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 January-September interim report. My name is Ingela Ulves and I'm heading the IR team at Fortum. As always, this event is being recorded and a replay will be available on the website later today. 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 third quarter and first nine months of this year. I would also like to remind you of the upcoming Investor Day for analysts, institutional investors and other capital market participants to be held on the 25th of November. It is possible to attend both in person in Helsinki and also virtually online. The registration is open on our website until the 17th of November. As we do not want to preempt the content and discussions for the event, we aim to strictly focus on the Q3 performance and results in today's webcast, and then leave all the other topics to be addressed during the investor day. We look forward to your participation and hope that as many as possible of you are able to join us then. Now let's go to our Q3 presentation, after which we will take your questions in the Q&A session. So with this again, I hand over to Markus to start.

Thank you very much, Ingela. A warm welcome to our Q3 results call, also from my side. I will start by going through the key elements of our quarterly highlights and our financial performance, then say a couple of words about the hydrological situation. 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 a very positive point, our third quarter achieved power price was higher than last year's level, 46.1 euros per megawatt hour compared to 44.1 euro per megawatt hour, supported by higher spot prices and strong physical optimization. Realized market prices, which means the blended price for Fortum's price areas, were 17 euros per megawatt hour higher than in the third quarter last year. Then a few words about the volume challenges we have faced this year. As you remember from earlier quarters this year, both nuclear and hydro volumes have been clearly below the normal level. The same situation continued during the third quarter. So this year has been abnormal when it comes to generation volumes. However, this should be seen as temporary due to hydrology and unplanned nuclear outages. It shows quite clearly in this third quarter, which is typically the smallest quarter result-wise in our business. As said, unavailabilities in our nuclear generation fleet still continue to impact the fourth quarter. Tiina will talk more about generation volumes in her part of the presentation. The efficiency improvement program is coming to an end now by the end of this year. Fortum reduces 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. In July, we announced the acquisition of a wind power project development portfolio in Finland, 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. With the acquired 4.4 gigawatt portfolio, Fortum's pipeline of onshore wind and solar projects in the permitting phase is approximately eight gigawatts, with more projects in the early development phase. Potential investment decisions for these projects will be made case by case. The projects will be backed by customer PPAs and need to meet our investment criteria. Currently, there is sufficient power supply in the Nordic area, and we can sell PPAs from our existing outright portfolio. Fortum's coal exit progress is with the decarbonization of the sub-CHP plant in Poland. Today we announced that we will invest approximately 85 million euros in the plant's retrofit. This is in line with our target to exit coal by the end of 2027. On another positive note, we also updated our optimization premium for the year 2025. Now we estimate the optimization premium to be approximately €10 per MWh for the year 2025. Previously, we forecasted €7 to €9 per MWh for 2025. The main reason for the increase is higher power price volatility. The lower nuclear volumes this year also contribute slightly to the higher premium. Then I move over to our main figures and financial KPIs. Here are our familiar comparable headline KPIs for the group's third quarter and for the first nine months 2025. As you see, all KPIs decreased in all periods, which reflects the lower generation volumes. In Q3, our comparable operating profit totalled 97 million euros, while comparable EPS amounted to 8 euro cents. On a cumulative basis, the group's comparable operating profit amounted to 674 million euros. Our comparable EPS was 59 euro cents per share. The operative cash flow was at a good level. However, it decreased to 787 million euros. For the balance sheet, our leverage, defined as financial net debt to comparable EBITDA, was basically unchanged at 1.0 times at the end of September. Tina will go into more details on the result analysis in her part. Next, I will say a few words about the market environment, especially hydro conditions. Let's look at the situation of the hydro reservoirs for the Nordic market. It's good to note this is not only Fortum's reservoirs. As we have 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 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. The unplanned outages in our nuclear fleet, mainly in Oskarshamn 3 in Sweden, reduce our annual nuclear volumes by approximately 3.6 terawatt hours for the full year 2025. This is based on announcements so far. The current estimate is that Oskarshamn would come back online on 1st of November. We have also highlighted the risk of lower hydrovolumes for the full year. Unfortunately, this seems to be the case. For the last 12 months, hydro volumes are 17.8 terawatt hours compared to a normal hydro output year, which is between 20 and 20.5 terawatt hours. It is not possible to give an estimate for the full year as hydro conditions might change. But the assumption is that our annual hydro volumes will be below that of a normal hydro year. Still coming back to the power price volatility. Lately, we have again seen increased volatility, partly because of the introduction of the 15-minute market. The continued high power price volatility supports our capability to generate the premium through our optimization. From a value creation perspective, this is reflected in the updated guidance. We expect our optimization premium for this year to be approximately 10 euros per megawatt hour. This concludes my part, and I would now like to hand over to Tiina to tell more about our 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 third quarter amounted to 97 million euros. In the third quarter, both our comparable net profit and comparable EPS decreased. This reflects the lower result in the generation segment. At the same time, our consumer solution business is doing well as they generated a record high third quarter result. We are very satisfied with the consumer solutions result performance this year. Our comparable net profit for the quarter declined to 70 million euros. Consequently, our comparable EPS for the third quarter declined to 8 euro cents compared to 14 euro cents last year. Comparable EPS for the last 12 months is now 77 euro cents. Our cash flow during the quarter declined by 218 million euros and totaled 131 million euros, mainly reflecting the lower result. Then over to the segment result for comparable operating profit. Compared to the previous year, our result in our generation segment decreased, while both consumer solution and other operation segment improved. In the generation segment, comparable operating profit decreased by 84 million to 92 million euros, mainly due to the lower nuclear and hydro volumes, lower hedge power price, and somewhat higher property taxes in nuclear and hydro in Sweden. It is also notable that similar to the second quarter, the hedge ratio was high also in this quarter as a result of the lower volumes. The result contribution from the Beelax wind farm was slightly negative. Seasonality is reflected in the district heating business, which was loss making, mainly impacted by lower sales price for power in Poland. As said, the third quarter shows good performance in our consumer solution business. The comparable operating profit reads an all time high third quarter level of 23 million euros. This is an increase of 17 million, which mainly relates to the improved electricity margin in the Nordics and improved gas margin in the enterprise customer business in Poland. In the other operating segment, comparable operating profit improved by 6 million euros, showing a negative result of 80 million euros. The main reason for the improvement was lower fixed cost and higher internal charges for the services of enabling functions. Then let's move on to the cumulative result waterfall for the segments. When looking at the waterfall for the first nine months of the comparable operating profit at the segment level, it shows the same pattern as for the third quarter. Compared to the previous year, the result in our generation segment decreased, while both consumer resolution and other operation segments improved. In the generation segment, comparable operating profit decreased clearly by 305 million to 648 million euros. The main reasons were lower hydro and nuclear volumes, lower spot and hedge power prices, and somewhat higher property taxes in Sweden, as well as higher nuclear fuel costs. The result contribution of the Pelax wind farm was slightly negative and lower than in the comparison period as a consequence of lower power prices. In the comparison period, the result of the renewable business was positively impacted by a sales gain of 16 million euros for the divestment of the Indian solar power portfolio. The result of the district heating business was at the same level as in the comparison period. Lower fuel and CO2 cost as well as higher heat price offset the impact from lower sales price of the power. Reaching an all-time high level for the first nine months, the consumer solution segment's comparable operating profit increased by 36 million and was 96 million for the first nine months of the year. The continued improvement was mainly as a result of improved gas margin in the enterprise customer business in Poland, improved electricity margin in the Nordics, and approximately 13 million euros of cost synergies. In the other operating section, comparable operating profit improved by 22 million and amounted to minus 70 million euros, mainly due to the positive impact from divestment in the circular solution business finalized in 2024, lower fixed cost and higher internal charges for the services of enabling functions. Then over to the leverage and liquidity. Our financial position continues to be strong, primarily supporting our objective to maintain a credit rating of at least BBB. It naturally also provides a good financial foundation in this uncertain and turbulent market environment, but it also caters for growth and shareholder returns. When considering our capital allocation principles, we balance leverage, investments and dividends, while always keeping the credit rating in mind. Fortum's current long-term credit rating by both S&P Global Ratings and Fitch Ratings is now BPP+, with stable outlook. I want to go through the reconciliation of our financial net debt in the third quarter. As you can see, it is fairly unchanged. At the end of the second quarter, our financial net debt was 1,270 million euros. In the third quarter, the operating cash flow was 131 million euros, and investment amounted to 122 million euros. The change in interest bearing receivables amounted to 14 million, while FX and other FX were 9 million euros. So at the end of second quarter, our financial net debt was 1,283 million euros, and the leverage ratio for financial net debt to comparable EBITDA was at 1.0 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 total 4.7 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 in 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 billion euros with 3.1 billion of liquid funds and 3.9 billion of undrawn committed credit facilities and overdrafts. The cost for our 4.7 billion euro loan portfolio is 3.3%. While the interest income that we get for our 3.1 billion euro liquid funds has come further down and is now 2.1%. With the strong liquidity position, we 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 section, the outlook. The outlook section comprises four familiar elements, guidance for outright portfolio, taxes, capex guidance and our fixed cost reduction program. As we have stated already a few times today, we will fall clearly behind the normal historical output level this year because of announced unavailabilities in nuclear and lower expected hydro output. For the sake of comparison, in a normal year, our annual outright volume is approximately 47 terawatt hours. Based on announced outages, nuclear output for 2025 is now estimated to be 3.6 TWh lower this year, of which 3 TWh realized in the first nine months of 2025. Our hydro output for the last 12 months was 17.8 terawatt hours compared to the normal level of 20 to 20.5 terawatt hours. About the hedges. At the end of the third quarter, our hedge price for the rest of 2025 was 42 euros and the hedge ratio was 90%. The hedge price for 2026 is 41 euros, one euro higher compared to the last time disclosed, while the hedge ratio increased by 10%, it's 0.270%. As an update today, our annual optimization premium for the year 2025 is estimated to be approximately 10 euros per megawatt hour. Previously, it was between 7 to 9 euros per megawatt hour. 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 percent. The Finnish government plans to decrease the corporate tax from 20 to 18 percent 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 in Sweden, the 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. The major part of the cost increase is recorded in our fixed cost. We do not make any changes to our capital expenditure at this point of time, as this year is about to come to the end. However, we will come back to this topic in our investor day. Finally, a few words in our fixed cost reduction program. For the first nine months, our fixed costs were 615 million euros. For the last 12 months, fixed costs totaled 884 million euros. We reduce our recurring annual fixed cost base by 100 million euros, excluding inflation, by the end of this year with a new run 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 870 million euros. This includes the fixed cost increase of 20 million euros in the 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 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.