Fortum Oyj Corp Ord

Good morning, everyone. A warm welcome to Fortum's joint webcast and news conference for the investors and media on our third quarter and January-September 24 financial results. My name is Ingella Ylves and I'm head of investor relations at Fortum. As always, this event is being recorded and a replay will be available on our website later today. With me here in the studio are our CEO, Markus Rauramo, and CFO, Tiina Tuomela. Markus and Tiina will present the group's financial and operational performance during the third quarter and first nine months of this year. After the presentations, we will open up for questions in our Q&A session. I now hand over to you, Markus, to start.

Thank you very much, Ingella. A warm welcome to our investor and media call also from my side. I will start by going through the key elements of our financial performance, market fundamentals and follow up on our strategy implementation. After that, Tiina will provide more details, especially on the financials and how this turned into our results. Let me now start with the quarterly highlights. The third quarter is typically a seasonally low quarter with lower volumes and power prices. In July and August, Nordic spot prices were pressured by high precipitation, good nuclear availability and increasing wind and solar output. In September, drier conditions and nuclear outages due to both planned maintenance and unexpected technical issues increased the prices. On a very positive note, Nordic power demand has now recovered to the pre-crisis levels and non-industrial demand is strong throughout the Nordics. During the last 12 months, power demand in the Nordics has reached 401 terawatt hours. However, Finnish and Swedish industrial demand is still lagging and we have seen more postponements or delays in industrial investments, especially in green transition projects. A couple of days ago, Fingrid, the TSO in Finland, published its latest power demand forecast where they somewhat lowered the expectation of demand growth. They expect power demand in Finland in 2030 to be 126 TWh compared to their previous estimate of 131 TWh. Today, annual power demand in Finland is approximately 85 TWh. The lower spot price is affected especially the result of our generation segment, but with our versatile and competitive CO2 free generation fleet, successful hedging and a good optimization premium, our achieved power price reached a good level and we recorded resilient results again. We continue with our strategy implementation. On our strategic priority to deliver reliable and clean energy, we focus on optimizing and strengthening our core operations for power generation. As already highlighted in connection with our second quarter results, the Pielax PPA became effective on the 1st of July. At our Lovisa nuclear power plant, we reached an important milestone in August in securing reliable Western alternative fuel supply as we loaded the first batch of nuclear fuel from Westinghouse. The lifetime extension of our Lovisa nuclear power plant is also progressing well. Most recently, we announced that we upgrade the automation of the turbine protection and control systems of both power plant units. Regarding longer-term power demand, we are very happy to see that there is demand for long power purchase agreements, also for nuclear power, in other parts of the world. We are well positioned as the Lovisa lifetime extension provides an additional 1,000 megawatt of capacity for 22 years or approximately 177 terawatt hours of reliable CO2-free baseload power until 2050 that we can offer to our industrial customers. Fortum has, together with the other owners of our co-owned nuclear plants, decided to investigate extensions up to 80 years of the operating lifetime of the Oskarsham and Forsmark nuclear power plants. Also, as announced today, Fortum's coal exit continues with the decarbonization in Poland at our Czestochowa combined heat and power plant. We are committed to exit coal by the end of 2027, and we will now invest approximately 100 million euros in Chestohova's retrofit with biomass technology. This will decrease Fortum's coal capacity and further reduce our direct CO2 emissions. The investment starts now and is expected to be ready by the end of 2026. This has no impact on the current CAPEX guidance. On our strategic priority to drive decarbonization of industries, we continued the development of several potential sites across Finland that can be offered to our customers for data center or industrial use. One of these is a site in Rauma where we are developing a site for a sustainable synthetic aviation fuel, ESAF, plant together with Norsk E-Fuel and Port of Rauma. We have been very active in site development and now several sites are already reserved. On our third priority, transform and develop, progress has mainly been done regarding divestments of non-core assets and efficiency improvement. The strategic review of our circular solutions business took a huge step during the third quarter. In July, we signed an agreement to sell our recycling and waste business to Summa Equity for approximately 800 million euros. Closing is expected to take place in the fourth quarter. In September, we signed an agreement to sell our ownership in Kempolis Oy, including all of Fortum's biobased solutions business and our shares in the holding company of Assam Bioethanol PVT Ltd in India, to AM Green Technology and Solutions BV. The transaction will not have material financial impact on Fortum Group's result. We continue our efforts in the efficiency improvement program with the target to gradually lower our annual fixed cost by 100 million euros, excluding inflation by the end of 2025 and a full run rate from the beginning of 2026. Last week, we initiated legal proceedings against our former Russian subsidiary, PAO Fortum, to recover approximately 800 million euros in intercompany loans, including interest. It is good to note that this legal case only has upside potential, as there is no impairment risk. This process, which is separate from the already ongoing arbitration proceedings against the Russian Federation, are expected to take some years. Then over to our main figures. These are the familiar comparable headline KPIs for Fortum Group's third quarter and the first three quarters of 2024. All numbers in this presentation are for continuing operations, if not otherwise mentioned. Considering all external factors, I'm satisfied with our performance. The result is well supported, especially by our optimization. Last year, power prices were at the higher level. So this year, our comparable operating profit has declined both for the quarter and on a cumulative basis. The main reasons were lower spot and hedge prices, which mainly affected the result of our generation segment. In the third quarter, comparable operating profit at group level amounted to 158 million euros. Our comparable EPS also declined both on quarterly and cumulative basis. Our operative cash flow decreased somewhat compared to last year and was 1.2 billion during the first nine months and 349 million euros in the third quarter. And finally, the balance sheet, and most importantly, our leverage. Defined as financial net debt to comparable EBITDA, leverage was at 0.4 times for last 12 months compared to 0.5 times at the end of last year. Then over to the commodity markets. I want to say a few words about the market development, and here you see the main commodities. European gas prices increased quarter on quarter, but remained in the 30 to 40 euro per megawatt hour range during the quarter. The volatility within the quarter can be attributed to supply side risks, like significant Norwegian maintenance, loss of Russian pipeline gas via Ukraine by December 2024, and weather impact on LNG supply. The gas price volatility was reflected in continental power prices, while the impact on the Nordic power prices was limited. In the Nordics, high precipitation amounts in July and August led to well-filled hydro reservoirs in some of the key hydro areas. This resulted in very low spot prices in August before a gradual recoil upwards took place in September. In addition to that, good Nordic nuclear availability during the summer months and 3 terawatt hours higher Nordic wind supply in the third quarter contributed to the lower July and August spot prices. In late August and September, the Finnish power balance became very tight, as Halkiluoto 2 faced an unplanned outage at the same time as large planned transmission restrictions from Sweden and Lovisa 1 maintenance took place. In Finland, the price also coupled strongly with Estonia on low wind days, especially after the Estlink 2 transmission line came back online in early September after a long break. During periods with low Finnish wind power output, prices spiked, creating another month with high spot price volatility. And then over to the financial KPIs, and I hand over to Tiina for more details.

Thank you, Markus. Good morning, everyone, also on my behalf. I will now go through our financials in more detail. Let's start with the key financials. So let me first comment on some of the comparable KPIs for our continuing operations. The comparable operating profit for the third quarter amounted to 158 million euros and was 921 million euros for the first nine months. Looking at the last 12 months, comparable operating profit totalled 1.280 million euros. In the third quarter, our comparable net profit and comparable EPS decreased. That was mainly due to the lower result in the generation segment. The main reason for the lower result was lower spot power and hedge prices. Our comparable EPS for the last 12 months was at 1.17 euro compared to 1.28 euro in 2023, so slightly down. The only KPI which improved was leverage. As Markus already said, our leverage continues to be very low, being at 0.4 times at the end of the third quarter. Let's move over to the income statement and look at certain items in more detail. As we have communicated our own efficiency improvement program, you can see that our annual fixed costs are slightly above 1 billion euros. The target is to reduce the fixed cost base by 100 million euros, excluding inflation. Now the trend has turned and our fixed costs show a small decrease. Our actions to start to have an effect and the fixed cost base have slightly gone down. Items affecting comparability for the quarter turned negative from last year, however, was related to fair value changes. In the third quarter, our finance cost net was 3 million euros positive and included net interest expense of 5 million euros offset by positive impacts from nuclear-related items. On a cumulative basis, finance cost net was also 20 million euros positive, impacted by one-time items from the second quarter, i.e. interest income from the Belgium tax case, which we won. We have managed to get some higher interest income for our cash. Simultaneously, our loan amount is lower compared to the year-end, which is reflected in lower interest costs. Taxes have been at a normal guided level this year, around 19%. And finally, just noting that in our balance sheet, we have now recorded the asset in the recycling and waste business of 768 million euros as asset held for sale. Then over to the result, waterfalls for comparable operating profit. Let's look at the waterfall at the third quarter comparable operating profit for our segments. Compared to previous year, the result for our generation and consumer segment decreased, while other operation segment improved. In the generation segment, comparable operating profit decreased by 86 million to 176 million euros, mainly due to the lower spot and hedge prices. Lower hydrovolumes to the lower inflow and somewhat higher cost for the co-owned nuclear production negatively affected the result further. The result contributor of the Peelax wind farm was marginally negative. The district heating business improved its result mainly due to the higher sales price for power in Poland. In our consumer segment, comparable operating profit decreased by 4 million to 6 million euros, mainly to the lower gas sales margin, the effect of which was partly offset by the reduced scope of the regulated price gap for the end users in Poland. In another operation segment, comparable operating profit improved by 22 million euros and was 24 million euros negative. The result of circular solution business was flat. The main reason for the improvement was higher internal charges for our services of enabling functions. When looking at the comparable operating profit for the first nine months, the same trend continues. The generation segment result declined, while both consumer solution and the other operation segment improved. The result deviation is basically related to the generation segment. The generation segment's comparable operating profit decreased by €336 million to €953 million. The main reasons for the decline in the generation segment were the clearly lower spot and hedge prices, which was partly offset by higher hydrovolumes. The result of the renewable business was positively impacted by the sales gain of 16 million euros from the divestment of the remaining share in the Indian solar power portfolio of 185 megawatts. The result contribution of the BELUX wind farm was slightly positive. The result of the district heating business improved mainly due to the lower fuel and CO2 cost, supported by more electricity-based heat production in Finland and the higher sales price for the heat and power in Poland. Comparable operating profit in the consumer solution segment increased by 33 million to 60 million euros. This is mainly due to the higher electricity sales margin, reduced scope of the regulated price gas of end users in Poland, and higher sales margin for value-adding services. This improvement was partly offset by lower gas sales margin in Poland and higher amortization of customer acquisition costs. In the other operation segments, the comparable operating profit improved by 38 million euros and was 92 million negative. The improvement was mainly related to higher internal charges for services of enabling functions and slightly higher earnings in the circular solution business. Then some comments on our financial position, debt and liquidity. Our financial position continues to be very strong, and this supports our objective to maintain a credit rating at least triple B flat. When considering our capital allocation principles, we balance between leverage, investments and dividends, while always keeping the credit rating in mind. Next, let's go through the reconciliation of our financial net debt in the third quarter. The opening balance sheet at the end of second quarter, our financial net debt was 851 million euros. In the third quarter, the operating cash flow was 349 million euros. This effect was slightly offset by investment of 140 million euros. The change in interest-bearing receivables amounted to 4 million euros, while FX and other FX totalled 16 million euros. So, at the end of the third quarter, our financial net debt was 655 million euros, and the ratios for the financial net debt to comparable EBITDA is at 0.4 times for the last 12 months. Looking at our debt portfolio and maturity profile, I want to highlight a few things. We use bonds as a primary source of our funding. Our maturity profile continues to be very balanced, and there are no large maturities in any single year. All in all, our gross debt excluding leases totals 5.3 billion euros. At the same time, our liquidity position is strong. We have ample liquidity reserve of 7.6 billion with 4.3 billion of liquid funds and 3.3 billion euros of undrawn committed credit facilities and overdrafts. With a strong liquidity position, we will continue to optimize our cash and credit lines. The overall objective is to have sufficient and optimal liquidity, while at the same time trying to minimize funding costs. The cost for our 5.3 billion euro loan portfolio is 3.9%, while the interest income that we get for our 4.3 billion euro liquid funds is 3.5%, which means that the net interest cost is in a good balance. When looking at our cash position going forward, I would like to remind that we paid the second tranche of dividend now in October. And during Q4, we are expecting to get the proceeds from the divestment of the recycling and waste business, the settlement compensation from Vestas, the interest income from Belgian tech case and the proceeds from the divestment of our stake in the Indian 185 megawatt solar portfolio. So with this, over to the outlook section. The outlook section comprises in essence four elements. Guidance for our outright hedges and optimization premium, taxes, capex guidance and our fixed cost reduction program. First, a reminder that our annual outright volume is approximately 47 terawatt hours. Already in connection with our first quarter result, we disclosed new weights for our different price areas. Then starting with the hedges. At the end of the third quarter, the hedge price for the remainder of 2024 was at 44 euros per megawatt hour and the respective hedge ratio was 80%. The hedge price for 2025 is at the same level than last time at 42 euros, and the hedge ratio increased by 5 percentage points to 65%. Today, for the first time, we disclose hedges for the year 2026, 40% hedged at 41 euros per megawatt hour. There are no changes to the annual optimization premium. It continues to be at the level of 6 to 8 euros per megawatt hour for the total volume of 47 terawatt hours. While the guidance is for the annual level, there might be quarterly variations. Our corporate tax rate guidance is unchanged. We expect the comparable effective income tax rate to be in the range of 18 to 20%. I also want to repeat that in Sweden there will be a revision of the property taxes from next year. For Fortum, the increase of the property taxes will be approximately 25 million euros for the years 2025 to 2030. This means that the increase is 25 million euros from 2024 to 2025 and then stays on that level for the five-year period, including 2030. Part of this cost will show up in our fixed cost line. Then a recap of our guidance for capital expenditures. Our capital expenditures for 2024 is expected to be 550 million euros. This includes maintenance capex of 300 million euros. As we disclosed the divestment of the recycling and waste business in July, we also lowered our capital expenditures guidance from 2025 onwards. The annual maintenance capex is expected to be approximately 250 million euros in 2025 and onwards, which continues to be clearly below our depreciation level. The capital expenditure for the years 2024 to 2026 is expected to be 1.6 billion euros. This includes maintenance and excludes potential acquisitions. Today's announcement of the Polish decarbonization investment does not change this guidance. Please note that if we would not disclose new investment project, our total capital expenditure would go down over time towards 300 million euros after 2026. We target to reduce our recurring annual fixed cost base by 100 million euros, excluding inflation, gradually until the end of 2025, with full effect from the beginning of 2026. The divestment of our recycling and waste business will reduce our group fixed cost base by approximately 150 million euros. So from 2025 onwards, the new fixed cost base will be approximately 850 million euros. Despite this, the cost reduction target of 100 million euros is unchanged. And as I already mentioned, we expect to reduce our recurring fixed cost base by more than 50 million euros already by the end of 2024. This was all for my presentation, and we are now happy to answer your questions. So with this, Ingela, over to you.

Thank you, Tiina, and thank you also, Markus, for the presentation. So we are now ready to take your questions. And please state your name and company.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad.

So let's start the Q&A session.

The next question comes from Wanda Serwinowska from UBS. Please go ahead. Yes, two questions for me.

The first one, can you please comment on the small modular reactors opportunities that Fortum currently see? Can you talk about the timeline, the CAPEX, and when can we see the first EPS impact? That would be very helpful. And the second one, can you please comment if there has been any development on signing new PPAs with data centers? Thanks a lot.

Okay, thank you. Maybe I'll leave the PPA question to Tina. And on the SMRs, so SMRs are part of our nuclear feasibility study. So we are studying both large conventional nuclear plants and SMRs. And an intermediate conclusion from our study is that there are large nuclear plants, conventional ones, available today. So several suppliers... It's a question then, are these all available in Europe, licensed for Europe? But on the SMR side, the first one that is part of our study that would be actually commercially available is probably the G Hitachi 300 megawatt plant that is now being constructed in Ontario. for Ontario Power, and my understanding is that it should be ready in 28, 29. So when it comes to relevant technical offerings, we would like to first see an operating reference plant. So the bottom line is that today there are operating large nuclear plants, but there isn't a relevant SMR operating. But from that, we take a conclusion that if somebody were to make an investment decision today, the timeline is roughly 10 years, give or take, for a large plant for the planning and design and permitting and then construction in, let's say, a neutral case, theoretically. And then for SMRs, the SMR suppliers are targeting shorter timelines, but then the question is that is there a relevant offering at the moment in the market? I hope that helps in... And then for the potential EPS impact on it, we are investigating exactly technical feasibility, regulatory feasibility and commercial feasibility. And what we can say today is that the production costs on reference cases are clearly higher than what the Nordic forward prices are today. And that is why we are engaging both with the Swedish and Finnish government in discussion that what would be a regulatory and market design model to enable, actually, full load power to come to the market. And this is what the Mats Delén report in Sweden is partly answering. So construction time, loans, government guarantees to de-risk construction, as well as CFDs to give visibility on the cash flows. Whether these are enough, that remains to be seen, and we will get back to this and other things once we get more light from our feasibility study. So we cannot opine on that at the moment. Anttina, do you want to comment on the PPAs? Yes.

So what comes to the PPA? So it is according to our hedging policy. We announced that we want to extend the hedging period where, of course, the longer term PPA fits very, very well. Our target is to increase the long term rolling hedge ratios at minimum 20 percent by 2026. What we can see that there's a lot of interest for the PPAs. However, currently the period for the hedges are more like five to six to eight years. But of course, while the bigger investment for the green transitions and the project is going, so there are also discussing with the longer term hedges. For the third quarter, we didn't sign any new longer-term PPAs, but as I said, we are working at the same time when looking at our overall hedging policy.

Thank you. If I may, just two quick follow-ups, just clarification questions. So, Markus, on the SMR, it seems that Fortune doesn't have any material CAPEX. And it feels you don't see it as a big cap expense in the foreseeable future. Is it right? And Tina, on the PPA, has there been any development in the Microsoft PPA? I think we are talking about a few hours. You signed on a heat off day, but I haven't seen any announcement on the power price contract. And would you sign the full, I don't know if it was five or seven hours with Microsoft? Thanks a lot.

Yeah, on the CAPEX for any nuclear investments, any deliberation on that is somewhere in the future. So we will first do the feasibility study and then see if there are technical regulatory and financial grounds to do it. And if we put new nuclear in the context of our current capex guidance, which is that in 24 to 26, we would be spending 1.6 billion in total capex, which of 200 million is unallocated. So that clearly indicates that if we were to do something, the capex would be small. And we know that... The new plants, the cost has been multi-billion, even 10 billion plus per unit. So then one has to think about what are the financing models for such full load power to come to the market. But that is something that we would need to opine on if and when we get to the conclusions of our feasibility study.

To complement the Microsoft project, so in general, we can say that the project is proceeding well, what comes to the environmental permits and permitting. And as you mentioned, so the heat offtake is already signed. But what comes to the PPA, so that's, of course, up to Microsoft how they... like to proceed, which time and what amounts and with how many suppliers and what are the alternatives. Naturally, we are keen to discuss the PBAs on power with them as well.

Thanks a lot.

The next question comes from Harry Wybird from BNP Paribas Exane. Please go ahead.

Thank you. My question is a multi-pronged one on cash and balance sheet. So firstly, on the Vestas settlement, your press release was slightly cryptic. So I wondered if I could have a go at getting from you even roughly what kind of cash inflow we should be penciling in for that. I think the original claim was north of $200 million. I'd be interested in even if you could say whether it was in the same order of magnitude as that. And then given, I think Tina mentioned a lot of the cash inflows coming in Q4, I wondered if you could update us on where you see net debt landing at the end of the year, given that it was already relatively low in 3Q relative to full year consensus and you've got even more inflows coming in Q4. And then the final prong to the question is a perennial one. But given that you're probably likely to be at extremely, extremely low levels of net debt by the end of the year, has there been any further update on your thinking of use of balance sheet? I think on the last results you said you would... next review things at the full year board meeting. Have there been any thoughts or view changes ahead of that on what you might do in terms of dividends, special dividends, buybacks, even things like debt buybacks? And is there anything we should be assuming for use of balance sheet? Thank you.

Okay, thanks, Harry, for the questions. So I'll probably take the first one and the last one. And, Tina, you already commented on the net debt items impacting that, but maybe you want to then recap that. Regarding the Vestas settlement, so part of the settlement was that we will not disclose exactly what it concerned and what elements. But I would say that the 200 million number that you referred to, that was something that Vestas themselves actually – had published, and that concerned several items, which is typical for such claims. And the settlement then ultimately concerned only part of those. But it's a settlement that, from our point of view, I think for both parties, we felt that it's better to settle than go all the way through the arbitration. So a level where both parties were satisfied. Then on the views about the balance sheet, so I would say so that indeed like Bottina and myself said, so we have a strong balance sheet and we have good liquidity. I would start from saying that with our leverage now being at 0.4 times versus our like max target of 2 to 2.5, I would, in these circumstances, I would rather be a little bit conservative and have liquidity and have the balance sheet so that if and when there is volatility and turbulence in the market, then we are in a position to hedge and we do not have constraints on liquidity. So being a bit conservative. Then when it comes to, indeed, so that we will be discussing with our board in the end of the year, in connection with the year-end results about investments, balance sheet and dividends. So these are the three items that we are looking at. We are now following our dividend policy of 60% to 90%. And like we have said, that if we have a strong balance sheet and not a massive investment pipeline, then we would be paying at the higher end of that range. Otherwise, we will opine on the dividend than with the board, typically in connection with the year-end results. And then, Tina, if you want to comment on the net debt impacting items.

Yes. So the net debt at the end of third quarter, so 0.7 billion euros. And if we look at our loan maturity profile, so it's very, very balanced and, of course, some option to also repay the loans. But if we look at the main cash flow items in the fall, So, of course, the operating cash flow is to come. Also, our investments. So now also some new investment in Poland. Then need to remember that we also paid the second transfer of our dividends. And then to highlight that also some cash is coming. So, of course, the proceeds from the recycling and waste, where the consideration was roughly 800 million. Then we have the investors' income, interest income from the Belgium tax case, so roughly 19 million. And then the proceeds from the remaining solar sale of 180 megawatt platform, so 33 million. So clearly strong cash flow for the last quarter. But we don't give exact guidance for what is our leverage or the net debt at the end of the year, but indicating the strong last quarter what comes to the cash flow.

Okay, that's helpful. Thank you very much.

The next question comes from John Campbell from Bank of America. Please go ahead.

Yeah, thank you. Good morning. Two quick questions, if I can. I saw recently, I think a few days ago, you initiated legal proceedings against Forward Energo, basically a Russian sort of former assets for 800 million euros. I'd like to know basically how confident are you of actually prevailing in this dispute, considering that it involves Russia, and what recourse do you have if it doesn't necessarily work out as you hope? And then secondly, this is somewhat more of a theoretical question, but you discussed previously about Swedish nuclear and delays and SMRs, etc., I recently saw that EDF was seeking up to $4 billion of outside investment to help fund the UK's Hinkley Point C, and I think Pete Clode have reported that it could be done via a mandatory convertible bond. I know I think your strategy is related to mostly Nordic markets, but is this at least an asset that you haven't considered or thought about? Again, I only ask mainly because of the long timeframe that people are choosing to discuss Swedish nuclear. Thank you.

Okay, so on the legal proceeding against Forward Energo, so that's indeed the former PAO Fortum, and this is concerning the intercompany shareholder loans that we gave. This is separate from the claims against the Russian Federation on the – on taking over the management and not us being deprived of access to financial or production data or the management of the company. So separate from that. We cannot anticipate the outcome of the proceedings, but I would say generally that this is quite straightforward. Loans have not been repaid and interest has not been paid according to schedule, and this is why we need to go to the arbitration as stipulated in our internal loan documents. So from my point of view, a rather straightforward process. And then on the recourse, so that would be, from my point of view, the normal course of business. So what happens if a debtor doesn't service their debt according to process? On a high level, I would say that it's important that we protect our interests and, of course, shareholders' interest in these cases. So any deprivation of our ownership rights and financial and operative rights, we need to follow these processes. Then for EDF's project, of course, this is one of those that we follow from a technical point of view closely, that how are these projects going. And we have, amongst many other plants, visited also Hinkley Point and are in good dialogue with EDF. But our focus is on the Nordic clean energy. and helping our customers to decarbonize and electrify their businesses. So from that point of view, the Hinkley Point case is not, and UK Nuclear is not relevant for us to help our customers. Otherwise, of course, interesting project to follow how that goes technically, financially, and construction-wise.

Thank you. That's clear.

The next question comes from James Brand from Deutsche Bank. Please go ahead.

Hi, good morning, everyone. A couple of questions from me. Firstly, on power demand, so you mentioned some power demand estimates at the beginning, but I think you've estimated in the past that you could potentially see up to 30% growth in Nordic power demand by 2030. Not sure if that's still roughly your expectation or whether that's changed. The question is not whether we'll see that materialize or not, but if we do see that kind of power demand growth materialize, do you think the Nordic system can handle it? There's obviously been quite a long discussion about nuclear in the Q&A. I agree, you're unlikely to see any nuclear for 10 years, maybe 20 years. But there is a lot of renewables being built. So is that renewable capacity that's being built enough? That's the first question. And then the second question is on optimization. You look like you overshot your 6 to 8 euro target again in Q3. So you've quite comfortably overshot that for the first nine months. Maybe you could just talk us through what's going better and why you're still reiterating the 6 to 8 euro medium-term target in spite of things clearly going better for quite a few quarters now. Thank you very much.

Okay, thanks for the questions. I'll leave the optimization premium for Tina. And can the Nordic system handle the growth? Well, I referred to Fingrid's recent estimate, so that is indicating a really significant growth. These growth estimates, they match with what we hear from our customers and the customer interest pipeline. Even with the delays and cancellations of projects, there are new projects coming into the pipeline. So it looks logical and kind of makes sense. Steel, aluminum, data centers, battery factories, hydrogen and hydrogen derivatives. So the decarbonization, electrification makes sense. Then a question that, okay, is Nordic a place to do it? Well, the system is basically clean. So there is clean, reliable, and competitive energy available, infrastructure, the roads, ports, electricity grid, telecoms grid, availability of very skilled workforce throughout the country, all the way from south to north Lapland, where you have big steel, big... forest industries. So it's possible to locate big businesses in very many locations in the Nordics. So I would say the fundaments are strong. And I say this from a global perspective, observing what are the possibilities in the US, Canada, Australia, continental Europe and other places of the world. Then to your actual question that can the Nordic system handle it? Categorically, I would say yes. So when I look at what FinGrid is doing, what SVK are doing, and Startnet in Norway, I think they have, from my point of view, and not, of course, being deep inside, but there seems to be a very realistic development of where they are focusing their efforts of building new transmission lines. Of course, there are bottlenecks. Of course, there are places where the system is being stressed. South Sweden is one example. There are bottlenecks of moving energy from North Sweden price areas to South Sweden. But all in all, the system, from my point of view, compared to many other places, has the prerequisites that you can integrate many terawatt hours, so tens of terawatt hours of new demand and new supply. Will it be easy? No. But is it possible? Yes.

All right.

And then optimization. Yes.

Continue the physical optimization. So our guidance for the optimization premium still is from six to eight euros per megawatt hour. And we have said that it might and it varies between the quarters. But if we look at overall the year, so that is still our assumption. At the same time, when we say that, what is our kind of guidance based on? So the one very important element, what is the volatility in the market? And if we look at the volatility in the market, so we can see that in Finland, which has been a bit more restricted when it comes to the interconnection to the other markets, the nuclear availability issues in the third quarter, so the volatility has been still strong. However, in Sweden, we can see a bit lower volatility numbers at the moment, still higher if we compare the earlier years. The other driver for the optimization premium is the environmental values, where we see that for guarantee of origins for hydro, for example, have somewhat decreased a bit. Likewise for the nuclear. And this is driven by that there is less and less coal condensing power production. So the demand for environmental values has been a bit lower. But still, I think the 6.8 is we are very comfortable say that this is our guidance this year and going further.

James, I'll still come back to the question that is REST enough? We can take different viewpoints on that. So the connection inquiries from REST developers are massive. So we talk about hundreds of gigawatts in Finland alone, so huge amounts. So one could say that, well, The problem is not having enough megawatt hours for the increased consumption. But then the question is that, OK, so we already have a volatile. We have the most volatile power price in Europe, in Finland. And is that good for industries and consumers? The answer is not. It's not ideal. So it would be good to have full load power and flexible power. So REST is easy to build, but then it means more transmission grid, more connection points, and more explanation of land use. So I would say we are advocating that there's a balanced approach which would provide all possible CO2-free power production into the system. Then it's up to investors and investors. sponsors and users what ultimately gets built. But if it's majority rest, then it means that there has to be more demand flexibility than today. This requires consumers, batteries, everything, cars. and industry much more integrated into managing volatility. And this is not something we see from the industries today. So steel, aluminum, data centers, and hydrogen production, at least on a theoretical level, all are requiring very steady power.

Thanks. That's really interesting.

The next question comes from Daniel Hogland from ABG Sundal Collier. Please go ahead.

Thank you for taking my question. So my first question is in terms of the other segment. Now that you have divested the material part of it, you also mentioned this change in internal charges. I was just wondering, is it possible to say what approximately will be the annual run rate EBITDA or EBIT for this segment after the recent changes? So that is my first question. Thank you.

Do you want to go with the second question as well in the same go, so we take both?

Yeah, sure. So the second question, you touched a bit upon it earlier, but I guess it's been a topic for some time. So it seems like you have a quite conservative leverage level, both compared to European utilities and also to kind of your own history. And obviously you mentioned that the board will look at that at the year end, but Just given your current plans for capital allocation, is it relevant to think that you are looking at acquiring generation assets from others also, or is it mainly kind of distributing excess cash to shareholders that is on the table? That was my second question. Thank you.

Okay, I can take the second question, and if, Tina, you want to comment on the other segment. So it is true that in comparison to some other utilities, even the max target level 2 to 2.5 looks low. But with the merchant exposure to the Nordic volatile power prices, the 2 to 2.5 equates to the FFO to the net debt ratios that the rating agencies require for a solid investment grade rating. So that's to start with. And then on the conservatism otherwise within that target, like I said earlier, so – It is to be ready for partly for increased volatility and turbulence. So we want to be in a position of strength in those kind of situations. Then we have said that in our core operations, we are... we are ready to selectively grow. So that can also mean being acquisitions if they are available. So in hydro, nuclear, in heating, consumer solutions, if there are opportunities, we would look at them, as we have said, And some examples of what has been the scale of such activities is the acquisitions in consumer solutions. These are not massive, but directionally given indication of the type of synergetic inorganic growth that we also would look at. And then, Tina, if you want to comment on other...

Gladly. So first of all, if we look at our other segment, so that consists of the circular solution businesses and then enabling functions and our innovation and ventures operations. And clearly when the recycling and waste is divested, so the cost level for that part will go away from our numbers. So we have said that the remainder of the circular solution business will stay with us. So the comparable EBITDA is roughly minus 20 million. which consists of our turbine and generator services, then the battery recycling and other bio2x activities or UK recycling and waste business. The other part is the enabling functions, which, of course, is now under very tight scrutiny, what comes to our cost level, scoping. We do the activities, what we already have also announced, the IT. IT has done the reduction of the head counts, and we are monitoring our processes and improving our activities. If we look at the last 12 months number, so the EBIT is minus 138 million euros compared to previous year 181. So there you can really see the activities, what has been done, and the work will continue.

Okay, that was pretty clear. Thank you. That was all from my side.

Thank you.

The next question comes from Deepav Venkateshwaran from Bernstein. Please go ahead.

Thank you for taking my questions. I had a follow-up on a couple of questions that have been already raised. So the first one is the ability of the grid to handle the load. Could you comment specifically on what you're seeing in Finland are available for large data centers in the 500, 1 gigawatt scale. As you know, in some other countries like Ireland, Netherlands, it's impossible to get. So could you maybe give any market context on how Finland in particular is positioned, at least from a grid connectivity perspective, is the TSO offering connections, etc.? ? And second question, I know that you appreciated the interest in nuclear PPAs being signed in the U.S. I wanted to know, again, this is less specific about the hedging answer that Tina gave, but more broadly, are you having more conversations about interest in both nuclear but also hydro PPAs to sort of balance this 24-7 clean energy, particularly from technology companies? So maybe if you can give some color on how The conversations are now versus a year back or six months back.

Okay. Again, I'll pass the nuclear PPA question to Tina, and I'll take the question about the grid. So, indeed, this we identify also that it is important that both supply and demand can be connected. And let's say, again, I have good confidence in that FinGrid and SVK are serious about connecting loads. So when we talk with them, there is definitely kind of a bigger understanding that decarbonization and electrification is something that are good things and they ought to happen. we have addressed it so that we have the site development, we have a specific site development team, we have identified in Finland 13 sites, and grid connections is exactly one of the points we are addressing there. So finding places where new demand can be connected relatively quickly. And this would have applied to, for example, the Microsoft Kirkonummi Espoo Vihti site. So this was important for any data center operator. We didn't know about Microsoft when we were developing the sites, but we were in discussions both with Karuna as the DSO, as well as FinGrid as the DSO, that we need to be able to tell an investor that they can connect their loads. And the same applies then to the to the site development. So we're trying to find places where we get some kind of more optimal locations than not for this connectivity. This was a little bit long and winding explanation to just say that I have the comfort that that also very large loads can be connected. And I think we in our own materials understand. that are in the monthly updated materials. I think we're saying sites with connections between 60 megawatt to 1.3 gigawatt. So we are saying that with certain confidence that this is possible.

Yes, and then continuing with the PPAs and maybe starting first with the nuclear PPAs. So as we know in the U.S., it is really the grid connection which is limiting the kind of access and availability of the power, and therefore there are solutions that have behind the meter directly to the sites and have the power directly from the nuclear plants. I think in Finland we still have the strong network and it's possible to buy directly from the grid. However, we see this is a potential when we are also considering the lifetime extension. So Lovisa, we have already decided the lifetime extensions, but we are considering in Sweden, Oskarshamn and Forsmark. together with the other owners, the lifetime extensions. Also, TVO is doing the environmental impact assessment of the potential extension of the lifetime of Olkiloto 1 and 2. So, of course, these capacities with the 20, potentially 20 years more lifetime is a lot of energy which could be utilized if so wanted for these purposes. The other trend what we see is that this RFNBO, so renewable fuel non-biological origin, is one area where the... particularly this clean transition project and green hydrogen projects are really interested in. And we are also looking at that possibility to how to best way to match our kind of what we provide for the customers and how to match that one. So certainly something very interesting for the future in our PPA portfolio.

Okay, thank you.

The next question comes from Harrison Williams from Morgan Stanley. Please go ahead.

Hi, and thanks for taking my question. Just the one from me. You mentioned in the presentation that you had reserved a number of sites for these industrial site developments. Can you just expand on that? Is that you having reserved the land, or is that an industrial off-taker having reserved it with you pre-FID? And then if it is the latter, What is the hoped timeline that that may be converted into, I assume, a power or an off-site PPA? That would be great. Thanks.

Yeah, so it is exactly the latter. So it's industrial. So we have the sites already reserved or pre-reserved with the landowners, and there is industrial interest. So we reserve the land for a limited time. which is not too long, so four years, two, three years. And from that, then from an investment decision of an industrial investor to the electricity demand, I would say between two, three, four years before there is increased demand. And on that note, so I repeat that when we look at how we see the demand coming from different sectors, still the outlook is that steel, aluminum, hydrogen derivatives, data centers, and battery factories, roughly in this order, would be the demand increase. But having said that, the thing that seems to be happening quickest is the data center demand. So the need for new data capacity increases. grows more linearly than, let's say, new green steel or green aluminum or hydrogen projects.

That's right. Thanks.

The next question comes from Iris from Carnegie. Please go ahead.

Hi, this is Tom Carnegie. Two questions from my side. Firstly, what do you think is the current outlook for the power supply-German-Talas mixture? And can you comment on the situation both for Finland and the Nordic region? And then the second question, Nordic power futures have recently come down a bit both i think in the short and long term so what are your thoughts on this recent movement thank you

If I comment on the power prices, so the 25 calendar year system price at 40 and 26 at 40, when I look at what is driving that, so the continental commodities impact that, and we have seen If you look half a year back, there's been a significant rebound. So that gives support on the gas price. Then it's the anticipated supply-demand balance in the Nordics. And the question is then, okay, so there are megawatt hours available, but how much 24-7 power is there available? So this should be reflective of what is the price required to have the full load power in the market. On the supply-demand side, the market has been well supplied by new renewables and all-kilowatt or three. But at the same time, there are capacity reductions. So one example is that we took out the last coal-fired CHP in Suomenoja. Of course, that's not huge, but eventually combined heat and power capacities are coming out. So less dispatchable full-load power and more intermittent renewables in the market. So maybe maybe I stop there. Dina, do you want to add something on the picture?

Well, I think that that covered well the current situation.

Thank you.

The next question comes from Ingo Becker from Kepler-Civriax. Please go ahead.

Hi, thank you. Good morning. My question is somewhat related actually to the preceding one. You are mentioning increased solar and wind production in the system for lower prices. And I was wondering, given that you have made some comments on system prices for the next two, three years. What your view is, what increasing solar and wind production will do to system prices all adds the same. Your own strategy is demand-driven renewables, but I'm just still wondering what you believe might be the overall impact of increasing renewables in the system. And my second question would be what that might do to your optimization premium. We probably would need to argue that the environmental value of of your optimization goes down as the system itself cleans up. And as you mentioned, we've already seen prices for guarantees of a rich income coming off. But on the other hand, you're mentioning apparently you're making money from the volatility, which seems to be still very good. And we could currently argue that at least over the medium term, that volatility is could increase. So I would be interested as the second question, would you expect increasing renewables penetration to do with your optimization premium net-net and all in? And maybe related to that, just clarifying something you said, Tina. You said that the volatility in the systems still pretty good in different electricity areas within the Nordic system. I just wanted to clarify, are you benefiting predominantly from the volatility within the Finnish system, within the different Swedish systems, or are you particularly so benefiting from the volatility between those different areas? Thank you.

Okay, I'll leave the optimization premium and area volatility to Tina. On the on how does the increased supply impact the system. So my take is that we have a partial answer for increasing demand, which is renewables. So those can be built to a certain extent. Eventually, when there is more and more renewables, the question on land use and on building transmission capacity increases. the land use there and for solar and wind. This is a societal question that needs to be explained. So I would say that better to have a balanced toolbox available. Another Or two other aspects is that we see little demand for pay as produced renewable. So somehow integrating renewables into a more stable or offering matching a customer profile, that is something we are doing. thinking how to do that better, because already today we see that there is little appetite for that. And then the last element I wanted to bring here is that with the increase, with inflation, with global supply chain challenges for new equipment supplies, the question is that that can – new renewables be produced at an attractive LCOE and at an achieved power price that supports investments? And the short answer is no, because we have seen that with higher interest costs and higher equipment costs, there are hardly any new starts of wind and solar. And then, Tina, if you want to finish with optimization. Yes, I will.

Exactly. So renewables coming to... To the markets and even more so. So we have seen that that increases volatility. Yes. And I think this is the major driver also, the physical optimization. What we do is the driver for our optimization premium. Environmental values, I think there is a variation. So currently we see... a bit decrease in the demand. However, I think many systems, many systems and customers also require environmental values. So I think this is more kind of the fluctuation of the time and the demand and the customers. Then about the optimization premiums, whether it is in the area or between the areas. So I would say mostly it is in the area because the optimization premium is available where we have our own production. So we utilize that against and for the area to keep the balance of the system as well. Okay.

There was one thing I wanted to still raise that, OK, against the question of what does the increased solar and wind do to the system? So it increases the volatility if nothing else happens. And there is limited appetite for past produced power. But reflecting on that, our portfolio with flexible hydro, with reservoir capacity and stable nuclear full load production, it's a really good portfolio. So that's at least what we see is that the customers, basically everybody is approaching us to ask for quotes for long-term and medium-term supplies of power, so volume and price indications. So we can see that for us it's critically important that we take good care of our competitiveness, of our production cost and the availability of our assets. They clearly have high value for our customers today and going forward.

That's great. Thanks very much.

Thank you so much. And I think it's really good to end on this note. Thank you for the really active discussion and dialogue today. Very good questions. I'm especially happy that we were discussing the long-term prospects for Nordic's power market and Fortum. Let's continue the dialogue then offline. Unfortunately, we are technically now limited to – end at this point but as said we're happy to continue the discussions then outside of this call wishing everyone a very nice rest of the day thank you for your participation here today thank you thank you