Fortum Oyj

Mans Holmberg - Investor Relations Pekka Lundmark - CEO Markus Rauramo - CFO

Wanda Wierzbicka - Credit Suisse Sam Arie - UBS Lueder Schumacher - Societe Generale James Brand - Deutsche Bank Peter Bisztyga - Bank of America Merrill Lynch Javier Garrido - JPMorgan Artem Beletski - SEB

Hello, and welcome to Fortum's third quarter result teleconference and webcast. Today, we have our CEO, Pekka Lundmark and CFO, Markus Rauramo who will be presenting our results for the third quarter.

And after that, we will have a Q&A session. And I ask you to limit yourself to two questions per person.

But without further ado, please go ahead Pekka.

Thank you very much Mans. Dear investors, thank you for joining us today.

This is of course our Q3 result announcement conference and that's why we are going to, in this presentation, be focusing entirely on Q3 results. Of course from a strategic point of view, in the quarter we had several important things.

We closed the Hafslund restructuring transaction together with the city of Oslo, an extremely important transaction that strengthens our position, especially in the Norwegian market, but also in the other Nordic markets. That was an important milestone that we reached during the quarter.

And then of course, an extremely important step was the announcement of the transaction agreement with E.ON regarding their stake in Uniper. We don't have that much new to say about that deal and that's why we are focusing on Q3.

The only small new things that we can say today is that we filed the day before yesterday, our offer documentation with the German Financial Supervision Authority, BaFin. Now they will review it.

And once they have given their approval, then after that we will launch this offer and we expect this to take place in early November. On the regulatory approval side, we now have clearance from the authorities in the United States, so that has been taken care of.

We have filed the transaction with the Federal Antimonopoly Service in Russia and we are working together with the relevant authorities in Brussels to prepare our filing over there. This is what we can say about that deal at the moment and of course we continue to repeat what we have said several times that we are, at any time, open to start a dialog with the Uniper management.

We've been ready for that all along and what we understand from Uniper's management is that once we have published the offer document, then potentially a dialog could start, at least not before that and once again, we are looking forward for this. Then couple of other very small things that I will not spend much time, but we are of course proceeding with other things in our strategy as well.

We have invested, over the past 5 years, approximately € 4 billion, Hafslund included in clean energy, in circular economy, in sustainable solutions for cities. And obviously, this is continuing.

€4 billion is a lot of money that is now gradually starting to support our results. Some of perhaps smaller DSOs during the quarter that you can here, we are continuing to expand any mobility, we are the market leader in the Nordic region, we have over 1200 charging stations, now we are moving towards home charging as well and as one important detail, we are expanding to India in mobility as well.

India has very ambitious plans regarding electric vehicles and we want to be part of that development India obviously through our investment in solar is one of our hall markets. We are growing in wind power both in the Nordics and Russia no new announcements today but we are following the skeleton that have published earlier and then on the new services side still a fairly small business today but now when we have 2.5 million consumers altogether in the Nordic countries and Poland the importance of value added services and the development towards what we call smart living in homes with our consumers will continue to grow in importance and during the quarter we signed couple of very important deals regarding this segment.

Then into the quarter itself we are pretty pleased with the results we have a 39% increase in our comparable EBITDA and even a stronger increase in comparable operating profit of course Q3 is always seasonally weak and this year was no exception but we are pretty satisfied with our performance. And also the general market conditions continue to show gradual albeit small signs of improvement.

The market conditions, the small improvement signs that I mentioned; one is that we had in the Nordic region a 2.5% increase in electricity consumption; 82 terawatt hours versus 80 terawatt hours in the third quarter last year. Prices are slightly up, as you can see here.

Nordic spot price was €28.50 versus €25.20 in the quarter and also the area prices, both in Finland and Sweden were on a higher level than a year ago. CO2 prices are slightly up.

I'll come back to this one in a second. And then in Russia, small increase in electricity consumption 235 versus 231; and then, when it comes to electricity prices, a small drop in spot prices, 4%, mostly driven by the unusually strong hydro production in the country in this quarter.

When it comes to hydro production in the Nordic region, obviously what we are following closely is the water reservoirs levels and they are pretty close to a normal level at this stage. You remember that both in Q4 last year and Q1 this year we suffered from especially low hydro production.

Now the outlook is, from that point of view, better at the levels -- reservoir levels are very close to normal which then of course in comparable terms is looking good for Q4, when we expect that how much we'll be able to produce from our hydro power plants in the Nordic region. Commodity deck is also looking slightly more positive.

Coal price has increased from roughly $60 to $80; $60 about a year ago and this has been driven by Chinese coal mining policies where they are closing down old inefficient and polluting mines and consequently, increasing coal imports and also the Chinese economy is boosting global coal prices at the moment. European Gas, if you calculate, per megawatt hour has grown from 13 to 16 on the back of unplanned Norwegian outages, strong Asian LNG prices, and a 50% rise in Chinese LNG imports.

So these have been factors behind the fairly strong gas price development as well. And then, the interesting thing which is of course extremely relevant to all of us is ETS.

There is now small improvement in the price. It's now above €7, it was below 5 just some time ago, and now the market seems to be discounting expectations about a successful outcome of the ongoing negotiations, tri-party negotiations with an objective to renew the ETS system, and for example, significantly strengthen the markets stability reserve.

And when you look at what the different analysts are predicting about the consequences to the emission prices, they would all agree that if this goes through, as is quite likely during Q4, that it would start supporting then ETS prices from 2019 onwards. And again, you can ask that what is then the rule of thumb that, what is the connection between ETS and Nordic electricity price?

There are a lot of variables that affected this equation, but the most commonly used by the analysts rule of thumb is that the €1 up in ETS price is something like €0.60 to €0.80 in electricity price. But there is a lot of variables that play into this, so it's hard to give a hard number but that's probably the right ballpark.

Power price development has been encouraging actually for almost two years now since the very low levels in the middle of 2015. The spot prices have been moving around -- on the system level, moving around €30, but in addition to that, very important to us is of course is that when you look at the recent development, last say 12 month's development in the forward prices for '18, '19 and '20.

We are in some cases, looking at €10 higher prices than the situation was still 12 to 18 months ago. So there is clearly now improvement in the market outlook when it comes to prices.

Here you have a summary of both market prices and achieved prices. Spot price year-over-year Q3 was up 13%.

Our achieved price in our Generation segment in the Nordic region was up €1 to €32.50. It's up 3% and of course the reason is the hedges that we had which then of course dampen the sudden movements in the price.

But thanks to the hedges we've been able to maintain the achieved price fairly stable albeit historical still on rather low levels. On the Russian side, as I said, the spot price was a little bit weaker in ruble terms than a year ago.

But then, when we calculate in the total price that we get including also capacity prices, and when we translate that all into our reporting currency, Euro, we are looking at 5% higher achieved price compared to a year ago. Here you have, as a summary, still the key figures.

Sales up strongly from €732 million to €919 million for the quarter, this is thanks to higher prices, but very much also the consolidation of Ekokem and also partial consolidation for the quarter of Hafslund. Hafslund was there only for two months, right, of the quarter, so it's still very early stage.

EBITDA strongly up, as I said 39%. Comparable operating profit also up.

And then, what is very important is cash flow. And we will be focusing now when -- through the Uniper investment, our so-called Phase 1 will come closer to its conclusion.

You remember that Phase 1 to us means reallocation of our balance sheet in order to create a company that has a strong cash flow, so that we can both invest into the future and [it's system], and pay a competitive dividend. Now when this Phase 1 is coming closer to its end, it of course means that we will be very much focusing on the cash flow that this company generates, and for this purpose, Q3 was actually quite encouraging; operating cash flow, €185 million versus €101 million a year ago.

Quick comments per each division before Markus zooms even deeper into certain numbers. Generation first; good quarter, EBITDA; €134 million versus €104 million last year, this was driven by higher hydro production, and also a higher achieved price.

What then dragged down the result was about 1 terawatt-hour lower nuclear production compared to Q3 last year. And this is because of Oskarshamn 1 now being down permanently, and also Oskarshamn 3 outages or the timing of the outages, which were now in relative terms more weighted towards the third quarter than last year.

So the combined effect of these two was the 1 terawatt-hour lower nuclear production. The Swedish authorities have published a proposal, as we expected that they would do, a proposal for new approach to waste fees, which they always do in a 3-year cycle.

This is not a decision yet, it is now a proposal and should this proposal be approved in its current form, it would mean an increase of approximately €8 million per year to our cost. And this of course must be then looked in relation to the earlier decisions which were made in Sweden, where both the nuclear capacity tax was taken away, and then the property tax for hydro was significant or will be significantly reduced, operating profit effect of these two being 180 million per year.

So, this would be 8 million negative and the previous one was 180 million positive per year. But overall, a good quarter for the Generation business.

City Solutions; Q3 is always very weak. City Solutions makes its money in Q1 and in Q4.

Now EBITDA is supported by slightly colder weather and then the integration of Ekokem into the numbers. So 21 million EBITDA versus 5 million last year, but then because of the depreciation and now also having the Ekokem depreciation in the P&L, comparable operating profit is strongly negative as it typically is in Q3.

Then Consumer Solutions, which now is in the middle of a fairly big Hafslund integration, we are moving from 1.1 million consumers to actually 2.5 million consumers is the very latest figure. We are not at all satisfied with this profitability level that we have in this business.

This business have some structural margin pressures that we don't believe that will go away in the short term. It has to do with the increasing role of automated tools that enable price comparisons and it affects the competitiveness of the different products.

This shows how important the Hafslund deal is for us, because Hafslund now gives us the critical mass, 2.5 million consumers altogether to be able to afford an investment into product development and into back-end IT systems, that will be even more crucially important in the future than they are today. So bear with us, this will take time.

We are putting money now into development, at the same time when margins are under pressure. But this is the only way -- putting money into development in this business is the only way to take care of your future competitiveness.

But the message to you investors, once again, is that, we will be working hard to improve the profitability of this business. We are not happy with these levels that we are seeing today.

But what we are happy with is the performance of our Russian business. We have higher received CSA payments.

We have change in the heat supply scheme in Tyumen, where we are now acting as the responsible heat system operator, which gives us a good position to develop the business further. And on top of this, on cumulative basis for this year, we have a strong improvement in the Russian ruble, which gives us a €30 million additional result improvement through ForEx.

And the combined effect of all this is then comparable EBITDA of 61 million of the quarter compared to 43 million last year, and an operating profit of 26 million versus 12 million last year. Of course, also in the Russian business, Q3 is seasonally weak.

But when you look at the cumulative numbers, you can see that we have moved from 212 million in 2016 to 317 million in comparable EBITDA, which is a really strong improvement. So now, I finish up here and Markus will continue, and then after that, we are ready for your questions.

Okay, thank you Pekka. So, I summarize shortly Q3: Generation, City Solution and Russia improving clearly; then heavy investment in Consumer Solutions and Other technology, new ventures, new business into our future; also the margin pressure in Consumer Solutions.

But altogether, clear improvement on a year-on-year basis. The same picture holds for cumulative from Q1 to Q3.

Compared to last year, with the exception of Generation, where the hydro volumes, as you saw from previous pictures, were low in the beginning of the year. But all in all, same picture; City Solution and Russian performing well; investment into future and margin pressure.

Of course, we do expect, in Consumer Solutions and Other that these investments will also start to then yield results going forward. Couple of remarks on income statement and cash flow statement.

One thing that's noticeable and that we can feel a lot in the organization is that the topline is growing. Sales are growing in Q3 on cumulative basis and last 12 months versus 2016.

This is due to our investment due to our acquisitions, due to the integration. So a lot of hard work has been done in the organization and that is paying off.

In the left hand column in Q3, some other noticeable items are the Hafslund sales gain in items affecting comparability. And then, we have the finance costs increase that is due to the acquisition facility for the PTO for the Uniper shares.

The last thing I'll note here is on the cumulative Q1 to Q3 income tax expense, so that's where we actually did a book the Swedish income tax gains. On the cash flow side, very strong growth in EBITDA.

So the same that we see on the topline impact, we actually see in increasing EBITDA. On the paid financial items and taxes, the impact of the acquisition facility is there.

Then we had positive development in working capital, less receivables some cash settlement of the hedges with futures. And then, what I think is clear is that we have spent money on CapEx.

We have been active on acquisitions and divestments. So we can see the Hafslund transaction impact on acquisition of shares and divestment of shares, and then, in the earlier periods, the impact on Ekokem acquisition and DUON acquisition.

And that goes to the same theme as the short term. In the long term, we have been investing CapEx; not only OpEx, but CapEx and acquisitions, investing into the future and that shows then in the bottom part of the table.

But cash from operating activities, last 12 months and Q3 this year versus last year, good strong improvement. Going into the debt portfolio; debt financing.

We continue to have low average cost of debt, especially in Euros and Swedish krona. Market conditions are, of course, very good for borrowers.

So I would estimate that if we were to borrow new money now, depending on the maturity that would happen at around 1% to 1.5%, depending on the maturity. Our position in the market seems to be strong, so financing is well available for transactions and investments.

The one issue that we noted in the quarterly release is that not only did we have the acquisition facility in place, but we also syndicated this facility further to our relationship banks. And that happened at very competitive and attractive terms.

Then for the key debt indicators; net debt-to-EBITDA stands now at 0.9. Our target is to be at around 2.5x in order to have an efficient balance sheet, efficient use of capital.

With the announced an intending transaction to purchase the E.ON stake of Uniper shares, our net debt-to-EBITDA would go to around 3.5x. But if we look at how rating agencies typically would treat it on proportionate consolidation basis, the number would be around 2.5x which is our target.

Our liquidity situation is very good. We have EUR 3.9 billion in liquid funds; that is in cash and short deposits.

On top of that, because of the PTO rules, we have to have full financing available for a full acquisition of all the shares in Uniper. So that also is in place.

Then finally, for the outlook, we continue to forecast 0.5% growth, annual growth on average, on electricity demand. And I think the signs both in GDP developments in our core market as well as the electrification of all aspects in our society continue to support this and even stronger.

So appliance fees, electric mobility, data processing, the amount of data being processed, all of this is pointing to that electricity will take also market share and of course the positive GDP growth underpins this development. Our CapEx estimate for the year continues to be the same, 800 million, which maintenance CapEx is 300 million.

So heavy investment this year into growth. Hedging levels for the rest of the year, we have hedge 65% at €30 megawatt-hour; next year 50% so half is hedge at 28 and this is the first time we show the 2019 hedge levels, 30% hedged at €24 per megawatt-hour.

So very similar profile as we had when we started first to report the 2018 levels. On taxes, the tax rate -- effective tax rate for this year should be around 20% and also going forward positive developments that we have earlier communicated already in Sweden, the reduction of nuclear taxes which will go to zero by 2018.

And then, the hydro real estate taxes that will gradually decrease to the level of 0. 5% by 2020.

That impact will be quite significant, combined. And then, we had the positive ruling in our favor for hydro real estate tax from Sweden and that was only applicable to part of our company, so if this applied to all Fortum companies, the impact would be larger, though the tax authority has appealed to this.

But all in all, solid outlook. I stop here and I think now it's time for questions-and-answers.

Yes. So let's move over to questions-and-answers.

Let's first see if we have any questions here from [indiscernible], the audience. Since we don't have, then let's move over to the questions from the lines.

Operator, go ahead.

Hi, good afternoon, Wanda Wierzbicka, Credit Suisse, two questions from me. The first one is on your 2017 dividends.

Should we assume that you would have base your dividend on old Fortum, I mean €1.1 per share or post Uniper Fortum? And my second question is on the Uniper deal, do you have any conversation with other shareholders in Uniper and ETS, how confident you are that you be able to get that agreement?

If I take the second question and Markus takes the dividend question, we are just focusing on the E.ON stake, that's the only deal and the only discussions we have had. We are now getting ready to publish the offer document, and then every shareholder will need to make their own decision, Markus?

On the dividend question, when it comes to 2017 dividend, that is then decided by our board, at the time when that becomes topical. So then the board is evaluating the circumstances around that.

So far we have been paying the €1.1 dividend based on our balance sheet capacity and our willingness to support a very stable dividend. And then, when we look beyond 2017 and look to next year, the capital redeployment that we have done and that we are now, contemplating of course all these measures are intended to support our dividend paying capability.

So everything is moving to the right direction from that point of view.

Hi, good afternoon, and thank you for the presentation and congratulations on a very solid set of results and your comments on power prices and the forward curve are very helpful, but my question is if you could just explain a bit more about what is actually your house view going forward on power prices and carbon and whether you see fundamentally more upside to underlying power prices from current levels and whether you think expectations of a €20 to €30 carbon price in the next few years, which we think in the market are realistic?

Yes, thank you. That's of course an extremely good and relevant question, but unfortunately as many of you remember we have a policy of not publishing what our forecasts are.

So we can only comment on a general level what the drivers are and of course the underlying driver is the overall demand, and there we continue to believe that it is 0.5% growth per year, which in the Nordic region would mean roughly 2 terawatt-hour, so more demand per year. Then there is some capacity going out, like Swedish Nuclear shutdowns; the Ringhals shutdowns in 2019 and 2020; Olkiluoto 3 in Finland going to the opposite direction.

These two roughly compensating each other and then there are some other announced either shut downs or newbuilds as well. And this will then determine the demand-supply balance.

Then one thing that will affect the situation is the growing interconnections between Nordic region and the Central European region. The interconnections will roughly double between today and 2023 from the current level of 6,000 megawatts to roughly 12,000 megawatts, and this will be quite interesting because this happens roughly at the same time -- time wise, when nuclear will be shut down, 11 gigawatts of nuclear will disappear from Germany.

And then, while in many European markets, the pressure to phase-out coal will increase. So this will create quite interesting dynamics and we believe that this will have a possibility to support the value of certain Nordic, especially hydro type assets as balance power offered to the large European market.

Then, ETS is a big fundamental. We don't publish our forecast, but when you look at what consultants are forecasting, there are big differences between them.

They all agreed that the prices will go up. The European Commission has been openly talking about targets like €20 of €30 per ton, but there is no direct connection between the mechanism that is currently being planned and how to get there.

So, there is still un-clarity about this thing and that's why the spreads are pretty big that how much the different forecast differ from each other. But the rule of thumb, as I said is, for the Nordic prices that €1 in ETS is, according to most analysts, €0.60 to €0.80 per megawatt hour.

And then of course, the final thing is then what the commodities will do and coal prices have been quite strong recently, and they are also depending on how much the coal will be in the margin in the future, they will continue to have a direct connection to the power price level as well. So overall, most analysts believe that after 2019, 2020, there would be an increase in power prices, but then, there are big differences in opinions that -- as to how steep that increase would be and we of course have our own investment case, but that we do not publish.

Maybe one further remark, just a kind of market data point. So of course we have now the hedged levels that we have historically build over time.

But just with today's quotes, the 2018 Helsinki price is 33, Stockholm 29. Same goes for 2019, so clearly higher levels than where we have hedged 2019.

So we have been building the portfolio up at clearly lower levels than where we are today. So I think that gives us a bit of, in a way, confidence in that the market is more solid than what it has been now historically over the last two years.

Yes. As I said earlier, the market looks much more solid now than it was a year-and-a-half ago.

Good afternoon. A couple of questions from me, the first one is on CapEx.

You say the estimate for the full-year is about 800 million. Should we think about this as the peak in your CapEx cycle, obviously excluding Uniper?

Or it should just be the Fortum as these CapEx come down from this level, and if so, what kind of level do you have in mind sort of three years out from that? The second one is on the tax rate, you said the effective tax rate should be around 20%, which is your normal.

And so I would have thought with the book gain you are showing in 2017, the actual rate we're going to see in the P&L should be below that? And lastly, you mentioned 3.5 times net debt-to-EBITDA post acquisition of the Uniper stake, I guess that's 2019 and proportional numbers you are referring to?

That is correct. If I understood your question right, the Markus comment about the multiples and net debt-over-EBITDA multiples, they were referring to the only agreement that we currently have, which is the E.ON sales.

That's correct. And this is in a way a run rate number.

So if you annualize the impacts, this is what it would roughly look like. And of course the outcome depends on what is the amount of shares tendered, consolidation et cetera, et cetera.

But I'm referring to exactly that transaction that we have said that we are focusing on.

And then as a follow-up, regarding your CapEx question, obviously 800 million is a pretty high CapEx. It includes 500 million growth CapEx.

We have not yet guided for next year's CapEx. You will get an idea if you look it in the report that we published, there is a list of all ongoing organic construction projects that we have.

So from there, you can get an idea, but I'd just say one thing that obviously before we know the outcome of the tender offer of Uniper, we will exercise pretty high level of scrutiny when we talk about any new capital allocation decisions. We do want to see the outcome of the offer first.

Then, with regards to the effective tax rate. So, over time, I'm very comfortable with the 20% tax rate.

That said, there will be volatility and then the outright tax rate that you calculate from the P&L, that will differ a lot because when we take, for example, the associated income, the taxes are already included, pre the net profit. So you have to dig into the numbers a little bit.

But if there are specific questions, we are always happy to go through the numbers. But ultimately when you clean up and when you just look at the underlying performance, we land up very close to 20% all the time.

Okay. And just one follow-up question on the CapEx.

The projects you refer to, I believe they come to an end in 2019, so would it be sensible to assume just your maintenance CapEx of 300 million from then on.

In terms of any new decisions, that is correct, yes.

Good morning. I had some questions actually, just on the CSA payments in Russia.

I was hoping you could quantify a little bit kind of the movements from here. You mentioned in the statement a few of the facts that could have at them, so the linkage with the 10 year bond yields, firstly; secondly, the ability of the regulators to review the earnings from the electricity market after three and six years; and thirdly, the step-up from the seventh year of the 10-year period that you received those payments for.

I was wondering whether you could give some quantification across the three of those, what your expectations are. Obviously on the bond yield side, bond yields have -- 8 and 10-year bonds just have come down by about 1% over last year.

Just wondering what the negative impact that that might have? What do you expect for the regulator to be making any adjustments around the three and the six year review?

And finally, if you could quantify the step-up that will come in the seventh year?

I can comment on that. So you are very correct that these are the main factors; the bond yield, inflation, the spot price adjustment and the profile.

So what happened now in this quarter is that bond yield impact was negative; inflation impact albeit that's very small, negative; and then the, what you referred to as the regulator's assessment of the spot market happening three to six years, that was positive; and you can also see it in a way from the spot prices in the chart. When spot prices come down, then the compensation for that would go up.

The biggest single item was then the profile that we referred to. So the CSA payments are higher for years seven to 10 on each of the units.

And now, the first units are starting to enter that phase and that is a significant increase in the CSA payment. It's tens of percentages in the CSA payment.

And now, over the coming few years, our different blocks will enter that phase. So in the absence of any other movement, you can expect that the CSA payments will go up for a number of years now.

Could you give any indication as to the percentage, plus that comes in that seventh year, on average, across your portfolio of parts?

I would say it depends. So I cannot give one single number, but it's several tens of percent on the CSA payment.

The formula is extremely long, several rows and complicated. So there are many moving factors, but this is, let say, the most single determining component there.

Good afternoon. Just two questions from me on Russia.

There was some story yesterday suggesting that the Russian Antimonopoly Services, some concerns around the Uniper transact. Just wondering if you could elaborate what, if anything, you have heard on that front.

And my second question relates to district heat tariffs in Russia. I was wondering if you could explain a little bit more what's been happening there.

They seem sort of or some of your heat revenue seems to have increased quite nicely there on a unit basis and also what sort of trend we should expect for future years?

Markus will take the district heating question. That will obviously depend a lot on how the so called heat reform will proceed in Russia.

When it comes to Antitrust process in Russia, we see this as pretty normal and expected part of the process. The generation capacities and the generation numbers are fairly well known and we expect to have a constructive dialog with the relevant authorities.

When it comes to market shares, it's always in cases like this, it's a discussion about what is the right definition for the relevant market, whether it's 1 CD or a wider area, price area or even the whole country and we are confident that we will be -- through a good dialog, come to a solution that all parties can live with. So we see that this is part of normal and expected process in Russia.

And then, with regards to the district heat tariffs. So we have certainly seen some improvement.

So there is some positive contribution from our district heating business. But really, the big issue is that we need to see the heat reform happening and there would be very many positive impacts from that, on efficiency, on use of fuel, on the quality of the networks.

So I would say, in the big picture, the situation is still that the district heating part covers its cost and our business, really the business case is still the electricity. That said, the upside is then of course there still that with our district heating volumes, if we would get that to the same level as our City Solution; that impact would be significant, but we are not there.

This, in general, the heating business in Tyumen and Chelyabinsk, where we are -- it is, in our thinking, we put that into the category of a potential future upside, which is not certain but we are hopeful that the reform will proceed in Russia in due time, which would then create possibilities for higher returns.

Have there been any sort of further developments on heat reform discussions in Russia or is that very much a sort of post 2020 story?

Well there are, yet 2020 or something like that is hard to say. They are now -- they have made a decision to pilot a, in a way, deregulated heat market in a couple of cities, and our cities are not part of that pilot.

So we are following with great interest. While doing that, we are proceeding with this, in a way, partial reform of becoming a heat system operator in both Tyumen and Chelyabinsk and [already] that gives us possibilities for performance improvement because we will be in a better position to plan from a holistic point of view that how the whole heat network is to be operated in the best possible way.

There is a lot of inefficiencies in these networks and now we will be in a good position to improve efficiency already before we will know that what will ultimately happen with heat market deregulation.

Good afternoon, couple of questions if I may. First one is on your leverage, you mentioned that you would be at 2.5 times net debt-to-EBITDA if the Uniper stake [indiscernible] consolidated.

Is this target leverage ratio going to be under review depending on the quality and structure of the assets and liabilities of the company? What I mean is, Uniper itself have a lower leverage target.

Is this going to be taken into consideration in the future even if you only acquire the stake and E.ON? And the second question is on taxes, you mentioned that you're going to benefit from a €180 million reduction in generation taxes, nuclear and hydro in Sweden, what is your expectation or have you had any dialog with the Swedish Government about those taxes, coming back to where they were, if we see an uptick in power prices linked to higher CO2 prices or linked to other drivers.

Is there any debate or any kind of ongoing discussion about when or to which level this taxes could come back?

Okay, I take the first question and Markus will then comment to Swedish taxation. Look as we have said, we are focusing on the E.ON stake and we are looking that as an investment, so it would be entirely premature and not appropriate to -- from our point of view, as an investor, to go into details or the qualities of the various assets in the company.

We look at that 38 gigawatt portfolio as one portfolio that we are investing in. And what Markus was referring to earlier is then the potential way that the rating agencies would be looking at our key ratios when they evaluate the credit rating for us and the related net debt-to-EBITDA levels.

Our target level is 2.5, and as we have said several times, we have been below that, which means that we want to invest. If we would go above that, then overtime, we would hope to be able to produce good cash flows so that we would be able to deleverage over time, but this 2.5x, it's not a wholly target that we need to be absolutely there.

It's always a lot of different circumstances that play into this, but that is kind of the general long-term target that we have.

Then with regards to the tax situation, so I think we had in our hands in the whole of Sweden, a real structural problem with this kind of tax levels that they were. So this is started to threaten base-load production and these were in a way heavily jeopardizing the future of the most renewable production of hydro power and risking also the flexibility.

These are the really long-term structural issues that the Swedish Government then ultimately had to address what is it that is wanted in the long term? So I think -- but we of course, totally expect that these were made with long-term vision and with the commitment that when we didn't have to do necessary safety investment and so on, that we have payment times that are very long and there needs to reciprocity on this account.

But of course, here we can all act as a united front and demand consistency and long-term thinking from decision makers. So we do expect that this government and future governments will hold steady on this issue.

One thing that is perhaps comforting there is that that really was discussed. This was a wide parliamentary agreement that was made.

So it is not only a decision made by the current government, but also most of the opposition was and continues to be committed to this and that of course gives us long-term comfort.

Yes, this is Artem from SEB. Actually two questions from my side.

So first of all, starting with Nordics and the hedges issued for 2019, could you maybe provide some further color on price levels there. So has there been, for example, [indiscernible] area hedges compared to system hedges and maybe differences between Sweden and Finland compared to sort of say normal generation mix what you're having?

And the other question is relating to Russia, and could you maybe comment whether you're have some plans mid-term maybe upgrade some of your capacity what you're having in the region and potentially getting some CSA payments and so on from there. So yes, that's all the questions.

Thank you, I take the Russia question and Markus will comment the hedges. Of course we know that the assets that we have in Russia that are subject to CSA payments, there will be a time when these payments will end.

And then, at that time, these assets will be receiving, in a way, normal so called CCS, i.e. Competitive Capacity Selection payments through a normal auctioning process number one.

And number two, spot prices for the electricity that they sell on the market. And of course, nobody knows how the market balance will look at that time and how the capacity balance, capacity situation, we'll look at that time.

One interesting observation is that the prices for the latest auctions in the competitive capacity selection which is a completely transparent and open process that takes into account the market demand supply balance; they seem to be recovering now when you look at early 2020. So we may be getting some support from there going forward.

But having said that, the CSA will go away, and that's why it's very important for us that we, in addition to CCS and spot prices that we get something instead and this is the key reason why we are now participating in this wind build up projects through our joint venture with RUSNANO. This joint venture recently won a license to build up to 1,000 megawatts of wind in Russia over the next few years.

These wind power plants will be receiving CSA payments for the next 15 years on pretty good levels. Depending on the load factors that we'll be receiving, we are estimating that we'll be getting €115 to €135 per megawatt hour CSA payments for the period of 15 years.

So this is a pretty interesting and attractive way of partially compensating than what we will lose for the CSA in the existing assets.

With regard to the hedges and area prices, so I think you're on the right track with your question that historically we may have had fair bit of variation in the area price hedge levels. Obviously, we just give this number, so we don't disclose what we have done in the different areas.

But I would categorize it so that it's a fairly balanced portfolio now that we have behind this price and of course that continues to leave -- again I refer back to the where the prices are today. So clearly, higher than these levels.

So, I would say that we have potential here with this number.

If you asked if we're happy with this 24, of course we are not happy but it's good that it's only 30%, so there still 70% to go.

[Indiscernible] Many of you then during our Road Shows the next coming two weeks. So thank you very much and have a nice afternoon.

See you on the Road. Thank you.