Iseteenindus

Eesti Energia Group results for Q2 2021

29.07.2021

The sales revenues of Eesti Energia Group increased to EUR 241.1 million in the second quarter of 2021 (+43.5% year-on-year). Group EBITDA was EUR 40.8 million (-25.5% year-on-year). The Group's net loss was at EUR 10 million in the second quarter of 2021 compared to previous year’s net profit of EUR 7 million.

Group financials

The performance dynamics in the second quarter of 2021 were quite similar to the trends witnessed in the first quarter, despite EBITDA and net profit declining in annual comparison for which there were very specific reasons. As we saw in the first three months of 2021, the revenue of Eesti Energia in the second quarter increased mainly on the back of higher electricity market prices and better sales volumes of the electricity segment. Distribution segment’s sales revenue also rose as the electricity consumption volumes have grown on the back of recovering economic activity. Shale oil operations showed good operational performance, but the sales revenue and EBITDA were held back by derivative impacts in accordance with the Group’s hedging strategy. Reported EBITDA of the Group decreased compared to last year’s same period by 14.0 million euros (-25.5% year-on-year) as last year’s second quarter result included profits of 13.7 million euros from the sale of excess CO2 emissions.

Impact of hedge transactions to Group financials

2021 second quarter EBITDA result was significantly influenced by unrealised gains of derivative transactions – these are the market-to-market valuation of the hedge transactions done in accordance with the Group’s hedging strategy. However, some of the hedge transactions do not fall under the IFRS hedge accounting framework, thus affecting the Profit and Loss statement with unrealised gain figures. Most of the Group’s hedge transactions are covered with the IFRS hedge accounting framework, thus affecting the Profit and Loss statement only when the final settlements of the hedge transactions occur. The impact from the unrealised gains of derivative transactions to EBITDA profit amounted to EUR -2.2 million with EUR -7.1 million from oil instruments (naphtha derivatives), EUR -2.8 million from gas instruments and EUR +7.7 million from electricity instruments. This means that had there been no unrealised gain impacts from derivative transactions, the quarterly EBITDA figure would have been EUR 2.2 million higher.

Electricity segment

Eesti Energia's sales revenues from electricity increased by 75.2% year-on-year to EUR 126 million. The Group's average electricity sales price equalled 57.7 EUR/MWh in the second quarter (+29.2% year-on-year), while the quarterly average market electricity price for Estonian Nord Pool area increased to 54.5 EUR/MWh (+89.3% year-on-year). After last year saw the lowest electricity prices since 2010, prices in the first half of this year have been at their highest level for the last couple of years, with monthly average electricity price for June in Estonia broke the all-time high figure with 71.68 EUR/MWh. Electricity sales volume grew by 19.5% year-on-year to 2.1 TWh. Although wholesale electricity sales fell from 2020 second quarter levels 8%, the major share of the electricity sales volume goes to retail which increased by 0.36TWh on an annual basis (+23% year-on-year). Electricity generation during the second quarter rose by 45.3% to 0.9TWh on the back of favourable electricity market prices. Renewable energy generation grew on an annual basis to 0.4TWh (+32.6% year-on-year) due to increased biomass usage at the traditionally oil shale fired power plants. Less favourable wind conditions compared to last year held back wind energy production, as electricity produced from wind energy production units was 29GWh lower from last year’s second quarter levels.

EBITDA from the electricity segment amounted to EUR 19.9 million (+78.8% year-on-year). Better volumes together with derivative effects had the biggest positive impacts on EBITDA compared to the same period of last year, while the margin impact effected negatively due to higher variable cost associated to the purchase of electricity amidst higher electricity market prices. As mentioned in the first quarter, perhaps the most significant events in the first six months of 2021 have taken place without a direct effect on the bottom line – we have witnessed an increased interest from Baltic corporate clients to establish long-term (up to 10 year) renewable electricity contracts with fixed prices to decrease their environmental footprint and hedge the price risk for the future.

Distribution segment

Eesti Energia's revenues from the distribution segment totalled EUR 52.4 million (+5.1% year-on-year). The increase in revenues can be traced down to the growth in the distributed volumes (+7.2% year-on-year) which grew to 1.6TWh. The average distribution sales price declined slightly to 32.9 EUR/MWh (-2.0% year-on-year) as last year’s second quarter average tariff increase was explained by the consumption shift towards household clients who have higher average tariffs, while this year we have seen economic activity recovering with the tariffs returning to the pre-pandemic levels. Distribution EBITDA totalled EUR 27.2 million (+11.2% year-on-year) as the lower fixed costs together with better volumes had the positive effect.

Shale oil segment

Eesti Energia's revenues from shale oil sales amounted to EUR 32.0 million, increase of 24.4% year-on-year. Shale oil sales volume totalled 102.9 thousand tonnes (+21.1% year-on-year), while production quantity was at 96.7 thousand tons (+12.6% year-over-year). The main reason for the increases is the low comparison base – last year in the second quarter we decided to delay some of the sales deliveries and moved our maintenances earlier to the comparison period to take advantage of the low oil price environment. Group’s shale oil sales revenue growth was held back by hedge transactions concluded in the past from lower price levels in accordance with the Group’s hedging strategy Eesti Energia's average shale oil sales price excluding the impact of derivative transactions rose to 357.8 EUR/tonne (+72.1% year-on-year) on the back of recovering global oil prices. Group’s average shale oil sales price including the impact of derivative transactions rose to 310.5 EUR/tonne (+2.7% year-on-year), with derivative transactions resulting in a loss of 47.3 EUR/tonne in Q2 2021.

EBITDA from shale oil decreased by 117% year-on-year to an EBITDA loss of EUR 1.3 million. Although margin and volume impact together with lower costs had positive impact, the negative impacts of hedge transaction outweighed the positive ones. From the end of last year the Group started to hedge the smaller part of our production, the gasoline product, through the use of the naphtha derivatives. Since the gasoline hedges are not included in the hedge accounting framework, the market movements go through the profit and loss statement resulting in a loss of 7.1 million euros in the second quarter of 2021 as the global oil prices have been recovering lately. Despite the shale oil segment posting an EBITDA loss for the period, the management of the Group is satisfied with the segment’s organic result.

Other segment

EBITDA loss from Group's other products and services totalled at EUR 4.9 million euros compared to a EBITDA profit of EUR 11.3 million in the same period last year. The biggest impact came from the sale of excess CO2 emissions in the second quarter of last year which resulted in a gain of EUR 13.7 million.

Capital expenditure

The Group's capital expenditure totalled EUR 54 million in the second quarter (+90.4% year-on-year). The increase is attributable to the higher electricity distribution network investments, and increased development investments activity. From the development projects, we made the first down payment for the wind turbines of the 43MW wind park (Šilale II) developed in Lithuania in the amount of EUR 4.0 million. The largest part of the development investments went to the new oil plant Enefit282, EUR 12.9 million. The new oil plant together with investments to traditional renewable capacities such as wind, solar, are the cornerstones that will position the Group in the best way possible for the future taking into account today’s global renewable and sustainable trends, but also the expectations from its owner, the State of Estonia.

As part of the group’s long term strategy, in early June we announced our 2045 decarbonisation strategy. At the core of this strategy is the new oil plant together with additional renewable capacities which in future can help to turn the today’s main product of the oil plants from oil to chemicals used in every step in our everyday lives, and using in turn old plastics instead of oil shale as the main fuel to produce different chemical products. On group level our target is to be carbon neutral by 2045, with the 2030 EU goals already achieved. More information on the decarbonisation strategy can be found on our homepage under the „Responsible energy“ section, link here.

Financing, credit ratings and dividends

The cash and cash equivalents held by the Group totalled EUR 142.4 million at the end of June 2021. As of 30 June 2021, the Group had access to a total of EUR 580 million of bank loans, from which revolving credit facilities amounted to EUR 335 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 second quarter 2021 the Group's net debt amounted to EUR 798 million. No dividends shall be paid in 2021, as decided by the Annual General Meeting in April 2021.

Eesti Energia's net debt to EBITDA ratio stood at 3.6x at the end of Q2 2021, basically in line with the long term target of 3.5x from the financial policy of the company. Eesti Energia’s credit rating are unchanged at BBB- (negative) by Standard & Poor’s and Baa3 (stable) by Moody’s. Eesti Energia’s financial policy is aimed at maintaining investment grade credit ratings.

Outlook

It is the management’s expectation that in 2021 Eesti Energia's sales revenue, EBITDA and investments will likely grow (defined as at least 5% growth) compared to 2020 numbers. The largest development investments will be made in the construction of a new oil plant and the development of the renewable energy portfolio.

Eesti Energia will publish its third quarter results on October 28, 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 0.1 TWh for Q3-Q4 of 2021 (at average price of 54.7 EUR/MWh). The Group's hedge positions for electricity retail sales amounted to 0.6 TWh for Q3-Q4 of 2021 (at average price of 24.9 EUR/MWh) and to 2.0TWh for 2022 (at average price of 34.1 EUR/MWh). For shale oil, the hedge positions totalled 180.5 thousand tonnes for Q3-Q4 of 2021 (at average price of 300.7 EUR/tonne) and 311.8 thousand tonnes for 2022 (at average price of 279.8 EUR/tonne).

The Group's position in CO2 emission allowances for Q3-Q4 2021 amounts to 3.4 million tonnes at an average price of 27.2 EUR/tonne (including forward transactions, free emission allowances received as investment support and the surplus of unused allowances from previous periods). The position for 2022 amounts to 0.1 million tonnes at an average price of 37.1 EUR/tonne.

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

Investor call discussing the 2021 Q2 financial results will take place on 29 July 2021, 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.

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