Eesti Energia Group results for Q3 2020
The sales revenues of Eesti Energia Group amounted to EUR 191.1 million in the third quarter of 2020 (-5.2% year-on-year). Group EBITDA was EUR 44.4 million (+5.3% year-on-year). The Group's net loss was at EUR 8.0 million in the third quarter of 2020 (+16.1% year-on-year).
The revenue of Eesti Energia in the third quarter of 2020 decreased mainly due to lower electricity market prices and smaller sales volumes of the electricity segment carrying on the trends from the first six months of 2020. Distribution segment’s sales revenue remained flat as the lower consumption volumes were offset by higher average distribution sales price. Thanks to operational efficiencies distribution EBITDA rose on a yearly basis. Shale oil sales revenue and EBITDA rose due to bigger sales volume. Other products and services contributed positively to the EBITDA line, while revenues slightly fell. Reported EBITDA profit of the Group rose compared to the third quarter of last year mostly due to the good performance of the distribution and shale oil segments. The third quarter ended with a lower net loss from last year’s figure, illustrating Group’s resilience in the challenging third quarter.
Eesti Energia's sales revenues from electricity declined by 19.9% year-on-year to EUR 84 million. The Group's average electricity sales price equalled 50.7 EUR/MWh in the third quarter (-8.3% year-on-year), while the third quarter average market electricity price for Estonian Nord Pool area declined from last year’s 48.9 EUR/MWh to 36.8 EUR/MWh (-24.7% year-on-year). Electricity prices overall in the Nordics continued at low levels from the beginning of the year due to higher than usual levels of the Nordic water reservoirs in Norway and Sweden. Electricity sales volume decreased by 10.9% year-on-year to 1.7TWh. Wholesale electricity sales fell to 0.1TWh (-33.3% year-on-year), while retail sales volumes decreased to 1.5TWh (-8.3% year-on-year). Electricity generation increased by 0.1TWh to 1.1TWh (+14.7% year-on-year) as in last year’s third quarter there were yearly maintenances of three power units while this year there were none. Production of renewable electricity grew by 315GWh during the third quarter (+37.6% year-on-year) as Narva Power Plants used more biomass (waste wood, not pellets) instead of oil shale. Also wind conditions were favourable during the quarter together, helping to increase the renewable electricity production together with good availability of renewable production assets. EBITDA from the electricity segment totalled EUR 3.7 million (-65.0% year-over-year). On the positive side, electricity purchasing, maintenance and payroll costs decreased, but this was not enough to compensate the negative effects from the lower sales volumes and sales price of electricity, and negative impact from gain on derivatives.
Eesti Energia's revenues from the distribution segment were stable at EUR 48.5 million (-0.05% year-on-year). As in the second quarter, decreased consumption volumes (-1.8% year-on-year) were compensated by higher average distribution sales price as a result of bigger share of household consumption. Average distribution sales price in the third quarter was 33.5 EUR/MWh (+1.8% year-on-year). Distribution EBITDA totalled EUR 24.3 million (+8.1% year-on-year) as decreased electricity costs for network losses and lower maintenance costs outweighed the negative effect from lower distributed volumes.
Shale oil segment
Eesti Energia's revenues from shale oil sales amounted to EUR 40.8 million (+45.2% year-on-year), with shale oil sales volume increasing to 137.6 thousand tonnes (+36.3% year-on-year). Shale oil sales volume and revenue increased as some oil sales were deferred from the second quarter to the third, as our oil sales contracts allow to adjust our sales volumes according to oil world market prices. Third quarter oil production increased to 115.3 thousand tons (+2.1% year-on-year). As in previous two quarters of the year, the shale oil segment was supported by hedge transactions concluded in the past from higher price levels in accordance with the Group’s hedging strategy. Eesti Energia's average shale oil sales price excluding the impact of derivative transactions decreased to 246.6 EUR/tonne (-26.1% year-on-year) due to lower oil market prices. Group’s average shale oil sales price including the impact of derivative transactions was at 297 EUR/tonne (+6.5% year-on-year). EBITDA from shale oil operations rose by 55.4% year-on-year to EUR 15.9 million. Positive impacts to EBITDA came from derivative gain and higher sales volume. Lower average sales price excluding gain on derivatives together with higher inventory-related fixed costs had a negative effect on the EBITDA.
EBITDA from Group's other products and services totalled at EUR 0.5 million in the third quarter of 2020, compared to a loss of EUR 1.1 million in the same period last year. The biggest impact came from the change in the value of gas derivative instruments that do not fall under IFRS9 hedge accounting.
The Group's capital expenditure amounted to EUR 35,0 million in the third quarter (+9,4% year-on-year). Investments to the electricity distribution network made up the largest share of investments, EUR 25.3 million (+36.7% year-on-year). The sizeable rise in network investments has come mainly due to increased number of applications for new connections by PV (photovoltaic) producers in Estonia.
Financing, credit ratings and dividends
The cash and cash equivalents held by the Group totalled EUR 129.1 million at the end of September 2020. As of 30 September 2020, the Group had access to a total of EUR 590 million of bank loans, from which revolving credit facilities amounted to EUR 345 million and a long-term loan agreements signed with the European Investment Bank in the amount of EUR 245 million. At the end of the third quarter 2020 the Group's net debt amounted to EUR 932 million.
Eesti Energia's net debt to EBITDA ratio stood at 4.2x at the end of Q3 2020, higher than the 3.5x financial policy target of the company. The Group has outlined steps in its strategy to get back within the bounds of its financial policy metric.
During the third quarter, both Standard & Poor’s and Moody’s updated Eesti Energia’s credit profile. Eesti Energia’s credit rating by Moody’s was left unchanged at Baa3 with stable outlook. Standard & Poor’s rating remained at BBB-, outlook was changed from stable to negative.
There is no change in the outlook compared to the second quarter of 2020. It is expected that in 2020 Eesti Energia's sales revenue and EBITDA will decline (defined as at least 5% decline) compared to 2019 numbers. Capital expenditures are estimated to grow (at least 5% growth), however due to the uncertain environment those plans will be specified in the coming months. Currently it is expected that investments into electricity network and renewable developments will increase on an annual basis, while at this time no major renewable development investment decisions have been made. Investments regarding oil shale sector are expected to decrease in this year from last year’s levels. The oil shale related investments are expected to increase next year, as the investments regarding the new shale oil plant Enefit-280 will start having its effect.
Eesti Energia will publish its audited 2020 annual report on February 26, 2021.
Eesti Energia conducts derivative transactions to hedge the price risk of electricity, CO2 and oil. The Group's hedge positions for electricity power production amounted to 0.2 TWh for Q4 of 2020 (at average price of 38.5 EUR/MWh). The Group's hedge positions for electricity retail sales amounted to 0.7 TWh for Q4 of 2020 (at average price of 37.6 EUR/MWh) and 2.3TWh for 2021 (at average price of 35.2 EUR/MWh). For shale oil, the hedge positions totalled 87.7 thousand tonnes for Q4 of 2020 (at average price of 314.8 EUR/tonne) and 326.9 thousand tonnes for 2021 (at average price of 306.5 EUR/tonne).
The Group's position in CO2 emission allowances for Q4 2020 amounts to 3.1 million tonnes at an average price of 19.5 EUR/tonne (including forward transactions, free emission allowances received as investment support and the surplus of unused allowances from previous periods). The position for 2021 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.
Investor call discussing the 2020 Q3 financial results will take place on 29 October 2020, at 11:00 London time, 12:00 Frankfurt time and 13:00 Tallinn time. Please register to participate. After registration you will be sent the details required to join the conference call.