Eesti Energia Group audited results for financial year 2018

The Group’s net profit totalled EUR 106.2 million (+5.4% compared to 2017 financial year).

Group financials

Eesti Energia’s revenue and EBITDA were supported by strong results of the electricity and shale oil segments on the back of growing market prices of electricity and oil. Performance of the distribution segment was affected by decreases in distribution tariffs in the second half of 2017. The growth in the Group’s EBITDA was more moderate compared to revenue growth due to higher cost of CO₂ emission allowances and the payments of liquidated damages from GE related to Auvere power plant coming to an end now that the plant is finished.

Electricity segment

Eesti Energia’s sales revenues from electricity increased by 24.6% to EUR 437.1 million in 2018. The Group’s average electricity sales price excluding the impact of derivatives equalled 47.4 EUR/MWh in 2018 (+25.3% year-on-year). The average Nord Pool Estonia electricity price reached a level of 47.1 EUR/MWh (+41.7% year-on-year) so the power market was certainly favourable for the Group in 2018. Eesti Energia’s electricity sales and generation volume was however impacted by higher market prices of carbon emission allowances, more extensive maintenance works in the power plants and seasonal closure of some of the older power units with limited working hours. The Group’s electricity generation volume totalled 9.1 TWh in 2018 (-6.2% year-on-year) while electricity sales volume amounted to 9.2 TWh (-1.2% compared to 2017).

Annual EBITDA from the electricity segment climbed to EUR 131.2 million (+33.9% compared to the year before). EBITDA growth was driven by improving margins as higher power price compensated for the higher cost of CO₂ emission allowances.

Distribution segment

Eesti Energia’s revenues from the distribution segment amounted to EUR 240.6 million in 2018 (-2.7% year-on-year). Distribution volume totalled 6.9 TWh (+2.8%) while the average distribution sales price declined to 34.6 EUR/MWh in 2018 (-5.4% compared to 2017) due to cuts in distribution tariff in the second half of 2017. EBITDA from the distribution segment equalled EUR 99.6 million (-6.8%).

Shale oil segment

The Group’s revenues from sales of shale oil amounted to EUR 113.1 million (+31.4% year-on-year). The shale oil segment was supported by higher oil prices despite a mitigating effect from hedge positions that had been entered into at lower price levels than the realised average market price. Eesti Energia’s average shale oil sales price excluding the impact of derivatives equalled 330 EUR per tonne in 2018, up by 26.6% year-on-year. Shale oil segment also benefitted from larger production and sales volumes. The Group’s annual oil production quantity of 411 thousand tonnes was the highest level ever achieved. Sales volume equalled 393 thousand tonnes (+6.1% compared to 2017). EBITDA of the shale oil segment increased to EUR 43.6 million (+82.4% year-on-year), mainly due to higher oil prices but also due to higher sales volume.

Other products and services

EBITDA from the rest of the Group’s products and services totalled EUR 8.7 million in 2018, compared to EUR 35.3 million in 2017. The reduction was due to substantially lower payments of liquidated damages from GE in 2018 and also due to the impact from the financial close of the Jordan project in 2017.

Capital expenditure

Eesti Energia’s capital expenditure totalled EUR 215.1 million (+49.3% compared to 2017). Investments into the distribution network continued to make up the largest share of the total capex (EUR 81.6 million). Final investments related to the Auvere power plant amounted to EUR 33.9 million.

The Group also closed the acquisition of Nelja Energia, the Baltic renewables company in November 2018.

Financing, credit ratings and dividends

The Group’s liquidity position remained solid at the end of the 2018 after repayment of maturing debt obligations and closing of the Nelja Energia acquisition. Cash and cash equivalents held by the Group amounted to EUR 61.5 million as at the end of the year. The Group also had access to EUR 220 million of revolving credit facilities from regional banks. Additionally, the Group’s fully owned subsidiary Enefit Green had access to undisbursed term loans of EUR 260 million, designated for refinancing the debt of the acquired company.

Eesti Energia’s net debt to EBITDA ratio stood at 3.7x as at the end of 2018, slightly higher than the 3.5x financial policy target. The Group has outlined steps to get back within the bounds of its financial policy metric. Eesti Energia is rated BBB (negative) by Standard & Poor’s and Baa3 (stable) by Moody’s.

Outlook

It is expected that in 2019 Eesti Energia’s sales revenues and investments will grow compared to 2018 (defined as more than 5% growth). EBITDA is expected to remain stable compared to 2018. Eesti Energia expects to pay a dividend of EUR 57 million in 2019, on top of which income tax of EUR 14.3 million is also payable.

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 4.4 TWh for 2019 (at average price of 44.8 EUR/MWh) and to 0.5 TWh for 2020 (at average price of 34.7 EUR/MWh). For shale oil, the hedge positions totalled 324 thousand tonnes for 2019 (at average price of 273 EUR/tonne) and 172 thousand tonnes for 2020 (at average price of 298 EUR/tonne).

The Group’s position in CO₂ emission allowances amounts to 9.8 million tonnes for 2019 at an average price of 12.2 EUR/tonne. The position for 2020 amounts to 0.2 million tonnes, consisting mainly of free allowances.