Eesti Energia Group results for Q3 2018
The sales revenues of Eesti Energia Group amounted to EUR 199.7 million in the third quarter of 2018 (+26.7% year-on-year). Group EBITDA reached EUR 58.4 million (+8.1% year-on-year). The Group’s net profit equalled EUR 10.9 million in the third quarter of 2018 (-32.8% year-on-year).
Eesti Energia’s revenue growth was driven in the third quarter primarily by the electricity segment. Revenues from the sale of shale oil also grew while distribution revenues slightly declined. Electricity and shale oil segments were supported by higher market prices for their end products while the distribution segment was affected by final effects of the tariff cuts which were implemented in July and November last year. Group EBITDA also increased in the third quarter but the growth was more moderate compared to revenue growth, mainly due to the higher cost of CO2 emission allowances and the payments of liquidated damages that the Group received from GE coming to an end. Net profit declined due to the acceptance of Auvere power plant, leading to higher depreciation expense and reduction in the share of interest being capitalised.
Eesti Energia’s sales revenues from electricity increased by 45.8% year-on-year to EUR 116.2 million. The Group’s average electricity sales price equalled 51.0 EUR/MWh in the third quarter (+29.3% year-on-year). Nord Pool Estonia quarterly average electricity price reached a level of 53.5 EUR/MWh so power price environment was favourable for the Group. Eesti Energia’s electricity sales and generation volume was however impacted by higher market prices of CO2 emission allowances which increased the cost of generation. Additionally, limits on allowed working hours of some of the older power units also affected the Group’s generation capability. A few of the older power blocks which are close to the lifetime of their operation were conserved to save the remaining working hours for peak winter months. The Group’s electricity generation accordingly grew by 2.7% to 2.2 TWh. Electricity sales volume increased by 6.0% to 2.2 TWh.
Quarterly EBITDA from the electricity segment surged to EUR 30.4 million (+69.1%). EBITDA growth was mainly driven by higher electricity prices which outweighed the higher cost of CO2 emission allowances and lead to an improvement in margins.
Distribution segmentEesti Energia’s revenues from the distribution segment totalled EUR 52.1 million (-0.8% year-on-year). Distribution volume amounted to 1.5 TWh (+1.3%). The average distribution sales price declined to 35.7 EUR/MWh (-2.1%) due to final effects from the cuts in distribution tariffs in the second half of 2017. Another distribution tariff cut of about 8% on average will be implemented from the beginning of 2019. EBITDA from the distribution segment totalled EUR 24.6 million (-9.7%).
Shale oil segment
The Group’s revenues from shale oil sales amounted to EUR 20.7 million, up by 35.5% year-on-year. The shale oil segment was supported by higher oil prices although hedge positions moderated the impact of market movements for the Group. Eesti Energia’s average shale oil sales price equalled 260 EUR/tonne in the third quarter (+23.9% year-on-year). Shale oil sales volume totalled 80 thousand tonnes (+9.3%). EBITDA from shale oil increased to EUR 7.3 million in the third quarter, compared to EUR 2.9 million in the same period last year.
Other products and services
EBITDA from the rest of the Group’s products and services totalled EUR -3.9 million in the third quarter of 2018, compared to a positive result of EUR 5.9 million in the same period of 2017. The prime reason for the decline is the conclusion of liquidated damages payments from GE, now that Auvere power plant was accepted from the EPC contractor.
The Group’s capital expenditure totalled EUR 65.3 million in the third quarter (an increase of EUR 30.1 million compared to the same period a year ago). The largest contributor to the increase was final payments made in connection with the Auvere power plant. The plant is now finished and has been taken over by Eesti Energia.
In relation to the Nelja Energia acquisition announced in May, the Group is waiting for the clearance from the Competition Authority in order to proceed with the closing of the transaction (expected in the fourth quarter).
Financing, credit ratings and dividends
Eesti Energia’s liquidity position remains at a strong level ahead of the Nelja Energia acquisition. Cash and cash equivalents held by the Group totalled EUR 164.1 million at the end of September, after the repayment of the bond with maturity date in 2018. The Group also has access to a total of EUR 450 million of credit facilities from regional banks.
Eesti Energia’s net debt amounted to EUR 559 million as at the end of the third quarter. Eesti Energia’s net debt to EBITDA ratio stood at 2.3x at the end of September. Eesti Energia is rated BBB (negative) by Standard & Poor’s and Baa3 (stable) by Moody’s.
It is expected that in 2018 Eesti Energia’s sales revenue and EBITDA will grow compared to 2017 (defined as at least 5% growth). Capital expenditures are also estimated to grow (at least 5% growth). The outlook does not yet incorporate any effects from the Nelja Energia acquisition.
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 2.1 TWh for Q4 of 2018 (at average price of 46.5 EUR/MWh) and to 3.5 TWh for 2019 (at average price of 44.7 EUR/MWh). For shale oil, the hedge positions totalled 74.2 thousand tonnes for 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 12.5 million tonnes at an average price of 8.8 EUR/tonne. The position for 2019 amounts to 4.5 million tonnes at an average price of 16.7 EUR/tonne.
The full quarterly report of Eesti Energia along with an investor presentation is available at Eesti Energia’s web site.