Eesti Energia Group results for Q3 2019

31.10.2019

The sales revenues of Eesti Energia Group amounted to EUR 205.9 million in the third quarter of 2019 (+3.1% year-on-year). Group EBITDA was EUR 42.1 million (-27.9% year-on-year). The third quarter of 2019 ended with a net loss of EUR 9.5 million (-186.8% year-on-year).

Group financials

The revenue growth of Eesti Energia in the third quarter of 2019 was driven by the oil and other segments, while electricity and distribution operations showed declining revenues. Reported EBITDA of the Group fell compared to the third quarter of last year, mainly due to the electricity segment where we saw longer than expected maintenance of Auvere power plant, but also higher cost of CO2 emission allowances which led to restructuring activities with one-off expenses. As a result net profit declined on yearly basis. Besides electricity production from oil shale, all other operations were profitable while meeting or exceeding Group’s expectations.

Electricity segment

Eesti Energia's sales revenues from electricity decreased 6.0% year-on-year to EUR 109 million. The Group's average electricity sales price equalled 54.7 EUR/MWh in the third quarter (+5.1% year-on-year). Electricity sales volume decreased by 12.7% year-on-year to 1.9TWh as wholesale electricity sales volume fell, while retail sales volume managed to show growth on the back of increased sales activity in Lithuania and Poland. Electricity generation fell 56.4% to 1.0TWh due to higher CO2 costs that affect directly our oil shale based electricity production, but also due to maintenances of three power units, from which two units (5th and 11th) were under planned maintenance programs, while our Auvere power plant has been under extended guarantee maintenance. We expect the Auvere power plant to be back operational in November this year. The production of electricity from renewable and alternative sources made up 41% of total energy production.

EBITDA from the electricity segment totalled EUR 10.5 million (-65.6% year-on-year). EBITDA decline was mainly driven by smaller electricity generation quantities and therefore higher electricity purchase costs as we had to buy more electricity from the market.

Distribution segment

Eesti Energia's revenues from the distribution segment totalled EUR 48.5 million (-6.9% year-on-year). The decrease in revenues can be tracked down to the tariff cut which took place in January 2019, as a result of which of distribution tariffs decreased by 8.4% on average. Distribution volume was basically on the same level as a year ago in the third quarter, amounting to 1.5TWh (+0.8% year-on-year). The average distribution sales price declined to 32.9 EUR/MWh (-7.7%) due to a cut in distribution tariff in January 2019. Distribution EBITDA in the third quarter of 2019 totalled EUR 22.5 million (-8.7%) 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 28.1 million (+35.9% year-on-year). Despite a decrease in the oil market’s average prices we saw higher sales 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 334 EUR/tonne in the third quarter (-7.8% year-on-year). Shale oil sales volume totalled 101 thousand tonnes showing +26.9% improvement on an annual comparison level. EBITDA from shale oil increased to EUR 10.2 million (+40.5% year-on-year). As growth in revenues, EBITDA growth was also mostly supported by higher sales volumes.

Other segment

EBITDA from Group's other products and services totalled a loss of EUR 1.1 million in the third quarter of 2019, compared to a loss of EUR 3.9 million in the same period last year. The previous year's third quarter other EBITDA included accounting expenses in the amount of EUR 3.5 million related to the liquidated damages of Auvere power plant, which are no longer there as the Auvere power planted has been accepted.

Capital expenditure

The Group's capital expenditure totalled EUR 34 million in the third quarter, a fall of EUR 26.9 million from last year’s third quarter numbers (-43.9% year-on-year). The decrease is mostly related to the decreased electricity generation quantities which imply smaller maintenance capex need. Also in third quarter of 2018 there were payments related to the Auvere power plant. During the third quarter 2019 we invested EUR 3.4 million to different renewable energy projects, up from EUR 1.1 million a year ago.

Financing, credit ratings and dividends

Eesti Energia's liquidity position remains at a solid level. Cash and cash equivalents held by the Group totalled EUR 41.9 million at the end of September 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 third quarter 2019 the Group's net debt amounted to EUR 1054 million.

Eesti Energia's net debt to EBITDA ratio stood at 3.7x at the end of Q3 2019, above the 3.5x financial policy target. The management of the company has outlined measures to get back to the financial policy metric. Eesti Energia is rated BBB- (stable) by Standard & Poor's and Baa3 (stable) by Moody's. In August 2019, Standard & Poor’s downgraded Eesti Energia’s credit rating from BBB (negative) to BBB- (stable). Part of Eesti Energia’s financial policy is to maintain an investment grade credit rating from international credit rating agencies.

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. The remaining part will be paid in the fourth quarter 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 decline (at least 5% decline) due to higher CO2 prices and longer than expected maintenance period of Auvere power plant. Previous EBITDA expectation was that EBITDA will remain on the same level as in 2018. Capital expenditures are estimated to decline (at least 5% decline) compared to 2018 versus previous expectation of growth. Change in outlook for investments is related to the smaller capital expenditure in Large Scale Energy Production, and also some renewable energy investments have been delayed.

Eesti Energia will publish its annual 2019 results on February 28, 2020.

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 0.8TWh for Q4 of 2019 (at average price of 43.5 EUR/MWh). For shale oil, the hedge positions totalled 82.5 thousand tonnes for Q4 of 2019 (at average price of 273.4 EUR/tonne) and 280.5 thousand tonnes for 2020 (at average price of 303.1 EUR/tonne).

The Group's position in CO2 emission allowances for 2019 amounts to 9.4 million tonnes at an average price of 11.3 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 0.9 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