Eesti Energia Group results for Q2 2019

30.07.2019

The sales revenues of Eesti Energia Group amounted to EUR 210.3 million in the second quarter of 2019 (+13.2% year-on-year). Group EBITDA reached EUR 63.0 million (+18.9% year-on-year). The Group's net profit equalled EUR 9.4 million in the second quarter of 2019 (-35.9% year-on-year).

Group financials

The revenue growth of Eesti Energia in the second quarter of 2019 was driven by the electricity and oil segments on the back of commodity market prices. As in the first quarter of 2019, distribution segment’s results are affected by the cut in the distribution tariff which was implemented in January 2019. Reported EBITDA of the Group rose compared to the second quarter of last year. Net profit declined on yearly basis as the acceptance of the Auvere power plant in last year’s second half means that the depreciation expense is now higher on a yearly comparison basis. Second quarter’s net profit was positively affected by income tax expense adjustment.

Electricity segment

Eesti Energia's sales revenues from electricity increased by 23.1% year-on-year to EUR 110 million. The Group's average electricity sales price equalled 55.1 EUR/MWh in the second quarter (+27.5% year-on-year). Electricity sales volume decreased by 14.8% year-on-year to 1.8TWh as our wholesale electricity sales fell, while our retail sales volumes were on the same level as a year ago. Electricity generation fell 42.9% to 1.2TWh due to higher CO2 costs that affect directly our oil shale based electricity production, but also there were adjustment works in Auvere power plant, which must be carried out during the guarantee period. The production of electricity from renewable and alternative sources reached 365GWh in the second quarter, consisting 33% of total energy production. Same figures for the first half of 2019 are 916GWh and 27%, respectively. The increase is due to the acquisition of Nelja Energia in November 2018 which increased our installed wind capacity from 111MW to 398MW, but also due to lower oil shale based electricity production.

EBITDA from the electricity segment totalled EUR 32.0 million (+81.8% year-on-year). As in the first quarter of this year, higher market price of electricity had a positive impact on EBITDA compared to the last year. Higher cost of CO2, rise in fixed costs mainly due to the acquisition of Nelja Energia by Eesti Energia’s subsidiary Enefit Green had a negative contribution. On a positive side, the oil shale based electricity production managed to cut fixed costs in the amount of EUR 5.3 million compared to last year’s second quarter, mainly as a consequence of our actions to lower production volumes.

Distribution segment

Eesti Energia's revenues from the distribution segment totalled EUR 50.5 million (-7.1% year-on-year). The decrease in revenues was caused by an average distribution tariff cut of 8.4% which took place in January 2019. Distribution volume was basically on the same level as a year ago in the second quarter, amounting to 1.5TWh (-0.4% year-on-year). The average distribution sales price declined to 32.9 EUR/MWh (-6.7%) due to a cut in distribution tariff in January 2019. Distribution EBITDA in the second quarter of 2019 totalled EUR 23.0 million (-12.3%) as the main factor was lower average sales price due to a cut in tariffs.

Shale oil segment

The Group's revenues from shale oil sales amounted to EUR 31.8 million (+18.3% year-on-year). As in the first quarter of this year, the shale oil segment was supported by both increasing prices as well higher volumes, although hedges made from earlier periods from lower price levels held back some of the gain. Eesti Energia's average shale oil sales price equalled 357 EUR/tonne in the second quarter (+5.5% year-on-year). Shale oil sales volume totalled 113 thousand tonnes showing +12.0% improvement on an annual comparison level. EBITDA from shale oil increased to EUR 10.0 million (+43.6% year-on-year). As growth in revenues, EBITDA growth was also supported by better market prices and higher sales volumes.

Other segment

EBITDA from Group's other products and services totalled a loss of EUR 2.1 million in the second quarter of 2019, compared to a profit of EUR 2.2 million in the same period last year. The previous year's result included EUR 1.7 million in liquidated damages related to the Auvere power plant.

Capital expenditure

The Group's capital expenditure totalled EUR 45 million in the second quarter, a fall of EUR 2.3 million from last year’s second quarter numbers (-4.9% year-on-year). The decrease is mostly related to the Auvere power plant where we no longer have the associated investments as the power plant has been accepted. On the other hand, during the second quarter of this year Enefit Green, a fully owned subsidiary of Eesti Energia, invested EUR 7.3 million into solar parks by acquiring first part of 20 solar park projects in Poland with a total capacity of 19.2MW. Total cost of acquiring the mentioned projects is EUR 17.3 million.

Financing, credit ratings and dividends

Eesti Energia's liquidity position remains at a strong level. Cash and cash equivalents held by the Group totalled EUR 93.0 million at the end of June 2019. Eesti Energia has access to a total of EUR 300 million of revolving credit facilities from OP Corporate Bank and from SEB. At the end of the second quarter 2019 the Group's net debt amounted to EUR 1022 million.

Eesti Energia's net debt to EBITDA ratio stood at 3.4x at the end of Q2 2019, in line with the 3.5x financial policy target. Eesti Energia is rated BBB (negative) by Standard & Poor's and Baa3 (stable) by Moody's.

Eesti Energia's shareholder has approved a dividend payment of EUR 57.0 million to be paid in 2019, from which the first half, EUR 28.5 million, was paid during the second quarter of 2019.

Outlook

It is expected that in 2019 Eesti Energia's sales revenue will grow (defined as at least 5% growth). EBITDA is expected to remain on the same level, while capital expenditures are estimated to grow (at least 5% growth) compared to 2018.

Eesti Energia will publish its third quarter results on October 31, 2019.

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 2.5TWh for Q3-Q4 of 2019 (at average price of 43.1 EUR/MWh) and to 0.5TWh for 2020 (at average price of 38.7 EUR/MWh). For shale oil, the hedge positions totalled 247 thousand tonnes for Q3-Q4 of 2019 (at average price of 273 EUR/tonne) and 281 thousand tonnes for 2020 (at average price of 303 EUR/tonne).

The Group's position in CO2 emission allowances for 2019 amounts to 9.4 million tonnes at an average price of 11.6 EUR/tonne (including forward transactions, free emission allowances received as investment support and the surplus of unused allowances from previous periods). The position for 2020 amounts to 0.8 million tonnes, consisting primarily of free allowances.

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

Rasmus Noormägi
Head of Investor Relations and Treasury
Eesti Energia AS
Tel +372 465 2885
rasmus.noormagi@energia.ee