Fortum Oyj (FORTUM) Earnings Call Transcript & Summary

Good morning, everyone. It's my pleasure to welcome you all to Fortum's joint webcasted news conference as we today have announced the appointment of our new CEO, Markus Rauramo. My name is Ingela Ulfves, and I'm heading Fortum's Investor Relations. With me here today are Fortum's Chairman of the Board, Matti Lievonen; as well as our new CEO, Markus Rauramo. First, we will hear their statements on the appointment and after that, we will open up for questions and answers. This event is being recorded, and a recording will be available later on then on the web. So without further delay, I hand over to Matti and Markus to start.

Thank you very much, Ingela, and very good morning. Welcome also my behalf of -- and thank you for joining us. It's a very pleasant morning because this morning Markus Rauramo has accepted the Board's proposal to become the new President and CEO of Fortum Consolidated Group. The selection of CEO is probably the most important thing of the report because the CEO will show the way where the company goes, how it goes and what is the results. He is not doing the things alone but with the team, and this is the big thing for the Board. But I'd like to say a few words about the search process. We run the full-scale international search for the new CEO. And this is something what's really -- pleased me very much. Fortum was very interested in the markets. The people was really pleased that we contacted. We have a long list, short list and then 4 finalists, until 2 finalists. And there was the European countries where we look at the new CEO, not outside of Europe. The Board of Directors was looking for a change leader, who can drive a major transition both for Fortum Uniper and in the energy sector as whole. We also put emphasis on experience for leading large international transformation and working with different cultures; experience from the capital markets; understanding the role of politics inevitably plays in energy; a modern leader who can motivate, engage people in the change; and tough decision to change sometimes requires. In the end, Markus was clearly the best match in the terms of experience, competence and the character. He has a solid track record in managing complex, even game-changing situation, both at Fortum and his earlier position at Stora Enso, which is one of the leading forest industry companies globally. At Stora Enso, Markus played a key role in restructuring and transforming the company as CFO and Deputy to the CEO. He also led abroad in Brussels, London for several years and worked hands-on a large investment project in China and Uruguay. At Fortum, Markus has been a key role in the Ekokem and Hafslund acquisition as well as the acquisition of Uniper. Under his leadership Fortum took the first major step in the solar power, so renewables. Thanks to his long CFO and a capital market experience, he has a situational awareness as well as in-depth knowledge and view of our business and organization. He knows the people, and according to his own words, he likes it here. He also knows and has a solid established position at the Uniper, as he has been the Vice Chairman of the Supervisory Board almost nearly 2 years. And news from the Uniper people, the CEO, the working council leader from this morning, was very positive. Markus is very highly rated in the Uniper. But there is also the best match in terms of character. He has a positive and engaging, yet result-driven and firm leadership style. He lives and leads by what we at the Fortum call the open leadership, believing, wanting, expecting best for and from our people. So in short, we are absolutely convinced that Markus Rauramo is the best candidate to lead Fortum into the next phase of the development as the company is at the pivotal turning point. We clearly view that Fortum Uniper Group as a 1 entity, with Uniper being Fortum's so-called fifth division, and we need to switch gear to unleash the full potential of the combination. The rapid change in our market due to corona pandemic is further driving the need for the step-change. The market environment after the corona pandemic is volatile, commodity prices are low and economics are stagnating. In terms of power demand, we have so far seen a dip in Central Europe and Russia, while Nordics market has been less affected. Nevertheless, we can be certain that the full effect of the pandemic is not yet visible. Both Fortum and Uniper's financial result have been solid, and the Board sees a lot of untapped potential. While at the same time, we need to ensure that we maintain a solid financial position and is investment-grade rating for the consolidated group. To succeed in this environment, it is evident that the group needs to have a clearer focus than before and be prepared to make tough decisions where needed. I have all the confidence that Markus will enable the step change needed and delivering the result we expect both in the terms of strategic focus, business, operation and financials. And last but not least, I would like to thank Pekka Lundmark, who is now leaving Fortum for starting the transformation of Fortum and being the example. I could tell you that the Fortum is not the same company that it was 5 years back when Pekka joined. And we have a good basis to continue building the European energy transition champion under the leadership of Markus. Thank you, Markus, very much to accepting. Because of corona, we cannot handshake here in public, but we have done it earlier. Thank you, Markus, and I hand over to you.

Okay. Well, thank you very much, Matti. Thank you for the trust and the very, very kind words. That was really nice to hear. I'm really excited and honored to take on the responsibility as Fortum's CEO. Fortum is a great company, and together with Uniper, we will step up the pace in the transformation to solidify our position and become the leading clean energy player. My focus will be on delivering value from the Uniper acquisition, capital efficiency and targeted growth as well as setting and achieving new and ambitious set of sustainability targets as an integral part of our joint strategy. I will say a couple of words also about the backdrop. Europe is going through a very substantial energy transformation. Tens of gigawatts of coal, lignite and nuclear are being closed with ambitious timetables in European countries. This creates a big need for clean energy investments, which will largely be renewables, solar and wind. As these renewables are intermittent, volatile by nature, there will also be a big need for strong baseload of power as well as flexible adjusting power. In addition to this, there is an increasing need for a more sustainable use of materials and circular economy solutions. The Fortum Uniper Group is very well positioned with its competencies and its good people to provide solutions to both of these big societal questions. The softness in commodity markets in the early part of this year and the following corona pandemic present also a challenging and uncertain economic environment where GDP forecasts have been revised heavily downwards. Against this backdrop, we have good and competitive assets and highly competent and driven people at both Fortum and Uniper. As CFO and Division Head in Fortum and as Vice Chairman of Uniper Supervisory Board, I have seen what each team can achieve, and I know that working together, we can achieve so much more. So my #1 priority is to create a joint strategy for the group, so that our people will have clarity and a common direction to work towards to and that our external stakeholders know and understand this, too. This strategy we will announce latest by year-end. For me, clarity also means that we prune our business portfolio, and when we decide to invest in something, then it will be strategic, selective and substantial. Focus is very much the word when it comes to growth as well. Clarity also means not only clear direction, but determined steps and measurable goals which will be followed up. We have good assets today that have already put us in the position of being the third largest CO2-free electricity provider in Europe. Our Nordic fleet is almost fully decarbonized hydro nuclear power, and we are growing in wind. In the Nordics, we also have a strong position providing heat, recycling and waste solutions. In Russia, we have the most efficient thermal power fleet, consisting mainly of gas fired generation, and we are by far the biggest investor in Russia in wind and solar power. In Central Europe, Uniper's strong position in gas, including trading and storage will play a crucial role in bridging the gap towards a decarbonized energy system. In the long run, we will make gas clean, too, as Uniper has announced in their strategy statement. Going forward, we will have a much more focused business portfolio that will be based on 3 cornerstones of sustainability, affordability and security of supply. And that must bring in solid financial returns and create value to our stakeholders. We will continue to pursue decarbonization by reducing our coal-based capacity and by seeking growth in clean energy. We will also continue to develop solutions that help our customers, private, municipal and industrial, to decarbonize. It goes without saying that I expect all our businesses to perform well and contribute to the financial strength of the consolidated group. So as part of our joint strategy development, we will certainly review the portfolio also from this perspective. As Matti and I already pointed out, the operating environment, especially when it comes to the macroeconomic development is increasingly overcast. With this in mind, securing the financial strength of our consolidated group is also a top priority for me. This is a balancing act between the following: ensuring a rating of at least BBB flat; ensuring a stable, sustainable and over time increasing dividend; and ensuring that we are in good shape to be able to grasp the growth opportunities presented by the energy transition. To achieve all this, we need dedicated and good people and good leadership principles put in practice. Our open leadership building blocks, believing in each other, wanting the best for each other makes it possible to also expect the best from each other. I also want to take the opportunity to thank Pekka. He served as the CEO of Fortum for 5 years and took us through big changes. With his leadership, we reached our financial targets and renewed the group. It was great to work together with Pekka. He has been a good leader, good colleague and a great boss. Finally, I'm proud to have been appointed CEO of Fortum Uniper Group. It is a great company, and I have really enjoyed working here for the last 8 years. We have good people, and I look forward to working with our team to deliver good value to all of our stakeholders.

Thank you, Markus, and thank you, Matti. So with these statements, we are now ready to take the questions from the teleconference. You're able to ask questions both in English and in Finnish. And since the news conference is about the new CEO, then I would like to remind you that you keep your questions to this topic. So operator, please go ahead.

[Operator Instructions] Our first question comes from Deepa, Bernstein.

Congratulations, Markus. I wanted to just understand a bit more on when you said that you are going to step up the transformation and move towards a more focused business portfolio. I think looking at the combined companies, there are some portions such as Uniper's Global Commodities division, which doesn't really fit, I think, with the Fortum as today or the expanded presence in Russia that Uniper brings in. So would you be able to comment anything on when you're talking about pruning, would you be looking at such divisions? And can you do this before you sort of dominate Uniper, which I believe you've committed not to do for the next 2 years?

Thank you very much for the congratulations. The backdrop for this point is that, together, Fortum and Uniper have a much larger portfolio than before. So in order to be impactful and utilize our competencies and the skills that we have, we have to make choices going forward where to grow and where not to grow. And this is the work that we are currently engaging already in and will intensify, and we will then come back in the end of the year in our CMD on what these choices may be.

Our next question comes from [ Brian ], UBS.

Congratulations, Markus. Let me echo the positive comments, I think we're delighted to congratulate you today and also sharing your thanks to Pekka for everything he's done in the last few years. I was actually just interrupted by the call manager when you were answering the previous question, which I think was going to be my same question. But I was just hoping you could comment a bit more on your perspective on the Russian business. And I suppose one of the questions people are asking is whether over your period as CEO, you think Russia will play an important part or whether Fortum may have a reduced presence in Russia? And also, I suppose it's asked whether somehow that reduced presence in Russia is somehow connected to the agreement you managed to secure this year to allow your Uniper transaction to go through. So apologies if this repeats anything I missed as the call operator was -- took over my line. But could I just ask you, Markus, to share a few more thoughts on Russia going forward?

Okay. So well, thank you, again, for the congratulations. Russia has been a very important part of both Fortum's and Uniper's businesses. And I think there, you can very well observe the trend of us investing successfully in new capacities, using our skills and competencies to invest and create returns. We have done large investment programs in Russia. And now we are entering the next phase with the renewables in Russia. So I think what you can expect from us that we continuously evaluate our positions. We continuously look for investment opportunities. And currently, our focus is on the renewables program. We have also -- in Russia, we have been exiting certain assets. So I think the portfolio development is something that's very natural for us, and we continuously evaluate the asset base.

Our next question comes from James Brand, Deutsche Bank.

Congratulations also from me. I had 2 questions, both kind of tied to your aims outlined to move quicker in terms of the transformation. And then secondly, to ensure a strong balance sheet. And I guess, obviously in terms of moving quicker around the transformation. Completing the integration of Uniper is probably, I guess those, one of the key targets for you over the next few years. I'm sure you don't want to say too much about what you're expecting to do exactly there. But I was wondering whether you could maybe confirm whether as Deepa was asking, the statement -- or alluded to, the statement that you made when you agreed the state pressures what might have been key and Elliott that you wouldn't launch a domination agreement or squeeze out for at least 2 years from when that announcement was made. I was wondering if you are thinking about moving quicker, whether we should still see that statement as current policy or maybe there's scope to think again about that and move quicker. And then secondly, in terms of strengthening the balance sheet, you've obviously highlighted the district heating assets or portions of your district heating assets as potential assets, which you will look at or review whether they are that core to the group or not. I was wondering -- and I'm sure you don't want to outline exactly all of the assets that you're going to sell, but I was wondering whether you could maybe comment on if there are any assets that are absolutely core to Fortum that you would under no circumstances consider selling.

Okay. There were actually quite many questions. So first of all, thank you for the congratulations, James. So I'll make a couple of comments here. What we want to be is to be well positioned to grasp the opportunities, but also face the challenges that the European energy transition presents to us. And I think some of the topical issues that we see -- where we see movement at the moment are things like renewables, hydrogen flexibility, and we are moving on all of these fronts continuously. With regards to the DPLTA and squeeze out, that comment is still valid. However, having said that, there's nothing preventing us now as a combined group to create value together. So what I'm looking for is to now intensify, speed up the value creation and go forward with the cooperation and joint value creation that is beneficial for both companies and all of the shareholders. When it comes then to the strategic review, we are now doing the strategic review of the mentioned district heating assets. And as a principle, we always look constructively at our whole asset base. But when we do then our strategic assessment only at that time, we would make further comments in addition to what we have said now.

There appears to be no further questions. So I will return the conference call back to you.

Okay, thank you, operator, and thank you for the questions. So if there's nothing more to ask here either, then I thank you, everyone, for your participation here today. And on behalf of Fortum, we wish you all a really enjoyable summer going forward.

Thank you very much, everyone.

Thank you.

Thank you.