Eesti Energia Group results for Q1 2017

28.04.2017

Sales revenues of Eesti Energia Group amounted to EUR 215.3 million in the first quarter of 2017 (+9.3% year-on-year). Group EBITDA equalled EUR 86.5 million (+43.4% year-on-year). The Group’s net profit totalled EUR 48.3 million in the first quarter of 2017 (compared to EUR 19.4 million in the equivalent period of last year).

Financial results

The growth in Eesti Energia’s revenues was based almost equally on both the shale oil as well as electricity segment. Eesti Energia’s electricity sales revenues increased by 12.8% year-on-year to EUR 102.0 million. Despite a 6.5% drop in the Group’s average electricity sales price, a substantial 20.1% growth in sales volumes more than compensated for the price effect and the overall change in electricity sales revenues was positive. Revenue from shale oil totalled EUR 18.4 million (+161% year-on-year), driven both by higher sales price as well as higher volumes. Revenues from the distribution segment declined by 1.1% to EUR 71.3 million owing to relatively warm weather in the first quarter which lead to a 1.4% decline in the quantity of distributed electricity.

The growth in Group EBITDA was supported by all of the Group’s business segments. EBITDA from electricity reached EUR 37.4 million (+43.7% year-on-year), supported both by higher sales volumes as well as improved margins. EBITDA from the shale oil segment amounted to EUR 5.6 million (compared to EUR 0.7 million in the first quarter of 2016), mainly driven by improved margins as market price and Eesti Energia’s average sales price of oil has increased compared to a year ago. EBITDA from distribution increased by 2.0% to EUR 28.6 million, as the slight drop in distributed volumes was reversed by lower fixed costs, slightly higher average sales price and lower variable costs.

EBITDA from the remainder of the Group’s products and services amounted to EUR 14.9 million (+169% year-on-year). In addition to regular items, this amount included the impact from the sell-down of Eesti Energia’s holding in the Jordan power project from 65% to 10% as the project reached financial close. In total, Eesti Energia received EUR 29 million as return of project development costs and EUR 19 million as profit from selling the shareholding. The net effect from the Jordan transaction in the first quarter EBITDA is a positive of EUR 9.2 million (some of the profit had already been accounted for in previous periods). Additionally, the Group’s first quarter result includes EUR 5.0 million as additional liquidated damages payable by GE in relation to the Auvere power plant. This amount is in addition to what had been accounted for in the 2016 report.

Key performance indicators

The Group’s electricity sales volume increased from 2.2 TWh to 2.7 TWh (+20.1%) in the first quarter. The growth happened on the back of wholesale, which increased by 0.5 TWh. Retail sales slightly decreased. The Group’s electricity generation volume also increased, by 28.9% to 2.8 TWh. Larger sales and generation volumes were due to higher Nord Pool Estonia power price, lower cost of CO2 and lower cost of oil shale.

Eesti Energia’s retail market share for electricity sales totalled 26% in Estonia, Latvia and Lithuania combined (-0.7 percentage points).

The volume of electricity distributed by the Group amounted to 1.9 TWh in the first quarter (-1.4% year-on-year).

The volume of shale oil sales by the Group totalled 77 thousand tonnes in the first quarter (+125% year-on-year). The sales more than doubled due to substantially higher market prices. Low market prices caused us to stop selling in the first quarter of last year whereas currently there are no such limitations. The Group’s oil production amounted to 101 thousand tonnes, also up by 52.4% year-on-year.

Capital expenditure

The Group’s capital expenditure declined to EUR 26 million in the first quarter of 2017 (-18.0%). Majority of the capex (EUR 13.5 million) was dedicated to improving the distribution network. Other maintenance type of investments made up another EUR 2.1 million. The final payment for Auvere power plant is still due to be made as GE continues working on the required upgrade of 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 very solid level as the end of March. Following a very strong quarter in terms of cash flow, Eesti Energia’s cash and equivalents grew to EUR 342.9 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 598 million as at the end of the first quarter. In combination with solid EBITDA for the past rolling 12 months, it translates into net debt to EBITDA ratio of 1.7x at the end of March. 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.

We currently expect that Eesti Energia will pay dividends in the amount of EUR 47 million in 2017 but the final amount is still due to be approved by the shareholder.

Outlook

It is expected that in 2017 our 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) on 2016, EBITDA for 2017 is expected to remain at similar level as in 2016.

Eesti Energia will publish its Q2 2017 results on July 28, 2017.

Eesti Energia has a hedging programme in place to hedge the price risk of electricity, CO2 and oil. After a pause during the lowest market prices, hedging activities were resumed in the second half of 2016. The Group’s hedge positions for electricity (including financial hedges as well as fixed price contracts with retail clients) amounted to 2.7 TWh for Q2-Q4 of 2017 (at average price of 33.5 EUR/MWh) and to 1.0 TWh for 2018 (at average price of 33.3 EUR/MWh). For shale oil, the hedge positions totalled 215 thousand tonnes for Q2-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 9.1 million tonnes at an average price of 5.6 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 2.2 million tonnes, consisting of free allowances to be received as investment support.

More information on the financial results of Eesti Energia Group is available at Eesti Energia homepage.

Kadri Haldre
Head of Investor Relations and Treasury
Tel +372 465 2887
kadri.haldre@energia.ee