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Executives

Markus Rauramo – CFO

Analysts

Deborah Wilkens – Goldman Sachs

Philippe Ourpatian – Natixis

Nathalie Casali – JPMorgan

Karri Rinta – SHB

Christopher Kuplent – Merrill Lynch

Ingo Becker – Kepler Cheuvreux

Emmanuel Turpin – Morgan Stanley

Fortum Corporation (OTC:FOJCF) Q3 2013 Earnings Call October 23, 2013 9:00 AM ET

Operator

Good day, and welcome to the Q3 2013 Fortum Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Markus Rauramo. Please go ahead, sir.

Markus Rauramo

Thank you, and good afternoon also on my behalf. Welcome to the call. I’ll start straight away on slide 3, looking at some of our key numbers from Q3. Sales were stable in the quarter year-on-year, and sales up for the first three quarters, and up also for last 12 months compared to 2012. EBITDA on the quarter down, but flat on the first three quarters and flat for last 12 months. Comparable other profit – operating profit went down in Q3, also down for the first three quarters. And profit before tax on the quarter came down to $23 million and that was largely driven by the fair valuation of our electricity hedges. What was very good for us was the strong cash flow in Q3. The cash flow was also remarkably strong in the first three quarters, as well as last 12 months compared to 2012.

Then I move to slide 4. Q3 for us is seasonally typically more difficult, but there are positive elements as well. The cash flow that I mentioned already on the previous slide. We did have nearly all time low hydro volumes. We did slightly better in nuclear and thermal production. We took the final decision to discontinue electricity production at the Inkoo plant. And then on the positive side, we inaugurated our first large-scale biomass CHP plant in the Baltics in Jelgava in Latvia.

Test runs in Nyagan unit number two are ongoing. We expect the commissioning by the year end 2013 and we inaugurated the – officially the first unit in Nyagan, about a month ago.

We have changed the timetable with regards to the finalization of the two last units in Russia, under our investment program. And the assessment of the electricity distribution business has progresses as planned.

Efficiency program has continued to develop very well and I will come back to that later. On the positive side, we ranked at the top of the Nordic climate index and scored a full 100 points out of 100.

Then to the market conditions on page 5. Power consumption in the Nordic countries is almost at last year’s third quarter level, and the decrease in industrial demand has been partly offset by the increase in non-industrial consumption on the private side. Water reservoir levels are at very low levels, clearly lower than the last year’s record high and precipitation, is also clearly below the level where it was last year.

Then corresponding with the Nordic system prices have increased by approximately €15 compared to the last year level. We have also seen slight recovery in the CO2 emission prices during Q3, but still we are at low single-digit levels or around €5, which is clearly lower than the 2013 euro level where we have been in the past years, when CO2 still had a clear stirring the impact.

In Russia, power consumption our operating areas increased marginally and the spot price in the First price zone in the Europe, increased by approximately 10% compared to last year level.

Then I move to the water reservoir. On slide 6, you can see with different colors, different years. In 2012 with the dark blue line, most of the year, we were at record high levels and ended the third quarter at the very high level.

2013, on the other hand has been mostly below the reference level and we are now clearly below the reference level and very much below last year record high level. And that can be seen even better in the following picture, on slide 7. So the – you can see the reference point zero and for most of 2012, we were clearly above that level. And in the third quarter, our hydro production was 6.3 terawatt hours. This year we have been most of the time below the reference level, even quite heavily and our hydro production has come down 38% to a level of 3.9 terawatt hours in the third quarter.

Then I move to electricity prices, and in the picture you can see that prices this year have been higher than 2012, but looking at historical perspective, they are at low levels. Also the forward pricing is reflecting the sluggish European economies.

Then to the relevant prices for us on slide 9, the spot prices in NordPool year-on-year on the quarter actually increased 72% albeit that came up from a very low level of €21. For us, the achieved price is more stable with our high hedging levels, but still we went up 19% from €39 to €47.

In Russia, in this picture we have only the Urals spot and not the whole price on one, prices came up 2% and our achieved power price also on the quarter, increased 2% year-on-year.

Then I move over to the – to talk more about the results. In the third quarter, we came down from a level of €223 million, down to €166 million. The biggest change came from power, where we were impacted by the lower volumes, by the write-down in income and also the increase in the Swedish taxes.

In the Heat business, the business itself was rather stable, but 2012 we had sales of CO2 certificate which had a positive impact then. In Russia, operationally we have been doing mostly quite well, but we had some credit losses in Russia from Energostream and the availability in one of our (inaudible) plant was not at the level where it should have been. And in division other, we haven’t been getting the costs down as we have been planning.

If we then turn to the first nine months, the picture is very similar. In power again, the biggest, biggest impact on our result volume down, Inkoo write-down and taxes in the first three quarters impacted us by €30 million. Same thing with CO2, on the Heat business and the – on Russia, the Energostream losses were €14 million and then we had the – also the problem with the availability in third quarter. And again in other, we have got cost out in a good way.

Then if I look at fuel and CO2 allowance prices, oil prices have been stable. Coal prices have remained at the very low levels, also impacting the power prices. CO2 prices have recovered somewhat, what this picture shows quite well, at what the low level they are at the moment. And gas prices on the other hand have been very high forcing up even new gas condensing plants from the European markets.

And I move to take a closer look at the financials and move to page 14. On this slide I only want to highlight the difference between the comparable operating profit and reported operating profit. In our case, this is mostly impacted by the sales gains and derivatives fair valuation and in third quarter it had an impact of $69 million which you can see in the first and third column in the bottom line. We did have more stability when we look at the first three quarters, when the fluctuation in the derivative state valuation evens itself out in longer time periods.

Then moving on to divisional results. In Power, we had nearly all time low hydro production by comparison to last year. We took the impairment loss from discontinuation of operations in Inkoo, which will come. But on the other hand we had good achieved power price. The picture is rather the same for the first nine months, low water reservoir levels. But we had improved nuclear availability compared to last year with the exception of Oskarhamn 1 but even that has been now running much better than in last year when it was off practically all the time.

Operating cost unfortunately have been increasing. I mentioned already, our taxation values of hydroplants in Sweden in the first three quarters, it’s had an impact of €30 million in our results, the whole year impact will be around €45 million till the comparable return on net assets for the last 12 months is 16% in Power division.

In the Heat division, third quarter is typically seasonally weak and we were impacted by the lower CO2 allowance sales. On the positive side, we inaugurated our Jelgava biomass CHP in Latvia and we continued our co-ownership agreement with regards to Fortum Värme with the city of Stockholm. And CO2 allowance prices and lower achieved forward prices for our Heat division impacted the first nine months. And there, the lower achieved prices come from the fact that we operate in so many different countries and price areas. So what we show in the previous slide doesn’t explain the whole picture for Heat.

All-in-all, I would say on Heat that the business is stable and we still have this year Brista and Joensuu, (inaudible) coming and then we are building Värtan which will come then online in a while. So there is capital tie up in – also in projects that are not giving returns at the moment.

Then, I move over to Russia where our investment program is proceeding. In the short-term, in the third quarter, we had to mention bad debt losses for Energostream and unplanned outages. On the positive side, Nygan 2 is currently under testing. It has already being in the grid and is proceeding well.

For the first nine months, what is worth noticing is that the CSA capacity units actually had a positive impact of €85 million. Nyagan 1 was commissioned into the system on 1st of April and we had the official inauguration about a month ago.

On the negative side, the investment program is delayed with some months for the last units, they will be ready by mid-2015. Again relating to the land works – land construction works in Chelyabinsk, we’re a little bit more optimistic, in the last quarter that we can catch up the delays, but now we have revised the timetable, but nothing dramatic there. I still highlight that in Russia that in the last 12 months, we had an EBITDA from our Russia division over €200 million.

Then over to Distribution. The results are stable in Q3, up in the first nine months and up in the last 12 months. The assessments of the Distribution business was announced in January 2013, that excludes again the electricity retail business, so it will not have impact and this assessment doesn’t have impact on our electricity distribution customers. The assessment is proceeding well according to plan and there has been high interest towards the assets, and we expect to conclude the assessment by the end of 2013, end of this year.

Then over to our Electricity sales, where we are the leading seller of CO2-free electricity in the Nordic countries. Results have been improving, also our market conditions have been favorable and we have been able to increase our customer base and I have to say that we are doing really good work both with our customer service and our new customer offerings. On the last 12 months, we have reached on a comparable operating profit of over €50 million and we are quite proud of that.

Then I move over to the income statement and make a few remarks. Here, on the expenses in Q3, you can see the impact of income, the increased taxes, and also the production mix where we have less hydro and relatively more other production forms with higher variable cost.

In the items affecting comparability, we have the negative impact from the hedge fair valuations. And then going down, we actually had positive income tax expense and that has to be with the fact that in our profit, we have some tax exempt items so the taxable income was negative, therefore, accounting tax positive.

Then on the cash flow statement, a couple of remarks. First of all, the net cash from operating activity in the quarter was strong €414 million compared to last year’s €111 million. Two main factors explaining this, first one is the financial items and FX gains and losses, and this cash flow volatility comes from the fact that we hedge our foreign currency denominated loans and when we roll over the hedges depending on where the currency rates are, cash goes in or cash goes out. And there was a difference of more than €200 million. But then what was operatively very positive was the strong working capital performance. So, we did €73 million better than last year in the comparable quarter and therefore getting the €414 million cash flow from operating activities in the third quarter. Same also goes for the first nine months of the year, strong cash flow.

Then to the key ratios on page 22, what is positive here is that comparably EBITDA has remained strong. LTM is at the same level as 2012. The interest-bearing net debt went up slightly taking the comparable net debt to EBITDA, up by 103.3, which is slightly above our target. Return on capital employed for the last 12 months is at 9.5%, which is below our target and our return on equity, we are above our target. We have excellent liquidity position €2.2 billion of committed credit lines and €1 billion of cash.

Then a few words about our efficiency program. Program has proceeded very well according to plan, and in many places even better than we have expected. Cost savings visible in all divisions, divestments have proceeded well. We are now at €200 million of non-core assets divested since the start of the program. We are at the – at the guidance with the CapEx and working capital has been reduced. Of what it says with the program is that – that our whole personnel of 10,100 people are working for efficiency and we’re creating the mindset also for the years to come 2015, 2018, our financial planning for the future.

On the debt maturity profile, on slide 24, the one thing I want to highlight here is that the average interest rate for our debt continues to come down. At year end, we were at 4.5% and at the end of September at 4%. This is due to that we have been issuing debt with (inaudible) and also on the coupon, when the existing debt matures gradually the interest rate continues to come down.

Then over to the outlook. In the Nordic market, we expect that electricity demand growth will be on average 0.5% in the coming years, and electricity is continuing to gain share of the total consumption. In Russia, our goal remains the same, which is to achieve the operating profit level in Russia division of €500 million run rate during 2015.

The key drivers and risks, remain the same. Demand supply, wholesale price of electricity, fuels, power plant availability, CO2 and as we saw the hydro situation, it has quite an impact on us, so from last year’s record high to this year’s practically record low.

On the CapEx side, we are well in line with our 2013 guidance. On the hedging, this is the first time when we’ve published our 2015 hedge ratios. For the rest of this year, we are hedged 85% at €44. For next year 65% at €42, and 2015 we are hedged now at 20% at €41. Efficiency program target remains the same €1 billion, good progress there.

On the taxation, there are both positive and negative items. On the positive side, the Finnish government is proposing to take the corporate tax rate down to 20%, starting from next year. On the negative side, the Swedish real estate taxation values for our hydro have been increased, so that there is an impact of about €45 million, on an annual basis for us.

And the Finnish government budget proposal also includes the – what is now called the power plant tax which was previously called the windfall tax and then the so called windfall tax, where the target for the government is to raise €50 million of tax revenues and about half of that would hit us. But, this is not final yet either.

To summarize, I have strong confidence that 2013 will be a good year for Fortum. We target to conclude the distribution assessment by the end of this year. Our efficiency program is continuing well. We have a strong joint deferred inside the company to mitigate any external and internal challenges in all divisions.

Our good hedging levels create stability in our earnings and cash flow, and we have very strong customer focus, and focus on safety and sustainability, we know they will work, in our management team and in our board. And finally of course we have the strongest focus on our cash flow and focus on our shareholder value.

And now I’m happy to open the floor for questions.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions) We will take our first question from Deborah Wilkens of Goldman Sachs. Please go ahead.

Deborah Wilkens – Goldman Sachs

Yes. Good afternoon. Can I start with just checking what the impact was of the unplanned outage in Russia, just in terms of EBIT and whether or not there also been impact from this in the fourth quarter of 2013?

And then separately could you just give us an update as to how much of the cost control will be reflected in the 2013 numbers. So, if we use the 150 as a guide, how much of the 150 is already in this 2013 earnings. Thank you.

Markus Rauramo

Okay. We don’t – in the Russia outages, we don’t – in direct altitudes, we don’t specify that that we normally don’t do, otherwise in any other divisions. But I would say, it’s some millions, it’s a few millions of – it’s not a big item, but still worthwhile mentioning.

On the cost side, the program will have the bigger impact in 2014. It has though started well and as I said, maybe a little bit better that we had expected. But on that front, we haven’t given exact numbers either yet. We will probably somewhere going forward give a little bit more color on how it’s going.

But I have to say that I’m very pleased, that’s the mindset in the company is correct and that’s really a big penetration with the efficiency, sentiment and philosophy. And I’m comfortable that that this will have also good impact for like I said before for 2015, 2018. The mindset is good.

Deborah Wilkens – Goldman Sachs

Okay and then I’ll follow-up with one more, which is just, when you discussed making a decision on the distribution disposal, is it correct that you are looking for bids before you make that decision? So, when you decide you either going to announce the sale of it or that you’ll keep it, not that you are starting the disposal process?

Markus Rauramo

We have to have, let’s say, complete real discussions about different alternatives to be able then to make to judgment what the outcome of the assessment is. So, we do holistic work and truly try to investigate different alternatives.

But when we are done with the assessment, then we will tell what our conclusions are and what decisions there might be. But at this point in time, it’s premature to comment any more than what we do at the moment. But, of course, a lot of work has gone into it and strong interest even in the early stages when we announced the assessments, but we know that this type of an asset is interesting for many type of investors. But we need to know more before we can make a conclusion.

Deborah Wilkens – Goldman Sachs

Thank you.

Operator

Thank you. We will take our next question from Philippe Ourpatian from Natixis. Please go ahead.

Philippe Ourpatian – Natixis

Yes. Good afternoon to all of you. I have just one question about the working capital improvement you mentioned in the presentation. At the same time, you mentioned that you have also some bad debt coming from Energostream, could you just elaborate regarding this improvement as you – I mean you already mentioned that it’s part of your cost cutting plan and operational improvement.

But could you just elaborate a little bit about how this more than €70 million have been done for this quarter and how much of that could be, I mean say, duplicate during the other quarter? Many thanks.

Markus Rauramo

Yeah. So, the big impact, if we look first at the first nine months, we had very high volumes outstanding and high customer receivables at the end of the year, which have come down. So that explains the big impact. Overall, there has been good (inaudible) all fronts of the working capital, receivables, payables, and what has been more of a permanent nature, if we look at what we have been able to achieve in 2013, is the inventories. So, there we have had good alignment especially on the coal side.

And, I am pretty happy that very early in the process we’re able to identify that that we have different stock levels. We had different approaches, safety margins, and so on. And now, we think that we have a more unified approach where we are totally compliant with what is the adequacy of the coal reserves we have and to the question that what can we duplicated early to say and again this is also something where we, of course, look for improvements all the time. But we want to find systematic better ways of working with them where we will get benefit this year, next year, and also in the years to come.

Philippe Ourpatian – Natixis

Could you just – could we just have an idea about what was your rate in terms of number of days of credit to your clients, was in 2012 and how much is in 2013 please?

Markus Rauramo

That’s I can’t unfortunately say at the moment, but maybe that something we can come back to you later, if that’s okay.

Philippe Ourpatian – Natixis

Okay. Great. Many thanks.

Markus Rauramo

Yep.

Operator

Thank you. We will take our next question from Nathalie Casali from JPMorgan. Please go ahead.

Nathalie Casali – JPMorgan

Hi. Good afternoon. I have two questions. The first one is on the reinvestment of the proceeds. If the distribution sales goes ahead, could you just give some detail as to what you would do. Would it be mostly for reinvestment or would it be for debt pay down? Secondly, on Russia, some of your competitors have given a fairly negative message on the oversupply in the country and we could take that as a negative from the respective of regulatory political intervention? So, if you could just comment on that, that would be great. Thank you.

Markus Rauramo

Yeah. Okay. So, let’s say this is – of course, this is full of assumptions because, but if we assume that we would get, if there would be a transaction and we would get those proceeds, we would very much continue with our existing strategy, so organic growth based on our key competencies in hydro and CHP and based on good platform that we have. So, we have a basis where we have good reinvestment possibilities actually regardless of whether we would have a transaction somewhere or not. And then, we have been looking at if we would be without the distribution business, which is the most stable part of our business and low risk, we think and this is kind of very – kind of fingertip and of course initial thoughts. But if we wouldn’t have business, probably we’d have to take our leverage target down from the current three times net debt to EBITDA to about 2.5, but that’s of course depends again on what would possible proceeds they reinvested in.

I would mention still that I don’t see that the company in any case is becoming as we’ve guessed maybe some perceive in the sense that even at the moment we are investing in these more stable businesses in CHP for example where we are much more local – the business is much more decentralized. There are other revenue streams on certificates, on (inaudible) and so on. So, the investments that we are doing at the moment are in the more stable end.

Then in Russia, the comments about the possible oversupply, of course, Russia fundamentally, we think it’s a good market and exciting market to go to and we can really utilize our strength. But it has not been immune to the economic fixation in the world either so that that all the time the demand-supply balance is being impacted. Given that, I think we find Russia to be very consistent with its policies, very logical.

Russia is determined with the CSA, the Capacity Supply Agreement, that the discussion around the gas tariffs, it’s a logical consequence of the economic situation. We see that in the long run, Russia wants to push ahead with netback parity, but given the economic circumstances discussion, what the increase is in the short-term should be. But, structurally, we think Russia is interesting. Russia is exciting. We will have, no matter what, we will have the most modern, the best capacities in Russia. So, we know that our competitiveness is going to be on a very, very good level. And we can see that like I mentioned, the CSA units produced €85 million. We do €200 million of EBITDA in Russia. So, our portfolio there works very well.

Nathalie Casali – JPMorgan

Thank you. And just want to follow-up first, do you guess tariff ) freeze was extended or even if you only had inflation length increases in gas prices going forward, would that pose a risk to the €500 million level that you target or is it too small to make a difference?

Markus Rauramo

We do bring it up in our report also that gas tariffs, FX, other regulatory circumstances can have and will have an impact on our profitability, but so do many other factors. And we are very determined to fight any kind of difficulties. This team is strong and ready to fight that. Like we say, our target remains the same and we will fight of the difficulties, but yes, it’s – of course these factors have an impact on us as well.

Nathalie Casali – JPMorgan

Okay. Thank you.

Operator

Thank you. We will take our next question from Karri Rinta of SHB. Please go ahead.

Karri Rinta – SHB

Yes. Thank you. Karri Rinta of Handelsbanken. Maybe a follow-up on the previous question. This €500 million target in Russian EBIT, you have previously mentioned that it comprised of the capacity tariffs as well as the actual electricity generation activities.

And if it looks like one of those would be weaker than needed to reach for the €500 million than the regulator could adjust it so that the generators like yourselves would then reach the promised rate of return. So, what has changed now that you have become a bit more careful with or cautious with the €500 million target?

Markus Rauramo

You are absolutely correct, so the CSA system works so that that for the new capacities under the CSA agreement, the CSA will be adjusted depending on the electricity spread and the CSA. So, these regulator looks at the, on a regular basis, three years and six years after the commissioning of each unit.

So, we have very strong confidence in the CSA. But we do at the same time, we do also have capacities that are not under the CSA agreement. So, these will be more exposed to the external circumstances. So, this is what we are referring to and I think at the same time it’s also just fair to say that, of course, we are not immune to what happens outside, but we analyze the situation and we are determined to meet that target.

I will mention the one thing then for maybe not for the next year or the next 18 or 24 months or whatever, but it’s good to remember that we have twice as much heat capacity in Russia as compared to our NORDIC fleets.

And today, the income we get from heat is very, very small. And we know that in Russia, we are also participating in the heat reform working groups and we have quite big potential than in the long run in Russia in the heat business. And as a whole, globally, we are the fifth largest heat producer in the world. And then, that is what Russia is appreciating also with our presence that we truly bring the knowledge from Finland, Sweden, Norway, Poland, Baltics, UK in the combined heat and power business. So, we are an appreciative partner in Russia.

Karri Rinta – SHB

All right. Thank you. Then maybe a follow-up or detail, the FX impact in Russia, do you or can you quantify what was the negative impact on weaker ruble, and can you give us some sensitivity of let’s say 5% change in ruble. What does that mean for your EBIT in Russia?

Unidentified Company Representative

It’s pretty straightforward. I mean as a rule of a thumb you can take that when the target is €500 million and that when the profit dispersed in rubles and when we translate that into Euros, then you can just take as a rough measure, you can take the sensitivity from that. So, 10% move would be €50 million in operating profit. Of course, this is a crude measure and doesn’t – then it, what I am saying now does not take into account any kind of dynamic impact. So, of course, we all know very well that if we would have more permanent weakness in a currency that will stimulate the local competitiveness and improve that. So, coming previously from closing – clearly traded currencies, we know what the impacts are or what the evaluation works and what the impact it has on an economy, but now I am talking about static short-term impact.

Karri Rinta – SHB

All right. That’s helpful. Then finally, the net debt to EBITDA of 3.5 in the case that you would get rid of the distribution activities, how firm is that? How tough extensive dialogue that you’ve had on with the credit rating agency so that gives you confidence on this number?

Markus Rauramo

We have more left sales into what directing agents did say about the different metrics and this is our, pretty much our own conclusion, given that’s everything else would be the same. This is some – let’s say in a ball park, what would be required. But in reality, we do not know. We don’t have any kind of communication and like I said before, it depends on what would we look like otherwise, what would we reinvest the money into.

Like I said, where the money is going now is, it’s more into the locally priced or regulated businesses, CSA in Russia, CHP in the Nordics and Baltics. So, much more stable income, high income, correcting based on alternative methods income from various sources. So, I think actually for complete profile, it’s moving to the less risky direction at the movement if we exclude that distribution discussion.

Karri Rinta – SHB

All right. Thank you very much.

Operator

Thank you. We will take our next question from Christopher Kuplent of Merrill Lynch. Please go ahead.

Christopher Kuplent – Merrill Lynch

Hello, thank you. First quick question probably for you. What are the indications regarding the finished windfall taxation plans? Is it too late now for you to stop paying in 2014? What are your concerns there in terms of timing? Just any update would be helpful.

And then, the usual question on Russia. Can you tell us what the current position is on your balance sheet regarding provisions for potential penalties in case you can’t finish your new built program on time and whether the nine month results include reversals of that provision or indeed whether they include some penalties from Russia? Thank you.

Markus Rauramo

Okay. With regard to the Finnish windfall tax audit, the situation with that, is that, the government has made its budget proposal, and they have a lower tax proposal, what the windfall tax would look like. We think it’s discriminatory and it’s not in line with or it’s not compliant with EU. Now the EU is checking the law. So, we’ll see what the outcome is. I cannot judge at the moment, but – whether it will happen or not. We do oppose it very strongly, and we think it sends very negative signal, with regards to the target to reduce CO2 emissions. It’s the non-CO2 hydro and nuclear production would get some extra tax. But we’ll see how it goes.

(Inaudible) Sorry, go ahead.

Christopher Kuplent – Merrill Lynch

Mark, I am sorry. Did you expect a ruling from the EU before year end, I guess not?

Markus Rauramo

If the tax cannot be implemented…

Christopher Kuplent – Merrill Lynch

Yeah.

Markus Rauramo

It cannot be implemented before the EU sets so – it texted on this tax.

Christopher Kuplent – Merrill Lynch

Okay, okay, thanks.

Markus Rauramo

Then with regards to Russia, the current provisions that they have unreleased, this €144 million.

Christopher Kuplent – Merrill Lynch

€144 million, so, existing, okay. Can I follow-up on Chelyabinsk, the new built project that you, I think have slightly delayed. The CSA agreements or payments that you expect from there, are they comparable to the payments you’re getting on Nyagan?

Markus Rauramo

That’s correct. And of course, that correlate with the fact of the unit. So, in Nyagan, we have – then we have three units of 480 megawatts each, and in Chelyabinsk it’s 248 units times two.

Christopher Kuplent – Merrill Lynch

Great, okay. Thank you.

Operator

Thank you. (Operator Instructions) We will take our next question from Ingo Becker of Kepler Cheuvreux. Please go ahead.

Ingo Becker – Kepler Cheuvreux

Yeah. Thank you. Good afternoon. I have two questions. One, again on distribution, you certainly evaluating a potential sale, you need more detail. Can you – I guess you understand, if you can’t, but could you elaborate on what that means? Are you looking for higher price? Are you looking for maybe not disposing off the whole segment or the only parts of it? Are you looking to sell possibly another asset? What are you looking for? What is holding you back?

And my second question would be, again on distributions of the technical, the associates in the balance sheet came off from Q2 until now from €101 million to €69 million that’s neglectable no figure. I’m just curious what has caused the decrease there?

Markus Rauramo

Okay. So, first of all, on the distribution, what we’re doing is that that we’re looking at all alternatives. So, we’re really looking at, is there value that could be discovered in this assessment process and we look to find best solution for all of our shareholders and, of course, for our customers as well. So, it is too early to say what possible outcomes, conclusions would there be, but we look at all alternatives truly. Then, you had a question about the associates, but I wasn’t – I think I have an idea what you’ve asked about. Can you just elaborate a little bit what numbers are you referring to?

Ingo Becker – Kepler Cheuvreux

Yeah. In your – sorry, on page 40, your interim statement shows that the book value of the distribution associates came off from $104 million at Q2 – I’m sorry that was last year, it was $101 million at Q2 and is now $69 million. I’m just curious why that decrease at all in that book value?

Markus Rauramo

Yeah. We had, like I said before that that’s part of the non-core business divestment. We have reached $200 million. So, part of those for example Härjeåns Kraft wherein the associates spark and then of course Infratek as well.

Ingo Becker – Kepler Cheuvreux

Okay. Thank you.

Markus Rauramo

If you have any more details then Sophie and her team will be happy to help you.

Ingo Becker – Kepler Cheuvreux

Okay. That’s great. Thanks.

Operator

Thank you. We will take our next question from Emmanuel Turpin of Morgan Stanley. Please go ahead.

Emmanuel Turpin – Morgan Stanley

Yes. Good afternoon, everyone. First question, coming back to Russia. You said in your press release that your teams will be making every effort to mitigate potential negative impacts from the recent regulatory announcements. And on the knowing (inaudible) on the teams, I know that it’s more than wishful thinking. So, I imagine there is a plan, what – how much can you tell us about what sort of initiatives you can take off at the operating level, on the cost side, or are there more under political mitigation discussions about how maybe to make your investment whole as soon as possible after 2015? That was my first question.

And secondly, considering how recent regulatory announcement was, I believe that any mitigating action won’t really be in place for 2014. I was wondering how we should see the recent announcements as, what you’re saying the shape of the ramp up of earnings. You’ve never given us anything here for 2014 but directionally is it fair to assume that there will be a dent compared to what it should have been? And lastly on Russia, how – I believe in the past you said that your investment has been financed largely in local currencies. How much of your €7.9 billon of net debt at the end of September is a conversion of something in ruble? Thank you.

Markus Rauramo

Okay. I’ll start with the – with what we’re doing to mitigate the impact. You actually gave the full list. So you know us pretty well but it is on our front. It is operational, it is in the construction of the units. It is intensifying the efficiency program but it’s also a deep dialogue with the establishment in really doing also like the academic studies or what are the impacts of the different initiatives that they’re doing on the whole Russian economy. So we engage in a deep dialogue, I’m very proud of the ability to engage in the dialogue for our whole organization. So we talk about what are the impacts of the gas pricing. What are the impacts of design and parity, possibly netback parity target and so on.

And then on the – what is the impact on the 2014 target. I think what describes well the ramp up curve is that, Nyagan 2 is coming at the end of this year. Nyagan 3 second half 2014 and then the two units in Chelyabinsk crush in the first half of 2015. So if you take the megawatts there, and we said that the CSA units now are yielding $85 million, then that there you can build somewhat of a picture of the ramp up and then have to remember the of course the start of (inaudible) for example in the case of Nyagan 1. Then for the local currencies, how much of our total debt has been converted into rubles. Very small amount, but let us come back to a little bit later for that question if that’s okay.

Emmanuel Turpin – Morgan Stanley

Thank you very much.

Operator

Thank you. (Operator Instructions) We have no further telephone questions at this time.

Markus Rauramo

Okay. If there are no further questions, I would want to close this meeting. First of all, thank you for being present. And to summarize what we think going forward is that based on our focus on strength, I believe that, that we have a beautiful future also in the long-term. We have good people, good assets, good availability. And even if there turbulence in the market, we are strong and we are well positioned to take advantage of any possible opportunities that lie ahead of us. Thank you very much for attending the call.

Operator

That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.

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