The revenue growth of Eesti Energia in the second quarter of 2019 was driven by the electricity and oil segments on the back of commodity market prices, according to a company press release. As was the case in the first quarter of 2019, the distribution segment's results were affected by the reduction in the distribution tariff implemented in January.

The energy group's reported EBITDA increased compared to the second quarter of last year. Net profits declined on year, meanwhile, as the acceptance of Auvere Power Plant in the second half of last year meant that the depreciation expense is now higher on an annual comparison basis. The second quarter's net profits were positively affected by income tax expense adjustments.

Electricity

Eesti Energia's sales revenues from electricity increased by 23.1 percent on year to €110 million. In the second quarter, the group's average electricity sales price totaled €55.10 per megawatt-hour, indicating an increase of 27.5 percent on year. Electricity sales volumes fell by 14.8 percent on year to 1.8 terawatt-hours as the group's wholesale electricity sales fell; retail sales volumes, meanwhile, remained steady on year.

Electricity generation dropped 42.9 percent to 1.2 terawatt-hours due to higher CO2 costs that directly affect the group's oil shale-based electricity production. Adjustment work also took place at Auvere Power Plant, however, which must be done during the guarantee period. Electricity production from renewable and alternative sources reached 365 gigawatt-hours in the second quarter, accounting for 33 percent of total energy production, with production in the first half of 2019 totaling 916 gigawatt-hours and accounting for 27 percent of total energy production. This increase is due to the acquisition of Nelja Energia in November 2018, which increased the group's installed wind capacity from 111 to 398 megawatt-hours, but also due to reduced oil shale-based electricity production.

EBITDA from the electricity segment totaled €32 million, up 81.8 percent on year. As in the first quarter of this year, the higher market price of electricity had a positive impact on EBITDA on year. The higher cost of CO2 and an increase in fixed costs due mainly to the acquisition of Nelja Energia by Eesti Energia subsidiary Enefit Green, meanwhile, had a negative impact. Oil shale-based electricity production managed to cut fixed costs in the amount of €5.3 million on year, however, mainly due to the group lowering production volumes.

Distribution

Eesti Energia's revenues from its distribution segment totaled €50.5 million, down 7.1 percent on year. This decrease in revenues was caused by an average distribution tariff cut of 8.4 percent in January. Distribution volumes essentially remained steady on year, amounting to 1.5 terawatt-hours.

The average distribution sales price declined 6.7 percent to €32.9 per megawatt-hour. Second quarter distribution EBITDA totaled €23 million, down 12.3 percent on year, as the primary factor was lower average sales prices due to a cut in tariffs.

Shale oil

The group's revenues from shale oil sales totaled €31.8 million in the second quarter, up 18.3 percent on year. As in the previous quarter, the shale oil segment was supported by both increasing prices as well as higher volumes, although hedges from earlier periods from lower price levels held back some gains.

Eesti Energia's average shale oil sales price totaled €357 per ton in the second quarter, up 5.5 percent on year. Shale oil sales volumes totaled 113,000 tons, up 12 percent on year. EBITDA from shale oil increased to €10 million, up 43.6 percent on year. As was the case with the increase in revenues, EBITDA growth was likewise supported by improved market prices and higher sales volumes.

Other products, services

EBITDA from the group's other products and services, meanwhile, totaled a loss of €2.1 million in the second quarter of 2019, down from a profit of €2.2 million on year. The previous year's result included €1.7 million in liquidated damages related to Auvere Power Plant.

Capital expenditure

Eesti Energia's capital expenditure totaled €45 million in the second quarter, down 4.9 percent, or €2.3 million, on year. This decrease is primarily connected to Auvere Power Plant, where the group no longer has associated investments as the completed power plant was accepted.

On the other hand, in the second quarter, Enefit Green, a fully-owned subsidiary of Eesti Energia, invested €7.3 million into solar parks by acquiring the first part of 20 solar park projects in Poland with a total capacity of 19.2 megawatt-hours. The total cost of acquiring these projects was €17.3 million.

Financing, credit ratings, dividends

Eesti Energia's liquidity position remains at a strong level, the company said on Tuesday. As of the end of June, cash and cash equivalents held by the group totaled €93 million. Eesti Energia has access to a total of €300 million of revolving credit facilities from OP Corporate Bank and SEB. As of the second of the second quarter, the group's net debt totaled €1.022 billion.

Eesti Energia's net debt to EBITDA ratio stood at 3.4 times at the end of the second quarter, in line with the 3.5 times financial policy target. Eesti Energia is rated BBB (negative) by Standard & Poor's and Baa3 (stable) by Moody's.

The  energy group's shareholder has approved a dividend payment of €57 million to be paid in 2019, €28.5 million of which was paid during the second quarter of the year.

2019 outlook

It is expected that Eesti Energia's sales revenues will grow at least 5 percent in 2019. EBITDA is expected to remain steady, however capital expenditures are estimated to grow at least 5 percent on year.

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 2.5 terawatt-hours for the third and fourth quarters, at an average price of €43.10 per megawatt-hour, and at 500 gigawatt-hours for 2020, at an average price of €38.70 megawatt-hours. For shale oil, hedge positions totaled 247,000 tons for the third and fourth quarters, at an average price of €273 per ton, and 281,000 tons for 2020, at an average price of €303 per hour. 

The group's position in CO2 emissions allowances for 2019 total 9.4 million tons at an average price of €11.60 per ton (including forward transactions, free emissions allowances received as investment support, and the surplus of unused allowances fro previous periods). Its position for 2020 amounts to to 800,000 tons, consisting primarily of free allowances.

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