repair that given the present outlook? Thanks.

Markus Rauramo

Sure, superb query. So, making an attempt to place the body to this. So, we’ve got — as you very effectively know, and I stated a number of occasions, that we’ve got about 45 terawatt hours of provide on an annual foundation. And once we now have a look at what sort of buyer curiosity is coming to us as a result of prospects must decarbonize large manufacturing processes. They’re speaking about a number of single-digit terawatt hours of annual demand. Some are speaking about 10. Some are speaking about much more.

After which, once we take into consideration what will probably be there available in the market, renewables, hydro, nuclear, one thing else, there will probably be quite a lot of intermittent capability. That is what’s rising quickest. So then flexibility in my books will probably be comparatively more and more scarce useful resource. And in addition, base load will probably be a rise on this case useful resource, as a result of there’s not a lot base load new construct inside. And from that standpoint, we begin to see that prospects are very enthusiastic about locking in vitality provide for his or her a number of terawatt hours of demand going ahead. And if these are like mid-single digit, there is a restrict even for a way a lot we are able to provide of that flexibility and profile in the long term.

So, this was the background for the reply. Sure, we see buyer curiosity to lock-in even current capability for long run as a result of they begin to get involved to have the ability to ship towards their decarbonization pledges and the pledges they made to their prospects who occurred to be all of us. So, they’re telling that they’ll present a clear product in 2030. And now the clock is ticking. It isn’t that far-off anymore. How do you safe that?

Sam Arie

And so, the shopper curiosity is there. And is — are you guys to signal these form of long-term PPAs, like a 10-year hydro PPA? And how much worth would you — would make that attention-grabbing to you relative to the market?

Bernhard Gunther

It is billion-dollar query.

Markus Rauramo

Sure. So, to begin with, I feel my complete presentation was answering the query. Sure, we’re enthusiastic about working with the purchasers to assist them with the decarbonization. And this conviction is definitely pushed by precisely the kind of buyer demand we see. So, we’re enthusiastic about doing issues that help the purchasers and really then allow us to do what we’re doing and to do extra of it. So having the ability to stabilize our earnings in the long term and doubtlessly to lever up the steadiness sheet as effectively with decrease danger and lock in additional new undertaking as effectively with the identical philosophy, that is the potential we’re significantly now taking a look at and seeing how we might finest work it out.

So there appears to be a convergence of curiosity. Prospects are apprehensive about excessive costs and volatility, and so they wish to lock it in. And for us to draw capital and deploy capital volatility just isn’t the very best factor for us both. And naturally, we’re enthusiastic about defending our draw back. So now we see that there is convergence of curiosity right here due to these components.

Sam Arie

And I discover this dialogue so thrilling and so attention-grabbing. I simply actually stay up for listening to extra from you all about it.

Markus Rauramo

Thanks, Sam.

Ingela Ulfves

Thanks, Sam. You’ll hear extra from us.

Okay. Thanks, everybody. We have no additional questions now. So, thanks, operator, and thanks, everybody, to your exercise and for collaborating right here at the moment.

So, with this now, we finish the session with the worldwide viewers, after which we are going to proceed with the Finnish media. So, there will probably be a brief break now when company exit the venue after which we are going to proceed shortly.

On behalf of Fortum, we want you all a really good remainder of the day.

Markus Rauramo

Thanks.