Fortum’s new vision and strategic cornerstones; updated financial targets
FORTUM CORPORATION STOCK EXCHANGE RELEASE 3 February 2016 at 09.05 EET
Fortum's strategy targets growth and continued profitability with a strong focus on clean energy, customers and shareholder value creation. The long-term financial target for return on capital employed (ROCE) is revised to at least 10%, while the target for comparable net debt to EBITDA, around 2.5 times, remains unchanged. Also the dividend policy remains unchanged.
The energy sector is changing fast, driven by climate change, urbanisation, more active customers, as well as new opportunities through digitalisation and fast development of energy-related technology - all global megatrends. The low energy prices, driven by depressed commodities and subsidised build-up of renewables as well as the low overall economic growth, have created a need for the energy industry transformation. At the same time, the energy sector must become the leader in climate change mitigation.
Fortum's strategy has four cornerstones: (1) enhance productivity of the current fleet and drive industry transformation, (2) create sustainable solutions for growing cities and urban areas, (3) increase investments in solar and wind power, and (4) build new energy ventures.
"Our new vision - the forerunner in clean energy - ties all these themes together. Our strong net cash position provides us a unique opportunity to grow and take a proactive role in driving the industry transformation. We will invest in growth supported by our strong balance sheet to the extent our comparable net debt to EBITDA target enables us," says Pekka Lundmark, President and CEO. “The target is to strengthen our position in the current home markets and wider Europe through consolidation. At the same time, we aim to utilise our know-how and competences to create new revenue streams based on other value drivers than the Nordic wholesale power price.”
“Having now decided our strategy, the immediate next step will be to align our organisation and operating model to ensure fast and efficient implementation,” Lundmark continues.
The four cornerstones of Fortum's strategy
Drive productivity and industry transformation
To ensure the competitiveness of the current production fleet, Fortum will enhance productivity, lower the cost base, strengthen procurement and increase capital efficiency in all operations. As the first step, Fortum aims to reduce the fixed cost base in its current operations by EUR 100 million by the end of 2017.
Fortum strives to create value by driving utility industry consolidation and restructuring through transformational mergers and acquisitions in its current home markets and in the integrating European market.
Create solutions for sustainable cities
Growing cities and urban areas are facing multiple challenges, such as high emissions from inefficient heating, cooling and electricity production, increasing amounts of waste, and high traffic pollution and noise. Fortum aims to use its expertise and experience to help cities solve these challenges sustainably and to support building a circular economy. Fortum’s solutions include efficient and reliable district heating and cooling, integrated electricity retail solutions and related applications, waste-to-energy and waste treatment, as well as enhancing e-mobility with smart charging solutions for electric vehicles. In addition, the company sees new revenue opportunities in various expert services in these areas.
Fortum targets growth primarily in its current home markets and also the wider European market. Fortum will also investigate possibilities in carefully selected urban areas in Asia.
Grow in solar and wind
Fortum targets a gigawatt-scale solar and wind portfolio. These technologies are rapidly maturing. At the same time, utility competences are becoming increasingly important as subsidy schemes are gradually being phased out and renewable energy production is becoming more market-based.
For wind power, Fortum's current home markets and broader Europe offer favorable conditions. In solar power, growth requires a wider geographic scope and entering selected new locations.
Build new energy ventures
Start-ups have an increasingly important role in innovating both new technologies and business models in the changing energy industry landscape. Digitalisation will enable productivity improvements in the existing businesses and development of new customer offerings.
Fortum's goal is to be in the forefront of energy technology and application development. To accelerate innovation and commercialisation of new offerings, Fortum will strengthen its in-house focus on innovation and digitalisation, partner with globally leading suppliers, promising technology companies and research institutions, as well as make direct and indirect investments in start-ups with encouraging new innovations.
Long-term financial targets
Fortum's updated financial targets give guidance on Fortum's view of the company's long-term value creation potential, its new growth strategy and business activities. The updated, long-term over-the-cycle financial targets are:
- Return on capital employed (ROCE) at least 10%
- Comparable net debt to EBITDA around 2.5 times.
The previous long-term financial targets were: return on capital employed (ROCE) 12%, and comparable net debt to EBITDA around 2.5 times.
Fortum's dividend policy remains unchanged: Its target is to pay a stable, sustainable and over time increasing dividend of 50-80% of earnings per share excluding one-off items.
Fortum Corporation
Helena Aatinen
Senior Vice President, Communications
Further information:
Pekka Lundmark, President and CEO, Fortum Corporation, tel. +358 10 45 24112
Media:
Helena Aatinen, Senior Vice President, Communications, tel. +358 10 45 20480
Investors and analysts:
Sophie Jolly, Vice President, Investor Relations, tel. +358 10 45 32552
Distribution:
Nasdaq Helsinki
Key media
www.fortum.com
Fortum
Fortum's vision is to be the forerunner in clean energy. We provide our customers with electricity, heat and cooling as well as other energy solutions that improve present and future life. Already 64% of our electricity generation is CO2 free. Our main markets are the Nordic and the Baltic countries, Russia, Poland and India. In 2015, we employed some 8,000 energy sector professionals, and our sales were EUR 3.5 billion. Fortum's share is listed on Nasdaq Helsinki. www.fortum.com