REG - Eesti Energia AS - Eesti Energia Group results for Q2 2023

Enefit Green ASAnnouncement

03/08/2023 08:15

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RNS Number : 1123I  Eesti Energia AS  03 August 2023

Eesti Energia Group results for Q2 2023

 

The sales revenues of Eesti Energia Group amounted to EUR 416.1 million, -0.1%
year-on-year, in the second quarter of 2023. Reported group EBITDA was EUR
107.7 million (+17.4% year-on-year), while adjusted EBITDA* was at EUR 115.7
million (+45.0%). The Group's reported net profit was at EUR 42.7 million
(-5.6% year-on-year), adjusted net profit at EUR 50.6 million (+52.0%).

 

* - the introduction of adjusted EBITDA and adjusted net profit from 2022 Q1
is to present EBITDA and net profit in a normalized way for better
comparability with the elimination of temporary fluctuations in the fair value
of long-term Power Purchase Agreements (PPA) derivatives.

 

Group financials

In Q2 2023 the group had strong financial performance with Electricity
segment's profits increasing the most together with Distribution segment and
Shale Oil segment. Natural gas segment showed the biggest decline on the
profit line together with Other Products and Services but did not have too
significant impact on Group's overall results.

 

In the Electricity segment, revenue growth was underpinned by strong
performance of retail sales together with hedges done from higher price
levels. Electricity segment's EBITDA was additionally impacted by non-monetary
temporary fluctuations in the fair value of long-term Power Purchase
Agreements (PPA) derivatives which were lower than in the second quarter of
2022. In Q2 2023 such temporary fluctuations of PPA derivatives amounted to
-8.0 million euros, in Q2 2022 to +11.9 million euros with a total effect of
-19.9 million year-on-year.

 

Despite distribution segment's slightly lower volumes, revenues increased by
19.1% due to increases in the tariff. Distribution EBITDA grew significantly
and was positively affected by the increase of average sales price. Shale oil
segments EBITDA saw an increase with increases in production and sales
quantities and revenue, despite the lower sales price. Shale oil segment's
EBITDA is held back by hedges made a year ago from lower price levels in
accordance with the Group's hedging strategy, while the cost base has
increased. Natural gas sales volumes have decreased by -41.0% with sales
revenue decreasing by -69.4% mostly due to significantly lower market prices
and lower demand. Other segment's performance was mostly negatively impacted
by frequency restoration reserve (FRR) service, which was caused by high
variable costs and lower electricity prices due to which the group was not
able to offer the service to the market in the intended capacity.

 

Investments during the quarter amounted to 181 million euros, +84.8% higher
than a year earlier. The rise in investments mainly came from renewable energy
investments to new wind and solar parks and the distribution network. The
electricity price environment continues to support the ongoing investments of
the Group. These investments help to increase the energy independence and
generation of affordable and environmentally friendly electricity in the
region.

 

Electricity segment

Eesti Energia's sales revenues from electricity grew by +5.5% year-on-year to
EUR 267 million in Q2 2023. The Group's average electricity sales price
excluding derivative impact was at 113.1 EUR/MWh (+9.3% year-on-year). As a
comparative figure, the Q2 2023 average market electricity price for Estonian
Nord Pool area declined to 74.4 EUR/MWh (-47.6% year-on-year). The Group's
average electricity sales price increased compared to the decrease of 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 for the quarter totaled at 2.4 TWh (-5.9%
year-on-year), from which retail sales amounted to 2.3 TWh (-0.1%
year-on-year). Electricity generation during the quarter amounted to 0.7 TWh
(-50% year-on-year) as a direct result of lower generation from Group's
flexible power production units (oil shale based hybrid power plants) due to
low electricity prices and high CO2 prices. Group's flexible power production
units produced ca 0.4 TWh of electricity in Q2 2023. Renewable electricity
production which includes electricity production from wind, solar, and waste
wood decreased to 0.3 TWh (-11% year-on-year) due to unfavorable wind
conditions Estonia and Lithuania.

 

EBITDA of the electricity segment totaled at EUR 80.2 million (+20.2%
year-on-year). Largest positive impact came from margin impact (+24.7 million)
due to higher sales price and lower variable costs. Other positive impacts
came from gain on derivatives which amounted to EUR +8.2 million in annual
comparison and changes in fixed costs +5.2 million. Largest negative impact
was related to changes in value of derivative instruments and power
purchase agreements for renewable energy. The effect of these unrealized
hedges amounted to EUR -22.0 million in annual comparison). The adjusted
EBITDA (adjusted with the elimination of temporary fluctuations in the fair
value of long-term PPA derivatives) figure for the quarter was at EUR 88.2
million (+60.8% year-on-year) compared to EUR 54.9 million in Q2 2022.

 

Distribution segment

Eesti Energia's revenues from the distribution segment amounted to EUR 65.9
million in Q2 2023 (+19.1% year-on-year). The distributed volumes declined
(-9.8% year-on-year) and amounted to 1.4 TWh (-0.2 TWh) for the quarter.
Average distribution sales price, the tariff, was at 43.4 €/MWh (+22,9%
year-on-year). Distribution EBITDA for the quarter increased to EUR 33.1
million (+66.5% year-on-year) due to positive impacts mainly from higher
tariffs. Slightly lower volumes and higher fixed costs had a negative impact
but to a small extent.

 

Shale oil segment

Eesti Energia's revenues from shale oil sales amounted to EUR 43.2 million
(+34.3% year-on-year), with shale oil sales volume at 124.7 thousand tons
(+18.4% year-on-year) as this year there were less maintenances and
disruptions in the second quarter than last year. Eesti Energia's average
shale oil sales price excluding the impact from derivative transactions
decreased to 401 EUR/ton (-35.7% year-on-year) due to lower oil market prices.
The reference products average quarterly market price was at 409 EUR/t (-31.7%
year-on-year). Group's average shale oil sales price including the impact of
derivative transactions was at 346.6 EUR/ton (+13% year-on-year). EBITDA from
Shale oil operations was positive in the second quarter with a result of EUR
3.3 million (+166% year-on-year).

 

Natural gas segment

Eesti Energia's revenues from the natural gas segment amounted to EUR 15.5
million in Q2 2023 (-69.4% year-on-year). The sales volumes declined (-41.0%
year-on-year), at 0.2 TWh for the quarter due to lower demand. Average natural
gas sales price was at 62.1 EUR/MWh (-48% year-on-year). Natural gas EBITDA
for the quarter decreased to negative territory and amounted to EUR -5.3
million (-272.0% year-on-year) due to negative impacts mainly from gain on
derivatives and high variable costs.

 

Other segment

EBITDA from Group's other products and services decreased to negative
territory and totaled at EUR -3.6 million in the second quarter of 2023
(-151.4% year-on-year). The biggest negative factor came from frequency
restoration reserve (FRR) service where high variable costs and lower
electricity prices where the reasons why the group was not able to offer the
service to the market in the intended capacity. Other changes in EBITDA
totaled -5.7 million with negative impacts from solar services, one-off
transactions and other ancillary services as well as increased overhead costs.

 

Capital expenditure

The Group's capital expenditure amounted to EUR 181 million (+84.8%
year-on-year) in Q2 2023. Investments to the renewable asset developments
amounted to EUR 74 million during the quarter. Electricity distribution
network investments are in second place with EUR 44 million during the
quarter. The distribution network investments are largely aimed at improving
connection points to enable additional solar production capacities to be
connected to the distribution network and increasing the liability of the
network. Investments to other development projects increased to EUR 46
million, from which the largest share went to the construction of a new
chemical plant (new Enefit-280). The new Enefit-280 chemical plant is
scheduled to be completed in 2024 and will increase the annual shale oil
output to 700,000 tons while serving 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 second quarter 2023, cash and cash equivalents held by the
Group totaled EUR 409.2 million with additional short-term deposits of 245
million totaling 654.2 million. As of 30 June 2023, Eesti Energia had access
to a total of EUR 730 million of bank loans, from which revolving credit
facilities amounted to EUR 270 million and long-term loan agreements signed
with multiple counterparties to EUR 460 million. Eesti Energia's net debt was
at EUR 1,278 million (together with short-term deposits 1,033 million), net
debt to EBITDA ratio increased to 3.1x (on adjusted EBITDA basis to 2.8x),
together with short-term deposits 2.5x (on adjusted EBITDA basis to 2.3x)
compared to the 3.5x financial policy target of the company.

 

During the second quarter 2023 the Group paid out total dividends for the 2022
financial year in the amount of EUR 81.5 million, from which EUR 68.9 million
was paid to the sole shareholder, State of Estonia. EUR 12.6 million was paid
to the minority shareholders of the Tallinn stock exchange listed majority
owned Enefit Green subsidiary.

 

In Q2 2023 Eesti Energia disbursed the sustainability linked, amortizing term
loan contract in the amount of 600 million EUR. The term of the senior
unsecured loan is 5 years. The loan is sustainability linked with two ESG
KPI's: carbon intensity of scope 1, 2 and 3 emissions and yearly addition of
renewable energy capacity. The purpose of the term loan is to primarily
refinance the 500 million EUR bond maturing in September 2023 and supporting
Eesti Energia's carbon neutrality strategy.

 

Eesti Energia is rated BBB- (stable) 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 quarter we expect the net-debt/EBITDA ratio to
increase as the Group continues the execution of its investment pipeline.

 

Overall, the Group's management assesses the Group to be well balanced for
current volatile environment due to Group's diverse asset structure.

 

Outlook

It is the management's expectation that in 2023 Eesti Energia's sales revenue
will see a slight decline while EBITDA and investments will likely increase
compared to 2022 numbers.

 

Eesti Energia will publish its Q3 results on 2 November 2023.

 

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 1.1 TWh for the remainder of 2023 (at average price of
202.9 EUR/MWh) and 0.5 TWh for 2024 (at average price of 148.2 EUR/MWh). The
Group's hedge positions for electricity retail sales amounted to 1.9 TWh for
the remainder of 2023 (at average price of 80.4 EUR/MWh) and 3.0 TWh for 2024
(at average price of 53.2 EUR/MWh).

 

For shale oil, the hedge positions totaled 182.2 thousand tons for the
remainder 2023 (at average price of 347.2 EUR/ton) and 315.0 thousand tons for
2024 (at average price of 398.3 EUR/ton). For naphtha, the hedge positions
totaled 29.0 thousand tons for 2023 (at average price of 485.2 EUR/ton) and
49.7 thousand tons for 2024 (at average price of 567.6 EUR/ton)

 

The Group's position in CO2 emission allowances for 2023 amounts to 3.6
million tons at an average price of 62.3 EUR/ton (including forward
transactions, free emission allowances received as investment support and the
surplus of unused allowances from previous periods). CO2 emission allowances
for 2024 amount to 1.6 million tons at an average price of 33.1 EUR/ton
(including forward transactions).

 

The Q2 2023 interim 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 2023 second quarter financial results will take
place on 3 August 2023, at 11:00 London time, 12:00 Frankfurt time and 13:00
Tallinn time. Please register
(https://events.teams.microsoft.com/event/3c4ce024-8076-4778-8768-fabe3b19c26a@15cd778b-2b28-4ebc-956c-b5977a36cd28)
to participate. After registration you will be sent the details required to
join the conference call.

 

 

Danel Freiberg

Head of Investor Relations and Treasury

Eesti Energia AS

Tel +372 465 2887

danel.freiberg@energia.ee

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