Eesti Energia Group results for Q2 2016

Eesti Energia’s sales revenues amounted to 148.7 million euros in the second quarter of 2016, down by 17.9% year-on-year. Group EBITDA also declined in the second quarter and equalled EUR 54.6 million (-20.9% y-o-y). Eesti Energia’s net profit totalled EUR 15.2 million (+122.2% y-o-y) in the second quarter.

Financial results The drop in revenues was mainly attributable to lower revenues from electricity and shale oil sales as Eesti Energia’s sales prices (including the impact from hedges) were lower than in the comparable period last year. Eesti Energia’s electricity sales revenue totalled EUR 66.1 million (-21.9%). Shale oil revenues amounted to EUR 13.7 million (-43.2%). Revenues from distribution were essentially flat at EUR 56.0 million (+0.1%).

Group EBITDA was impacted by similar factors as its revenues; however, there was also a positive effect from the retroactive cut in environmental and resources taxes in Estonia, which had a positive one-off impact to Group EBITDA in the second quarter. Lower taxes will also be supportive to the business going forward. EBITDA from electricity totalled EUR 17.0 million (-46.6%), mostly because the gain on derivative instruments was smaller and the profit margin and sales volume were lower than in the comparative period. EBITDA from shale oil turned negative to EUR -3.4 million (down by EUR 9.9 million y-o-y), mainly due to a lower average sales price and smaller gain on derivative instruments. EBITDA from distribution amounted to EUR 29.3 million (+2.3%) as it was supported by lower distribution losses. Contribution to EBITDA from other products and services amounted to EUR 11.6 million (up by EUR 9.7 million y-o-y), as it includes the above mentioned EUR 12.6 million effect from the retroactive cut of environmental charges.

Key performance indicators The Group’s electricity sales volume amounted to 1.7 TWh in the second quarter of 2016 (+0.7%), out of which retail sales accounted for 1.4 TWh (+2.0%) and wholesale for 0.3 TWh (-4.3%). The reported sales volume includes sales from the new Auvere power plant. In the Group's accounting, the sales revenue and cost of Auvere power plant is partially capitalised as the plant is still categorised as under construction. Eesti Energia’s combined retail market share in the three Baltic countries totalled 25% (-1 percentage point y-o-y).

The volume of electricity distributed by the Group was essentially flat and amounted to 1.4 TWh (-0.3%).

Eesti Energia’s shale oil sales increased by 2.4% to 69.0 thousand tonnes as the recovery in oil prices enabled us to resume selling oil that had been stored during the first quarter. The Group’s shale oil output totalled 56.7 thousand tonnes (-22.5%).

Capital expenditure The Group’s capital expenditure amounted to EUR 31.5 million in the second quarter (-63.0%). The decline in capex was in accordance with expectations given that most of the large investment projects have been completed and maintenance capex has also been cut. Majority of the capex spending was dedicated to the distribution network in the second quarter.

Financing, credit ratings and dividends The Group’s liquidity buffer remained substantial at the end of June, including EUR 189.5 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 765.3 million as at the end of the quarter. As a result of declining EBITDA, the Group’s net debt to EBITDA ratio increased to 3.4x by the end of June 2016 whereas financial leverage slightly declined to 32%.

In June S&P confirmed the Group’s BBB rating with a negative outlook. Moody’s downgraded the Group in April to Baa3, the outlook is stable.

Outlook The Group’s guidance for full year 2016 remains unchanged compared to our communication provided with our first quarter report. Eesti Energia expects that in 2016 the Group’s sales revenues will decline by less than 5% in 2016 while EBITDA and capital expenditure will decline more than 5% in 2016 in year-on-year comparison.

The Group’s hedge positions for electricity (including both financial hedges as well as fixed price contracts with retail clients) amount to 2.1 TWh for the second half of 2016 (at average price of 36.6 EUR/MWh) and 1.8 TWh for 2017 (at average price of 34.9 EUR/MWh). Hedge positions for oil include 66 thousand tonnes for the remaining part of 2016 at an average price of 357 EUR/tonne.

The Group’s position in CO2 emission allowances for 2016 amounts to 12.0 million tonnes at an average price of 6.0 €/t (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 3.1 million tonnes consisting mostly of free allowances received as investment support.

More information on the financial results of Eesti Energia Group is available at Eesti Energia homepage.