Eesti Energia Group results for Q2 2018

27.07.2018

The sales revenues of Eesti Energia Group amounted to EUR 185.8 million in the second quarter of 2018 (+4.7% year-on-year). Group EBITDA reached EUR 53.0 million (-17.1% year-on-year). The Group’s net profit equalled EUR 14.7 million in the second quarter of 2018 (+12.0% year-on-year).

Group revenue and EBITDA

The revenues of Eesti Energia’s business segments mostly grew in the second quarter, owing to increasing market prices of electricity and shale oil. In annual comparison, the distribution segment continues to be affected by the reduction in the distribution tariff which was implemented in the second half of 2017. Group EBITDA declined compared to the second quarter of last year, mainly due to lower tariffs in the distribution segment, lower production volumes of electricity and decline in receivables of liquidated damages from General Electric.

Electricity segment

Eesti Energia’s sales revenues from electricity increased by 8.8% year-on-year to EUR 89.0 million. The Group’s average electricity sales price equalled 43.3 EUR/MWh in the second quarter (+16.7% year-on-year). Nord Pool Estonia quarterly average electricity price reached a level of 42.1 EUR/MWh which is the highest quarterly power price seen since 2013. Eesti Energia’s electricity sales volume however declined by 9.7% year-on-year to 2.1 TWh. Sales and production volumes declined due to a relatively high level of maintenance works that had been planned for the power plants in the second quarter.

EBITDA from the electricity segment totalled EUR 17.6 million (-22.8%). The positive impact on profitability from the increase in market price of electricity was to a large extent reversed by an increase in the cost of CO2 allowances. In addition, lower production and sales volumes also had a negative impact on profits in annual comparison.

Distribution segment

Eesti Energia’s revenues from the distribution segment totalled EUR 54.3 million (-7.3% year-on-year). Distribution volume was essentially flat at 1.5 TWh (+0.6%). The average distribution sales price declined to 35.2 EUR/MWh (-7.8%) due to the cuts in distribution tariffs in the second half of 2017. It will be until the end of the fourth quarter of 2018 until last year’s tariff change no longer shows up in annual comparison. Distribution EBITDA totalled EUR 26.3 million (-13.0%).

Shale oil segment

The Group’s revenues from shale oil sales amounted to EUR 26.9 million, up by 9.9% year-on-year. The shale oil segment was supported by higher oil prices although hedge positions mitigated the effect of market movements on the Group results. Eesti Energia’s average shale oil sales price equalled 266 EUR/tonne in the second quarter (+13.4% year-on-year). Shale oil sales volume totalled 101 thousand tonnes (-3.1%). EBITDA from shale oil increased by 1.9% year-on-year to EUR 6.9 million.

Other products and services

EBITDA from the rest of the Group’s products and services totalled EUR 2.2 million in the second quarter of 2018, compared to EUR 4.1 million in the same period last year. The prime reason for the decline is the reduction in the amount of liquidated damages received relating to Auvere power plant.

Capital expenditure

The Group’s capital expenditure totalled EUR 47.3 million in the second quarter (an increase of EUR 16.0 million, +51.2% year-on-year). The increase was related to payments made in connection with Auvere power plant and maintenance investments in the power plants and the mining unit. Auvere power plant has passed all technical tests and it is expected that final acceptance of the unit will happen in the third quarter of 2018.

Nelja Energia acquisition

In May 2018 Eesti Energia signed the share purchase agreement for the acquisition of 100% of the shares in Nelja Energia, a Baltic renewables energy company. The consideration payable for the shares is EUR 289 million. In addition, the Group will assume EUR 204 million of net debt of the target company. The closing of the transaction is subject to competition authority clearance.

Financing, credit ratings and dividends

Eesti Energia’s liquidity position remains at a strong level. The cash and cash equivalents held by the Group totalled EUR 317.9 million at the end of June. The Group also has access to a total of EUR 450 million of credit facilities from regional banks. In addition to previously existing revolving credit facilities of EUR 150 million, the Group signed in June additional credit facilities for the amount of EUR 300 million to create an additional liquidity buffer in the light of the Nelja Energia acquisition and the upcoming bond repayment.

Eesti Energia’s net debt amounted to EUR 567 million as at the end of the second quarter. Eesti Energia’s net debt to EBITDA ratio stood at 2.3x at the end of June. Eesti Energia is rated BBB (creditwatch negative) by Standard & Poor’s and Baa3 (stable) by Moody’s.

Outlook

It is expected that in 2018 Eesti Energia’s sales revenue will grow (defined as at least 5% growth). Capital expenditures are also estimated to grow (at least 5% growth) whereas EBITDA is expected to decline (at least 5% decrease) compared with 2017. Excluding the positive impact of the financial close of the Jordan project (EUR 9.2 million) in 2017, EBITDA for 2018 is expected to remain at the same level as in 2017. The outlook does not yet incorporate any effects from the Nelja Energia acquisition.

Eesti Energia will publish its third quarter results on October 30, 2018.

Eesti Energia conducts derivative transactions 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 2.7 TWh for Q3-Q4 of 2018 (at average price of 41.5 EUR/MWh) and to 1.7 TWh for 2019 (at average price of 37.5 EUR/MWh). For shale oil, the hedge positions totalled 148.5 thousand tonnes for Q3-Q4 of 2018 (at average price of 256.2 EUR/tonne) and 272.3 thousand tonnes for 2019 (at average price of 272.2 EUR/tonne).

The Group’s position in CO2 emission allowances for 2018 amounts to 11.7 million tonnes at an average price of 8.3 EUR/tonne. The position for 2019 amounts to 1.2 million tonnes at an average price of 12,0 EUR/tonne.

The full quarterly report of Eesti Energia along with an investor presentation is available at Eesti Energia’s web site.

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