REG - Eesti Energia AS - 2021 Unaudited Annual Report of Eesti Energia

Enefit Green ASAnnouncement

28/02/2022 08:15

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RNS Number : 9938C  Eesti Energia AS  28 February 2022

Eesti Energia Group unaudited results for 2021 financial year

 

The sales revenues of Eesti Energia Group amounted to EUR 1,313.0 million,
+57.5% year-on-year, in the financial year of 2021. Group EBITDA was EUR 317.6
million (+48.7% year-on-year). The Group's net profit was at EUR 111.5 million
(+478% year-on-year).

 

Group financials

The increase in sales revenues and EBITDA of Eesti Energia in 2021 compared to
2020 are attributable to the Electricity segment, where the main impact came
from high regional electricity prices due to record-high gas prices, lower
than average Nordic hydro reservoir levels, and increased electricity
consumption as a result of economic activity recovery from the Covid-19
pandemic lows. Although the CO2 emission allowance prices nearly tripled
during the year, the oil shale based hybrid electricity production units saw
more activity than in 2020 as the region suffered from lack of competitive
controllable electricity generation to meet the demand side of the market.
Liquid fuel production, distribution and renewable assets (renewables are
included under the Electricity segment) performed well during the year,
despite some one-off items, and effects from non-hedge accounting derivative
transactions that effect the Profit and Loss Statement on continuous basis as
the market prices of the instruments change. Most of Group's hedge
transactions fall under IFRS hedge accounting framework and therefore only
effect the Profit and Loss Statement with the final settlement of the
instruments.

 

Electricity segment

Eesti Energia's sales revenues from electricity grew by 112.9% year-on-year to
EUR 766 million in 2021. The Group's average electricity sales price excluding
derivative impact was at 77.6 EUR/MWh (+60.8% year-on-year). As a comparative
figure, the 2021 annual average market electricity price for Estonian Nord
Pool area rose to 86.7 EUR/MWh (+157.4% year-on-year). The Group's average
electricity sales price increased to a lesser extent compared to the market
average due to retail sales contracts where the electricity prices are fixed.
Such contracts make up roughly half of the retail portfolio. Electricity sales
volume totalled at 9.4TWh in 2021 (+20.3% year-on-year), from which retail
sales amounted to 8.6TWh. 2021 was the first year when retail sales quantities
in other markets exceeded those of Estonia. Sales in Poland, Lithuania, Latvia
and Finland accounted for 52% of the portfolio. Electricity generation rose to
5.2TWh (+37.0% year-on-year) as a direct result of larger generation from oil
shale based electricity production units despite record high CO2 prices.
Renewable energy production increased to 1.6TWh (+9% year-on-year) thanks to
larger use of biomass (waste wood) at oil shale based hybrid electricity
production units. Renewable electricity production from wind and solar
decreased by 12% mainly due to less favourable wind conditions and wind farms'
slightly lower availability.

 

EBITDA from the electricity segment totalled at EUR 217.6 million (+164.2%
year-over-year) mostly due to higher volumes and improved electricity prices.
Growth in gain on realised derivative transactions increased EBITDA by 54.2
million euros in annual comparison. Other impacts of +60.5 million euros in
annual comparison mostly resulted from changes in the value of derivative
financial instruments not covered by IFRS hedge accounting framework which
constitute the Power Purchase Agreements (PPAs) priced according to latest
electricity market price forecasts. As the market price forecasts have
increased, so has the market value of those contracts as this instrument is
not covered under IFRS hedge accounting framework. In 2021 the Group signed
fixed price renewable electricity agreements with Baltic consumers in the
amount of 9TWH for the next 10 years to cover the electricity production of
the Group's renewable investment decisions in the amount of 200MW, and also
the electricity to be produced by other renewable developers in the region.

 

Distribution segment

Eesti Energia's revenues from the distribution segment amounted to EUR 233.6
million in 2021 (+7.3% year-on-year). The distributed volume was at 7.2TWh
(+7.0% year-on-year), while average distribution sales price was at 32.6
€/MWh (+0.3% year-on-year). Distributed volume rose due to increased
economic activity, colder winter and hotter summer, and the addition of the
sales volume of Imatra Elekter (+115GWh; 1.7% compared to 2020 distributed
volumes) which was acquired in mid-2021. Distribution EBITDA was at EUR 87.3
million (-0.4% year-on-year) in 2021 as negative impacts from higher
electricity costs for network losses took away the gain from increased
distributed volumes.

 

Shale oil segment

Eesti Energia's revenues from shale oil sales amounted to EUR 135.0 million
(-2.2% year-on-year), with shale oil sales volume at 420 thousand tonnes
(-7.4% year-on-year). Full year oil production was at 438 thousand tons (-3.1%
year-on-year) due to larger scale repair and reconstruction works compared to
2020. Eesti Energia's average shale oil sales price excluding the impact from
derivative transactions increased to 389.9 EUR/tonne (+50.9% year-on-year) due
to supportive oil market prices. Group's average shale oil sales price
including the impact of derivative transactions was at 321.6 EUR/tonne (+5.6%
year-on-year).

 

Due to lower production volumes and effects from unrealised hedge
transactions, EBITDA from shale oil operations decreased to EUR 8.1 million
(-85.0 year-on-year). The unrealised hedge transaction effects include the
Naphtha derivatives, which the Group uses to hedge the gasoline fraction of
the production (ca 10% of the production). From 2022 Naphtha instruments will
be covered under IFRS hedge accounting framework, thus not affecting the PNL
statement anymore. The unrealised annual change in the value of derivatives
amounted to around EUR 29 million with the adjusted EBITDA figure of the shale
oil segment at EUR 37.6 million.

 

Other segment

EBITDA from Group's other products and services totalled at EUR 4.7 million in
2021 (-75.1% year-on-year). The biggest negative factor came from retail gas
sales where sales quantities grew from 2.0TWH ot 2.4TWh while unrealised gas
hedge transaction not covered under IFRS hedge accounting framework impacted
the result in the amount of EUR 14.0 million, while the realised gain was at
EUR 4.7 million. Also, the segment includes different one-off items, most
material of which were the amounts received under the liquidated damages
agreement related to the Auvere power plant (impact in 2021: +28.0 million
euros) and income from the sale of CO2 emission allowances in 2020 (impact in
2021: -13.7 million euros).

 

Capital expenditure

The Group's capital expenditure amounted to EUR 251.6 million (+35.3%
year-on-year) in 2021. Investments to the electricity distribution network
made up the largest share of investments, EUR 99.5 million (+4.3%
year-on-year) with now ca 71.4% of the distribution network being
weather-proof. Although renewable investments decreased on an annual basis to
EUR 42 million, in 2020 the investments were mainly acquisition related
compared to 2021 investments to construction on the capacities. In 2021 EUR
50.1 million euros was invested in the construction of another Enefit 280
pyrolysis shale oil plant. The new pyrolysis plant, which is scheduled to be
completed in 2024, will increase our annual shale oil output to 700,000 tonnes
and will serve as a cornerstone for transforming the current liquid fuels and
electricity oriented production from oil shale to chemical industry based on
circular economy principles with a zero carbon footprint target by 2045.

 

Financing, credit ratings and dividends

As of the end of 2021, cash and cash equivalents held by the Group totalled
EUR 198.0 million. As of 31 December 2021, Eesti Energia had access to a total
of EUR 535 million of bank loans, from which revolving credit facilities
amounted to EUR 200 million and long-term loan agreements signed with multiple
counterparties to EUR 335 million. In 2021, the Group successfully included
the listing of the renewable subsidiary Enefit Green minority share for which
the group received gross proceeds of EUR 175 million. Eesti Energia's net debt
was at EUR 759 million, net debt to EBITDA ratio declined to 2.4x compared to
the 3.5x financial policy target of the company. According to the decision of
the annual general meeting no dividends were paid in 2021, while the
management proposes a dividend payment of EUR 55.7 million to be paid for
2022. The proposed dividend is 50% from 2021 net profit of 111.5 million (2020
net profit of EUR 19.3 million). The owner is expected to decide the dividend
payment together with the approval of the 2021 audited report in April, 2022.

 

Eesti Energia is rated BBB- (negative) by Standard & Poor's and Baa3
(stable) by Moody's. Eesti Energia's financial policy is aimed at maintaining
investment grade credit rating and a net-debt to EBITDA long-term target of
3.5 times. For the upcoming quarters we expect the net-debt/EBITDA ratio to
increase as the Group continues the execution of its investment pipeline.

 

Outlook

It is the management's expectation that in 2022 Eesti Energia's sales revenue
and investments will likely increase (defined as at least 5% growth), while
EBITDA will likely decline (defined as at least 5% decline) compared to 2021
numbers.

 

Eesti Energia will publish its audited 2020 annual report in April, 2022.

 

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 3.2 TWh for 2022 (at average price of 92.2 EUR/MWh) and
0.1TWh for 2023 (at average price of 75.8 EUR/MWh). The Group's hedge
positions for electricity retail sales amounted to 3.3 TWh for 2022 (at
average price of 58.8 EUR/MWh) and 1.8TWh for 2023 (at average price of 38.8
EUR/MWh).

 

For shale oil, the hedge positions totalled 354.8 thousand tonnes for 2022 (at
average price of 293.6 EUR/tonne) and 275.9 thousand tonnes for 2023 (at
average price of 297.9 EUR/tonne). For naphtha, the hedge positions totalled
55.3 thousand tonnes for 2022 (at average price of 340.2 EUR/tonne) and 41.8
thousand tonnes for 2023 (at average price of 379.6 EUR/tonne)

 

The Group's position in CO2 emission allowances for 2022 amounts to 3.8
million tonnes at an average price of 50.8 EUR/tonne (including forward
transactions, free emission allowances received as investment support and the
surplus of unused allowances from previous periods). CO2 emission allowances
for 2023 amount to 0.03 million tonnes at an average price of 60.0 EUR/tonne
(including forward transactions).

 

The unaudited annual report of Eesti Energia and the investor presentation is
available at Eesti Energia's web
site: https://www.energia.ee/en/ettevottest/investorile
(https://www.energia.ee/en/ettevottest/investorile) .

 

Investor call discussing the 2021 unaudited financial results will take place
on 28 February 2022, at 11:00 London time, 12:00 Frankfurt time and 13:00
Tallinn time. Please register
(https://teams.microsoft.com/registration/i3fNFSgrvE6VbLWXejbNKA,zH0H2ZxjEEqVnspN2BzRQw,DvU3AWjmqkOGCnTaIZr30g,eClv8xdyWUysyuiphvMHUA,NsGG30P2wkKJS7ErSFCgng,G3TP2713qEy13gwmXdeNSw?mode=read&tenantId=15cd778b-2b28-4ebc-956c-b5977a36cd28)
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

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