Eesti Energia Group results for Q3 2016

Eesti Energia’s net profit totalled EUR 13.3 million (-57.4% y-o-y).

Financial results

Sales volume of all of the core product segments of the Group (i.e electricity, shale oil and distribution) increased in the third quarter compared with the year before. However, negative impact from sales prices abated the positive effect of higher volumes so the total revenues of the Group were almost flat in year-on-year comparison. Eesti Energia’s electricity sales revenue totalled EUR 86.8 million (+6.7%). Shale oil revenues amounted to EUR 19.7 million (-25.5%). Revenues from distribution grew by +2.1% and equalled EUR 54.9 million.

Group EBITDA declined in the third quarter as the profitability of the Group’s electricity and oil sales decreased. EBITDA from electricity declined to EUR 24.5 million (-22.6%), as higher electricity sales volumes did not fully compensate for lower average electricity sales price and lower gains from hedge positions. EBITDA from shale oil totalled EUR 1.6 million (-82.9%). Both shale oil volumes and margins (excluding hedges) increased but EBITDA as a whole declined due to much lower contribution from hedge positions. EBITDA from distribution decreased to EUR 28.1 million (-2.6%) and it includes a negative impact of unplanned maintenance works that were needed due to storms.

Key performance indicators

The Group’s electricity sales volume increased substantially in the third quarter and amounted to 2.4 TWh (+34.8%). Retail sales accounted for 1.4 TWh of the total (+3.7%). Wholesale contributed the majority of the overall sales growth and totalled 1.0 TWh (+119.8%). Larger wholesale quantities were facilitated by higher Nord Pool electricity price and a decrease in Eesti Energia’s production costs, both due to the decline in the market price of CO2 allowances as well as the recent tax changes that have an impact on the cost of oil shale.

Eesti Energia’s combined retail market share in the three Baltic countries totalled 24% (-0.8 percentage points y-o-y).

The volume of electricity distributed by the Group increased by 1.1% year-on-year and amounted to 1.4 TWh.

Eesti Energia’s shale oil sales volume increased by 20.5% to 93.2 thousand tonnes, supported by higher production quantities and a reduction in inventories. The Group’s shale oil output totalled 85.8 thousand tonnes (+5.6%).

Capital expenditure

The Group’s capital expenditure amounted to EUR 33.4 million in the third quarter (-30.1%). Majority of the capex was spent on upgrading the distribution network. Other maintenance type of investments made up another smaller share.

Financing, credit ratings and dividends

The Group’s liquidity buffer remained at a very healthy level as the end of the third quarter, including EUR 205.1 million of cash and equivalents, EUR 150 million of revolving credit facilities (with maturity in July 2020) and EUR 70 million undrawn investment loan from EIB.

The Group’s net debt totalled EUR 738.5 million as at the end of the quarter. The net debt to EBITDA ratio increased to 3.5x by the end of September 2016 whereas financial leverage remained stable at 32%.

Eesti Energia is rated BBB (negative) by Standard & Poor’s and Baa3 (stable) by Moody’s.

Outlook

The Group’s guidance for full year 2016 remains unchanged compared to our communication provided with the second quarter report in July. It is expected that in 2016 the Group’s sales revenues will decline by less than 5% while EBITDA will decline by more than 5% in 2016 in year-on-year comparison. Capex is also expected to decline by more than 5%.

Eesti Energia will publish its full year 2016 results on February 27, 2017.

Given that market prices of electricity as well as oil have recently become more favourable, Eesti Energia resumed its hedging programme in the third quarter. The Group’s hedge positions for electricity (including financial hedges as well as fixed price contracts with retail clients) amount to 1.8 TWh for the fourth quarter of 2016 (at average price of 35.3 EUR/MWh) and 2.6 TWh for 2017 (at average price of 34.4 EUR/MWh). Hedge positions for oil include 33 thousand tonnes for the remaining part of 2016 (at an average price of 358 EUR/tonne) and 191 thousand tonnes for 2017 (at an average price of 228 EUR/tonne).

The Group’s position in CO2 emission allowances for 2016 amounts to 12.8 million tonnes at an average price of 5.9 EUR/tonne (including forward transactions, free emission allowances received as investment support and the surplus of unused allowances from previous periods). The position for 2017 amounts to 3.8 million tonnes at an average price of 0.8 EUR/tonne, consisting mostly of free allowances received as investment support.