Fortum Oyj

Mans Holmberg - Investor Relations Pekka Lundmark - Chief Executive Officer Timo Karttinen - Chief Financial Officer

Alberto Gandolfi - Goldman Sachs Vincent Gilles - Credit Suisse Dario Carradori - Goldman Sachs Mikko Ervasti - DNB Bank Lueder Schumacher - Societe Generale Ingo Becker - Kepler Cheuvreux Sofia Savvantidou - Exane

Thank you very much, Mans. Dear investors, welcome to this Fortum Full Year Results Conference from my part as well.

It was not done that long ago when many of you were in this same auditorium where we are now presenting from – at the Capital Markets Day. And I can say that happy to have you back.

This was operationally a good year, but in very challenging market conditions. That’s, I guess, the best way to summarize the result of the year.

As we all know, the beginning of the year was very much characterized by load of challenges on the commodity market, lot of volatility and also unusually high hydro reservoirs and all these things were creating – putting a lot of pressure on power prices basically in the first half of the year. And as a result, even though there was a clear recovery towards the end of the year, unfortunately, our – both our EBITDA and our operating profit, comparable operating profit, stayed below the previous year’s level.

And we cannot, of course, from looking everything in perspective, be happy with the €644 million operating – comparable operating profit that we generated. This comes more or less directly from mathematics.

We had hydro production that was 20.7 terawatt hours compared to 25.1 terawatt hours a year ago. And when combining that with the full year achieved power price of 31 compared to 33, a year ago, this is the result, which is of course visible then in the generation segment.

But as I said, in the beginning, operationally, the year pretty much met our expectations. Our power plant availability was good.

No big surprises there. So, most of these things that were kind of in our own control we can be reasonably satisfied with, including the fact that the fixed cost €100 million cost reduction program that we have been implementing is pretty much in plan.

During the year, we worked a lot in our strategy financial targets, vision and mission were renewed and especially the strategy part, when it comes to capital reallocation, was in focus during the Capital Market Day in November. Already before that, we had earlier in the year announced two acquisitions Ekokem, which takes us to new revenue streams, strong existing cash flow, though maintaining a connection to our traditional core, i.e., the energy system.

And obviously, DUON earlier a much smaller acquisition, which creates a growth platform for us in the consumer and business service market in Poland. The Capital Market Day presentation of, as you may remember, what we called Phase 1 and Phase 2 in our strategy is really an important one, and obviously, continues to be extremely valid also today.

We are in the middle of strategy Phase 1, where the reallocation of the capital that we have from the divestment of the distribution networks is driven by a strong desire to acquire businesses that have existing cash flow and that are within our existing core competences. So as you may remember, as I put it in November that we have decided to resist the temptation to put significant parts of our capital today into all the exciting things in the future energy system that, yes, will be very much needed in the 2020.

There is no question about that. But the unfortunate fact from our cash generation and obviously investor’s point of view would be that most of those things are fairly weak in terms of their short-term cash potential.

And that’s why we decided to take another route looking to maximize our cash flow and then using the cash flow for two purposes: number one, paying a competitive dividend and number two, investing into this future energy system in the – of the 2020s. So this has been, clearly, in our focus.

This has been also reflected in the dividend proportional, which we really spent good quality time in the board meeting yesterday and arrived at this proposal where the board looked at a range of factors, including macro environment, balance sheet strength, and obviously, our existing and future investment plans and came with the proposal of €1.01 per share. Again, as you remember, from November, we said there that when we look at our dividend policy, we need to look at Phase 1 and Phase 2 of our strategy separately.

As long as Phase 1 continues, which is the reallocation of capital this will be each time a case-by-case. This is where these factors that I just explained will be separately considered.

And this is what is reflected in today’s proposal as well. But then equally clear is that once our balance sheet has normalized so that we have reached targeted gearing level of 2.5x comparable EBITDA, of course, after that, the dividend will have to be sustainable and thus reflect the 50% to 80% payout ratio that we have in our dividend policy, so slightly different kind of approach to the dividend decision in Phase 1 and Phase 2.

And this is exactly, as I explained, this is also in November. So we believe that this, what we are proposing today, is fully in line with that logic.

Then, if I move on with – to market conditions in 2016, the electricity consumption in the Nordic region was slightly up, little bit less than 3%, up 390 terawatt hours compared to 381. If we want to be really prudent then to talk about temperature corrected electricity consumption since 2016, it was slightly colder than 2015.

A comparable figure would be roughly 1%, which again is fully in line with the guidance that we have had out there for quite some time which is that there would be a long-term trend of 0.5% growth per year. The price development was interesting and quite volatile throughout the year, in the early part of the year especially the forwards were extremely low.

We were looking at €17 and €18 prices of as low as €16 per megawatt hour, but then there was a significant recovery towards the end of the year. And the system spot price for the whole region was then finally €26.90 for the full year when it was €21 the year before.

So there was a quick – a real kind of turn during the year. And in relative terms, this turn was faster and stronger in Sweden, where the price went from €22 to €29.20.

In Finland, the price also recovered from slightly below €30 to €32.4. So this price recovery was of course a very positive thing for us.

Less positive is that the CO2 price remains – continues to be weak. It closed at €6.50 and the weakness has actually continued even lower today when the back-loading has ended in the system.

On that note though, there is growing momentum in Brussels now to renew and tighten the emission trading system with new proposals on the table that would start to tighten the system from 2019 and 2020 onwards. And we, of course, continue to be strong supporters of these policies.

The Russian consumption increased slightly, marginally, I should say, but the electricity spot price, excluding capacity price increased a little bit 4.3% during the year. Then if we zoom into the water reservoirs, the orange color here indicates the development earlier this year and the dotted line is the reference level, i.e., the long-term average.

And as you can see, we are in Nordic reservoirs now below the long-term average. And especially, if you look at the development in 2016, which is the dark green color in this presentation, you can see that at the beginning of the year, we were clearly above.

Then, in the beginning of the third quarter, there was then a turning point where we moved below. And after that, it was actually seasonally very dry.

And as you can see, especially now in Q4, when you look at the difference between the dotted line and the dark blue line indicating last year, there is a big gap that continued to be there throughout the quarter. And an unfortunate thing for us which obviously is even more so below – beyond our control is that, when you look at reservoirs in Sweden, in our areas compared to other parts of Sweden and those of Norway, in our areas, the reservoirs are in relative terms even lower than in other parts of Sweden and Norway.

And this is a significant factor behind the fairly weak production numbers that we had in the quarter. The weather turned in a way in week-45 and so after that, the rain has been actually on a higher than average level.

And as you can see on this chart also the season started to normalize towards the end of Q4, but as said, we are still below average. Commodities played a big role in pricing this year.

Most commodities oil, coal and gas, they all increased through the year, especially towards the end of the year. The Chinese situation has been a key driver in the coal pricing, production restrictions, reductions in or restrictions in terms of coal miners work time, etcetera, has been playing a role here and the volatility has been quite remarkable actually towards the end of the year.

But in general, there has been a recovery trend in the coal pricing, which was one of the factors that were supporting the price in the fourth quarter. Here, you see the price development and strong but short peak that we experienced in Q4.

There was I think somebody called it a perfect storm where we had unusually dry weather. At the same time with the coal price peak and the Chinese production reductions and this to place at the same time where there were – when they were French nuclear production outages.

And the combination of these three factors was one way or another behind the peak that we saw. And now as was expected, this has now kind of normalized.

And now we are currently trading around €30 per megawatt hour when we talk about the spot market. Of course, now the spot market price was strong in Q4.

It was as high as €35.4. It was 57% up from Q4 the year before.

Our achieved price was 8% lower. Our achieved price for the quarter was actually reasonably good under the circumstances when we remember the fact that we were 80% hedged at €29 when third quarter ended.

But this is pure mathematics, because of that hedging we were not able to take advantage, full advantage of the strong spot price in Q4. And when you combine this with low volume, remembering that the extra volume would have been coming in at spot prices, the effect is even stronger.

So this explains the €31.50 that we have achieved in the quarter, despite the high spot price. In Russia, in achieved price, which includes the capacity payments, the development was actually quite encouraging.

We had – even if we correct for the stronger ruble in Q4, we are looking at 17% improvement in achieved price in Russia for us. Then if we move to P&L, of course as a whole, we are not happy with the result level.

I would still say that under these circumstances, €1 billion comparable EBITDA was reasonable achievement. This was down 8% year-over-year, comparable operating profit down 20%.

Operating profit, of course as reported is much stronger than a year before. But this of course is totally messed up because of the various items affecting comparability.

So it’s better to look at EBITDA and operating profit on a comparable basis. When you look at cash flow here, it looks ugly.

But in reality there is a couple of things behind it that Timo will soon go through that – explains the big difference. They are more of a technical nature.

So the real underlying operational cash flow actually pretty much met our expectations. Quick comments still about each division generation, the hydro production was on full year basis 18% lower than the year before and Q4 was minus 28%.

And this again goes directly into the result, EBITDA for the quarter €116 million, €173 million the year before. Of course – and this is now old news already, but getting more and more kind of confirmation from a Swedish side that this actually will be implemented into legislation, the decisions and the recommendations from the energy commission that were published last summer that we expect to lead a positive effect on our operating profit – comparable operating profit of €80 million per year once fully implemented.

This would be comparison between 2016 and 2021 when we would have the first year when the full year effect of also the hydropower property tax reduction will be visible in the P&L. You have been provided with all these details regarding the schedule as these taxes will be reduced.

This is of course very positive news for us. City Solutions made good progress through the year, even though – especially in early parts of the year unfavorable fuel mix and lower achieved power price did burden the result in the same way as also in generation.

Ekokem was integrated from the 1 September, loaded with lot of transaction costs in Q3. But then when we look at Q4 and the EBITDA that City Solutions division generated, we have 105 versus 80 the year before.

So now the cash flow that Ekokem is generating is starting to come through, more or less, according to our expectations. Russia segment did have a good year.

I will show you the waterfall in a second. Q4 EBITDA €100 million compared to €81 million the year before.

The big investment program has now been completed and now the main focus is in productivity. There is still some potential on the cost side as well.

We are working on the availability of the plants. And our target continues to be that RUB18.2 billion operating profit, including our share of profit of TGC-1 will be achieved in 2017 or ‘18 and we have today no reason to change this forecast.

Looking at waterfalls, if I take Q4 first, the change in the result is explained by Generation 1.6 terawatt hours lower. Hydro volume is €2.7 lower achieved price, so that results in this €55 million lower result.

City Solutions had a slightly better result despite the fact that there was in the comparison quarter a one-time positive effect in the consumer business. So the underlying improvement is actually slightly better than the €10 million, but €10 million is what we are reporting.

Russia had reported comparable operating profit €3 million lower, but in the comparison quarter, there was €20 million higher CSA for recent release. We got a slight positive currency effect €2 million in the quarter.

So netting all these out, we had €15 million better local ruble term operating profit in the quarter – comparable operating profit in Russia. So that was good news.

Similar pattern for the full year, €144 million lower result in generation 4.4 terawatt hours lower hydro volumes, of course, compared to the over 25 terawatt hours, which was one of the highest ever. This was now closer to the normal slightly below normal, actually when 2015 was exceptionally high and then again, €2 lower price.

But then looking at Russia, this was operationally a very good year because the €10 million lower reported profit needs to be put into perspective remembering that we had €50 million higher CSA release in 2015 than this year. And on the full year level, we still suffered from translational effect between ruble and euro of €13 million negative translational effect.

So combining these three, we end up at €53 million better operational result in Russia in ruble terms than in 2015. And that was a good achievement from our Russian team.

So I finished my part here. Now, I ask Timo to continue and go through – among other things, the cash flow situation, and then after that, we are ready for questions.

Thanks, Pekka and good afternoon everybody on my behalf as well. As said now, let’s go through some of the items in our financials starting as usual from the differences between the comparable and reported operating profit.

And generically, of course, these items affecting comparability, they include things like sales gains, changes or provisions, etcetera, but specifically for us an energy company like us, trading with and hedging with energy electricity derivatives. So we, in every quarterly reporting, we have some impact from these IAS 39, i.e., derivatives mainly used for hedging our new rig power production and then also on the other hand, these nuclear fund adjustments.

So as you can see from this page, these net effects were really minor during the fourth quarter plus 14 actually for the fourth quarter. And then also for the whole year among other things, we had also the Ekokem transaction costs there in the items affecting comparability.

For the whole year, it was net minus 11. So also whole year, it was minor impacts this year.

Included in this minus 11 for the whole year, the biggest single item was minus 65 coming from this Nordic electricity hedges impact there on the fair values of those hedges. Then moving forward to the income statement, commenting a couple of lines that Pekka hasn’t gone into detail yet, starting from the share of profits from associates and joint ventures, a €15 million during the quarter.

Inside this €15 million, we have minus €27 million, a one-off item coming from Swedish Oskarshamn, OKG nuclear power plant. And the fact there behind is that Sweden is now going through the technical update of the decommissioning cost of nuclear.

And connecting to that and especially for Oskarshamn 1 and 2, that as you remember, there was a decision to prematurely close them last year. So therefore, those costs and the cash flows for that decommissioning, they are now closer in the timeline.

And those two things connected this technical update and the changes [indiscernible] that we have made that €27 million negative correction here. Without that correction, the quarterly share of profit from associates and joint ventures would have been €42 million, so improvement from last year.

Likewise, then the whole year €131 million without that minus €27 million, it would have been €158 million, so, of course, significantly higher than last year. The last year’s number €20 million on a whole year basis 2015, in that, we have more than €100 million negative impact from the decision to prematurely close the OKG 1 and 2 power plants.

Then to the net financial expenses minus €34 million on the quarter, so improvement of €18 million quarter-on-quarter a whole year basis improvement by €6 million to the level of €169 million. But once again, in the 2015 number of minus €175 million, we have €37 million plus impact on us due to the compensation that Varme, our joint venture in Sweden with the City of Stockholm, they had shareholder financing from us.

To them, they paid that back – advanced payment as they took external financing and they paid compensation for the advance payment of €37 million during 2016, so that is included. Without that the improvement year-on-year would have been €43 million in the net finance cost as we should improve as the sort of general interest cost has been continued to go down and we have also paid down our debt.

Then to the income tax expense €37 million on a quarterly basis and €90 million during the year, this is when we look at the comparable effective tax rate, i.e., we take away the impact of the share of profits from associates and nontaxable sales gains. So, our comparable effective tax rate during 2016 is 20%, so well within our guidance of 19% to 21%.

Also, then when you look at here the 2015 numbers, they are a bit messed up because of these large write-offs and provisions regarding Oskarshamn 1 and 2. So therefore, we had actually a positive income tax booking yearly on 2015.

Having said that, let’s now turn to cash flow. And I said, there are two things – two underlying things to bear in mind when you look at our 2016 cash flows.

I will start from the NASDAQ commodities exchange, which is the Nordic exchange where we trade the electricity derivatives that we use for hedging our Nordic production and where we also sort – then on the buy side, we hedge the electricity that we sell to our customers in our retail sales business. So when 2016 started, NASDAQ took care of the counterpart risk exposure through bank guarantees, which was a good and flexible and a low cost solution that required no cash, so it had no cash impact to us or other traders.

But then because of the change in the European regulation, these bank guarantees sort of non-fully bank guarantees were no longer acceptable. Therefore, NASDAQ moved first into cash collateral.

And we, during – mostly during second quarter and third quarter, we put all in all, more than €300 million worth of cash collateral to back our hedging activities and that cash collateral is visible in the other investment activities line inside these cash used in investing activities. So, it’s interest bearing.

Therefore, it’s booked on that line. But then that was not convenient for anybody and that was requiring a lot of cash from all trading participants.

So then NASDAQ moved towards the end of third quarter and for fourth quarter, NASDAQ moved into – into cash – into daily settled futures in the trading. So that’s better for us.

It’s daily settlement. So there are no extra margins, but of course, that settlement also requires cash balance.

And that cash balance, as it is non-interest bearing that gets booked into change in working capital. And now I get into the numbers, because this worsening of our working capital is mainly due to these cash – the daily cash settlement of the futures.

€94 million during the fourth quarter out of this worsening of €136 million of our working capital, €94 million is attributable to these daily settlement payments. And during the whole year, we made those payments €139 million.

So actually the whole year working capital would have improved by €37 million instead of worsening by €102 million, if we were not to have these settlement payments. Then the other thing to bear in mind is, as you remember from our Q2 reporting, we did pay €127 million worth of Swedish kronas in Sweden to Swedish taxman in an ongoing tax dispute that we believe still that we will ultimately end – win, so meaning that we would recover that cash back.

But that is burdening these other funds from operations line, so this €613 million there for whole year basis would be improved by €127 million if we wouldn’t have made that separate tax payment. So all-in-all, our quarterly cash from operating activities would be €244 million instead of €150 million.

And our whole year cash from operating activities would be €887 million instead of €621 million without these two effects. And then on top of that there, further down in the cash used in investing activities, this other investment activities minus €457 million for the whole year that includes roughly €340 million of these cash collateral payments.

All these add up to roughly €600 million that is burdening the €1.08 billion cash flow before financing activities, the last row on this page. So this is – these are the things to bear in mind when you look at our cash flow development during 2016.

Then moving forward to our debt portfolio, first starting from the maturity profile, we had a bit more than €300 million worth of bonds maturing this year, roughly €300 million Swedish – €300 million worth of Swedish krona bonds maturing during the first quarter and approximately €50 million worth of Norwegian krona bonds maturing during the second quarter. Our total interest bearing debt at the start of the year – end of last year €5.1 billion, the average interest rate there was 3.5%, down from 3.7% year before.

We take as you remember, we take our external funding mainly in euros, some of that also in the Swedish kronas. The interest cost for that part of external debt portfolio was 2.1%, down from 2.6% year before.

And then we convert part of that external funding internally into rubles to finance our Russian operations. At year end 2016, we had €805 million worth of this financing converted into rubles.

And the increase from the year before is really due to the appreciation of ruble rate against euro. And when we take into consideration, the cost for hedging, we hedged the euro to Russian ruble exchange rate when we do this financing.

So then this ruble financing cost was 11.4% and down from 12.8% year before. We have strong financial position.

Our comparable EBITDA €1.15 billion, down bit less than €100 million during the year. We were slightly net cash positive, €48 million cash positive at the end of the year, which leaves us at zero in this comparable net debt to EBITDA, target being around 2.5 in a normalized balance sheet position.

Our internal capital employed during ‘16, 4%, target being to be above 10% over the cycle. Our liquid funds on the balance sheet totaling €5.2 billion and then on top of that at the end of the year then we have committed credit lines €2 billion at our disposal should we need them.

And now then first us briefly to outlook and then to Q&A.

Thank you, Timo. I will just focus on the new information on the outlook, capital expenditure guidance for this year €800 million, divided into slightly below €300 million maintenance CapEx and the rest growth CapEx not including acquisitions.

So these are p new growth projects that had been earlier announced. So this is the estimate, if cash flow – CapEx effect of those announced projects this year.

Hedging, we are now hedged 60% for 2017 at €30 per megawatt hour. A quarter ago, we were hedged 50% at €28.

So there you can see that we were able to take advantage of the strong market during Q4. In 2018, we are now 35% hedged at €26 per megawatt hour and that is slightly higher than a quarter ago, we were 30% hedged at €25 per megawatt hour a quarter ago.

Other guidance more or less unchanged, tax rate guidance 19% to 21%, we had exactly 20% last year, well within also the guidance for that year, the guidance remains the same for this year. And I already commented Russia, it remains this year or next year will target to be ranging €18.2 billion.

So that concludes the presentation part. And now, we would be ready for your questions.

Thank you, Pekka and Timo. We will now move to questions.

And operator we can start with questions from the lines.

Yes. Hi, good afternoon.

It’s Alberto Gandolfi from Goldman Sachs. I have a very quick question, considering the reiteration of your dividend, have you changed your mind regarding external growth and specifically could you comment if since the Capital Markets, there is something new, i.e.

would you favor single asset acquisitions, a collection of assets or your perhaps even open to maybe quickening your external growth through acquiring perhaps an entire company? Thank you.

I have to disappoint you and say that my lips are going to be sealed when it comes to the different types of acquisitions that we may be looking at I just referred to what we have said in the Capital Markets Day. And that’s still fully valid.

So nothing in today’s dividend announcement changes the Phase 1, Phase 2 strategy logic as was explained at the Capital Markets Day.

Thank you.

Yes. Good afternoon everyone.

So I am going to join the queue of trying to make you talk on dividends and acquisitions, I am going to try a slightly different angle from Alberto on trying to understand the logic of your decision yesterday on the payment of €1.1 dividend given that you spend basically 12 months talking to us about a 50% to 80% payout. And then to the second year running, obviously, your payout is largely in excess of that guidance.

So, I am not asking you for dividend of ‘17, but what I’m trying to understand is how you come to the conclusion yesterday at the board meeting that you had to pay nearly twice as much as where the guidance should lead us to believe you would pay? That’s question number one.

And question number two is on maintenance CapEx. The number is significantly lower the one you are guiding to versus the past and I’m just interested to understand how you look at maintenance CapEx in the future in the current assets that you have?

If you remember the communication, again, at the Capital Markets Day, there I think we explained it so that during Phase 1, which is the balance sheet redeployment phase, the dividend decision I think I used the word case-by-case decision every year during Phase 1, until we have reached the targeted gearing. And when making that case-by-case decision each year, the board will look at a range of factors as it did and I went through them earlier general macro environment, obviously, price outlook market conditions, our investment situation etcetera, etcetera, very wide range of factors.

And we had a really good discussion where different alternatives were considered. Of course, I will not go into details as to why exactly this route was chosen.

I would just say that we believe that we – this is fully supported by our strategy. This does not change anything in our logic in terms of capital reallocation, but we did feel that all these things considered and without dangering the investment ambition level that we have.

We would be able to afford this type of a payment even though, exactly as you say, it is higher – quite much higher than 50% to 80%. The 50% to 80% will come into picture once we are in a normal situation with the balance sheet and once we have redeployed the capital.

That’s when 50% to 80% will be at the driving force. Until then, it will be a case-by-case decision considering all these things that I just explained.

Then to the maintenance CapEx, so whether it’s operational cost, fixed cost as we have the €100 million reduction target there, whether it’s maintenance CapEx or other CapEx. So we all the time look at how to develop, how to optimize and how to improve so that we are as efficient as possible in our CapEx, while at the same time, of course, targeting growth and targeting good use for of our money.

So that’s in general. And as I also explained in the Capital Markets Day, so we look at short-term, but we also look at medium to long-term our maintenance portfolio.

Our hydro power plants are a good example, because we have – they are a 10-year running program how we maintain and how we upgrade those. And we have become better there to optimize and to decide how much to invest where and when so that we reach the optimal level of good availability – availability that is good enough, but then also not using too much money for the maintenance CapEx.

So that as a background, so last year, we said originally that we target or we estimate €300 million to €350 million of maintenance CapEx. We actually came last year below €300 million.

And now we also guide – we think that we could run this capacity that we have in our assets in a good and optimal way with a slightly less than €300 million on maintenance CapEx. So, that is more attributable to our improvement there than any other factors.

Yes, hello. Good afternoon.

So I have a few questions. First of all, if you can give us a bit more details and kind of elaborate on your growth CapEx plan for 2017?

I am talking about the €500 million, if you can break it down by division or if you just can give us bit more details? Second question is on Russian capacity payments I remind that they should have been revised down to reflect a lower cost of capital.

Can you just confirm, what’s the direction to capacity payment in 2017 versus ‘16? And then two final questions.

One on from what you said, I understand that €160 million is more the normalized level of associates going forward. Should we expect something like that for 2017?

And finally, the investments in cash collateral of €340 million just to make sure I understood that, that’s an investment, it’s not reverting anytime soon. We shouldn’t expect any reduction in net debt, because of reversal in this investment?

Thank you very much.

Thank you. If I take the growth CapEx question and Timo is writing down the other questions and preparing to answer those.

We are not giving a detailed guidance as to the country by country breakdown of the growth CapEx, but actually you get a pretty good idea when you look at the public announcements that we have made. Well, first of all, the Russian part is going down, obviously, because the large program that was completed is now really completed.

Our Russian CapEx last year was about €200 million still and about half of that was still attributable to that – now completed large investment program. Other major CapEx items next year will be the announced wind projects in the Nordic region.

The solar construction continues in India. And then very importantly, we have growth CapEx in City Solutions division.

For example, in the Polish waste-to-energy project in subsea and there are some smaller growth CapEx projects also in City Solutions. But this would probably be the largest items that we are talking about.

Regarding the associates brokerage level, so of course, we don’t guide that forward as we don’t give guidance on the other sort of EBITDA or profit measures. But definitely one can say that this year’s level is on a much more normal level than last year as explained, there were lot of impact on the Oskarshamn 1 and 2 last year.

Then the other thing is that when you look inside our associates and we have actually this broken down in the notes. We have the two listed entities affluent in Norway and then also TGC-1 in Russia.

And those we take after they have reported, so we take one quarter backwards that we report. And obviously, they are listed entities.

So they have their own variability in the results. And then a major contribution there is obviously, Varme that is 50-50 with the City of Stockholm.

And of course that has also – it’s heat business and it’s variability like we have in our own. And then on top of that, we have in our associates, we have also the nuclear associates where we tend to – from time-to-time, we tend to get these IFRS type corrections as we have today.

So these are the things to understand the development and the variability in the associates. But I said that we don’t guide that level going forward.

And then regarding the last question, could you please repeat that one so I get the question right?

Yes. I was referring to the €314 million cash collateral, which is included in the other investments?

Yes. Okay, fine.

Yes.

I was just wondering, yes…

Yes. So all-in-all, those NASDAQ collaterals, so the NASDAQ has now moved to this futures trading, which means that we will going forward, we will have this impact inside our working capital because of the margin payments that we pay depending on what is the outstanding balance of the futures derivatives we have towards the NASDAQ, so that we will have going forward.

But then as there was the interim phase of the forward related cash collateral, so of course they will die out over time as those forward will go into delivery ‘17 and ‘18, mostly ‘17. But I said of course as long as there is this kind of futures trading, those impacts in our working capital will be also in the future.

And then the question that in the middle of the CSA, so yes, the Russian government bond yields, they have come down 16 from 15. But on the other hand, we don’t yet have the final figures and we don’t yet have the decision.

If you look at our reporting for ‘16, you will see there that also last year. So ‘16 – the decision for what is the bond yield used in these CSA calculations, that was done during the first quarter and then it was applied for the whole first quarter and for the whole year.

And that we assume will have happen this year. Having said that, as Pekka already reiterated this 18.2 target, so whatever the number would be there, what we see coming from what the bonds were actually last year.

So we still reiterated this 18.2 target. So we don’t see that, that the detail of that CSA bond yield level.

That doesn’t impact of our belief and our target to reach the 18.2.

Maybe little bit of additional info. The average for last year should be around 10, a little bit more or little bit less than 10.

So that’s what the expectation – what we expect.

Thank you very much.

Thank you. Good afternoon.

A couple of questions from my side, firstly, in the M&A space, can you please, broadly speaking, comment now in February on the availability and [indiscernible] of the assets you see, the multiple surround them, the competition for these assets and a likely timeline for transactions, please?

Again this goes to more – my lips are sealed category. But I will perhaps now repeating myself already, but we have said that, that the criteria for the targets in Phase 1 are assets that have existing cash flow that are close to our current core competencies i.e.

either power generation or combined heat and power generation or combined heat and power and waste management competencies that we acquired through Ekokem. The main criteria being that we are looking for existing cash flow and the geographical scope is Europe.

So Europe existing cash flow and close to our current core competences. But then unfortunately, I will not start commenting multiple time schedules.

There are interesting assets out there whether or not, there will be deals. Too early to say, they will be announced in due course.

And as said earlier, our goal would be that most of the capital would be invested by the end of – by the end of this year. But I also said at Capital Markets Day that if we have a good deal at the end of the year, we are – and that seems to be going to next year side.

We are not going to say no, just because we have said that the target is by the end of this year. The main goal is to do good deals and doing good deals is more important than just doing deals because you have to.

Okay, that’s fair enough. And then more operationally the hydrological balances are now normalized more or less, so if it stays like this for the quarter, should we expect the more of a long-term average level of hydro production and hydro volumes in the first quarter?

That’s what it’s still too early to say because we don’t know how the way they will be through the rest of Q1. When we look at the current situation, we are still as you could see in the chart we are still below the long-term average in terms of reservoirs on the Nordic level and especially then as I said in our areas in Sweden.

So that does play into – that needs to be taken into account also when estimating Q1 volumes. But big uncertainty is still there because nobody knows how the weather will be in the next few weeks.

Okay. And then finally on the 2018 hedging, when I looked at the previous numbers a year ago for ‘17, you had 20% hedge for that year and now you have 35%, was it 26% or do you have a very bearish power price for 2018?

This I also discussed a bit in the Capital Markets Day. I think that we were then looking at 3-year to 4-year history.

And so basically the numbers that we had a year ago were on the low side if you look at the long horizon and look at the levels, the percentage levels sort of hedge percentage levels, of course the average power price is always depend on what has the power price has been during the couple of past years. So the point being is that whether it’s this 20 or that was or whether it’s this 35 that we are now for 1 year ahead, so those both fit into the variability where we have if you take a 5-year to 10-year horizon backwards.

Maybe this 20 was on a low side. I don’t think that we have been much higher than 35 in the history.

But still within this range we have been. So basically this is – this all comes back to the daily and weekly and monthly and quarterly optimization that we do in our hedging where we do look at what is our situation, what is the commodity situation, what is the power price situation and then we optimize based on that plus then of course on the other hand tying that back into what is the company balance sheet going forward, as I also explained in the Capital Markets Day.

So no fundamental shift there, but of course we always look forward when we make these decisions.

And of course, we have to remember that, that area price hedge is also play into this equation. And typically, the longer into the time horizon, you go forward the less liquid area price market is.

So in relative terms often there is less area price is the longer you go in the hedging mix that we have.

Alright. Thanks for your time.

Good afternoon. Once again coming back to the dividend or rather may be at a payout ratio of 190%, it’s more appropriate to call it a return of capital, if you don’t find sufficient projects that will meet your criteria fast enough, could you see this return of capital to shareholders continuing or would you just broaden the horizon or would you look for suitable M&A targets, that’s the first question.

The second one an operating cash flow, I think you mentioned that a normalized level would be in the region of €900 million, is that also where we should see the operating cash flow going forward. And lastly, you mentioned CO2, I mean obviously you are hoping for, finally some sensible carbon market reform, but can you seriously see ENVI getting the support for the rather ambitious reform proposals from Parliament and the Council?

Now when we look at the use of funds in balance sheet, obviously it’s a combination of both CapEx acquisitions and dividends that we are talking about. And our goal is one way or another through a combination of these three reach a balance sheet structure that we like i.e.

roughly 2.5x of EBITDA. When you ask if we could broaden the scope of acquisition targets, I think that is premature to say and rather unlikely that that would be our goal because we do believe that this scope as I explained Europe, our core competences, existing cash flow, power generation heating and cooling waste management etcetera is already a fairly large scope.

Then of course within that scope, our goal is to do good deals. And as for any company, if you are not able to do good deals then you have to do something else with your balance sheet.

And then it would have to be a combination of dividends and growth CapEx. But what exactly how that will look like, that is too early to say.

We are now focusing on the implementation of the growth CapEx this year and spending a lot of time on energy on the M&A side as well.

And then about the operating cash flow, so yes if we would correct for those things that I went through last year’s cash from operating activities would have been 887, so roughly 900. And then of course after that it’s the question, what one sees what the – this year’s EBITDA would be.

And one thing to bear in mind when you look at our operating cash flow, in that we have these realized foreign exchange gains and losses also. And that is due to as I explained the ruble hedging and then also some of the money that we take in euros, we convert to Swedish kronas and we finance the Swedish operations.

And there we also do the euro-krona hedging. And when we roll over those hedges then we need less euros if euro strengthens against these currencies and then we get positive on this line.

And then if euro weakens against these currencies, we get the negative. So that’s one further the impact to NOIs that is sort of fluctuating inside our operating cash flow.

But I said last year that normalized from these two effects would have been roughly 900. And then after that it’s more of cash than what this year’s EBITDA would be and as we don’t guide that I wouldn’t guide what this year’s would be, but that’s how to look at it.

And on CO2?

Could you please repeat the CO2 question?

I am sorry, you mentioned the rather ambitious EU ETS reform proposals, which came from ENVI like doubling the intake of the [indiscernible] which could finally have implemented have an impact on the tightness in the system, do you believe that ENVI will – that it’s realistic to assume that Parliament and Council will back these rather ambitious reform proposals?

It’s very difficult to say that it’s likelihood. You see, it’s not certain that they will be successful.

But especially when it comes to doubling the intake rate, there seems to be rather wide support. And that does not need to be a consensus decision.

So that is most likely implementable. Does that mean that it will suddenly go through, absolutely not, there is also opposition.

And then the linear reduction factor is then the other part, which is also in the proposal. Of course, the combination of these two would significantly strengthen the system.

Already doubling the intake rate would start to support the price most likely from 19 and 20 onwards.

Very clear. Thank you.

I think we have time for maybe two questions from the lines.

Thank you. Good afternoon.

I also – I think I have a question on the dividend, at your Capital Markets Day, the emphasis on growth CapEx appeared pretty strong, you were talking about more than €1 billion in Generation and €1 billion scale acquisition following City Solutions and then followed by a few hundred million of euros in other areas. Now, every time you are currently paying a 1-year dividend, if you keep your debt targets unchanged that apparently yields into your firepower budget, I would think, is this something that is how to phrase this is acceptable for you apparently in the most radical sense of this thought you could just that time has buy and can you pay very high dividend [indiscernible] of your balance sheet power by paying high dividend, I am sure you that’s what you have in mind, but how strong is the appetite for a high dividend versus keeping the reinvestment budget as sizeable as possible?

Of course the math that you went through is indisputable, so that’s exactly what of course this type of dividend, the payout ratio is doing that. It is taking something away from the fire power, but there is still a quite of firepower left after this decision.

So this is not an appetite question at all. We believe that there will be even after this decision in our fire power to meet our appetite on the M&A side.

Okay. Thank you.

Hi. Thanks.

Actually, I think my question is more or less has been asked in around by Lueder already. But it was really just to your very first comments around the Phase 1, Phase 2 was suggesting that Phase 2 is really more about 2020’s when you would be investing in more about the future energy systems whereas the redeployment of capital discussions suggested that you would be more or less doing that this year or maybe into next year, so I guess, just trying to understand should we be definitely in Phase 2 in 2019 or how – to what degree is there uncertainty about when you shift them on to the other?

The Phase 1, Phase 2 question is not only a timing question. The difference between – because Phase 2 has partially started, we are investing in wind.

We are investing in solar between €200 million and €400 million. The definition of Phase 1 investment is really something that has existing cash flow.

And that is explained at CMD. That is our main focus.

So once we know where we get in Phase 1, we will be very selective and restrictive on new decisions when it comes to Phase 2 type of CapEx commitments. So it’s not only a timing question, but there is Phase 1 that ends and then Phase 2 starts.

Some aspects and some investments into the future energy system have already started, including the ones that we are doing our internal technology and venture unit that has done – invested smaller amounts of money into certain technology startups.

Okay, thanks.

Yes. Thank you for taking this last question.

Just a couple of items from me, first of all, whether you would be able to give us the earnings contribution from the investments you have made so far and how much that was in ‘16 and whether you can give sort of an information on what to expect from DUON and Ekokem in ‘17. And the second question was – sorry, to return back to your M&A and acquisition plan, but speaking about your gearing target, you have said that you would want to go back up 2 to 2.5, would you be willing to exit that number to go to 3, 3.5 for the right bill and then gradually de-gear or would you be even interested in raising capital in the equity market or is this really just about using your existing balance sheet headroom?

If I take the second question first, 2.5 is the target and I do not want to speculate more on that question. That’s where we want to get to one way or another.

We believe that, that is for this type of business a sustainable and a well-functioning balance sheet structure where the risk and the return on equity in relation to the – in relation to each other is optimized. When it comes to DUON and Ekokem, first of all, they have more or less met our performance expectations.

You may remember that when Ekokem was acquired, we said that it is roughly 11x EBITDA. We seem to be achieving at least that.

So it’s, at least, performing on that level and then through synergies and through ramp up of the recycling or circular economy really expanding that concept, there is also growth potential in that EBITDA. More than that, we are not breaking down the investments other than that, obviously, for all these new investments we have prettier business return on investment targets that as a whole do meet our group return on investment target.

Okay, thank you.

Thank you very much.

Thanks a lot. Bye.