FINAL TRANSCRIPT
FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
Event Date/Time: Jul. 18. 2007 / 9:00AM ET
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FINAL TRANSCRIPT
Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
CORPORATE PARTICIPANTS
Mikael Lilius
Fortum Corporation - President & CEO
Tapio Kuula
Fortum Corporation - SVP
Juha Laaksonen
Fortum Corporation - CFO
CONFERENCE CALL PARTICIPANTS
Simon Flowers
Merrill Lynch - Analyst
Lueder Schumacher
Dresdner Kleinwort Bank - Analyst
Christopher Kuplent
Credit Suisse - Analyst
Per Lekander
UBS - Analyst
Ingo Becker
Kepler Equities - Analyst
Peter Bisztyga
Citigroup - Analyst
Simon Rowe
New Star Asset Management - Analyst
PRESENTATION
Operator
Good afternoon ladies and gentlemen, and welcome to the Fortum Corporation second quarter earnings conference call.
(OPERATOR INSTRUCTIONS)
I will now hand you over to your first host, Mr. Mikael Lilius, CEO and President. Thank you.
Mikael Lilius - Fortum Corporation - President & CEO
Thank you very much, and good afternoon to all of you from Helsinki, and this is Mikael Lilius speaking and as usual with me
here I have Tapio Kuula, and our CFO, Juha Laaksonen. And we will now you through the presentation in the usual manner and
then of course, finally open up for questions.
The first six months including the second quarter was quite challenging, exciting because it was quite warm, quite wet, volumes
actually were down 3% in the Nordic markets. Spot prices were down 45% to 50%, depending on which time frame you look
at. Despite this, Fortum was able of increasing its earnings and actually we were able of increasing our price by 4% to 5%, again
in a very challenging environment. To me this indicated we have a very -- again, we're were rewarded for our flexible generation
portfolio, and of course I think it's safe to say that we have good cost management and good cost structure and of course our
hedges did certainly support us.
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Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
So first quarter results were -- or 6 months were good as was the second quarter. Also very pleased to announce very good cash
flow, north of EUR1 billion. Of course, it was seasonal but also we were helped by strong dividend from above all Hafslund which
actually contributed close to EUR150 million. Roughly EUR120 million of which was due to the REC sale this winter.
Another thing that pleases very much is that we have been able to turn around Fortum Markets. I know that there's still way to
go and we said we're working on it but definitely the trend has changed, and we are moving in the right direction. And when
I finally conclude the session I will also be able to report what we consider significantly improved hedging positions.
If we turn to numbers, comparable operating profit increased by 5%, EPS by 33%, of course, helped by the REC sale contributes
approximately EUR0.20. Here we can see the strong cash flow, close to EUR1.1 billion and again, of course almost EUR150 million
was due to Hafslund dividend.
And our net debt only increased by roughly -- slightly below EUR300 million, despite the fact that we actually did pay a dividend
of around EUR1.1 billion during the second quarter, so strong cash flow.
Moving into the units, we are now just to help the reader, also open up the second quarter and there can see what pleases us
is the fact that all businesses either stayed at previous level or indeed improve, despite the fact again that volumes were down.
And one has to remember that volumes do affect not only Power Generation, but also Distribution and Markets. And furthermore,
heat demand went down 7% despite the fact that we had now added the acquisition of E.ON Finland. There you can really see
the significance of the warm weather.
But all-in-all, an improvement or at least flat earnings in all our businesses, and a slight improvement in Market, but above all
a significant turnaround compared to Q1.
The next chart just shows you how Fortum's hedges did pay off. You can see the market prices went down close to 50% during
Q2, slightly less during the first half year on average, whereas Fortum's achieved price increased by 4% or 5%, depending on
how you look at it. And of course prices have been affected not only by warm weather and hydro supply, but also due to the
fact that as we already talked about a year ago, the over-supply of -- over-allocations of emission allowances and made them
basically worthless at the moment which of course also has an impact on pricing and I think that they today trade at EUR0.10
or something. So, all those external factors were working against us but nevertheless, earnings were up.
So, I think we've -- fair to say, we are pleased to announce solid good first half year results. And now I'd like to hand it over to
Tapio Kuula, to take you through the different business segments. Tapio, please go ahead.
Tapio Kuula - Fortum Corporation - SVP
Okay, thank you, Mikael, and good afternoon to everyone. As said also Power Generation segment could improve its financial
performance even in these market conditions with the lower Nordic consumption volumes and clearly lower, significantly lower
Nord Pool prices.
We produced about 1 TWh more hydropower and about 1.7 TWh less nuclear power during the first half of the year. And the
thermal condensing volumes, they were close to zero, 0.2 TWh, down by 0.8 TWh.
As you can see from the page eight, comparable operating profits were up by EUR45 million, which means 9% and we can say
that this could probably would have been even a bit better, but in the UK where we have the [crane smelter] power production,
we had a bit less favorable electricity price development and natural gas price development last year. RONA was 16.1 and I
think that one can say that it's a well satisfactory level.
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Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
Going to the next page, page number nine, Heat segment as already said, volumes were down, especially district heating volume
because of extremely warm weather. Anyway, sales figures were up by EUR22 million, and comparable operating profit up by
EUR12 million. And of course, main contributor for that was E.ON Finland in the present Fortum figures. Net assets have increased
by nearly EUR150 million and RONA level is 8.6%.
Going to Distribution segment, next page, page number ten, we can also see the impact from former Espoo, E.ON Finland
primaily Espoo area. It has contributed both, positively both volume and result wise. On the other hand we can say that we had
storms, quite significant storms in the beginning year, and those caused additional costs and so, comparable operating profit
for the first half of the year is EUR3 million less than last year, and RONA figure is 7.9%.
Then next page, going through to Markets segment, our sales volumes were down compared to the last year, about 1 TWh, but
as already said the most significant change and message here is that we clearly see positive performance development during
the second quarter, a comparable operating profit loss now plus EUR3 million for the second quarter, when it was minus EUR14
million for the first quarter. So clearly development -- a positive development still of course, the results are on absolute terms
very modest.
And now Juha Laaksonen will continue with finances.
Juha Laaksonen - Fortum Corporation - CFO
Thank you Tapio, and good afternoon ladies and gentlemen. Just a few brief comments. It was a very straightforward quarter
for us. If you look at the income statement on page 13, share of profits from associates EUR15 million compared to EUR6 million
last year. The biggest contributor here is the Hafslund, it's normal result on a half year basis. We have a huge increase this year
compared to last year, when the first quarter booked this EUR180 million gearing from the sale of REC shares by Hafslund.
Financial expense [fees], increased EUR10 million in the second quarter, and that is driven by higher average debt levels almost
solely. As you remember in the beginning of April we paid the EUR1.1 billion dividend and then that increased debt level.
Although since they have come down as Mikael said.
Nothing special on the tax level in second quarter, around 21% on a half year basis. The tax charge in income statement looks
very low because we have a high contribution from profits from associates. On this page 14, the difference between comparable
and reported and as commented, maybe the mention is -- to mention it to the Power Generation in the second quarter, we
have a lower comparable because we eliminate the change in the market valuation of derivatives -- those derivatives that don't
get hedged count in sales where we have a positive [putting] in the IFRS accounts.
On the cash flow statement, that was on the second quarter extremely strong. And as Mikael already told you, we got big
dividends from associated companies. They are included in the line financial items and tax fees so, actually the dividends were
bigger than paid taxes and financial expenses because this is a positive booking. On a full year basis, we have a -- then some
also -- some realized ForEx losses when we don't get a [derivative] booking.
In the second quarter, change in working capital was positive EUR127 million and that is a seasonality there because in the
second quarter the business usually comes down a bit from the first quarter as we know, and also at this time we have this warm
weather and lower demand which also affected volumes and prices, so we could release money from working capital. But this
altogether led to a very strong cash flow. And of course, if you have strong cash flow, debt levels reduce, and although we paid
the dividend we are now at EUR4.6 billion in net debt, when in March we were EUR3.9 billion, and that gives us a 2.4 net
debt/EBITDA ratio.
The return on capital employed, our last total on [pages] was a little more than 14% and return on equity a little more than 17%,
so we doing fine also on those measures.
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Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
And now, I'll (inaudible - background noise) with Mikael.
Mikael Lilius - Fortum Corporation - President & CEO
So, that was the report on the first six months and then once again we're quite happy with them and now, but -- now looking
into the future, something about the fundamentals. As I said, it's been warm and wet, so the hydro reservoirs are now about 7
TWh above the long-term average, and of course there's still snow to melt so, obviously a reasonably rich hydro situation going
forward.
And despite me saying that during the first six months there was a drop in consumption of 3%, our long-term view is still the
same that we're talking about roughly 1% growth annually on average. Forward prices are stated here, the rest of the year
EUR30 to EUR32. Q4 seems to be around EUR37 at the moment and 2008 forward EUR43, EUR44 about and of course the first
quarter between EUR46 and EUR47 something, the first quarter of 2008.
And here again we can see that dramatic drop in CO2 prices for 2007, EUR0.1 per ton where at next year, the price had been
hovering around plus-minus EUR20 per ton.
Our hedge ratios are showed on the next page, and as you can see we've been able to increase our hedge ratios both for this
year and for next year. So, for the rest of this year hedge ratios are about 80% at EUR40, whereas next year's hedge ratios
increased since when we last spoke to you, from 40% to 50%. But, the value of the hedge portfolio has increased from EUR42
to EUR43, meaning of course that the last 10% hedged actually have been made at good prices.
Another thing is that we have conveyed to you before, we are convinced that environmental issues are going to be higher and
higher an agenda. We believe that emissions are going to be priced even higher going forward, and those not emitting will be
more competitive than those emitting. So, despite not being a low emitter in European contracts, we have now reduced our
target for emissions in Europe. And previously of having had 120 grams of CO2 per KWh on -- as an annual average over a five
year period, we've now reduced it to 80 grams. It certainly puts us well ahead of most of our European competitors.
We're also saying that in heat production our aim is to reduce specific emissions in each distributing network by at least 10%,
between now and 2020.
And -- but on the other hand, when and if we move outside of Europe, we say that, those kind of targets are difficult to apply,
then we are saying that wherever we go, we're permitted to reduce specific emissions and increase efficiency. We really want
to make the difference.
That leads us to Russia, and there are three items I want to share with you. First of all, TGC-1 will have its rights issue and we will
participate in that rights issue. And despite any writings in newspapers, which we don't understand at all where they come
from, we will participate in that and there's nothing stopping us from -- and there's nobody even trying to stop it. We have all
along felt that we are a welcome partner. And we will participate in that, meaning that during the summer months we will have
to pay approximate EUR240 million to maintain our 25 plus percent stake in TGC-1.
And just to avoid any confusion, TGC-1 is a pure generation company. Then again, in Lenenergo, where we hold one-third, and
Lenenergo today is a pure distribution company in St. Petersburg. Along with the power reform progressing in Russia, Lenenergo
has been unbundled and it includes nothing else but distribution assets in the St. Petersburg region. The City of St. Petersburg
has long indicated its will and interest in participating and joining as a shareholder in Lenenergo. At Fortum, this is fine with us
because we see that it's good for the city and I think it's good for Lenenergo to be aligned with the city. So we said that if we
can agree upon terms and conditions, we would be happy to exit our present holding in Lenenergo.
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Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
And again, I really want to emphasize, because all the confusion that's in the newspapers, that it is a distribution company. And
our strategic focus is on power generation. So we are in negotiations with RAO UES, and some other parties about exiting our
position in Lenenergo. And it's we said, nothing that we've been forced to -- it's a very constructive, good dialogue we've been
having with the parties involved.
And then finally, as we shared with you before, we will and are evaluating other opportunities in the Russia power generation
sector. And as you all know, there are ongoing auctions and there are more auctions to come. And if and when we find the right
opportunity, I think we -- or we will participate.
So that's really is the Russian situation at the moment; participating in the TGC-1 rights issue, negotiating about selling our
stake in Lenenergo and looking at growth opportunities, acquisition opportunities in other generation assets in Russia at the
moment.
So to conclude, all-in-all having gone through strategic review recently, we see no reason to change our geographical focus.
Short-term, we have good hedging positions and actually we think they increased since reporting last time. We clearly see that
the benefit from our flexible and climate benign production portfolio, balance sheet is healthy and good so we can exercise or
execute any growth opportunities we find attractive. And we are particularly looking at those in Russia. So, I think that things
look reasonably good for Fortum at the moment.
I'd like to stop here and now open up for questions. Thank you very much for listening.
QUESTIONS AND ANSWERS
Operator
Thank you. (OPERATOR INSTRUCTIONS). Our first question is from the line of Simon Flowers from Merrill Lynch. Please go ahead.
Simon Flowers - Merrill Lynch - Analyst
Yes, good afternoon everybody. Two questions please. First, just on the reduction in Nordic area demand of -- which I think is
about 6 TWh, is that all to do with mild weather or is there some demand destruction from higher prices over the last year?
And the second thing, just -- I find the Russian bit slightly confusing, not what you were saying but just the whole scene. But,
clearly you're interested in OGK and my understanding is that the strategic sales of OGK-4, for example, was all being sold to a
single bidder. And I'd thought I'd understood previously that the sort of stake you'd be looking for would be a 25% plus one
stake, with a maximum EUR1 billion or so investment and are those two things -- am I getting confused or are you upping the
stakes, or are you sticking -- can you achieve your acquisition of an OGK within the limits you've defined of 25%? Thank you.
Mikael Lilius - Fortum Corporation - President & CEO
Good -- if I, thanks, Simon, this is Mikael speaking. On the latter question, what I did say is that we need to invest and acquire
at least 25 plus one share. We would not participate in anything that gives us less a blocking minority. And then when we talked
about the EUR1 billion, we said that the minimum requirement would be north of EUR1 billion. That's what we said, and that's
where we are. That's not taking a view on OGK-4 or other assets, but just to clarify what we said.
As for the decrease, I 'm not aware of anything else but just the fact that it's been mild and warm, as can be reflected also in the
heat number. Generally speaking, demand has just been low because of warmer weather.
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Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
Unidentified Company Representative
Because electricity is used also quite a lot in Nordic area for heating and that directly affects also, electricity consumption.
Simon Flowers - Merrill Lynch - Analyst
Thanks very much. On the OGK thing, can -- is it possible then for you to go in with another partner to acquire a larger stake?
And is that something you'd consider?
Mikael Lilius - Fortum Corporation - President & CEO
Well, we haven't disclosed our bidding tactics if we are to participate. So, I'd like not to comment on that at this stage either.
Simon Flowers - Merrill Lynch - Analyst
Understood, thank you.
Operator
Thank you. Our next question comes from the line of Lueder Schumacher from Dresdner Kleinwort Bank. Please go ahead.
Lueder Schumacher - Dresdner Kleinwort Bank - Analyst
Good afternoon. Two questions really, one is again, on the Russian situation, I mean you made it pretty clear that you think that
a lot of the confusion or uncertainty comes from the press mixing up your generation assets in TGC-1 with the remaining
distribution assets in Lenenergo. But, there was some pretty specific stories around which alluded to the rights issue and having
missed various deadlines which would thereby prevent you from exercising your rights. Can you just, perhaps one last time,
confirm that no deadline has been missed and that everything is on track, not only with your willingness to exercise your rights,
but with your ability to actually do so?
And the same question simply on the tax rate. If you could give us some kind of guidance of where you see this tax rate ending
up at the end of the year, and perhaps where a normalized tax rate for '08 and forwards should be.
Tapio Kuula - Fortum Corporation - SVP
Thanks so much. If I start --
Mikael Lilius - Fortum Corporation - President & CEO
Answering the Russian part and Tapio will then confirm. We are not aware of us having missed any deadline. It's actually so that
I think we have to exercise our right within the month of July, and we clearly will. And next to me I have Tapio Kuula sitting in,
and I think he's the vice-chairman of the Board of TGC-1, so he's been there making the decisions. So we are not aware of missing
any deadline. Tapio, is there anything you --
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Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
Tapio Kuula - Fortum Corporation - SVP
No, this is absolutely the right story.
Mikael Lilius - Fortum Corporation - President & CEO
So then -- but you're also right, there has been a lot of confusing articles that we quite frankly can't recognize. So, but the
knowledge we have and the schedule accordingly which operated, within the month of July, we will exercise our right to
participate in the rights issue, and payment is due sometime in the latter part of August.
Tapio Kuula - Fortum Corporation - SVP
That is clearly legal right, which we have. And of course, when we own more than 25% of shares, everything has to approved
by us as well.
Lueder Schumacher - Dresdner Kleinwort Bank - Analyst
Okay, that is very clear. Thank you.
Mikael Lilius - Fortum Corporation - President & CEO
And now on the tax rate, I'll leave it to Juha Laaksonen.
Juha Laaksonen - Fortum Corporation - CFO
Yes, as I said before it's -- I can't give you a specific forecast on a year-end tax rate, but normally going forward including the
normal amount for associated companies' [sales] which is not that many millions, we would probably in the rate of 22% to 24%,
calculating strictly from the balance sheet -- from the income statement, so around there, and it can, of course, vary from year
to year but around those numbers, that's the guidance we have given earlier and we don't change it.
Lueder Schumacher - Dresdner Kleinwort Bank - Analyst
Thank you.
Operator
Thank you. Our next question comes from the line of Christopher Kuplent from Credit Suisse. Please go ahead.
Christopher Kuplent - Credit Suisse - Analyst
Hello, good afternoon. Just two questions, first of all the obligatory question, have you started your share buyback, if not, why
not?
And just want to come back to Russia as a second question. The EUR240 million that you have given as part of the -- as the cost
for the capital increase, I assume is based on the share price. Would you -- do you think it's fair to assume also for your, if you
end up selling your stake in Lenenergo that we should look at the share price of Lenenergo, even though it's highly liquid as a
guide for valuation? Thanks.
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Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
Mikael Lilius - Fortum Corporation - President & CEO
The pretty goo -- what was the first part of the question? The share -- sorry, right. Our share buyback, no we have not bought
any shares back and as we've said before, we are committed to a capital structure and one way of getting to the target the
capital structure. Obviously, it could be acquisitions and investments. The authorization we have is valid until March 2008, so
we have still plenty of time and we are still committed to moving towards this capital structure target. So I guess that is partly
the answering this one.
Christopher Kuplent - Credit Suisse - Analyst
Okay.
Mikael Lilius - Fortum Corporation - President & CEO
And I think that automatically in a sense leads us to the Russian question. Yes, we are looking at the Russian opportunity, the
EUR240 is I guess it's --
Tapio Kuula - Fortum Corporation - SVP
It's really based on the total volume share emission which is about EUR930 million, and that means that for us that makes about
EUR240 million.
Juha Laaksonen - Fortum Corporation - CFO
The valuation of that or the value of that one is related to the investment profile and not the share price.
Mikael Lilius - Fortum Corporation - President & CEO
Not the share price.
Christopher Kuplent - Credit Suisse - Analyst
Okay.
Mikael Lilius - Fortum Corporation - President & CEO
As for the Lenenergo, I think you're right in saying that it's not a very liquid share but we have a clear view on pricing and unless
we get the price we want, we are not prepared to sell.
Christopher Kuplent - Credit Suisse - Analyst
Right, appreciate it, thank you.
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Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
Operator
Thank you. The next question comes from the line of Per Lekander from UBS. Please go ahead.
Per Lekander - UBS - Analyst
Yes, good afternoon. I have three questions. Number one, you had a press conference a bit earlier in Finnish and the Bloomberg
headlines said that you had expressed very bullish views on the future market and could see that carbon prices could perhaps
even double. Could you -- is this true? And then could you elaborate a bit on this?
And second, on the Lenenergo, is there a kind of timetable we could look at on this sale?
And then the third one, just to have how to get that 2007 numbers, right. You have hedged 80% at EUR40, and this implies that
you have had very good hedging prices for the last quarter. Could you give an indication on this 20% which remains, if it's
spread evenly between Q3 and Q4 or if there is a bias to one or the other, because there is very significant price difference
between these two quarters?
Mikael Lilius - Fortum Corporation - President & CEO
If I start with the last one. I mean, we won't comment. We give you a number which is the average value of the average hedge
portfolio. And we haven't given anymore in-depth information before and I think that that's the way we want to go forward as
well.
As for Lenenergo, there has been talks in Russia press as well, that we are in discussions or negotiations. And I can confirm that
that is the case. I can't confirm any dates or deadlines. But I mean, once the process has started, the sooner the better. So, that's
where we are.
As for the Bloomberg press release, I don't recognize having said that. What I have said then, what they asked is that, is it true
that it looks like power prices are going to double early next year, and I said yes. If you just look at the forward prices are now
slightly above EUR20 and because of allocating scarcity in that Kyoto round, CO2 allowances are priced at around EUR20, and
that will have an impact on pricing. So, that was really the discussion we had. It's not a view on CO2 prices doubling. It's just a
question of moving from where they are today, to moving into 2010 there to market price around 20.
Juha Laaksonen - Fortum Corporation - CFO
And the forward price for the first quarter is around EUR47, so it's more than double today's contracts.
Per Lekander - UBS - Analyst
Thank you very much.
Operator
Thank you. The next question is from the line of Ingo Becker from Kepler Equities. Please go ahead.
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Ingo Becker - Kepler Equities - Analyst
Hello, good afternoon. I've got a question on your stricter CO2 targets. Will you aim for doing so, mainly in your district heating
division at the CHP plants or in the Power Generation segment as well? And if so, in power generation, how do you intend to
do so. I mean obviously you're [burying] into your fossilified output apparently very serious CO2 emissions but I don't think
that's what you have in mind.
And finally does that take into account your capacity increase at Oskarshamn and the [Finfonshar] already, which automatically
will reduce your emissions per unit?
Mikael Lilius - Fortum Corporation - President & CEO
Well, first of all it's -- this target will have an impact on what kind of investments we do going forward. And if you may recall
that the investment program we have ongoing, adding about 1300 megawatts and approximately 10 TWh, about 90% of that
is non-emmitive. So, that's part of the way.
And if you then look back at the chart we show you on page 20, you can see that there is a lot of volatility around it, but as late
as 2005 we were down at 38 grams. So, it's a combination of investments going forward, it's a combination of behavior of -and it's also covers all portfolios, both district heating and the power generation assets. But of course, upgrading nuclear is part
of it, building new nuclear is part of it, building the biofuel based CHP plant in Sweden is part of it. The waste burning, waste
energy plant outside of Stockholm is part of it. So, turning the Finnish, the E.ON Finland heat plant from coal to gas is part of it,
and again --
Unidentified Company Representative
Big hydro power plants --
Mikael Lilius - Fortum Corporation - President & CEO
Yes, so it's a manyfold exercise. And again remember, this is a five year average. So, there will be variations of over and below
this target of 80. But, it's clearly just signaling that we take this seriously. And we believe that it also certainly does increase our
competitiveness.
Ingo Becker - Kepler Equities - Analyst
Okay, thanks a lot.
Operator
Thank you. The next question comes from the line of Peter Bisztyga from Citigroup. Please go ahead.
Peter Bisztyga - Citigroup - Analyst
Hi, is it's Peter Bisztyga here from Citi. Can you talk a bit about your Markets division and how you expect profitability of that
division to develop over the next 12 months, and specifically I want to know whether based on the current forward curve, and
based on your current retail tariffs, whether you'd expect that division to be profitable through Q4 this year, and Q1 in 2008?
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Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
Mikael Lilius - Fortum Corporation - President & CEO
Well, we, as you know, we never give forecasts on a corporate level nor do we give forecasts on an individual business level,
but we have also indicated that we are happy about the improvement, but we are not happy about the absolute level. And
that's what we need to work on. But I mean no doubt, is there an interesting exercise ahead of us when you're actually moving
from today's price environment into a price environment the prices are doubling? But so is the whole industry in the Nordic
market. But we don't give individual forecasts, neither for quarters nor for full year and definitely not for individual businesses.
Peter Bisztyga - Citigroup - Analyst
Okay, maybe just put my question slightly differently, based on where you see the current forward curve for the Nordic region
and would you expect to have to raise some retail tariffs again? Or are you --?
Mikael Lilius - Fortum Corporation - President & CEO
If you look at the forward prices that they are today, over time they have to filter through into retail prices as well, and then it's
just -- I mean things remaining as they are, it's more a timing question. When do people start to move, but I can clearly see
pressure on prices going forward.
Peter Bisztyga - Citigroup - Analyst
Okay, thanks.
Operator
There are currently no further questions. (OPERATOR INSTRUCTIONS). I have a question from the Simon Rowe of the New Star.
Please go ahead.
Simon Rowe - New Star Asset Management - Analyst
Oh, hello. I just wanted to ask one more sort of general question about the outlook for convergence of [Nordic] prices with
those in Northern Europe. Could you just give your general thoughts about the timescale and what would be the key influences
in that process as you see it now? Because I've seen various different scenarios and different timescales, I just wondered whether
you could give us your current thoughts.
Mikael Lilius - Fortum Corporation - President & CEO
That's the million dollar question, when? The only thing we're saying is yes, we firmly believe this is going to happen and trend
wise we see it happening. And I think there are concrete steps happening, for instance, late this year we will see the Nordnet
cable between Norway and the Netherlands being commissioned. We know that there's more transmission capacity being built
between Denmark and Germany. We also know that the German market is starting to apply the same kind of mechanisms as
we have in Nord Pool.
So, the markets are developing in the same direction, meaning that we are moving closer to each other. But I don't have
timeframe -- if I look at the forward, obviously the market believes that it's -- not very much will happen in the coming two years,
but it's going to be interesting to see what happens when the Nordnet cable comes into use. So, again I can't give you a date,
but I can definitely -- I'm prepared to bet on the trend.
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FINAL TRANSCRIPT
Jul. 18. 2007 / 9:00AM, FUM1V.HE - Q2 2007 Fortum Corporation Earnings Conference Call
Simon Rowe - New Star Asset Management - Analyst
Thank you.
Operator
Thank you. There are now no further questions so I will hand you back to your host to wrap up this conference call.
Mikael Lilius - Fortum Corporation - President & CEO
Well, thank you, thank you very much. Again we -- it's been an excellent, exciting, challenging first six months. We feel really
pretty good about the performance and quite confident about things going forward. So, we want to thank you for listening.
We wish you a pleasant rest of the summer and say goodbye from Helsinki. Thanks so much and goodbye.
Operator
Ladies and gentlemen, thank you for joining today's call. You may replace your handsets.
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