Fortum Oyj

Mans Holmberg - IR Pekka Lundmark - CEO, President and MD Markus Rauramo - CFO Sophie Jolly - VP of IR & Financial Communications

Peter Bisztyga - Bank of America Merrill Lynch Artem Beletski - SEB Sofia Savvantidou - Exane BNP Paribas Mikko Ervasti - DNB Markets Lueder Schumacher - Societe Vincent Gilles - Credit Suisse AG Samuel Arie - UBS Investment Bank Generale Dominik Olszewski - Morgan Stanley

Hello and welcome to Fortum's First Quarter Results teleconference and webcast. Today, our CEO, Pekka Lundmark and our CFO, Markus Rauramo, will present the results of the first quarter and also comment on the recent transactions we have made.

This will be webcasted and you will have a chance to ask questions after the presentation. We will have in total roughly 1 hour, so we need to end at the latest at 5:05.

But you can always of course contact us at IR, anybody of us, if you have further questions. But now, Pekka, please.

Thank you very much, Mans. Dear investors, welcome to this combined Q1 and Hafslund transaction webcast and Q&A.

We have here in the room in addition to IR department and Markus, also Tiina Tuomela, who is heading Generation; and Timo Karttinen, former CEO, who will actually be heading the Hafslund integration. So if you have specific questions about those issues, they will also be happy to participate in the Q&A.

Just a few general remarks on the quarter first before I get into Hafslund. We're actually quite happy with how everything went during the first quarter.

Market conditions are slightly improved. I mean, they were not great, but they were a little bit better than in the first quarter in 2016.

We have slightly higher wholesale prices, but of course in historical comparison the prices are still on a fairly low level. The highlight of the quarter clearly was the Russian result.

We now have a 12-month rolling result which exceeds our target of RUB18.2 billion. I'll come to that a little bit later.

But overall of course in addition to Russia the fact that our comparable operating profit increased from last year's €275 million to €313 million. There was also in addition to Russia the integration of Ekokem as a major contributor to this increase.

In the Generation business we had because of weather conditions still fairly low hydro volumes, but partially offset then the result by the little bit higher achieved power price. Quite important piece of news during the quarter was that we split the City Solutions into two divisions, City Solutions which will be the heating and cooling business and the recycling waste businesses including Ekokem and then Consumer Solutions Business which will include our electricity sales, our customer service and potentially later also some of the consumer-oriented ventures that we're working on.

These two businesses have quite different business logic in them and that's why we feel that it makes sense to separate them so that they both get the management focus including in the management team that they deserve. One perhaps small but still very important piece of news in the quarter was the completion of the solar -- 70 megawatt solar plant in India.

The reason I mention this here is that we were talking quite lot about the Indian solar strategy in the Capital Market Day. You may remember that we kind of put a bracket €200 million to €400 million into the investment size there.

We've been following this. We have currently in operation now before this 10 megawatts and 5 megawatts and now we have 70 megawatts on top of that.

And then we're still working on a 100 megawatt project that we expect to complete later this year. But the point here is really that this 70 megawatts was commissioned and completed on time and on budget and we will meet or perhaps even slightly exceed the result and the profit targets that we have set for this investment.

So from that point of view, this €200 million to €400 million investment plan that we have in India, at least based on what we see today, it seems to be delivering the results that we were expecting. Cost side is proceeding according to the plan.

We had a 100 million target. No reason to change that one.

We're in plan. And in general, if you again remember what we communicated earlier about our strategy and investments, I'm quite happy with how things are proceeding, remembering that the investments are divided into two phases.

Phase 1 is the major reallocation of the capital that we got from the divestments of the distributions networks with three key criteria. We want to invest in businesses or acquire businesses that, number one, are within our existing core competencies; number two, they should be close to our geographical home market; and number three, they should have existing cash flows.

These are the three criteria when it comes to the phase first -- Phase 1 investments. And then this way we want to maximize our cash flow.

That cash flow is to be used for two purposes, number one, to be a competent -- a competitive payor on the dividend market; and number two, invest in Phase 2 into the energy system of the 2020s. And now of course when we then move into the Hafslund transaction that we published yesterday, of course the good thing about this is that this meets all the three criteria that we have set ourselves for Phase 1.

Of course, we understand that this is fairly small, so this is definitely, even though it is part of Phase 1, it is not the Phase 1. We understand that we will need to do much more.

But the good thing is that this meets all the criteria and this makes a lot of financial sense. We started from a position where we had and of course still today officially have, a 34% minority of Hafslund, Oslo City owning about 54%.

And the first step in the transaction is that we sell our share to the city of Oslo for €730 million. This is the first step.

And then in the second step, we do certain acquisitions so that the end result is that we will own 100% of Hafslund markets which is the consumer business. We will own 50% of an entity that will include current Hafslund heat business and Klemetsrudanlegget which is a waste-to-energy operation that is currently 100% owned by the city of Oslo.

So we will own 50% of this integrated value system that is currently split into two different companies, but it is very much part of the same value system and we will be owning that one. And we will acquire 10% of the production business of Hafslund.

And the price that we pay for these three acquisitions is €970 million. So the net effect of these two, both the sale of shares and then the acquisitions is a net investment of €240 million for Fortum.

And what do we get against all this? We first of all will book a €330 million sales gain for the divestment of the shares.

That's approximately €0.37 per share. And then as a result of the consolidation of both the markets business and the heat business, we expect to consolidate €950 million additional sales and €130 million additional EBITDA.

And now of course going back to the strategic goal of investing into something that has existing cash flow, I will not get into details now. But if we just now start thinking that that we have now acquired DUON, Ekokem and now certain parts of Hafslund, when you add the EBITDA capacity together of these three businesses we already get a number that starts with a 2.

And remembering that we divested €500 million of EBITDA in distribution. So I would argue that even though we have used only between €1 billion and €2 billion of the money that we divested, we're on a good way in the strategy execution for Phase 1.

Of course remembering that we still have a lot of firepower left for further market consolidation. So I think we're on the right track.

Quickly, a couple of points about the two main businesses that will be consolidated into Fortum in the Hafslund transaction. First, the markets business which is really an attractive 1.

1 million consumer business with good electricity sales volume, almost 20 terawatt hours. The interesting thing is that Fortum's volume with 1.3 million consumers last year was 12.3 million terawatt hour -- 12.3 million -- not million, but 12.3 terawatt hours, I'm sorry.

So it means that the number of terawatt hours per customer or kilowatt hours per customer that Hafslund is selling to the consumers is much higher and the reason is the higher share of electric heating among these customers in Norway. Together we will have a Nordic leading consumer electricity business company with 2.4 million customers, approximately the same amount in all three countries, Finland, Sweden and Norway and this will be a great platform for further growth, for investments into new services.

This will give us the critical mass to invest in digitalization, integration of new services in homes for consumers, for businesses. This is a significantly stronger platform to build on than the one that we had previously.

Then the other business that we will be consolidating is the heat business. We're now after this transaction going to be the leader, the market leader, not only in consumer electricity, but also in district heating in Norway.

Oslo is the fastest growing capital in Europe at the moment. And the interesting thing there is that the relative share or the market share of district heating in heating in general is rather small in Oslo at the moment.

Hafslund produced 1. 7 terawatt hours of heat last year which compared, for example, what we have in the Stockholm system, 8 terawatt hours, is small.

Of course Stockholm is a larger city also, but in relative terms the market share here is much smaller. And there will be interesting growth opportunities in this business because, for example, there is still a lot of oil heating in Oslo and there are plans to actually prohibit that through legislation.

So we believe that we will get both growth through the growth of Oslo itself, but then also there are possibilities to make the relative share of district heating grow when the city develops further. An additional attraction here of course is then the integration of the waste-to-energy operation of Klemetsrudanlegget into the same company, because through operating it with the same -- in the same entity through one integrated management of course gives us possibilities to make the whole operation more efficient and more productive than what it is today.

So we're very happy about both of these two deals, both in markets and the heat business of Hafslund. Of course we need to remember that the deal is not done yet.

There are two main conditions. One is the approval by the Oslo city council.

The meeting will be on the 14th of June. We're hopeful.

Our partners at the city of Oslo seem to be quite hopeful as well. But of course it's not for us to comment more in detail the political process that the city will need to go through.

But once again, we're hopeful about the positive outcome for the decision. And the other one is then competitor -- antitrust clearance which of course also is an important milestone.

But also there we do not expect any major problems, but of course there is always need to be prepared for at least a discussion with the relevant authorities. But we're hopeful there as well.

Then into Q1; electricity consumption totaled at 114 versus 117 terawatt hours in the Nordic region, approximately the same. A little bit warmer weather was the main reason there.

But the prices were actually higher mainly because there was much less water in the system, but also because of higher coal prices compared to last year. Finnish area price was in relative terms closer to last year's level, but the Swedish area prices was significantly higher, €31.

8 compared to €24. 1 per megawatt hour.

So the price recovery was there, but of course as I said earlier, these prices are still low in terms of historical comparison. Then when we talk about emission prices, there was no movement at all or actually if there was movement, it was to the wrong direction.

The market is not yet discounting the plans that there are to strengthen the ETS system. There are now a tri-party negotiations going on between the commission, the parliament and the member states and it is quite likely that -- the position seems to be so close to each other that it is quite likely that there will be an outcome during the summer that could be moving into a directive towards the end of the year.

So that looks positive. And the ambition level of the commission is to get a significantly higher CO2 price and that would of course be then a supporter for the power price going forward.

But once again, currently the market does not seem to be believing much in this case. But this is something that we're of course following very closely.

In Russia, no big changes in electricity consumption, 2. 9% higher spot prices than a year ago.

Both the reservoirs are now pretty close to normal level. As you can see from this picture, throughout Q1 we were on a lower level than average which is again the reason for a lower-than-average hydro production.

The difference in relative terms was even bigger in Q4, as you remember from our Q4 results. But the same thing is visible also in Q1.

But now when we get into Q2, at least the starting point for the quarter seems to be a more normal situation. Commodities; I already commented CO2, not going back to that one.

Coal price and the higher coal price in the second half of last year and in Q1 this year has been supporting power prices. This is very much dependent on the Chinese policy decisions, how it will move forward.

But also there the signals have been quite hopeful I would say that they have been signaling that there seems to be an interest to maintain prices somewhere on these levels that we have recently seen. And that would then of course be a good thing for power prices because it will continue to support the prices over here as well.

The prices have been volatile. There was a peak in Q1.

Then there was a stabilization in the system price around €30. And actually then in the last week or so we have again seen a bit even higher prices, even close to €40.

But of course this is very volatile. Nobody knows how it will go from here.

But when you look at futures, there isn't much movement to positive direction. These are higher in general, a few euros then they were a year ago for the coming years, but no major improvement.

The development for the quarter year-over-year is positive, 30% higher spot price, €31. 1 compared to €24 a year ago.

And of course then we're happy with the fact that we were able to get a 6% higher achieved price when also hedges and area price differences are accounted for. And €32.

6 of course for us it's a low electricity price, but in these circumstances we feel that it is a fairly good achievement. Also good achievement is the Russian achieved price which was actually came in at close to €30 per megawatt hour including of course the currency strengthening and CSAs.

Achieved price in ruble terms was 12% higher than a year ago and spot prices in ruble terms were 2% higher than a year ago. P&L; we had a nice increase in sales mainly because of Ekokem.

The same is true to comparable EBITDA. There of course the Russian support is strong.

We went from €357 million to €423 million. And now if we want to kind of speculate a little bit in advance, roughly speaking Hafslund will add 25% to top line and 12% to EBITDA as is the case currently before integration and before synergies, just the phase value of the numbers as they are today.

Of course Hafslund is a case where we have a pretty interesting case for synergies as well. We do not yet give an estimate as to the value of any synergies.

That's too early for that. But there clearly are synergies in the case.

But without any synergies, we're looking at potential for 12% improvement in EBITDA through the Hafslund acquisition. Comparable operating profit €313 million and earnings per share €0.38 versus €0.37 last year.

And in his part Markus will zoom deeper into cash flow. And I will in my part with a few remarks on each division, starting from generation.

Sales roughly on the same level. EBITDA and comparable operating profit slightly lower because of lower hydro volumes.

We had 5.l2 terawatt hours compared to 6.5 terawatt hours a year ago. So unfortunately this higher achieved power price could only partially offset this volume decline.

We had excellent nuclear availability. If we had low hydro volumes, we can say the opposite about nuclear, excellent availability during Q1.

City Solutions, both top line and EBITDA growth mainly through the Ekokem acquisition. But we also had a better than before fuel mix which impacted the result positively during Q1.

So a combination of this was a reported EBITDA, comparable EBITDA of €94 million compared to €70 million a year ago. Consumer Solutions is now a new division, so the previous City Solutions numbers do not anymore include these ones.

Profit-wise this is a fairly small business still today. We had last year a comparable EBITDA of €55 million, but now of course a lot will change for this now when Hafslund markets will be integrated.

This will in terms of top line actually more than double in size when we get Hafslund into that numbers. So this is a very interesting case now for the coming quarters to follow when the Hafslund integration proceeds with the 2.4 million customers altogether.

And this division will get a new head coming from outside Fortum from mobile operator, telecommunications and mobile provider Elisa here in Helsinki, Mikael Ronnblad. He will start we said earlier on the 15th of June at the latest, but probably actually a little bit earlier than that.

And then the last segment is Russia, where the result development is very good. We have comparable EBITDA of €168 million compared to €105 million a year ago, strong improvement in comparable operating profit.

Of course part of this coming from currency or ForEx improvement. Out of the total €53 million comparable profit improvement in Russia, €29 million comes from ForEx.

So that is important to note. But the other operational reasons explain also a significant part of it.

And perhaps worth noting, we talked already at the capital markets day as part of our renewables and wind strategy about the plan where we would focus our wind investments in the Nord pool region and Russia. And there I think the number that was quoted was a general plan to build up to 500 megawatts of wind power in Russia over several years.

This was in our presentation. We have now proceeded towards a formation of a joint venture with a company, Rusnano which will actually share our risk in the buildup project.

There are no investment decisions yet. This joint venture that we have created makes it possible for us to participate in the upcoming auctions.

Of course this will all then depend on the attractiveness of the auctions and the prices and the tariffs and the terms and conditions that will be available. The existing project that we have which is 35 megawatts, it is very attractive, €175 per megawatt hour tariff for 15 years.

The future speed and ambition level will very much depend on what is available. We have put a cap also on this one in the same way as we did for Indian solar.

We have agreed that our maximum equity commitment into this joint venture is €240 million and that would be invested over several years, maybe over 5 years or so. And each wind park most likely in sizes of 50 megawatts or so, each wind park will be subject to a separate decision.

So what we're creating here now is a framework and a possibility to participate in wind auctions in Russia along the guidelines that we presented at the capital markets day last year. I have already commented most of the items in the waterfall that summarizes the differences between the €275 million and the €313 million that we reported this year.

Here also you can see in graphical format that how strong the contribution is from Russia. So now I will give the floor to Markus and then after that, we're ready for your questions.

Okay. Thank you, Pekka.

I will start by opening up a little bit the difference between the comparable and the reported operating profit. The reported operating profit was €389 million, comparable €313.

And mostly the difference in Q1 '17 was due to the fair value changes of our hedges, so that was by far the biggest contributor. In generation, over €90 million; a couple of million in the City Solution segment; and then negative €20 million in Consumer Solutions; and nothing in Russia.

So altogether €76 million difference. For 2016, the difference was a combination of fair valuations and sales gains.

So hedges in generation, sales gains in City Solutions, some hedge impact in Consumer Solutions and then sales gains in Russia. If I move over to the income statement and some observations there, sales top line absolutely grew.

This was impacted by the integration of DUON, by Ekokem and foreign exchange impact. So a significant change there year-on-year.

The items impacting comparability that I just discussed on the previous page, €76 million. And then we had a drop in the share of profit from associated companies.

This was mainly due to the TGC-1 associated company result. Financial expenses came down and that was -- due to that we do have lower debt.

So we're paying interest on less debt than a year before. And income tax expense quite closely in line with guidance, now totaling around 17%.

But around 20% is where the tax rate should be over time. Then the cash flow statement, main items there, EBITDA was higher on the quarter year-on-year.

The realized FX gains and losses, these are result of the ruble and Swedish krona hedges, so this number fluctuates as the currencies are moving. We had negative now in Q1 '17 and a big positive in Q1 '16.

The paid net financial cost are also following the amount of debt quite closely and that's why the paid net financials are coming down. Then if we go down, paid capital expenditure, we have the main projects going on, subsea, big solar projects, wind projects.

So these are for the respective first quarter's the main items. And of course overall if I comment also the right hand Column '16 and last 12 months, we do spend significant growth CapEx as well.

So maintenance CapEx around €300 million and on top of that, we're spending significant growth. On the acquisition of shares, maybe the bigger items are there in 2016 full year and last 12 months and there we have Ekokem and DUON.

Then on the change in cash collaterals, this has been an item that is positive and negative and these are relating to the hedge cash collaterals for NASDAQ for our electricity derivatives. This will over time reduce as we move more and more into daily cash settlement of the futures for electricity hedges.

So that brings us in total to cash flow before financing activities €280 million for the quarter and for the last 12 months minus €800 million. Then I move over to the debt portfolio.

All in all, interest rate stable and as the debt matures, we repay that. And of course with our cash position, there is -- at the moment we have no needs to issue new debt.

But an overall comment on the debt market, of course rates and market conditions are very competitive, so if we would have to issue new debt, that could be done at very competitive rates today. On our financial position and liquidity, balance sheet is strong, liquidity is very good.

In addition to the cash, we have access to undrawn credit lines. And one thing to note, this is -- these numbers are before the dividend payment which was close to €1 billion.

Of course today the situation is different after dividend payment. All in all, I would say that still given our strong financial standing, the internal focus is very much on efficiency and implementing the integrations effectively.

So no lack of focus there. Finally, on the outlook, we continue to expect that the electricity demand will continue to grow about 0.

5% per year on average and that of course fluctuates with the weather conditions. But all in all, we see that electricity continues to gain share of total energy consumption.

Our maintenance CapEx estimate is around €300 million, so we're using the maintenance CapEx very effectively. And this year's CapEx -- total CapEx forecast is around €800 million including the growth CapEx.

For the hedges for the rest of the year '17, we have hedged 55% at the level of €29. Last quarter, we were at 60% and €30.

And for '18, we have hedged 45% at €27. And last quarter the respective numbers were 35% and €26, tax rate, as I mentioned already before, around 20%.

And the positive news on the tax front on the real estate tax we of course communicated already earlier, but positive movement when the Swedish real estate tax will be decreased over a few years from 2.8% to 0.5% and this will have a significant impact on our real estate tax. I finished my part here and I think we're ready to open for questions.

Okay, thank you very much, Pekka and Markus. We will move over to questions now and we will directly go to questions from the lines.

Two questions if I may, firstly on Russia. Just trying to understand the movements in your CSA payments.

You mention in your results release that there's a decrease relating to bond yields and an increase relating to spot market adjustments. Can you tell us whether, first of all, those were already effective in your first quarter reported numbers and secondly, what the sort of net percentage impact on your annual CSA payment will be?

And then the second question relates to the Hafslund deal. It looks like over the last sort of 4 or 5 years the markets and heat divisions of Hafslund have been growing EBITDA fairly rapidly by sort of 10% CAGR.

Is that something that you think is sustainable going forward please?

Okay, if I take the Hafslund question and I'll give Markus sometime to think about the first one. Hafslund has done a very good job in the past few years.

Your observation is absolutely correct. And of course we have a pretty high ambition level as well now when we integrate 1.

1 and 1. 3 million consumers into 2.

4. There is a lot of good things that you can do there to continue to grow both top line and bottom line.

I also commented the fact that Oslo is the fastest growing capital in Europe with still relatively low market share of district heating and some legislation actually -- potentially making conditions more interesting for district heating. And then there is the integration of the waste-to-energy plant which already today the most significant supplier of heat into the system.

So there's a lot of good things happening. But as we're not giving any guidance for any other businesses as well, we're not going to start a speculation on as to how much we would expect this business to grow top line or bottom line in the future.

But your observation about their good performance in the past few years is correct. And of course we're not going to be sitting still for the coming years either.

Okay, then for the Russian CSA. So the CSA payments, I said so, that the system looks back at where the bond yields in the previous period, so we got some uptick on the CSA payments now because of the higher rates now in the past.

That has one impact. Then we had some new CSA units also coming on-stream, so that has an impact for us when we compare year-on-year.

We had the FX impact as well which is impacting positively Russia. And then somewhat less bad debt provisions in the quarter.

So all these three elements or four elements contributed to the improvement in Russia.

I guess kind of the question was more about the statement that you make in your results release, where you say that CSA -- so the Russian system administrator reduced the CSA payments effective sort of March 2017 and there's also been some review of the CSA payments relating to sort of electricity only market adjustments. I was just wondering when do those changes become effective please and what's the net impact?

Sophia will help.

Okay. All right.

Thank you.

Let us -- we have detailed explanations in the quarterly release, so we can come back to this questions specifically if you want to review the details. I think that's the best way to do it.

Hello, can you hear me?

Yes.

This is Artem Beletski from SEB. I actually have three questions, so starting with Hafslund.

I know that you are not providing any details in terms of synergies, but maybe can you talk about in what areas of operations you are seeing the biggest potential and what type of synergies we're talking about there? So is it basically new products and new offering what you're planning to put to the market?

And then two quick ones on Russia. So first of all, what comes to improved results in Q1.

So I guess one element has been increased availability of capacity for CSA payments. Do you see any further potential to improve this kind of -- the amount for your capacity being eligible to receive capacity payment?

And the last one relates really just to regulated gas prices in Russia. So those have been stable for quite some time.

Are there any projected increases in terms of gas going forward?

If I start with Hafslund again, of course we're not, as I already said, going to give out any -- at least yet any estimates on synergy. But if I start from the heat side, obviously the fact that the heat business and the heat source, the waste-to-energy plant, will be put into one system.

It does create synergy opportunities. Then there are other synergies then between -- what we will have in Norway and in our other heat businesses in terms of product development, in terms of cross learning, et cetera, developing and launching new products.

So perhaps more dynamic synergies. But on the cost synergy side of course, the integration of these two is a key attraction.

Then on the markets side, of course when you put together two sizable consumer businesses with a significant need to invest into back office, IT systems, into billing systems, into product development, into digital applications, into new smart home solutions, you name it, the fact that now these two businesses will not need to do these separately but they can be done through one development effort and then delivering them to 2. 4 million consumers is a significant advantage.

But more into detail than that, I do not want to get.

I can comment on the Russian CSA opportunity. So first of all, we have now completed the Russian investment program.

We reached the 18. 2 billion target.

So the Russian organization has done great work there. It may be that there are more CSA related opportunities coming up and those of course we would then selectively and carefully assess, that, "Is this something for us?"

But I would say -- put it that way that we do have very strong competencies in Russia on this front. Then for the regulated gas price, this has been closely tied with the Russian GDP development and then it is up to how we see the market developing and the gas price is strongly dependent on that.

The estimate that actually has been published by the Russian authorities is that it would be 2% per year for the -- actually for quite several coming -- upcoming years would be the gas price trend. Then I mean I -- yes, if I may just a little bit add to what Markus said about CSA, of course we have two very different things.

One is whether or not we would invest into new CSA projects, new buildups and there of course we were talking about the wind which we have now created a joint venture for potentially investing. That would be CSA.

And of course those decisions will then be pragmatic decision based on the financial attractiveness of the deals. We have been increasing capacity in some of our units.

In the Nyagan unit, we have done capacity upgrades which means that we have slightly more capacity now in those units that will also then be getting CSA payments. So there are certain things that we have been able to do within the existing facilities.

But other than the wind discussion that is ongoing, we have currently no active projects to build new CSA capacity in the country. Then the future CSA development for the existing capacity, that will follow the bond rates.

And there has been a down going trend which means that the annual increases that we're getting for the CSA they seem to be coming down as was now visible in the latest decision. But now Sophie wants to provide a little bit more details about the previous question.

Yes. Maybe because we're getting a lot of questions about CSA.

So there are two main components in the CSA, it's the bond related that is checked every year and that's on an average bond rate. It was last -- for '16 it was approximately 10.

9 and what they are using now is 10. 1.

So we got a little bit less for that. But every 3 years and 6 years they are also doing a correction into the CSA based on the electricity spot.

And that is what has been happening now. So we're getting increased payments in CSA because of the electricity spot.

Net we're a little bit upwards due to this. And these are -- these decisions were made in March, but they are retroactive, so we will get that for the full year.

Also, if you look at the interim report on Page 13, you can see what the average capacity price has been for CSA, new capacity and for the old capacity. And compared to last year or first quarter last year, you can see that new capacity came up from 871 to 980 and old from 149 to 157.

So we have gotten better prices in rubles than last year.

12% higher achieved price in ruble terms than in the corresponding period last year, up 12%. Thank you, Sophie.

Yes, thank you.

A couple from my side; first of all, on Ekokem. If I remember correctly when you made the acquisition you had talked about an annual EBITDA contribution of about €60 million or €65 million.

At the Slide 17 of the presentation today, you're talking about €12 million EBITDA from the consolidation of Ekokem. I just want to get a feeling on sort of is that -- that has to do with the seasonality?

Does Ekokem contribute more sort of in different quarters? Or do I just remember wrongly the annualized contribution that you were expecting?

The second question is just to clarify something on the Hafslund transaction. You are mentioning about €130 million of EBITDA contribution.

I just want to check because right now Hafslund gives you about €50 million of equity income. So is the €130 million that you're talking about a net effect or is this -- should we add €130 million to the EBITDA and then subtract about €50 million from your equity income going forward?

So, yes, these are my two questions.

Okay. If I take Ekokem first, when we communicated the acquisition a little bit more than a year ago we said that the €700 million purchase price that we had was approximately expected 2016 EBITDA times 11.

And that's roughly where we're. It is meeting our expectations in terms of EBITDA.

So there may of course be quarterly or seasonal or whatever variations, but in the big scheme of things it is meeting our EBITDA expectations as communicated when the company was acquired. So that is the first one; then Hafslund.

Your question is very good and valid because the €130 million that we have there, that is the EBITDA to be consolidated gross effect. Of course then when you do the cash flow calculation for us, you need to subtract the dividends that we were typically getting from Hafslund.

And they have been, if I remember right, in the range of €10 million to €20 million or something like that. It's all in the reports.

And then when you do the P&L and EPS, then you need to take the minority result that we have been reporting and that has been varying between €30 million, €40 million maybe, even up to €50 million per year. So that needs to be taken into account.

The €130 million is just a plain blunt number on the expected additional EBITDA that will be consolidated going forward.

Yes. And if I continue and specify a little bit.

So the €12 million you're referring to on Page 17, that's a comparable operating profit number. So then we come down from the EBITDA level by depreciation and purchase price allocation, amortization.

And on Hafslund, obviously we did not report EBITDA earlier. So on the EBITDA line the impact is full and then we get the EBIT and minority stake on the following lines.

Okay, thank you.

Regarding M&A, I appreciate your comments about the surrender cash flow and what is now replacing that and the acknowledgement that you need to do more which I guess measures in hundreds of millions of new cash flow still. So now I would imagine that building this Hafslund package has been quite time and resource consuming.

It's a bit of a complex deal. So going forward, would you aim for larger and lumpier deals or are you prepare to do these kinds of partnership deals also in the future that perhaps give you the advantage over competition as well for this cash generative assets?

That will be my first question.

The answer is actually quite simple, both possibilities exist. You are absolutely right that this has been a time consuming deal.

We have been negotiating this for about a year now. It's a fairly complicated thing to do.

But, hey, this is not the only thing that we have been working on. There could be more smaller things, there could be larger things, we're keeping our eyes open.

You are correct that there is still a lot of EBITDA than the cash flow that we need to replace to get to the levels that we had in distribution. But of course then once we get there, then hopefully we still have capital to spare so that we get higher.

Okay, thanks. And then secondly, I heard your comment about the emissions pricing.

So based on this confidence on the carbon market for the future, would you still consider generation portfolios that include also fossil assets?

We're ready to consider any types of generation portfolios. We're not excluding anything.

I repeat what I have said earlier that hydro of course is attractive in all different scenarios that we have, but there could be different types of combinations of assets. And actually if we're precise -- I did not say anything about our own confidence on the CO2 price.

I just noted that the market does not seem to have confidence, #1. And #2, that the European Commission has an ambition to significantly increase the CO2 price and we're supporting those plans.

But we're not publishing in a way our own forecast. And of course in all acquisition cases that we then make, then we put whatever is our own forecast on the CO2 price.

We will put them into the models and see that what the effect is on different asset classes that there might be in the deal package.

All right, thanks and thanks for clarifying.

Just one question from me. It's also on the €130 million of EBITDA contribution you are buying.

That's the number you will consolidate, but this includes heat on a 100% basis. So how much of this €130 million of EBITDA is actually attributable to Fortum?

Yes, we have actually -- in the material we have opened that up to be helpful. So on the markets business area, you can see the EBITDA contribution in Norwegian krone.

And then we have the Hafslund Varme contribution. And then you can estimate.

We haven't opened up the KEA, Klemetsrudanlegget EBITDA there. But obviously then the actual contribution when we think about the minority, then you can calculate from that roughly that what is the stake that ultimately as minority stake does not end up in our result or net profit.

So you are referring to the numbers given in Norwegian krone?

Yes. So we have the EBITDA -- we have for that.

So this is correct in the presentation slides?

Yes, for the heat it is on slide sheets of the presentation. So that's for a [indiscernible] number.

If you translate this into euros, this comes to €110. But if you then double the heat contribution to this, you get to €156.

So I wasn't quite sure if I was looking at the right numbers there. Yes, KEA is --

But you are saying the numbers in the presentation.

I think you can roughly look at the numbers.

Yes, the Klemetsrud is about €20 million EBITDA. But that €130 million, that is 100% of the combined heat and KEA.

So that is 100% of that. That is the number that we will be consolidating.

And then of course the consumer business is the other part which is then based on the current numbers. But we're not going to give out any more details or estimates on this before the transaction is closed, because there is still work to do on this side and there are still details to be sorted out as to how exactly the integration will be done and how the different balance sheets will be constructed.

Okay. Thank you.

A very simple question or maybe not that simple, is on power prices in the medium term in Scandinavia. I mean, across Europe the first quarter calls we've had with different companies, it seems that there is finally a troughing reached in different regions, different -- problematic, but overall a significantly more positive feeling.

In your case, you very cautiously said, "Don't expect too much. " But what is reasonable you think in the next 5 to 10 years, may be a new region in Europe in terms of power prices, what development should we expect?

And, I don't know, anything else you want to say on how are you going to try to help with power prices getting higher in the future?

The second part especially is pretty hard for our possibilities to affect power prices on the market, but -- and again, we're not giving out forecasts. But when you look at the coming years, there are certain drivers that of course will be important.

Coal price is important and I have commented that already. CO2 price definitely will have an effect.

The markets do not currently seem to be discounting that. But commission's target is that we would start to see higher CO2 prices from '19 and '20 onwards.

And most analysts seem to be having -- looking at models where €1 of tonne CO2 higher price will translate into €0.60 to €0.80 per megawatt hour higher power prices, roughly speaking. This is not our estimate.

I am referring to third-party estimates. But then of course one question is the demand/supply balance in the Nordic region.

There is some capacity going out like Swedish nuclear shutdowns. There is some more fossil capacity going out as well.

At the same time there is quite a lot of wind projects going on. And at the end of 2018, the Olkiluoto 3 is expected to come to the market.

So the net effect of all of this is a little bit challenging to estimate. And then there is the 0.

5% expected demand increase. And then potential upsides to the demand could be from faster electrification of the society, electric cars, electric heating, et cetera, very, very difficult things to estimate as well.

And then of course one thing that will affect is the growing interconnections between the Nordic region and the large Central European and the U.K. markets.

The capacity in those interconnections will roughly double by 2022 from the current 6 gigawatts to 12 gigawatts and that will be quite interesting, for example, when Germany shuts down over 10 gigawatts of nuclear in 2022. And there are growing ambitions in Central Europe to also de-carbonize the electricity system.

So there are also then scenarios where this type of development would increase the relative value of Nordic, hydro potentially having a positive price effect. But these are all -- I mean, there is a lot of speculation around this and we're doing our models, but we stick to the policy that we have that we do not give out our own price estimates.

Thank you.

So actually my question relates to your stake in TGC-1. At some point you was like mentioning the possibility to swap this asset.

Do you have any like new ideas that you can share at the moment, what's your plan about this TGC-1 stake?

There is nothing new to say about TGC-1. We're keeping our eyes open when it comes to all our assets in not only Russia, but also in other countries.

And if there are interesting way to do asset deals or swaps or divestments or new investments, we're of course interested to do so. But there is nothing new to say about TGC-1 specifically.

Okay, thanks a lot. Thank you.

Actually, I had two questions and the first is a follow-up on as to the wider capital redeployment strategy. And I think you had indicated or was heavily signaled at the year end result that we should expect a significant transaction during 2017.

And I assume that's over and above what you have announced this week. Can I confirm if you're still expecting -- we should still have a expectation for a significant capital redeployment to come in 2017?

And then my second question was just following up on the power price discussion that we started and -- I mean, obviously Olkiluoto coming online affects expectations of power prices. I think they had signaled last year that the next phase of testing was due to start in early summer 2017.

I just wondered if you know is that milestone still on track? Are you still expecting Olkiluoto on the timeline that was previously discussed?

And if it was delayed given you sort of -- you benefit on one side from potentially higher prices, on the other side from offtake from that asset, how would you be impacted by any further delays on Olkiluoto?

So sorry, can you confirm what power plant were you talking about in the second question? I did not get it.

Olkiluoto.

Okay, okay, yes. I mean, there is nothing new to say there.

The target is that it would be ready by the end of 2018 and there is no new information. This has been the target for quite some time now.

Then the first one, we have not said that there would be only one large transaction. Of course that is one possibility that there would be a large or larger transactions.

It could also be a serious or smaller transaction like we have now seen, Ekokem and Hafslund. We're looking at multiple different scenarios.

We have a general target or desire actually coming from a long time ago that this capital redeployment would be completed for the most part by the end of 2017. This is what we communicated when the divestments were announced.

We said that there is a 3-year time horizon within which we would do the reinvestment and that time horizon comes to its end at the end of 2017. But as I think I put it at the capital market day that it's a general ambition level, but it is definitely not a promise.

And if there are good deals in the making that would close after the 31st of December, 2017, of course we're interested. So it's not a goal itself to do something by the end of this year, but it just is an indication effect that we do in management a sense of urgency with this issue.

We understand that we cannot continue to live with a balance sheet like this forever.

Okay, very clear. Thank you.

Just one from me. I appreciate that today you aren't providing a specific synergy target for the Hafslund transaction.

But will there be a rebranding or consolidation of brands intended within the market business and if so, what do you expect cost to be?

That is a question that is genuinely open at this time and since we're still two separate companies actually until the transaction has closed, we're not even allowed to plan the strategy because we're -- together with the Hafslund people because we're competitors. And we will continue to be so on the market until the transaction closes.

What I said yesterday in the information meeting in Oslo is that in the future world of consumer business branding will be increasingly important, because we will see a broader scope of services and a broader way of packaging those services for consumers and delivering those services to consumers than before and that needs to be reflected in the branding strategy as well. And this is something that we will plan together with the Hafslund people.

They know their customers best. We know our customers best.

And as soon as we're allowed to, we will start a joint working group for the creation of the future brand strategy for this business. So there are no decisions about that at this time.

We will have a right to use the Hafslund brand for several years if we so want and we will have a of course a right to use forever the other brands in the group if we so want. So all the possibilities are there.

We will just need to put together the right strategy in the coming months.

Okay, thank you.

And if we still take one more question from the lines.

Okay, thank you very much then. Thank you for your active participation.

And you can always contact us at IR anytime for any further questions and if not, then we will hear you on the lines again on the 20th of July when we have our second quarter results. Thank you very much and have a good evening.

Thank you.

Thank you.