News

The sales revenues of Eesti Energia Group amounted to EUR 177.5 million in the second quarter of 2017 (+19.3% year-on-year). Group EBITDA equalled EUR 63.9 million (+17.1% year-on-year). The Group’s net profit totalled EUR 13.1 million in the second quarter of 2017 (-13.5% year-on-year).

Financial results

The growth in Eesti Energia’s revenues was driven mainly by the shale oil as well as electricity segments. The Group’s sales revenues from electricity grew by 23.9% year-on-year to EUR 81.9 million. Eesti Energia’s average sales price of electricity declined by 9.6% but an extensive 35.4% increase in sales volumes compensated for lower prices and lead to overall growth in electricity sales revenues. Revenue from shale oil grew to EUR 24.5 million (+79.1% year-on-year). The growth was driven by improvement in market prices for oil which were at a very low level a year ago. Revenues from the distribution segment grew by 4.7% to EUR 58.6 million owing to higher quantity of electricity distributed in the second quarter.

Similarly to sales revenues, growth in Eesti Energia’s EBITDA was also supported mainly by the electricity and shale oil segment. EBITDA from the electricity product grew to EUR 22.8 million (+49.2% year-on-year), driven mainly by higher sales volumes. EBITDA from the shale oil segment grew to EUR 6.7 million (compared to -3.2 million EUR in the same period of 2016), owing to substantially better market prices for fuel oil which lead to an improvement in the average sales price and also enabled the Group to produce and sell larger quantities of the product. EBITDA from the distribution segment grew by 2.4% to EUR 30.2 million, with higher quantities being the main driver behind this result.

EBITDA from the rest of the Group’s products and services equalled EUR 4.2 million (compared to EUR 13.0 in the second quarter of 2016). In addition to regular products and services, the amount included EUR 5.6 million of liquidated damages payable to Eesti Energia in relation to the Auvere power plant. In the corresponding period of 2016, the EBITDA of this segment included one-off impact in the size of EUR 12.6 million from the retroactive change of taxation system for environmental and resource fees.

Key performance indicators

Eesti Energia’s electricity sales volume increased from 1.7 TWh to 2.3 TWh (+35.4%) in the second quarter of 2017. The growth was driven by wholesale, which increased by 0.6 TWh to 0.9 TWh. Retail sales were up by 2%, totalling 1.4 TWh. The Group’s electricity generation volume also increased and amounted to 2.4 TWh (+42.9%). Larger sales and generation volumes were due to improved competitiveness of Eesti Energia’s power generation assets, primarily due to the decline in the cost of oil shale which benefitted from the change in the taxation system for environmental fees and resources taxes.

Eesti Energia’s retail market share for electricity sales totalled 25% in Estonia, Latvia and Lithuania combined (-0.3 percentage points year-on-year).

The volume of electricity distributed by the Group amounted to 1.5 TWh in the second quarter, posting growth of 6.1% year-on-year on the back of colder weather and supportive economic conditions.

The volume of shale oil sale by the Group amounted to 104 thousand tonnes in the second quarter (+53.3% year-on-year). The sales were supported by the strengthening market prices of oil. Low market prices constrained the Group’s oil production and oil sales in the first half of 2016 whereas there are no such limitations currently. Eesti Energia’s oil production totalled 106 thousand tonnes, up by 86.7% year-on-year.

Capital expenditure

The Group’s capital expenditure was essentially flat in the second quarter compared to the same period a year ago and stood at EUR 31 million (-0.9%). Majority of the capex (EUR 16.8 million) was dedicated to upgrading the distribution network. Other maintenance type of investments made up additional EUR 5.4 million. The final payment for Auvere power plant is expected to be made later this year when General Electric completes the required upgrade of the plant’s filters. Meanwhile the power plant continues operating at modes and loads where emissions are in compliance with requirements.

Financing, credit ratings and dividends

The Group’s liquidity buffer remained at a strong level as the end of June. Following a good quarter in terms of cash flow, Eesti Energia’s cash and equivalents grew to EUR 386.1 million. In addition, the Group has access to EUR 150 million of revolving credit facilities (with maturity in July 2020) and EUR 70 million undrawn investment loan from EIB.

Along with positive cash flow, the Group’s net debt has been declining and amounted to EUR 557 million as at the end of the second quarter. Eesti Energia’s net debt to EBITDA ratio stood at 1.5x at the end of June. The Group maintains its financial policy target of net debt to EBITDA of maximum 3.5x.

Eesti Energia is rated BBB (negative) by Standard & Poor’s and Baa3 (stable) by Moody’s.

It is expected that Eesti Energia will pay dividends in the amount of EUR 47 million in 2017 as well as related income tax of EUR 11.8 million, which has been accrued in the financial statements in the second quarter.

Outlook

The outlook for full year 2017 remains unchanged compared to the previous communication published with first quarter 2017 results. It is expected that in 2017 Eesti Energia’s sales revenue will slightly grow (defined as less than 5% growth). Capital expenditures are estimated to grow (more than 5% growth) whereas EBITDA is expected to decrease (more than 5% decrease) compared with 2016. Excluding the positive impact of the liquidated damages related to the Auvere power plant (68.6 million euros) and the retrospective reduction of the resource charge rates (14.2 million euros) in 2016, EBITDA for 2017 is expected to remain at similar level as in 2016.

Eesti Energia will publish its third quarter 2017 results on October 31, 2017.

Eesti Energia has a hedging programme in place to hedge the price risk of electricity, CO2 and oil. The Group’s hedge positions for electricity (including financial hedges as well as fixed price contracts with retail clients) amounted to 1.9 TWh for Q3-Q4 of 2017 (at average price of 33.8 EUR/MWh) and to 1.5 TWh for 2018 (at average price of 32.5 EUR/MWh). For shale oil, the hedge positions totalled 143 thousand tonnes for Q3-Q4 of 2017 (at average price of 238 EUR/tonne) and 214 thousand tonnes for 2018 (at average price of 255 EUR/tonne).

The Group’s position in CO2 emission allowances for 2017 amounts to 11.0 million tonnes at an average price of 5.5 EUR/tonne (including forward transactions, free emission allowances received as investment support and the surplus of unused allowances from previous periods). The position for 2018 amounts to 2.3 million tonnes, consisting of free allowances to be received as investment support.

The full quarterly report of Eesti Energia along with an investor presentation is available at Eesti Energia’s web site: www.energia.ee/en/investor.