Fortum Oyj Corp Ord

Good morning, everyone. A warm welcome again to Fortum's joint webcast and news conference for the investor community and media on our half-year report, January-June 2025. My name is Ingela Ylves and I'm heading the investor relations at Fortum. As always, this event is being recorded and a replay will be available later today on our website. With me here in the studio are again our CEO, Markus Raurama, and our CFO, Tiina Tuomela. Markus and Tiina will present the group's financial and operational performance during the second quarter and first half of this year. After the presentations, we will take your questions in the Q&A session. So with this, I hand over to Markus to start.

Thank you very much, Ingela, and a warm welcome to our investor and media call also from my side. I will start by going through the key elements of our quarterly highlights and our financial performance. Then I will say a couple of words about the hydro situation and the latest update of power demand projections by 2030. After that, Tiina will provide more details on the financials and how the operational performance turned into our results. Let me now start with the highlights. Starting with the reminder, in our business, the second and third quarters are typically small quarters result-wise. This also applies to this year. Despite lower power prices, our second quarter achieved power price was almost at last year's level, 48.1 euros per megawatt hour compared to 48.6 euro per megawatt hour, supported by high hedge ratio and good physical optimization. realized market prices were 23% lower than in the second quarter last year. In her presentation, Tiina will explain in detail the dynamics of the optimization premium and hedge effect. This year is especially characterized by low volumes, which should be seen as temporary due to hydrology and unavailabilities. When it comes to hydropower in Q2, generation was record low because inflow during the quarter was low in our generation areas. In addition to the lower hydro generation, we also highlighted in connection with our Q1 results that there were and still are unavailabilities in our nuclear generation fleet. This means that total generation was record low and amounted to 8.8 terawatt hours, which is as much as 2.2 terawatt hours lower compared to the second quarter last year. At the end of the quarter, we closed the acquisition in our consumer solution business in which we bought Orange Energia, a retail business, electricity retail business in Poland. Through the acquisition, we doubled our amount of retail customers in Poland. As part of the agreement, Fortum will continue to sell electricity and related digital services through Orange Polska's nationwide retail sales distribution network at least until the end of 2028. The efficiency improvement program is progressing according to plan and schedule. Fortum targets to reduce its annual fixed cost by 100 million euros, excluding inflation, gradually until the end of 2025. The full run rate will be effective from the beginning of 2026. We estimate that the new fixed cost base in 2026 will be approximately 850 million euros. This excludes the increase in the Swedish property tax from 2025. On 23rd of July, after the reporting period, we announced the acquisition of a project development portfolio for wind power in Finland, in which we bought from the German renewables developer and constructor ABO Energy. This acquisition strengthens our development pipeline for renewables as we prepare for future growth. Our target is to have at least 800 megawatts of ready to build projects to serve our customers when demand starts to grow in the Nordics. With the acquired 4.4 gigawatt portfolio, Fortum's pipeline of onshore wind and solar projects in the permitting phase reaches approximately eight gigawatts, with more projects in the early development phase. Potential investment decisions of these projects will be done case by case. Each project will be linked to a customer PPA and needs to meet our investment criteria. Currently, there is enough power supply in the Nordic area, and we can sell PPAs from our existing outright portfolio. Our financial position remains strong, also following the dividend payment of 1.3 billion euros. At the end of the second quarter, our financial net debt was 1.3 billion euros. Uncertainty in the operating environment has continued due to ongoing geopolitical conflicts and US tariff plans, and may pose challenges to major industrial investments in the Nordics. To support economic growth and long-term investment planning, a steady and reliable regulatory framework is essential. This is relevant, for example, for the taxation of planned data centers. In our view, public intervention should serve to support industrial investments rather than restrict them. Then over to our main figures and financial KPIs. Here are our familiar comparable headline KPIs for the group's second quarter and for the first half year 2025. As you see, all KPIs decreased in all periods. This was mainly a consequence of both low generation volumes and lower power prices. Major part of this negative effect relates to the clearly lower volumes. In Q2, our comparable operating profit totaled 115 million euros, while EPS amounted to 9 euro cents. On a cumulative basis, the group's comparable operating profit amounted to 577 million euros, our comparable EPS was 0.51 euros per share. The operative cash flow was at a good level, however, decreased to 656 million euros. And on the balance sheet, our leverage defined as financial net debt to comparable EBITDA was at 0.9 times at the end of June. Tina will go into more details on the result analysis in her part. Next, a few words about the market environment, especially hydro conditions. The picture on the left hand side shows the hydro reservoir status for the whole Nordic market area, not only Fortum's reservoirs. As we communicated earlier this year, reservoirs were record full during the winter, meaning in the first quarter. However, the water was mainly in Norway and northern parts of Sweden, where Fortum does not have hydropower. As the winter was mild and the snowpack was thin, this resulted in very minor spring floods. Because of this, the reservoir levels decreased fast in the spring, and as you can see, now the reservoirs are close to normal level. As we have said, generation volumes will be clearly lower this year. There has been quite a lot of unplanned maintenance in our nuclear fleet. Based on announced unplanned outages, we now estimate approximately 2.9 TWh lower nuclear volumes for the full year 2025. We also mentioned the risk of lower hydrovolumes for the full year. Unfortunately, this seems to be the case. You can see that for the last 12 months, hydrovolumes have been 18.3 TWh. Our normal year hydro output is somewhere between 20 and 20.5 terawatt hours. It is not possible to give any estimate for the full year, as hydro conditions might change. But the assumption is that our annual hydro volume will be below that of a normal hydro year. Just to highlight how hydro volumes can fluctuate, our lowest hydro output year was with 18.1 terawatt hours in 2013, and the highest output year was 25.2 terawatt hours in 2012. On a positive note again, the continued high volatility in the Nordic spot price supports our capability to generate a premium through optimization. In June, the Nordic Transmission System Operators, or TSOs, updated their projections for power demand in the Nordics. According to the update, power demand is expected to grow to 550 TWh per annum by 2030. The estimate decreased slightly from earlier and shows a postponement in expected demand for hydrogen production, but at the same time, it shows increased demand by 2030 from data centers and other sectors. At Fortum, we continue to see robust underlying customer demand from our customers in various industrial sectors, which we believe reflects power demand growth longer term. Despite this, we have not signed any significant new long-term power purchase agreements recently. Our customers continue to focus more on short- and mid-term contracts over the next three to five years. This concludes my part, and I would now like to hand over to Tiina to tell more about business performance.

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. I will start with some of the comparable KPIs. The comparable operating profit for the second quarter amounted to 115 million euros. In the second quarter, both the comparable net profit and comparable EPS decreased. This is reflecting the lower result in the generation segment. At the same time, we are very satisfied that our consumer solution business generated a record high second quarter result. Our comparable net profit for the quarter declined to 87 million euros. Consequently, our comparable EPS for the second quarter declined to 9 euro cents compared to 20 euro cents last year. Comparable EPS for the last 12 months is now at 0.83 euros. Our cash flow during the quarter declined by 135 million euros and totaled 203 million euros for the second quarter. Our cash flow was strong while leverage increased due to the dividend payment in the second quarter. Let's move over to the income statement to look at certain items in more detail. The income statement is pretty straightforward, starting with our Efficiency Improvement Program. In 2024, our fixed cost showed a small decrease, and that trend has now continued in the first half of 2025. In the second quarter, fixed costs were 209 million euros. We have earlier communicated that the 2026 fixed cost base will be 850 million euros. This excludes the increase of 30 million euros in the Swedish property tax. It is good to keep in mind that we have actions in place to develop our business and prepare for future growth, which increases our development cost. And this means that the fixed cost will still increase during this year. When looking at the associated company result and financial items, there were some one-of-type items mainly related to the nuclear cost updates and adjustments, which we have reported in detail in our notes in the report. The comparable effective income tax rate was within the guided range at 19.2% in the first half year. Then over to the segment result for comparable operating profit. Compared to the previous year, the result in our generation segment decreased, while both consumer solutions and other operation segments improved. In the generation segment, comparable operating profit decreased by 143 million to 121 million euros, mainly due to the lower hydro and nuclear volumes, lower hedge power prices and somewhat higher property taxes in the nuclear and hydro in Sweden. In the comparison period, the result of the renewable business was positively impacted by a sales gain of 16 million euros from the divestment of fortum remaining share in the Indian solar power portfolio. The result contribution of the Peelax wind farm was slightly negative. The result of the district heating business decreased mainly due to the lower sales price for power in Poland. The second quarter shows good performance in our consumer solution business. The comparable operating profit reached an all-time high second quarter level of 26 million euros. This is an increase of 14 million euros, which mainly relates to improved gas margin in the enterprise customers' business in Poland, improved electricity margins in the Nordics, and approximately 5 million euro cost synergies from the completed brand mergers, including Telye Energi. We are especially satisfied that we now see the impact of cost synergies from the brand mergers from the Bolton acquisitions that we have done. The total estimated cost synergies for this year are 13 million euros. In the other operation segment, comparable operating profit improved by 11 million euros, showing a negative result of 32 million euros. The main reason for the improvement was the divestment finalized in 2024 in the circular solution business. Next, I would like to highlight a few things about our value creation in our generation fleet. Let's look at the composition of our achieved power price. Please note that this is an illustrative picture. When breaking down our achieved power price for outright portfolio in our generation business in a smaller component, we basically have three elements. The first pillar is our area weighted realized market price, or what we refer to as our blended price. The price area mix in our generation fleet is 46 in Finland, 37% in Sweden price area three, and 17% in price area two. This can vary depending on the market conditions and availabilities. For the second quarter, the blended market price was 26.4 euros per megawatt hour compared to 34.3 euros in the second quarter last year. The second element in the optimization premium, which you add on top of the market price, It is important to note that the optimization premium applies to 100% or total volume of our generation, irrespective of the hedge ratio. Another point which is good to note is that the optimization premium is for the physical generation, while hedges are financial. In 2024, the premium was 8.7 euros per megawatt hour. And for this year, we have guided it to be in the range of 7 to 9 euros per megawatt hour. And the third component is the hedge effect. As said, hedging is financial hedging, so hedges are settled with money, not with physical delivery. Open hedge positions are not bought or delivered physically. If needed, we always have an opportunity to open new or close existing position. As we closely monitor and manage our hedge position, the risk of big financial losses is rather theoretical also in the situations with the high hedge ratios. As we disclosed in the interim report, the hedge ratio in the second quarter was high because of the low hydro and nuclear generation volumes. At the end of the Q1, we reported a hedge ratio of 75% at 40 euros per megawatt hour for the rest of the year. This indicates that the hedge price in Q2 was clearly higher than the blended market price of 26.4 euro per megawatt hour. Consequently, the hedge effect was positive for the quarter. Then let's have a closer look at how we create value in hedging and optimization premium on top of the market prices. This picture shows how much we have created value above market price. The created value includes both optimization premium and effect from hedging. In the first quarter of 2024, the market price was 63 euros per megawatt hour. In that quarter, we generated only one year additional value. Then again, when you look at the last five years, the average market price was 33 euros per megawatt hour, and we generated an additional 18 euros per megawatt hour on average. Similarly, the value creation in the third quarter of 2024 was 24 euros per megawatt hour. In the second quarter of 2025, it was 22 euros per megawatt hour. This is good to keep in mind when looking at achieved power prices going forward. This confirms both that the value creation happens especially with the low market prices, and it also shows that a higher hedge ratio is not necessarily a negative thing. Then let's move on the cumulative result waterfall for the segments. When looking at the waterfall for the comparable operating profit of our segments in the first half year, it shows the same pattern for our second quarter. Compared to the previous year, the result in our generation segment decreased, while both consumer solution and other operation segment improved. In the generation segment, comparable operating profit decreased clearly by 221 million to 556 million euros, impacted mainly by lower hydro and nuclear volumes, lower spot and hedge power prices, and somewhat higher property taxes in nuclear and hydro in Sweden. The negative effect from the price and volume components was partly offset by high hedge ratios in the second quarter and good physical optimization. The result contribution of the Belax wind farm was positive, but lower than in the comparison period due to the lower power prices. In the comparison period, the result of the renewable business was positively impacted by a sale gain of 16 million euros from the divestment of Fortum's remaining share in the India solar power portfolio. The result of the district heating business improved mainly due to the lower fuel and CO2 cost as well as higher heat price and volume, partly offset by lower sales price for power. The cumulative result for our consumer solution business comparable operating profit increased by 19 million euros and was 73 million euros for the first half of this year. The main reasons for the improvement are improved gas margin in the enterprise customer business in Poland and approximately 11 million euros cost synergies from the completed planned mergers, including Telye Energi. In the other operation segment, comparable operating profit improved by 16 million euros and amounted to minus 52 million euros, mainly due to the divestment finalized in 2024 in the circular solution business. Then over to the leverage and liquidity. Our financing position continues to be strong. Primary support in our objective to maintain a credit rating of at least triple B. It naturally also provides a good financial foundation in this uncertain and turbulent market environment. When considering our capital allocation principles, we balance between leverage, investments and dividends, while always keeping the credit rating in mind. In June 2025, FITS upgraded its long-term credit rating from the previous rating of BBB with stable outlook. Fortum's current long-term credit rating by both S&P Global Ratings and Fitch Ratings is now BBB+, with stable outlook. I want to go through the reconciliation of our financial net debt in the second quarter. At the end of the first quarter, our financial net debt was 13 million euros. In the second quarter, the operating cash flow was 203 million euros, and investment amounted to 162 million euros. As mentioned several times already, the dividend of 1,256 million euros was paid in the second quarter. The change in interest bearing receivables amounted to €8 million, while FX and other effects were €35 million. So at the end of the second quarter, our financial net debt was €1,270 million, and the leverage ratio for financial net debt to comparable EBITDA was at 0.9 times. Looking at our debt portfolio and the loan maturity profile, I want to highlight a few things. At the end of the quarter, our gross debt excluding leases totaled to 4.6 billion euros. Bonds are and continue to be our primary source of funding. Our maturity profile is very balanced and there are no large maturities any single year. The next maturing bond is 750 million euros in 2026. At the same time, our liquidity position is strong. We have ample liquidity reserve, 7.1 billion euros, with 3.2 billion of liquid funds and 3.9 billion of undrawn committed credit facilities and overdrafts. The cost of our 4.6 billion euro loan portfolio is 3.3%, while the interest income that we get for our 3.2 billion euro liquid funds has come further down and is now 2.2%. With the strong liquidity position, we will continue to optimize our cash and credit lines. The overall objective is to have sufficient liquidity while optimizing the balance between debt and cash to minimize funding costs. Then over to the final sections, the outlook. The outlook section comprises four familiar elements, guidance for outright portfolio, taxis, CAPEX guidance and our fixed cost reduction program. First, a reminder that while our normal annual outright volume is approximately 47 terawatt hours, because of announced unavailabilities in nuclear and lower expected hydro output, we will fall clearly behind the normal historical output level this year. Based on announced outages, nuclear output for 2025 is now estimated to be 2.9 TWh lower this year, of which 1.3 TWh realized in the first half of 2025. Of the effect expected in the second half of the year, the majority is estimated to materialize in the third quarter. And just note that our last 12-month hydro output is 18.3 terawatt hours compared to the normal level of 20 to 20.5 terawatt hours. About the hedges. At the end of the second quarter, the hedge price for the rest of 2025 was 41 euros and hedge ratio was 80%. The hedge price for 2026 is 40 euros, one euro lower compared to the last time disclosed, while the hedge ratio increased by 10 percent points to 60 percent. Our annual optimization premium for this year is estimated to be between 7 to 9 euros per megawatt hour. Good to note, however, that there usually are quarterly variations, as you know from the past. The guidance for our corporate tax rate also remains unchanged for the years 2025 and 2026. We expect the comparable effective income tax rate to be in the range of 18 to 20%. The Finnish government plans to decrease the corporate tax from 20% to 18% from the beginning of 2027. There is, however, no official law in place yet. Our very preliminary estimate is that this would result in a one percentage point decrease in the corporate tax rate from the year 2027 onwards. I also want to repeat that the Swedish property taxes are revised from 2025. For Fortum, the increase of the property taxes is now estimated to be approximately 30 million euros for the years 2025 to 2030. A major part of this cost increase will be recorded in our fixed cost. Our capital expenditure remains unchanged. Capital expenditure for the years 2025 to 2027 is expected to be 1.4 billion euros. This includes maintenance, but excludes potential acquisitions. Finally, a few words on our fixed cost reduction program. As you saw, our first quarter 2025 fixed costs were 200 million euros and second quarter 2025 fixed costs were 209 million euros. We aim to reduce our recurring annual fixed cost base by 100 million euros, excluding inflation, gradually until the end of 2025 with a new front rate from the beginning of 2026. Our current estimate is that the new run rate for our fixed cost base in 2026 will be approximately 850 million euros, excluding the increase in Swedish property tax. As mentioned before, there are additional costs for growth in 2025. These are related to, for example, renewables development, site development, build-up of the commercial organization and the hydrogen pilot project. This was all for my presentation, and we are now happy to answer your questions. So with this, Ingela, over to you.