Fortum Oyj

Mans Holmberg - IR Pekka Lundmark - CEO, President & MD Markus Rauramo - CFO

Wanda Wierzbicka - Credit Suisse Sam Arie - UBS Javier Garrid - JPMorgan Peter Bisztyga - Bank of America Merrill Lynch Artem Beletski - SEB Dominik Olszewski - Morgan Stanley James Brand - Deutsche Bank Jose Lopez - Millennium

Hello and welcome to Fortum's Half-Year Financial Report Webcast. We will be webcasting today here from Espoo, and we have our CEO, Pekka Lundmark; and our CFO, Markus Rauramo, who will be presenting the results for you.

We will then, after the presentation, have several minutes then or enough time for questions, both from the audience and from the lines. But welcome, and I hand over now to Pekka.

Thank you very much Mans. Dear investors ladies and gentlemen, thank you for joining us today in our Q2 webcast and Q&A.

I would summarize the quarter by saying that there are several positive and then there are a couple of not so positive items in the quarter which I will go through. On balance my conclusion is that it was slightly below our expectations after pretty good Q&A in tough market conditions though, after a good Q1 we were slightly below the previous year in comparable operating profit.

We were of course ahead of last year in EBITDA but we were - honestly saying we were hoping to be slightly above previous year or so in comparable operating profit but the biggest difference then to our own expectations was the hydro volume in the quarter which was 14% below last year's level. Of course Q2 is always seasonally weak and this year was no exception.

Before I talk about the result, I will briefly comment the overall strategic situation that we have, if I only get this thing to work. Now it works thank you.

And I want to start from the - perhaps the most important event in the quarter from strategic point of view and that's the Hafslund restructuring. It is proceeding well.

We have now approval from Oslo city council which is of course a big milestone in the process. It was a unanimous decision to support.

We also have all the regulatory approvals that are needed and exactly in the same way as we said already a quarter ago we expect to close the deal during the third quarter. This is a truly important milestone in our strategy because that will add to us once than consolidated into our numbers on 2016 pro forma basis about €950 million of new sales and about €130 million EBITDA.

So this is a very important deal. And this marks a big milestone in our strategy implementation because now taking this deal and then Ekokem and DUON and the ongoing organic investments in solar and wind and the Polish waste-to-energy.

It means that out of the 9 billion to 10 billion that we received in the divestments, out of that we will now have committed about 20% and the interesting thing is I also say in the report that we will have once this is integrated and the solar and wind are in operation, we will have replaced close to all of the free cash flow that we lost in the distribution divestment. We will have replaced approximately and these are rough numbers half of the EBITDA but almost entire free cash flow and the reason of course being that the new business is that we will have instead of the distribution business are in relative terms less CapEx intensive for the free cash flow generation in those businesses is stronger and this is very important because as you remember already from last year's capital markets as we have explained, we're putting a very high priority on the cash generation when we are deciding the different targets for the capital reallocation.

So in general I would say that we are in pretty good way in our strategy implementation but of course the fact being that Hafslund was an important milestone we of course continue to keep our eyes open remembering those three criteria that we have communicated, we are looking for consolidation deals that would be close to our home markets within our existing core competencies and that would include already existing cash flow and this way we want maximize our cash flow in order to be able to be a competitive player in the dividend market and at the same time be able to enough - invest enough money into the future energy system of the 2020s. So that was a very quick strategy implementation, recap before then going into the details of the second quarter result.

Wholesale prices increased, they are still on low levels. As said we are slightly behind last year in comparable operating profit even though we are 5% ahead of EBITDA.

The biggest reason being generation which was 20 million behind. At the same time, the clear highlight of the quarter again was the Russian performance €53 million comparable operating profit compared to $33 million last year, this was now the second quarter in a row with extremely good Russian performance and also the outlook for that business continues to be fairly promising.

Important to note that the earnings-per-share is strongly affected or impacted by the Swedish income tax booking of €123 million which is a negative impact of $0.14. This is not cash flow effective because this taxes where paid already earlier and Markus will get more into details about the taxes.

There is also some positive development on tax side, but we wanted to be more on the conservative side now in the reporting, so that's why we are taking this charge of 123 million now in this Q2. Hafslund I already mentioned just to confirm that the fixed cost reduction program will continue according to the plan and we will reach the 100 million that we are targeting.

At the same time as you may have noted, the costs or actually the result in the other segment is €10 million lower than it was a year ago. This is intentional.

That segment includes many other things then the group administration which is not growing in cost spending includes extremely an important investments in the future it includes R&D, it includes increasing investments in new ventures in digital consumer services, in smart homes, electric car charging, new fuels for district heating and new ventures in demand response, all being important investments for the future. That segment also includes wind and solar and this is very important to remember to put things into perspective and understand why the number is what it is.

We have currently 69.5 megawatt wind in operation but we are currently building, constructing 212.5 megawatts. We have currently 85 megawatt of solar in operation but we're constructing 100 megawatts and this is why also we note in the reports that these are intentional investments that are expected to then start generating corresponding returns most of them from 2018 onwards.

This is really important to understand that the other segment it's a collection of many things and there is a bit of apples and oranges in the same basket. Market conditions in the second quarter, we have a 2% increase in electricity consumption in the Nordic region in Q1 but the first half of the year is roughly on the same level as the year before.

Prices do look a little bit better. They are still on a low level.

Systems spot price 27.4 for the quarter up from 23.9 last year, Finnish area price 30.9 and then the Swedish price is area three and Sweden 28.5, €2 higher than last year. The CO2 price is continuing to be on a very low level.

It's only €5 per ton. The efforts by the commission which are now in the third-party negotiations to put the renewable on the tier system into legislation by the end of the year are proceeding quite - in quite a promising manner and there is now a good case for expecting that - the ETS system will be strengthened which would then hopefully start supporting the CO2 price in the years to come.

In Russia electricity consumption was higher in Q2 than a year ago because of cold weather and prices when it comes to spot prices, they were fairly stable in our regions in Russia. Then when we look at the water reservoirs and this goes then back to the hydro production issue.

As you remember, we actually have now a full year behind us when you look at this curve you can see the dotted line which is the average - the reference level. We have now a full year behind us where the actual first in 2016 which is the dark green curve and then 2017 which is the brown or orange curve are behind the reference level.

Throughout the second quarter with the exception of the very beginning and the very end of the quarter, the reservoirs were on a low level. We have now a last 12 month production of 18.6 terawatt-hours of hydro for the last 12 months when our normal average is 21.5.

So it's 3 terawatt-hours less production through our hydro assets in the last four quarters than average and this of course is very visible in the results including the second quarter results. Commodities, no dramatic changes perhaps worth noting is the coal price which increased quite a lot at the end of last year from very low levels and this is of course one of the factors that have started to support the electricity price.

If I then move to the electricity price, the system price has now for some time been stable between 25 and 30, 27, 28 or something like that roughly in the same level as last year. The interesting thing is that in the last couple of months we have seen an increase in the forward prices for the rest of the year and also some increase for 2018 and 2019.

Markus will comment our hedges but this is one reason behind the positive development in the hedges that we were able to report. Price once again I already commented but year-over-year - second quarter year-over-year is plus 15% spot price and our achieved price which is then a combination of the spot price hedges and area price is - was €30 per megawatt hour, slightly down from 30.5 a year ago.

In Russia our achieved price for the quarter was up 19% in euro terms quite good development €27 per megawatt hour and that of course includes the capacity prices and then the spot prices in Russian ruble they were unchanged as I already earlier commented. I already discussed most of the items in the P&L so EBITDA up 5%, comparable operating profit slightly down and then earnings per share affected €14 since - by the tax booking.

Taking that tax booking away, we are roughly on the same level in earnings per share as we were last year and then of course in Q1 we were on a pretty good level. So overall we are looking okay if we take that tax booking away.

But again, I'm now repeating myself but prices are still on a such low level that we cannot be happy with this level of general profitability but against the market conditions that are prevailed we are fairly satisfied with our performance and earnings level. But then of course very important for the coming quarters will be the integration of Hafslund so that we get the additional EBITDA profit and EPS effect now into the numbers of the coming quarters including also the synergies that there I expected to be in that business.

Then quick comments for each business, I'll start from generation already mentioned that the share price was €30 compared to €30.5 last year. Hydro production for the quarter was 4.9 terawatt hours, that's down 14% from last year's 5.7.

This is the reason why the operating profit was lower. Nordic power sales which is an item that is actually driving - the result was €318 million versus €325 million.

This is important to note because - yes you can see here sales the top line is up from 384 to 402 but Nordic power sales was slightly down from 325 to 318. Nordic hydro reservoirs at the end of the quarter they were still slightly 2 terawatts hours below the level a year ago.

What was positive in this quarter of course was excellent nuclear availability despite the fact that those cost - one was permanently shut down a couple of weeks earlier than was originally planned but in addition to that or besides that the general nuclear availability in the quarter was good and actually as you saw from the numbers, nuclear production was higher in the quarter than a year ago. City Solutions benefited from colder weather.

Heat sales were up from last year but more significant to the top line and also EBITDA was the integration of Ekokem. Ekokem was not in the numbers last year, this year it was in the numbers that affected both topline and it's the fact that the EBITDA grew from 20 to 37.

But you know seasonality extremely weak quarter as we have for the heat business unfortunately the incomparable operating profit was very low. It was only 1 million against 5 million negative last year.

Of course here all the EBITDA improvement that comes from Ekokem does not come through to the EBITDA line because there is an also the additional depreciation coming from the purchase power - purchase price allocation. Consumer Solutions is now reported as a separate unit comparable EBITDA and operating profit both down from last year.

This actually shows how important it is now to increase scaling this business and the fact that we now get half Hafslund and then growth from 1.3 million to 2.4 million consumers in the Nordic region is an extremely important milestone. This drop in the operating profit and EBITDA comes roughly equally from two sources.

I emphasized roughly just to give you a general idea. One is that there is margin erosion in this business.

High margin customers migrating not very fast but still as a general direction towards contracts that typically have slightly lower. Margin competition is also very tough which is affecting margins.

The flip side of this coin is that if you want to deal with this situation going forward, it is very important that you invest in product development, in new business models, in new solutions in order to be able to defend your margin. Now that's why we have made a conscious decision to increase our development spending in new digital solutions, digital applications, smart homes, other things that we will offer to the consumers in the future in addition to the standard bulk electricity sales which in the current business model form will be under - most likely under increased margin pressure.

So that's why we now get a double effect into the result increased development spending which is of course discretionary and it's intentional, expect to generate results in the future and then the ongoing margin erosion. From the third quarter onwards when we then expect to close the Hafslund deal, we will then get of course a bigger scale into this business.

Hafslund markets EBITDA in 2016 was NOK585 million. And then finally Russia which as I already said, it was again the highlight of the quarter.

Good result for a second quarter in a row. We have a comparable EBITDA of 88 million compared to 64 million last year, comparable operating profit 53 versus 34.

Here we still benefited from ForEx, despite the fact that in the past few weeks, the Russian ruble has weakened, we still benefited compared to last year from a stronger Russian ruble. That effect was about €4 million positive on the comparable operating profit line.

But it's a small fraction of the overall improvement and the real improvement comes from higher CSA payments, higher heat sales and also from more efficient operations in terms of lower fuel costs, lower fixed cost and improved bad debt collection. So I would say that, all the key operational aspects in which are really generating the result in our Russian operations, they have been developing to the right direction recently.

Then on the strategic investment side, the main news of the quarter in Russia was the successful participation of our joint investment company - joint investment company with RUSNANO with 50-50 ownership and investment funds that participated in Russian wind auctions and actually was quite successful, won right - I emphasize right to build 1000 megawatts of wind in Russia over several years. It is a CSA capacity supply agreement based system.

Our maximum commitment to this fund is 240 million or actually RUB50 million equity to be paid over several years, we are talking about roughly speaking five years of investment horizon through this fund. In addition to the equity that both us and RUSNANO into this fund, the aim is then to finance the rest of the build-out with local nonrecourse funding in Russia from local banks ruble - local ruble financing.

This is a CSA based system, so we - the fund will get paid for capacity but if you make a rough estimate and calculate that how much production this capacity would be expected to generate et cetera, we are roughly looking at tariff - comparable tariff of €115 to €135 per megawatt hour and I think we have every reason to be pleased with this result. This supports the long-term ambition that we communicated at the Capital Market Day last year where we said that our long-term ambition is to build 500 megawatts of wind power for us in Russia.

One more number and then Markus will continue. I turn your attention to the fact that we now have 399 million, so let's call it 400 million comparable EBITDA in Russia for the last 12 months.

So this 100 million is quite an important milestone as well - as a 12 month running - rolling EBITDA in Russia. Thank you for my part.

Now Markus will continue and then after that we are ready for questions.

Thank you, Pekka. I will summarize the second quarter just by this figure.

In a nutshell I would say that City Solution and Russia Division are now living up to their - starting to live up to their potential. So they are really realizing what the potential in these businesses can be.

In Consumer Solutions, the result is something we have expected. So margin pressure, tougher competition but then investing in the new products, investment into the future, we expect payback for these investments.

And then on the other investment into R&D, investment into technology, new venture, solar and wind, same thing 2018 we start the expect - these investments start to payback. And on the same note, we have the 100 cost efficiency program, cost reduction program.

That program has been going very well. Very accurately we are following that carefully month by month, line by line so the cost consciousness, cost focus is there absolutely.

Overall the same applies for the first half of the year. City Solution Russia delivering on many fronts, things going to the right direction.

We have the intentional development and future spending where we expect to payback and then on the generation, as well as for Q2 and for the first half-year, the low hydro volume is putting pressure on the result. But overall I would say that strategically we are progressing as we have planned.

On the income statement, the notable thing is that the topline sales is growing, City Solutions Russia especially are contributing to the growth. And one thing to note again is that, when the Hafslund restructuring gets consolidated, this would put about 25% more on the topline and 13% on the annual EBITDA.

So a very significant contribution from the new restructuring. Then if I just take the key thing from the income statement in the second quarter, on the items affecting comparability, nothing special there.

The hedge fair valuations are impacting our result, so that's one part of the EPS impact, also that that you can see. Share of profits of associates joint ventures in Q2.

The main contribution is coming from Hafslund and TGC-1 and then Varme contributing in the first quarter of the year. On finance costs, the finance cost is going up a little bit but actually interest cost came down.

Net debt is down 1.1 billion. The interest on the tax payment and the decision we got from the court 7 million is in these numbers and then fair value changes but like for like interest cost is coming slightly down.

And then we booked the tax decision and that is visible on the income tax expense. Now that decision we will appeal of course but the reason we booked is that the supreme administrative court would take this for the handling is up to a decision.

So now we took the decision to - book this on the tax line. And I will talk about on the cash flow slide about the payments.

So Swedish tax case $0.14 and the items affecting comparability $0.04 and in second quarter last year $0.05 so a very close to each other when we clean these one type of items away. On the cash flow statement then EBITDA up year-on-year.

Very small movement on the FX gains and losses. The paid net financial cost on a very normal level in Q2 this year but last year we actually did pay 127 million of the taxes already.

And just one note there, also when we have seen it from a liquidity point of view and then out the interest point of view reasonable to pay the demanded taxes we have been doing. So we have very limited cash flow exposure to the tax cases we have opened at the moment.

Then in the change in working capital, normal seasonality a little bit improving and then NASDAQ future settlement brought some positive cash flow also for working capital this quarter. Then when we go down the lines, CapEx on a steady level 128 million, on the acquisition of shares, the biggest item was the last Ekokem shares that we acquired on some smaller parts.

Change in cash collaterals, this is the remaining NASDAQ forwards. So gradually over the coming years, this number will then shrink away and we will move completely to the futures so than the moment is solely in the working capital.

And then in other investing activities, this is the receivables - basically receivables from associated companies and then the remaining part of the divestment proceeds. But all in all cash from operating activities 230 million, so that was clearly better than last year.

Then I'll I move to the debt portfolio. So debt total interest-bearing 4.7 billion average interest rate at 3.4 and when we look at just the Euro and Swedish interest, it is at the level of 2.0%.

So competitive level and a new issue markets of course if we need to be there would also be at historically very low levels. Maturities this year very small, next year around 600 million.

So from a liquidity point of view very little pressure for us on the debt side. On the key numbers on the balance sheet, EBITDA around 1.1 billion last 12 months and interest rate bearing debt 600 million on net bases.

So comparable net debt to EBITDA at 0.6. Liquidity is very strong.

We have 4 billion in liquid funds, balance sheet is strong and we have headroom available. And then finally for the outlook, we continue to expect that electricity demand will grow about 0.5% on average and we see that electrification continues to push ahead electric vehicles where mentioned -I think we see the newest flow all the time, so giving potential upside in the future for electricity demand.

CapEx guidance remains the same. Maintenance CapEx at the level of 300 million, depreciation around 400 million, so we are keeping well below that.

And then we are making significant investment into the future also on CapEx. So CapEx guidance for this year approximately 800 million.

Hedge levels for '17 we have actually taken down. We were at 55% previous quarter for this year, now 45% and the hedged price up €1 to €30 per megawatt hour.

For 2018 the hedge level is the same 45% but our hedge price is up €1 to €28 per megawatt hour. We continue to guide for the same effective tax rate around 20%.

The positive news is as we have learned earlier that Sweden has made significant changes in the nuclear taxes abolishing them completed by 2018 and then decreasing the real estate tax rate down to 0.5%. And we had appealed for previously paid taxes into the Swedish administrative court with regards to one of our companies in Sweden and we got the positive decision 53 million in euro terms taxes that were actually also paid to us from a cash flow point of view.

This will be visible in our Q3 numbers. The tax authority has the possibility to appeal for this and they don't need a permit to do it, so because of that we have not made the profit and loss booking on these taxes but from a cash flow point of view these taxes we have received.

This was shortly the presentation for Q2. So now I think Pekka and I are happy to take questions.

Mans please?

Thank you very much Markus and Pekka. So we will now move to questions and let's start if we have any questions here in the audience.

Or if not, then operator we will go directly to the lines.

Wanda Wierzbicka, Credit Suisse. Two question from my side.

Firstly on your wind auctions in Russia, would you be able to give us more details like your estimated cost megawatt, expected timeline, expected power generation something seem that - the information given by either Russia. And secondly on your cost cutting plan, how much have been achieved so far?

Where are you looking for your savings? Thank you very much.

Okay, thank you. I'll take the first one and Markus takes the second one.

We are not in a position at least yet to comment the cost side. Of course we have very detail calculations.

We had a lot of discussions with technology suppliers. There are certain requirements when it comes to localization of certain parts of the technology.

All these play into the equation. I want to emphasize one thing that this investment funds that we have in Russia this joint venture with RUSNANO, it now has a license right to build 1000 megawatts but the actual investment decisions have not yet been made and they will not be made in one go in one chunk for 1000 or anything like that, most likely in smaller pieces project-by-project 50 megawatts here and 50 megawatts there.

And then we will throughout that time we will be of course optimizing the cost side as we go. The cost of technology continues to go down.

What we have now fixed and this is the good thing is the tariff side, the income side for this. And then case-by-case depending on how the cost situation looks like, we will then make the investment decisions, but we are not yet in a position to comment that what that cost would be.

And then with regards to the cost program, so the 100 million is for the like-for-like costs. So we look at the group before doing acquisition before Ekokem acquisition.

And then we have separated the underlying cost and the new investments. So you will still see some result of these if you could see the like-for-like numbers but at the same time as you saw from the presentation quite visibly, we have been increasing the investment into the future in technology, new ventures, new businesses and R&D.

So it's hard to see from the actual numbers but some impact is still left. We have been following this very carefully and the actions we are started I would say one and a half years ago and put in force quite quickly.

So some part of this is still to come but mostly all the actions are there, they’re running already.

So most of it is in the run rate already there is still some small things to come, but most of it is in there now.

May I give a quick follow-up question, what is your R&D expense estimated for 2017?

Our published R&D expense for 2016 which is the last year when we published this was 1.4% of the sales if I'm not mistaken, Rauno is looking for the euro number there we're talking about 40 something.

But should we assume 1.4% going forward for 2017, 2018 and 2019 or are you going to increase your R&D expenses?

If we are increasing it in relative terms, it will not be a dramatic increase. There may be a small relative increase but nothing really dramatic.

Of course our sales are also increasing. So that gives us some room to increase.

This is the R&D part now we're getting the number, 53 million and that was 1.4% of sales.

I have some three questions if I may, the first is on your capital redeployment strategy and you did guide earlier in the year that we should expect a significantly deployment of capital during 2017. And I think since we last spoke there has been some coverage in the media that you might have been looking at a transaction involving Uniper on the other hand beyond that signal the sale of Uniper shares might not take place until 2018 for tax reason.

So I just wanted wondered if there is - I am sure you won't comment on Uniper but if you could confirm whether your guidance were significant part of the capital redeployment that will take place this year whether that guidance still stands if there is any update. That’s my first question.

And secondly on the retail business if you could just give us a sense there whether the margin pressure you described will prevent you from being able to grow at the retail EBIT on a like-for-like basis. I’m saying setting aside the customer you required through Hafslund.

Do you think you’ll be able still to grow EBIT from the retail businesses by these pressures? And then thirdly my last one is very easy I just noticed that your hedge ratio for the rest of this year is little under 50% and I think at the same time last year it was more like three-quarter so I just wondered if there is any change in your hedging strategy and if perhaps you see upsides to the Nordic forward price there, for some reasons why you’re holding back the hedges.

Those are my three, sorry for so many, but thank you for answers.

I’ll take the first two and then Markus takes the hedging question. When it comes to the redeployment strategy, if we go back to the time when the divestments were published, we already then said or published us a rough strategic target that redeployment would take about three years.

And we have only to maintain that and we repeat that also at the Capital Markets Day where we said that our target I think we’re already did something like that the main part of the redeployment would be done by the end of 2017. Of course that is still our goal, but at the same time it's not a target that we will do at any cost.

So it is more important to do good deals than to do deals by a specific date and that's why we explained three criteria that we have for the redeployment targets. Hafslund meets all those targets extremely well.

So I would say that that's a classical example of exactly the type of deal that we would be interested in doing. We are looking at multiple possible situations at the moment in different parts of Europe in different countries whether anything will materialize in the near future I do not want to speculate on.

I repeat what I have said that the most important thing is to do good deals that are good for the shareholders if it takes longer than it takes longer, but it is important to do it in the right way and not be in too much hurry. So this is the comment about the strategy and the redeployment.

Then retail, I mean I would love to be able to answer that question that how it will look going forward. Of course Hafslund will add a lot of new customers 1.1 million new customers.

It will add a lot of new EBITDA and EBIT, actually the EBIT or profit per customer in Hafslund is higher than in Fortum today and the reason is that there is much more electric heating among those customers in Norway then there is today. Hafslund also gives us important synergies because that business - it's a little bit like banking but at the back office and the system costs are a significant part of the deal.

And of course now when we get a larger customer base in a way fund the development of these systems it's going to be a very important synergy driver. But then when it really comes to the margin pressure and then how the profit we’ll look in the future, now when we 2.2 and have 2.4 million consumers, the key thing will be profit per customer not only through the standard traditional electricity retail contract as we know it today.

That type of a business model will be under increasing pressure when it will be easier and easier for consumers to compare deals and always automatically select the most attractive deal. That's why this needs to be done in the future through product development where you target to increase revenue per subscriber or customer not subscriber that's telecom business.

But customer who is heading this business and sitting here he is coming from telecom but here we’re talking about customers, increase revenue and profit per customer through widening the scope of offering into new types of services. And this is what we are putting a lot of development money at the moment and will be looking more into this in the future.

So this explains the kind of strategic rationale for this business. This is a long explanation and I unfortunately have to end it by saying that I will not be able to give a more detailed answer to your question.

And then Markus the hedges.

Yes, yes the one thing I'll still note on the retail is that the basis to cost to sell for us is very competitive, so that gives us the possibility even in the very traditional way to plug in smaller customer basis. So that possibility we have all the time but I think for the future it is absolutely clear that the new product development is needed.

Then for the hedges, the hedge level for the rest of the year did come down but this - the hedge levels in Q2 for the rest of the year when we look historically it has varied between 45% and 75%. So this is not out of normal range but I think it clearly indicates that we do see potential still in the end of the year with the hedge ratio coming down.

I think I'll leave it at that. So message there is clear.

Can I just maybe on the retail business, because I understand that’s a difficult, but its obviously new information you’ve given us today. I will just try different way of asking but if I have it right, I think with Hafslund deal have just under 2.5 million customers referred in Norway, Sweden and Finland.

Is that right and is the margin pressure that you've been describing on this business equal in all those three markets, or is it particularly in one market that you’re feeling it?

Yes, it's not equal in all markets. So our portfolios, customer portfolios are different in different countries.

So we see different type of pressure, different movement from fixed price contracts to support contracts, so it's certainly not equal and we also live very closely on the parts of the markets. We can change our activities on a daily or weekly basis depending on the market situation.

So we follow that closely a number of competitors is very large.

As Markus said earlier, we are well equipped to participate in tough price competition if needed because we are so competitive on the cost but one additional reason why we cannot yet go into any more details about the strategy is the simple fact that Hafslund transaction has not even been closed yet and that means that we have no ways to look at the details of that business or give instructions we're still competitors on the market and we are extremely limited when it comes to doing any joint planning or anything like that. That will have to wait until we are really owners of the business and then we can come back to your question and hopefully shed some light on the future strategy.

Good afternoon. Couple of questions.

Firstly on Hafslund and I understand totally the restriction in what you can comments. But instead of looking for a way, we look backwards.

The EBITDA of Hafslund markets has increased very substantially by NOK240 million in the last three years. Are you comfortable with that NOK585 million of EBITDA in market as a sustainable number or is there any element of non-recurrence.

And the second question on Hafslund you have mentioned systems, again there have been examples of problems in the integration of systems in different suppliers when they have been together. How comfortable are you with the compatibility over the systems of your platform and Hafslund platform?

And then the other question was on your deployment of capital. You have mentioned that you have invested so far approximately 20% of the €9 billion to €10 billion that you raised in your disposals but seems you made the disposals and the profits from your power business, power generation business have dropped and you have paid substantial amount of dividends.

Do you still believe that your reinvestment capabilities can reach €9 million to €10 million or is it fair to assume that you will be able to easy fair to assume that you will be able to reinvest a small amount of money than would you look from the disposal? Thank you.

I’ll take the second question and Markus get ready to comment Hafslund. What will determine the headroom available for the remaining investments is of course what type of targets we find because of course one key criteria like in Hafslund where we get 130 million EBITDA is the cash generation potential of the target because of course we have a group target of net debt-to-EBIDTA of 2.5 and how much than the target provides additional debt capacity is when determining and key determining factor when we are deciding.

You're absolutely right, that we have now two years behind us where we have actually returned some of this money to shareholders through paying a higher dividend €1.1 dividend even though the operative results per share – earnings per share has been lower than that. So this goes back then to the dividend question which we have commented earlier and there we are looking at both redeployment and dividend in one package so that until we each roughly that targeted gearing, we will be looking at the dividend decision separately each year and that decision will be based on the availability of acquisition targets, market outlook and the current balance sheet situation.

And all these in fact play into that decision and of course what kind of acquisition targets and how much we would be able to investment in that is one key element in that equation. So I do not have a one number for you that this it, how many billions it is that we would be able to invest because it simply depends on what type of targets we would be investing in.

And then if I take the Hafslund related questions, so I will only comment about historical events and I think I'll leave the future commenting then for Q3 or whenever the transaction has closed but historically we see similar development, good improvement in profitability. Now for our own part we also see that competition is defending in all three countries that have been mentioned but that's just what we see.

And then for the for the sustainability we really leave that to opine on once the transactions are closed. When it comes to systems and of course it's a fair question, there could be efficiency gain there.

We are very aware of the issues that you pointed out, so this are very delicate especially if we have several millions of customers we cannot afford any mistakes. So we approach this very carefully, we will do our homework properly before taking any decisions.

We have ongoing system implementations going on right now and we put a lot of diamond and very good resources for that exactly because of these reasons but also because these system renewals are part of preparing for the future. So what we see now is that systems are bringing us the possibility to launch new products, to digitalize our business in a completely different way, great open platforms where you can plug in new type of applications, new type of services in a much more agile way than before and I launch out new launches even on a weekly basis if needed or even more frequently.

So I see a lot of potential on the system side not only the recent part but when you do the upgrades you have do it very careful.

Two questions from me. One just following on from your comments regarding M&A and European power generation.

You mentioned that you're looking at a number of European countries. A while ago, you said you had no intention of expanding further in Russia and does that still stand or if acquisition opportunities arise in Russia, would you consider those, that's my first question.

The second one, just clarification on the number and apology if you already motioned, but could you just tell us what the platform 2016 net income impact of the Hafslund transaction will be please?

If I comment Russia first, I repeat what we had said earlier, we have now after we have finalized the big construction projects, the organic investments where we have built eight new gas-fired units or with two gigawatts of new capacity. We have no plans to start new projects of similar size in that country.

What we are doing though is smaller projects we are building wind and what we also have said that absolutely we have as we always have an interest to keep our eyes open for different types of transactions where we might be selling, buying or trading assets. So we are not saying no to deals in Russia in general and actually as I said the market environment currently looks quite promising of course there are risks also in every country, but right now it looks quite promising.

But we’re not planning to start new multi-billion euro construction projects in the similar way as we have just completed.

And then shortly on the Hafslund impact so I give a little bit more color because there are more moving parts then just the pro forma numbers. So the transactions actually go so that we tender our shares for €730 million we acquire then businesses for €970 million.

So the net investment we do is €240 million and through that we would have 100% of Hafslund market business. Then we combine Hafslund heat, Klemetsrudanlegget into a 50-50 joint venture owned by city of Oslo and Fortum and that we consolidate in our numbers.

And then we buy 10% of Hafslund production and that would be reported as an associated company. With these we will get a one-time sales gain of around €330 million so that's €0.37 EPS with preliminary numbers and that will then eventually show also in our full year EPS numbers.

The topline would increase by about €950 million and EBITDA would increase €130 million and then once we do the purchase price allocations et cetera then we will see the operating profit impacts after that.

Okay, thank you.

And these you can find by the way in our previous presentation.

This is Artem Beletski from SEB. Actually, three questions from my side.

So coming back to consumer business in Q2, so you're basically flagging two topics, which have been praising earnings. Are we talking about - if I look at the magnitude, I was basically talking about maybe, let's say, €5 million to €10 million visible in the quarter.

And are these two issues fairly similar in terms of earnings impact size. Then what comes to other segment, and really, there is a lot of stuff happening with solar and wind investments coming onstream.

Going forward, are you planning to provide some further details or better transparency in terms of operational performance within the segment? And the last one is actually relating to Olkiluoto 3, and the TVO came out earlier today stating they have been achieving some further process when we comes to arbitration process.

Is it an important milestone in your opinion? And what is your best guess, how long this dispute will be continued?

Thank you.

Markus takes the TVO question without getting into too much detail those two components the margin pressure and then the discretionary investment in development are roughly of the same size in terms of various impact in the quarter, but this is only a rough guidance. Then when it comes to solar and wind absolutely when the portfolio grows we will need to – one way or another shed more light on the operational performance.

We do not do this it is so far been so small the impact that this has been an insignificant issue, but of course we will need to look into this in the future when the portfolio grows.

And then with regards to the - if I understood correctly the TVO arbitration so this was the third partial award concerning the different main claim proposals that have been handled in the arbitration. As you have seen in the TVO stock exchange release, the decision was clearly positive on TVO account and it strengthens the view that TVO treatment, TVO approach has been correct and also the same goes for the accounting impacts.

There is one main claim proposals still to be handled and awarded and then the financial award so these two are still to come and this award was important because this was really a core claim in the suppliers arbitration demands so important for TVO but of course the key thing is that their project gets completed in the timeline that the supplier has indicated.

Just two, my first question is within the Consumer Solutions Business aside from margin pressure will be with this addition in product development spend continue into 2018 and onwards. Is there any specific one project taking out most of the spend?

And then my second question is on Swedish nuclear fund. Obviously there is a review every three years on the nuclear wastage and you expect a final decision in December.

Do you have any expectation on the financial impact Fortum and are there any other material impact?

Now getting back to the development investment in the consumer solutions, this is something that we will now after Hafslund deal closes we will plan together with them when we see their customers what the trends are there, what their customers are wanting to have and what type of development programs Hafslund have ongoing. So that's why it is unfortunately premature now to give any guidance on how much the development spending would be in the future.

Of course this type of spending is necessary but it also needs to produce returns and the good thing is that it's discretionary. So if it does not produce the desired return it can be stopped and this is what - now we’re looking after we close the deal with Hafslund and what are we spending on what are they spending on, how are we going to optimize that whole development investment in the future, but this is something that we will need to come back later after the deal has closed.

Then when it comes to the Swedish nuclear fund I turn also to Rauno and Mans. We have a note also on that but which number was it and then to Tiina that is there anything out what we have reported that we are expecting that we should comment I don't think so.

So it’s note 15 but when it comes then to the financial impact we have not indicated a figure for that.

Okay, thank you.

Yeah but you can find the details in note 15 report.

Good afternoon. I also had a question on Olkiluoto3.

I was just wondering whether you could give an update as to where the projects up to now because I believe the latest was you would be commissioning it this year and so come online next year. I know you’re a bit limited in terms of what you can say because TVO is the kind of main company that makes announcements, but if you could just give an update on that that will be great.

I can also see from the forward curve that there was a bit of downwards drop in spreads for Helsinki area over the next couple of years. I just wondering if you had any thoughts on that or whether you put that down Olkiluoto2 coming online and potentially easing some of the capacity pressures in Finland.

And then thirdly also on Olkiluoto, you low trends nuclear fleet in the first half of this year pretty spectacular, but they look like that mid 90% maybe even in kind of high 90%. Is there anything we should watch out for in terms of how should things that make that unsustainable or do you generally think you can sustain that kind of pretty spectacular performance?

Thanks.

Markus will take the second one but coming back to Olkiluoto, I mean the information we have is that the supply consortium has informed TVO that the target is to start electricity production by the end of 2018 that's the only information we have and we have no reason to question that that information. Then when it comes to the impact to finish area prices after the production is there, well 1600 megawatts hours if it runs say 1,000 hours we're talking about - clearly more than 10 terawatts hours of production.

Swedish nuclear production is actually going down then there is some increase in consumption there is still some thermal going out, there is some new wind coming in. All this will play against each other is the demand supply balance and this is in the area as you remember from the past that we of course have our own models we are making our estimates that how the curves will look for the future, but this is not something that we would publish.

And then the final question I think was on the good availability absolutely that we noted with pleasure and I think we are very happy about - now that this goes into the same category as realizing our potential. So this is when we are really putting our competence into play this is what we can deliver.

So of course there can be one-off issues, but we cannot give a guarantee that this would continue in the future, but good work from our nuclear people.

Okay. I think there are few questions we would have time for one more question.

I have one question. In terms of sustainability target, you have sustainability target of being under 200 brands of CO2 per kilowatt hour for the short-term that till 2017 and could you tell us a little bit what is your aspiration in terms of this metric over the midterm say up to 2020 and how committed are you to this?

Thank you.

We are extremely committed to lowering our CO2 footprint. We have different types of portfolios in different countries and of course this then goes back to what type of portfolios we will be buying.

We have said one thing which is the most important driver in our strategy and also in the vision for a greener world that we want to increase the CO2 free production in our portfolio. So that is the long-term direction that we want to take and to the extent we have as we have had for sale assets we will then look at how we can optimize their emissions, what is the right time to shut them down and this is part of normal operation.

We are very happy with the achievements that we have made the fact that 97% of our production in the EU was CO2 free last year and we hope to be able to continue on this path also in the future.

Thank you very much Pekka and Markus and thank you audience and thank you all for a very active participation today. And if they were still any unanswered questions, please give a call to Rauno or me and we will answer them gladly and otherwise we will see you at the latest in three months time.

Have a nice evening. Bye-bye.

Thank you.

Thank you.