Eesti Energia Credit Investor Presentation

Transcription

1 Eesti Energia Credit Investor Presentation September 215 Eesti Energia Aulepa Wind Park in Noarootsi, Estonia

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3 Presenting Today Hando Sutter Chief Executive Officer Phone: Andri Avila Chief Financial Officer Phone: Veiko Räim Head of Investor Relations and Treasury Phone:

4 Content 1. Business Overview and Strategy 2. Business Areas 3. Financials and Funding Appendix 1. Operations and Management Appendix 2. Financial Results as of 3 June 215 4

5 Business Overview and Strategy Eesti Energia Balti power plant and Narva wind park in Ida-Virumaa, Estonia 5

6 Introducing Eesti Energia Integrated utility company operating in the converging Nordic-Baltic power market with added value from unique shale oil business 1% owned by the Republic of Estonia, operations of strategic importance to Estonian energy self-sufficiency Total sales revenues 88m, total assets of 3bn and EBITDA of 312m in 214 Regulated distribution network providing approximately one third of EBITDA Enefit shale oil technology delivering results Rated Baa2 (stable) from Moody s and BBB (stable) from S&P Substantial capex programme nearing completion Resonable leverage at 2.3x with a balanced maturity profile 6

7 Overview of the Estonian Economy Republic of Estonia Credit Ratings A1 (Moody s) / AA- (S&P) / A+ (Fitch) S&P (24 February 214): The ratings are supported by our view of Estonia's stable political environment, prudent government finances, and highly adaptable economy. Moody's (2 Aug 215): Estonia benefits from a low debt burden, substantial financial buffers and resilient economic growth. Low Unemployment 14% 12.4% 12% 1% 8.5% 8% 6.7% 5.8% 6% 4.7% 4% 2% % Key Indicators Lowest Level of General EU Government Debt, 214 Nominal GDP (EUR bn) Annual GDP Growth (%) Annual Inflation Rate (HICP, %) Unemployment Rate (%) Government Debt (% of GDP) % of GDP Net Exports (% of GDP) Sources: Eurostat, Estonian Unemployment Insurance Fund, Moody s Investor Service 7

8 Business Overview Key group figures, 214 Electricity Eesti Energia sells electricity to wholesale and retail customers through the Baltics and is the largest electricity producer in Estonia in terms of customers and size of the market. Distribution The electricity distribution network delivers electricity to nearly half a million customers in Estonia. The stable regulated business accounts for ca one third of EBITDA. Shale Oil Shale oil sales amounted to 231 thousand tonnes during 214 which has risen both due to productivity increases in the older oil plant and opening production in the new Enefit28 plant. Other Products and Services Other products and services includes sales of heat, oil shale, Technology Industries products and other revenue. 51% 39% 27% 31% 1% 2% 12% 1% % of sales revenue 214 % of EBITDA 214 % of sales revenue 214 % of EBITDA 214 % of sales revenue 214 % of EBITDA 214 % of sales revenue 214 % of EBITDA 214 8

9 Eesti Energia Business Strategy Distribution Network Energy Supply Renewables & Co-generation Oil Shale to Energy Improve the quality of the distribution network Reduce network losses and enhance reliability Improve business processes and efficiency Maintain significant market share in the Estonian retail market Efficient operation of existing assets, unlikely to expand the generation portfolio Complete and start up new Auvere 3 MW power plant Prove technology of Enefit 28 shale oil plant To grow market share in Latvia and Lithuania Grow efficiency and flexibility of mining operations Optimise existing power generation portfolio and grow flexibility of production facilities Capability to co-fire biomass with oil shale for lower carbon emissions 9

10 Production and Sales in 214 Distribution Electricity Shale oil 6,12 GWh sold in retail market 3,125 GWh sold in wholesale market 6,294 GWh of electricity distributed to clients 9,137 GWh of electricity sold 231 thousand tonnes of oil sold to clients 297 GWh of renewable electricity produced, 14 GWh of electricity purchased 9,389 GWh of nonrenewable electricity produced 256 thousand tonnes of shale oil produced 17m tonnes used in electricity and shale oil production Oil shale mined 16m tonnes 1

11 Business Areas Distribution Cable Tunnel in Tallinn, Estonia 11

12 Integration of Nordic-Baltic Power Markets Stavanger NORTH SEA NETHERLANDS NORWAY DENMARK Oslo Copenhagen GERMANY SWEDEN 139 TWh Stockholm Goteborg BALTIC SEA Kaliningrad 146 TWh Helsinki POLAND FINLAND 84 TWh Murmansk Tallinn ESTONIA 25 TWh LATVIA Riga LITHUANIA Vilnius RUSSIA BARENTS SEA Minsk WHITE SEA St. Petersburg BELARUS UKRAINE RUSSIA Moscow Planned interconnectors Existing interconnectors Nordpool Spot member Source: Eurelectric (data for 211); Nord Pool Spot; Litgrid 35 MW Estlink 1 power cable between Estonia and Finland operational from 27 and Estlink 2 became operational in early 214, bringing the total connection to 1 MW The Baltic power markets are part of Nord Pool Spot Estonia since April 21, Lithuania since June 212 and Latvia since June MW Nordbalt cable between Lithuania and Sweden potentially commissioned by end of 215, which is expected to result in further convergence of market prices Current insufficient transmission capacity on the Estonia-Latvia border is to be eased by the commissioning of the new Nordbalt cable between Lithuania and Sweden Spread Between NP Estonia and Finland (% of total hours) 6% 4% 3% 1% 12% 14% 8% 1% 68% 57% 51% 73% 72% 57% 74% 74% 89% 98% 83% 94% 93% 7% 26% 39% 46% 18% 16% 29% 17% 25% 11% 2% 17% 6% 6% 3% Q1 212 Q2 Q3 Q4 Q1 213 Q2 Q3 Q4 Q1 214 Q2 Q3 Q4 Q1 215 Q2 Estonia > Finland Estonia = Finland Estonia < Finland 12

13 Strong Market Position in the Baltics Eesti Energia Retail Market Share in Baltic Countries in H1 215 Estonia Latvia Lithuania Baltic States 15% 4% 11% 29% 26% 61% Eesti Energia Others Regulated Market Sources: Estonian TSO Elering, Central Statistical Bureau of Latvia, Lithuanian TSO Litgrid and DSO Lesto, Eesti Energia Eesti Energia holds a strong market position across the Baltic region, with a 26% share of the total retail market. Eesti Energia is the largest electricity producer in Estonia with a 61% share of the Estonian market during H Estonian market shares have stabilised since the deregulation of the market in 213. Due to limited availability of physical transmission rights, sales efforts to Latvia and Lithuania were reduced last year. The situation has improved and sales to Latvia and Lithuania have resumed. The focus for the next years will be to increase the market share in Latvia and Lithuania while maintaining a significant market share in Estonia, and to improve the efficiency of operations. 13

14 Electricity Margins in Focus GWh 5, 4, Electricity Sales Volume /MWh 6 Retail Wholesale Electricity Sales Price H1 214 H1 215 Nord Pool Spot Monthly Average Prices ( / MWh) 75 3, 2, , H1 214 H Average sales price NPS Estonia average price 5 In the prevailing power price environment focus is on power margins and production flexibility. Electricity prices have remained low with increased price differences in peak and off-peak hours, which emphasizes the importance of generation flexibility. Electricity EBITDA decreased to from 68m to 52m in H1, impacted especially by a challenging first quarter. The second quarter improved with EBITDA up by 3.8%. Estonian and Finnish power prices have already converged to a large extent, being equal for 82% of hours during H1 215, and 91% in NPS Estonia NPS ELE/Latvia NPS Finland NPS system price Source: Thomson Reuters 14

15 Regulated Distribution Network Provides Stability Eesti Energia has the largest share of the distribution network in Estonia, covering about 91% of the population with 66 thousand metering points. The distribution of electricity is fully regulated by the Estonian Competition Authority (ECA) and generates approximately one third of the Group s EBITDA. Sales have remained stable, while EBITDA increased by 8% compared to the previous year due to improved network efficiency. Recent years investments into the network have reduced distribution losses and reduced variable costs, which have improved profitability. Network distribution companies operate as natural monopolies and are subject to price regulation from the ECA by determining the allowed distribution tariff. The tariff is based on the WACC earned on the Regulatory Asset Base (RAB), allowing for a reasonable rate of return. As a result of regulation changes in 214 tariffs are no longer set for fixed regulatory periods. Tariffs will be reviewed only when applied for review and are not affected by changes in regulatory WACC. Key figures H1 214 Distribution sales volumes and losses H1 215 Average Distribution Tariff ( /MWh) Distribution Sales Revenue (m ) Distribution EBITDA (m ) Return on Fixed Assets (%) Adjusted RAB* (m ) TWh Distribution Sales Volume Distribution Losses (rhs) H1 214 H1 215 % * RAB (Regulated Asset Base) allocated to distribution product 15

16 Strong Performance in Shale Oil /tonne H H % 356 Average shale oil sales price % 274 Average price of heavy fuel oil (1%) m % 33.2 Shale oil revenue +56% H1 214 H Shale oil EBITDA Shale Oil Sales and Production t. tonnes Shale Oil Production Shale Oil Sales Shale oil sales volume increased 73% during H1 215, mainly due to higher production from Enefit28 oil plant The price of shale oil tends to follow the global market for heavy fuel oil with 1% sulphur content (NWE), which in turn broadly follows crude oil market movements. Despite pressure in liquid fuel prices, the average shale oil sales price has benefitted from the company s successful hedging policy and increased production volumes have boosted financial performance. The new Enefit28 has contributed to the performance of shale oil. The plant has proven itself as more efficient and environmentally friendly compared to its predecessor and after modifications in Q2 is expected to run at even higher capacity H1 214 H1 215 Liquid Fuel Prices /bbl /t Brent crude ( /bbl) Fuel oil 1% ( /t) Source: Reuters 16

17 Financials and Funding Eesti Energia Oil Industry in Ida-Virumaa, Estonia 17

18 Consistent Financial Performance Sales Revenues EBITDA m 1, m H1 214 H H1 214 H1 215 Operating Cash Flow Capex m m H1 214 H H1 214 H

19 EBITDA Higher Despite Lower Sales Revenues 75 Sales Revenues Breakdown and Y-o-Y Change m -7.% (38.4) (8.1) Sales revenues 6M 214 Electricity Distribution Shale oil Other Sales revenues 6M 215 EBITDA Breakdown and Y-o-Y Change m +3.8% (16.) EBITDA 6M 214 Electricity Distribution Shale oil Other EBITDA 6M

20 Ownership and Dividend Policy Eesti Energia is 1% owned by the Government of Estonia (AA-/A1/A+), acting through the Ministry of Finance. The primary businesses are of a strategic importance to Estonia, in 214 its Narva power plants generated 85% of Estonia s power output. S&P (29 June 215): Eesti Energia's operations are strongly aligned with the government's interests, in particular, in ensuring Estonia's self-sufficiency in electricity. Moody's (27 August 215): Given the 1% ownership by the state and the credit quality of Estonia, we consider there to be strong likelihood of extraordinary support from the government, in case of financial distress at the company. Proven Government support with an equity injection of 15m which was provided in 212 to finance investments. Ownership expectations and principles established by Minister of Finance, including: Expected dividend payout at 5-1% of net profit Maximize value of oil shale resource Reduced environmental footprint Net Dividends Dividend payout ratio = net dividends paid out in a given year divided by net profit for the previous year 2

21 Completed Investments to Reduce Capex m m Auvere power plant DeNOx Equipment Construction of chimneys Electrostatic precipitators Capex Breakdown by Products H1 214 H Main Ongoing Projects Longwall Mining DeNox Equiptment Capitalised Interest Other Projects Maintenance Investments Electricity Network Auvere Power Plan 638 Deadline End 215 End 215 End 215 End 215 Capital Expenditure As multiple ongoing projects are nearing completion, the Group s investments are expected to be considerably lower from 216 onwards. The Auvere power plant is the largest project currently ongoing and should be finished by the end of 215. In addition to declining development investments, the Group is working on optimising its power generation and mining capacity which should enable curbing maintenance investments. Maintenance investments are expected to average 44 m annually in 216 to 219. The Group intends to invest approximately 63 m annually in 216 to 219 to improve the quality of its distribution network Until Q1 215 Future 21

22 Debt Maturity Profile Net Debt/EBITDA & Financial Leverage Eesti Energia credit ratings at investment grade level BBB (S&P), stable outlook Baa2 (Moody s), stable outlook Group s financial status in line with contractual loan covenants. New financial policy established in Q2 215 to remain below 3.5x net debt / EBITDA (in line with owner s expectations). 449 m of liquid assets and unused loans available as at 3 June 215 Debt Maturity m EIB Eurobond Financial Leverage = Net Debt / Net Debt + Total Equity 22

23 APPENDIX 1. Operations and Management

24 Eesti Energia Management Board Name Position Biography In EE MB since Hando Sutter Andri Avila Raine Pajo Margus Vals Andres Vainola Chief Executive Officer, Chairman of Management Board Member of Management Board, Chief Financial Officer Member of Management Board Member of Management Board Member of Management Board Mr Sutter joined Eesti Energia from managing Nord Pool Spot power exchange in the region of the Baltics and Russia (since 21), prior experience in G4S Estonia, Olympic Entertainment Group Mr Avila joined Eesti Energia having previously worked as Chairman of the Management Board, CFO and COO of Olympic Entertainment Group and most recently as CFO of Premia Foods Mr Pajo has served since 26 as the Member of Management Board of Eesti Energia, prior experience with Estonian and Finnish TSOs Elering and Fingrid Mr Vals served as Head of Strategy of Eesti Energia since 213, prior experience as Head of Energy Trading and Head of Management Accounting department in Eesti Energia Mr Vainola joined Eesti Energia from Empower Group, where he worked on various executive positions since 1997 In EE since Dec 214 Dec 214 Mar 215 Dec 214 Dec 26 Jul 2 Dec 214 Feb 22 Dec 214 Dec

25 Oil Shale as the Key Strategic Resource Eesti Energia is vertically integrated to its key strategic resource, oil shale, which the company mines for its power generation requirements. A large majority of the mined oil shale is used for the company s own generation purposes. Estonian law currently sets an extraction limit of 2 million tonnes for the entire country, of which Eesti Energia is allocated 15 million tonnes. The Group currently holds 12 extraction permits for oil shale resources amounting to 19 million tonnes per annum. Mining licences for oil shale provide exclusive rights to mine oil shale within a defined area. Several mining permits expire in 219, however these licences are expected to be extended as there are considerable amounts of unmined resources left in the mines. Substantial investments to modernise mining technology were undertaken in Q2 and at the beginning of 216 longwall mining will be started at the Estonia mine to lower the product cost of oil shale. Limiting fixed costs and increasing the efficiency of mining operations are continuously being improved in order to reduce mining costs, which determine the base of production costs of power generation and oil processing. Eesti Energia s Mining Operations Mine Open for Operations Type Permit Expiry Date Geological Oil Shale Resource 31/12/214, (million tonnes) Estonia 1972 Underground August Narva 1936 Opencast August Uus Kiviõli TBD Underground October Other N/R N/R N/R 24.9 Total 56.5 Source: Company information 25

26 Oil Shale Based Generation Portfolio Existing Generation Portfolio Based on Oil Shale Net Capacity (MW electricity) Net Capacity (MW heat) Net Capacity (MW electricity) Net Capacity (MW heat) Plant 3-June-215 Planned status 216 Built Fuel Eesti Power Station (7*2 MW pulverised) available full year available 3 months/year mothballed (1* 215 MW CFB) 1,161 1, , Oil Shale Oil Shale, biomass Balti Power Station (18 & 19 MW pulverised) available full year mothballed (1* 215 MW CFB) Gas boiler house Oil Shale Oil Shale, biomass Gas Auvere Power Plant Oil Shale, biomass Enefit 28 Oil Plant Oil Shale Total 1, , The new Auvere power plant is expected to be commissioned in 215 and will allow for co-firing of equal shares of oil shale and biomass to achieve lower carbon emissions and increased efficiency. The modern plant is fully compliant with environmental standards. The two Narva Power Plants have a combined net capacity of 1,787 MW and generated 85% of the electricity produced in Estonia in 214. Generation flexibility in units is being increased to take advantage of changing hourly and daily power prices. Regulation taking effect from 216 requires certain units to be updated, decommissioned or to be run on limited hours. Any reduced capacity will be replaced by the more efficient Auvere plant and updated units at the Narva plants. Source: Company information 26

27 Renewable Energy Portfolio Adds Diversity Existing Renewables Generation Portfolio Net Capacity (MW electricity) Net Capacity (MW heat) Net Capacity (MW electricity) Net Capacity (MW heat) Plant 3-June-215 Planned status 216 Built Fuel Iru available full year mothballed Gas Iru Waste-to-Energy Household waste Wind Wind Other Renewables Renewables Other Non-Renewables Oil / Gas / Diesel Total The portfolio of renewable and co-generation assets has net capacity of 1,163 MW of electricity and heat which contribute to the diversification the Group s oil shale based generation portfolio and reduce carbon emissions. The Group seeks to lower the the CO2 intensity of its generation capacities and the existing renewables and co-generation portfolio contributes to this aim. The business line is closely linked with the subsidies that have been made available by the Estonian Government for power generated from renewable resources and through efficient co-generation, which impacts the capacity usage of renewable sources. In H1 215 EUR 9 million in renewable subsidies were received from energy generated by the renewable portfolio. Source: Company information 27

28 International Projects Development Project in Jordan The Group has entered into a 44 year concession agreement in the Attarat region in Jordan for an area estimate to hold circa 3.5 billion tonnes of oil shale. The resource is to be used for two projects: a power generation project and an oil production project Eesti Energia has a 65% ownership share in the Jordanian power company together with partners YTL Power International Berhad (3%) and the Jordanian entity Near East Investment (5%). The Group is currently looking to sell down a large portion of its 65% stake in the power project. Discussions with YTL and other interested parties regarding the sell down are ongoing. Whether or not the sell down occurs, the Group does not intend to make further significant investments into the power project. The pre-development phase of a 38, bbl/d shale oil plant is ongoing, but the Group s capital expenditure expectation for the oil project are limited. Development Project in Utah, USA In March 211, the Group acquired 1% of Enefit American Oil Co. (formerly known as Oil Shale Exploration Company) giving it access to an oil shale resource in Utah, USA. The resource is located in Utah, 3km east of Salt Late City and is estimated to contain 6.4 billion tonnes of oil shale. The pre-development study of a oil shale industry (including mines and processing facilities) with a capacity up to 5, bbl/d is ongoing, but the Group s current capital expenditure expectation is limited. The pre-development phase includes exploration, testing, approvals and feasibility evaluations of the resource. 28

29 Group Environmental Footprint H Abatement Measures CO 2 5.2m tonnes 12.8m tonnes 13.4m tonnes More efficient generation (new CFB unit) Oil shale and biomass co-firing capability (up to 5/5) Wind and WTE generation SO 2 8,4 tonnes 24,2 tonnes 2,9 tonnes Desulphurisation equipment installed on four generating units Other measures (injection of lime) CFB generation NOx 3, tonnes 8,5 tonnes 8,8 tonnes Denitrification equipment installed on selected generation units Fly ash 3.9m tonnes 8.5m tonnes 9.1m tonnes Exploring ways to reuse ash in construction and other industries Hydro transport optimisation Recultivating old ash storage site (Narva wind park) Waste rock from mining deposited 3.3m tonnes 6.4m tonnes 6.3m tonnes Use as fuel (co-firing with coal) Gravel production Road and landscaping projects using waste rock 29

30 APPENDIX 2. Financial Results as of 3 June 215

31 Other Sales Revenues Lower, EBITDA Improved m m Sales Revenues From Other Products and Services Other sales 5 Technology industries products 3 1 Sales of natural gas Sales of mining products Sales of heat H1 214 H1 215 Other Products and Services EBITDA Development Sales from other products consist of sales of heat, oil shale, Technology Industries products and other revenue. Segment sales decreased year-on-year mainly driven by the decreased sales of oil shale, however EBITDA improved by 37% compared to the respective period in 214. Heat sales revenue increased, largely driven by higher revenues from municipal waste gate fees. Heat sales volume and EBITDA remained fairly stable Revenue from sales of mining products decreased due to amounts of oil shale supplied to extra-group clients being reduced by 9%. Sale of surplus CO 2 allowances in March 215 increased EBITDA by 9.5m 5 EDITDA H1 214 Heat Mining Products CO2 Allowances Other EDITDA H

32 Liquid Assets Have Doubled m 4 Group s Liquidity Development in H Liquid assets 31 December 214 Operating Cash Flow Investment Cash Flow Financing Cash Flow* Liquid assets 3 June 215 The Group s liquidity profile remains strong and liquid assets have doubled during the first six month of m of liquid assets and unused loans available as at 3 June 215 of which: 199m of liquid assets 15m amount of liquidity contracts with SEB and Pohjola 1m loan agreement signed with European Investment Bank (EIB) to finance distribution network investments (loan not yet drawn) * excl. changes in deposits and other financial assets 32

33 Closed Positions as at 3 June 215 Electricity Fuel Oil CO 2 * TWh 8 /MWh 5 thousand tonnes 25 /t 5 m tonnes 15 /t Closed positions (TWh) Price ( /MWh) Closed positions (thousand tonnes) Price ( /t) Total position (m tonnes) Price ( /t) Q3-Q Q3-Q * including free CO 2 allowances related to power plant construction in Auvere 33

34 Profit and Loss Statement million euros Q2 215 Q2 214 Change 6M 215 6M 214 Change Sales revenues % % Other revenues % % Expenses (excl. depreciation) % % EBITDA % % Depreciation % % EBIT % % Net financial income (-expenses) % % Earnings before tax % % Income tax expense % % Net profit % % 34

35 Balance Sheet million euros June June Change March Change yoy 215 qoq Assets 2,999. 2, % 3, % Current assets % % Cash and cash equivalents % % Deposits with maturity of more than 3 months % % Trade receivables % % Inventories and prepaid expenses % % Other current assets % % Assets held for sale % Non-current assets 2, , % 2, % Liabilities and equity 2,999. 2, % 3, % Liabilities 1, , % 1, % Trade payables % % Borrowings % Current liabilities % 6.9 Long-term liabilities % % Provisions % % Deferred income % % Other liabilities % % Liabilities of disposal group held for sale % Equity 1, , % 1, % 35

36 Cash Flow Statement million euros Q2 215 Q2 214 Change 6M 215 6M 214 Change Net cash from operating activities % % Purchase of fixed assets % % Connection and other fees received % % Dividends recieved from financial investments % % Proceeds from bonds issued % Other % % Net cash flows excl. net change in deposits with maturities greater than 3 months Net change in deposits with maturities greater than 3 months % % % % Net cash flows % % 36