Eesti Energia maintained profitability despite the challenging economic environment

Revenue dropped in the second quarter due to the slump in energy markets; nevertheless, operating profit before depreciation and net profit of the group increased.

In the second quarter of 2015, Eesti Energia’s revenue amounted to EUR 181 million, which is 12% less than last year. Irrespective of the decline in turnover, the group’s EBITDA rose by 2%, reaching EUR 69 million. However, Eesti Energia earned EUR 7 million in profits, i.e., 10% more than in the previous year.

“When assessing operating results, we need to take into account the challenging environment in which the market prices of electricity and oil have fallen significantly as compared to previous periods,” said Hando Sutter, Chairman of the Management Board of Eesti Energia. According to him, the company nevertheless coped well in the previous quarter and managed to maintain its profits. “This was mainly due to proactive risk management transactions and well thought through cost management,” said Sutter.

The sales volume of electricity of Eesti Energia dropped by 24%, to 1.7 TWh. Hando Sutter explained that the decreased sales volume of electricity was caused by record low prices on the electricity market. “In June, the average price of electricity was EUR 27.3 per MWh on the exchange. The average price per month has never been as low as this,” said Sutter. According to him, the price depression has been mainly caused by the abundance of cheap hydro power on the Nordic market coupled with sufficient wind energy thanks to good wind conditions.

Eesti Energia’s operating results are also affected by the price of petroleum on global markets that have dropped by about 30% compared to the second quarter of 2014. Despite dropping prices, Eesti Energia was able to increase sales of shale oil by 50% and maintain the profit of oil production. The production growth was also notable – 29%. All in all, Eesti Energia produced more than 73 thousand tonnes of liquid fuels in the three months.

During the past three months, the group invested EUR 85 million. Auvere power station and the electricity distribution network were the major objects of investment. Power generated in the Auvere station was introduced into the electricity network in May. Currently, final tasks are being carried out at the power station before the commissioning of the station at the end of the year. Elektrilevi, a subsidiary of Eesti Energia, built 96 new substations and 449 kilometres of weather-proof electric lines in the second quarter.

Eesti Energia also invested in the development of mining technology. In 2016, the Estonia quarry will complement the current chamber mining technology with chamber lava mining, which will make mining more effective and lower the cost price of oil shale. The total budget of the project is EUR 21 million, of which 10 million had been invested by the end of the second quarter. In addition, the mining company of the group, Eesti Energia Kaevandused, bought new earth-moving machinery and drilling machines for blast-holes.

Hando Sutter added that while the free market has delivered good electricity prices to consumers, the perspective for energy companies remains rather bleak. “Both oil and electricity prices are low and if this persists, the profit margins of Eesti Energia will soon come under pressure,” predicted Sutter. The group has concluded risk management transactions for future periods, however, their number is less compared with for this year. According to Sutter, in the situation that has developed effective production and flexibility are paramount to adequately respond to changes and to meet the owner’s expectations.