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Eesti EnergiaInvestor Presentation
7 March 2013
This presentation and any materials distributed or made available in connection herewith (collectively, the “presentation”) have been prepared by Eesti Energia AS (the “Company”) solely for your use and benefit for information purposes only. By accessing, downloading, reading or otherwise making available to yourself any content of the presentation, in whole or in part, you hereby agree to be bound by the following limitations and accept the terms and conditions as set out below.
You are only authorized to view, print and retain a copy of the presentation solely for your own use. No information contained in the presentation may be copied, photocopied, duplicated, reproduced, passed on, redistributed, published, exhibited or the contents otherwise divulged, released or disseminated, directly or indirectly, in whole or in part, in any form by any means and for any purpose to any other person than your directors, officers, employees or those persons retained to advise you, who agree to be bound by the limitations set out herein.
The presentation does not constitute or form part of, and should not be construed as, an offer, solicitation or invitation to subscribe for, underwrite or otherwise acquire, any securities of the Company or any member of its group nor should it or any part of it form the basis of, or be relied on in connection with, any contract to purchase or subscribe for any securities of the Company or any member of its group, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. Any person considering the purchase of any securities of the Company must inform himself or herself independently before taking any investment decision. The presentation has been provided to you solely for your information and background and is subject to amendment. Further, the information in this presentation has been compiled based on information from a number of sources and reflects prevailing conditions as of its date, which are subject to change.
The information contained in this presentation has not been independently verified. The information in this presentation is subject to verification, completion and change without notice and the Company is not under any obligation to update or keep current the information contained herein. Accordingly, no representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its respective members, directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation, and any reliance you place on such information or opinions will be at your sole risk. Neither the Company nor any of its respective members, directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith.
This presentation includes "forward-looking statements," which include all statements other than statements of historical facts, including, without limitation, any statements preceded by, followed by or that include the words "targets," "believes," "expects," "aims," "intends," "will," "may," "anticipates," "would," "plans," "could" or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company’s control that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Accordingly, any reliance you place on such forward-looking statements will be at your sole risk. These forward-looking statements speak only as at the date as of which they are made, and neither the Company or any of its respective agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained herein to reflect any change in the Company. Past performance of the Company cannot be relied on as a guide to future performance. No statement in this presentation is intended to be a profit forecast
This presentation is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.
Disclaimer
2
Margus KaasikChief Financial Officer
E-mail: [email protected]
Phone: +372 715 2203
Veiko RäimHead of Investor Relations and Treasury
E-mail: [email protected]: +372 715 2884Mobile: +372 5668 1568
Presenting Today
3
• Leading oil-shale-to-energy company, 100% owned by the Republic of Estonia
• Integrated utility operating on converging Nordic and Baltic power market with added value from unique shale oil business
• Total revenues and other operating income €868m, assets of €2.5bn and EBITDA of €278m in 2012
• Regulated distribution network providing ca 30% of EBITDA
• Rated Baa1 / BBB+ from Moody's and S&P
• Reasonable leverage with long term maturity profile
Introducing Eesti Energia
4
• 350 MW Estlink 1 power cable between Estonia and Finland operational from 2007
• Nord Pool Spot power market established in Estonia in April 2010
• Integration to Nord Pool to be improved with 650 MW Estlink 2 cable (expected commissioning in 2014)
• 700MW Nordbalt cable between Lithuania and Sweden potentially commissioned by 2016
• Most recently NordPool Lithuania price area established on 18 June 2012
• NordPool Latvia establishment expectedon 3 June 2013
RUSSIA
FINLAND
SWEDEN
ESTONIA
Moscow
St. Petersburg
Murmansk
WHITESEA
BARENTSSEA
RUSSIA
NORWAY
LITHUANIA
LATVIA
DENMARK
BELARUS
UKRAINE
Gotland
Oland
Minsk
Riga
Stockholm
Oslo
Copenhagen
Goteborg
Stavanger
Kaliningrad
BALTICSEA
NORTHSEA
POLAND
Vilnius
GERMANY
NETHERLANDS
GULFOF BOTHNIA
Tallinn
Helsinki138
TWh
137TWh
26TWh
81TWh
Planned interconnectors Existing interconnectors Nordpool Spot member
Source: Eurelectric, data for 2009
Estonia is Part of
5
Yearly Power Price and Spread Dynamics
Nord Pool Estonia Price 7% Higher than in Finland• Average price in Nord Pool Estonia price area
39.2 €/MWh (-9.6% y-o-y), in the Finnish price area 36.6 €/MWh (-25.7% y-o-y)
• Clean Dark Spread (excl. oil shale and CO2costs) 1.2 €/MWh higher than in 2011 due to lower CO2 price (-44% y-o-y)
• Hourly price in Estonian price area was equal toFinnish price for 62% of hours and above thelatter for 32% of hours
6
Spread Between NP Estonia and Finland(% of total hours)
Revenues
Investments
EBIT
Operating cash flow
Positive Revenue and Cash FlowPerformance in 2012
7
Revenue Growth from Sales of Network Services and Liquid Fuels
Revenue Breakdown 2012Change of Group Revenues by Products
8
9
Group’s Profitability Improved byDistribution Network and Oil Sales
Impact on Group’s Profitability
Capital Expenditure Peaked in 2012
Confirmed InvestmentsCapex Breakdown in 2012
10
Several Projects Close to Completion
11
2014
New Enefit280 Oil Plant
• Designed based on the process in existing oil plant with added features and increased capacity• EPC agreement signed in July 2009• Hot commissioning commenced in H2´2012, first barrel of oil at the end of the year• Successful operating history of the plant a prerequisite for potential further investments in oil
sector
12
Outlook for FY201 3
EBITDA Outlook
Revenue Outlook Comment
13
• Revenue outlook changes:
� Added production capacities (windparks, Enefit280 oil plant and Iru WtEplant)
� Opening of Estonian electricity market
• EBITDA outlook changes:
� Increased production of liquid fuels
� Addition of full CO2 expense
Summary
14
� 2012 revenues 868 million euros, +1% y-o-y
� EBITDA growth (+5%) including:
– Higher network services sales margin
– Higher profitability of oil sales
� Capital base enhanced by 150 million euros of equity and 300 million euros of new eurobond issue
� 2012 investments of €513m expected to reduce in 2013 as projects complete
� Record high production (211 th tonnes) of liquid fuels
� 2013 expected to bring higher revenues and EBITDA, with the extent depending on Enefit280 results in 2013
Eesti Energia Results in 2012
Appendix 1
Electricity Market Opening in 2013Electricity Sales Volume at
Regulated Prices
• As at the end of the financial year, Eesti Energia had concluded over 408 thousand open market electricity contracts, covering over 58% of all Estonian connection points
• Distribution Network or its designated seller is obliged to supply consumers who have not chosen electricity supplier on average monthly NordPool Estonia spot price plus reasonable sales margin
16
Average Electricity Sales Price in the Regulated Market
Electricity Sales Revenues at Regulated Prices
Higher Retail Sales in the BalticsElectricity Sales Volume at
Unregulated Prices
• Average sales price excl. power cable revenues and financial hedges 45.6 €/MWh (+0.01 €/MWh, +0.02% y-o-y)
– Underwater power cable revenues €9.2m(-€6.5m, -41% y-o-y), +2.1 €/MWh
– Financial hedges €11.0m (+€14m y-o-y), +2.5 €/MWh
17
Market Share in the Baltic Countries
Average Electricity Sales Price in the Unregulated Market*
Electricity Sales Revenues* at Unregulated Prices
Revenue Growth from Higher Network Tariff
Network Services Sales Volume
• Average network losses of 2012 at 423 GWh, 6.0% (+0.2pp y-o-y)
• Network tariff increased on 1 August 2011
18
Average Network Services Sales Price
Network Services Sales Revenues
Oil Sales at All Time High
Liquid Fuels Sales Volume
• Record high liquid fuels production in 2012 (211 th tonnes) due to higher reliability (82.5%)
• Average sales price excluding price hedges 480.5 €/t (+15.1%, +62.9 €/t)
• Average price of heavy fuel oil, the reference product, 515.7 €/t
• 2013 sales hedged against price risk amounted to 126 th tonnes with an average price of 452 €/t
19
Average Liquid Fuels Sales PriceLiquid Fuels Sales Revenues
Retail Profitability – Higher Electricity Sales Margin
Retail Division’s Revenues
� +12.1 million euros due to increase in electricity sales margin
� +9.3 million euros revenue from the sale of telecommunication subsidiary
� +1.4 million euros due to increase in electricity sales volume
� –5.1 million euros due to higher fixed costs
20
Retail Division’s Opex Retail Division’s EBIT
Retail Division 2011 2012
Electricity Sales (GWh)
7,778 8,238
Sales in unregulatedmarket (GWh)
2,362 2,621
Sales in regulatedmarket (GWh)
5,416 5,617
8%
% of operating profit
(excl. impairment)
Retail
Distribution Network ’s Return on RAB 7.8%
Distribution Network’s Revenues
� +20.6 million euros due to higher network services sales margin
� +3.6 million euros due to increase in network service sales volume
� –3.2 million euros due to higher depreciation
� -2.1 million euros due to higher fixed costs
� -1.4 million euros due to higher repair expenses
21
Distribution Network’s Opex Distribution Network’s EBIT
DistributionNetwork
2011 2012
Electricity distributed (GWh)
6,419 6,604
Return on RAB 5.1% 7.8%
27%
Distribution network
% of operating profit
(excl. impairment)
Lower Margins Reducing GenerationProfitability
Electricity and Heat Generation Division’s Revenues
� +18.3 million euros due to lower discounts of CO2 emission allowances
� +9.3 million euros due to lower repair expenses
� +7.1 million euros due to lower environment protection provisions
� -63.3 million euros due to impairment of generating assets
� -27,9 million euros due to lower electricity sales margin
� -12.5 million euros due to higher depreciation
� -7.5 million euros due to lower electricity sales volume
22
Electricity and Heat Generation Division’s Opex*
Electricity and Heat Generation Division’s EBIT
Generation Division 2011 2012
Electricity sales (GWh) 11,138 10,635
Electricity generation(GWh) 10,428 9,377
Electricity purchase(GWh) 722 1,272
Heat sales (GWh) 1,177 1,031
40%
% of operating profit
(excl. impairment)
Generation
Lower non -recurring Revenues in FuelsDivision
Fuels Divison’s Revenues
� +7.9 million euros due to higher liquid fuels sales volume
� +5.2 million euros due to higher liquid fuels sales margin
� -16.2 million euros due to decrease of non-recurring revenues
� -15.1 million euros due to lower profitability of oil shale mining
� -5.0 million euros due to lower profitability of Technology Industry subsidiary
� -4.1 million euros due to higher depreciation
23
Fuels Division’s Opex Fuels Division’s EBIT
Fuels Division 2011 2012
Shale oil sales (th tonnes) 178 203
25%
% of operating profit
(excl. impairment)
Fuels
Operating Cash Flow Changes
Cash From Operations 14% Higher y-o-y
24
Group’s Liquidity Development in 2012
• 647 million euros of liquidity and unused loans available as of 31 December 2012
• Issue of 300 million euro notes in April 2012
• 150 million euros of added share capital on 10 July 2012
25
* (excl. deposits and other financial assets)
Liquidity
Net debt* / EBITDA**
*Net debt = debt obligations less cash and cash equivalents, units in money market funds, investments into fixed income bonds
** EBITDA – rolling 12 months
Electricity Fuel Oil
Closed positions as of 31 Dec 2012*CO2**
*Closed positions include forward contracts and exclude options
**CO2 necessary for generation is covered with free CO2 allowances in addition to closed positions
26
• Credit ratings:
• Baa1 (Moody’s), negative outlook**
• BBB+ (S&P), stable outlook
• Total debts 732.8 million euros as of 31 December2012
• Long-term maturity profile with bond maturities in 2018 and 2020
• Sufficient liquidity buffer available
Long -term Maturity ProfileCommentsDebt Maturity
Financial Leverage *
* Financial leverage = net debt / (net debt+ equity)
27
300 m€, 4.25%,October 2018
300 m€, 4.5%,November 2020
** Outlook change from stable to negative in January 2013
Product View – Electricity *
CommentsElectricity Sales
28
• Average income per unit grew +0,4 €/MWh (average sales price decreased -1,0 €/MWh, profit from derivativesincreased +1,4 €/MWh (+14,0M€))
• Electricity production decreased -1,0 TWh and sales -0,7 TWh due to lowermarket prices.
Electricity Profitability (2012) Electricity sales and EBITDA split
10 707
10 021
41,3 41,6
25
30
35
40
45
50
9 0009 2009 4009 6009 800
10 00010 20010 40010 60010 800
2011 2012
€/MWhMWh
*Unaudited company data
44
373
Sales(EUR m)
Renewable
16
80
EBITDA(EUR m)
Oil shale and other
417
96
23 596 38
3771
22 65
0
100
200
300
400
500
Revenue Fuel Mining CO2 Electricity
bought
Environmentaltaxes
Laborcosts
Repairs Other EBITDA
mln euros
Product View – Shale oil
CommentsShale Oil Sales
29
• Average oil revenue increased by +40,6 €/t; sales without derivatives increased by 62,9 €/t and derivatives had a negative effect of -22,5 €/t. The growth was mainly caused by higher market prices.
Shale Oil Profitability (2012) Comments
• Oil variable profit increased by +25,9 €/t to 323 €/t in 2012. Variable costs grew mainly due to higher oil shale production costs, the effect of which was +8 €/t.
• Fixed costs grew +3,9 M euro mainly because of increased labor costs.
164
189374,5
415,1
350
360
370
380
390
400
410
420
150155160165170175180185190195
2011 2012
€/tth. tons
79
38
85 13
2 12
0
20
40
60
80
100
Revenue Mining Environmentaltaxes
Laborcosts
Repairs Other EBITDA
mln euros
Product View – Distribution Network
CommentsNetwork Sales
30
• Average network revenue per unit was 36,0 €/MWh (+4,5 €/MWh), due to higher network service tariffs.
Network Profitability (2012) Comments
• Variable costs grew +1,0 €/MWh due to an increase in Elering network service costs. Variable profit grew+3,6 €/MWh.
6 170
6 36531,4
36,0
26
28
30
32
34
36
38
40
6 050
6 100
6 150
6 200
6 250
6 300
6 350
6 400
2011 2012
€/MWhMWh
Network Profitability (2012)
229
89
76
12 2317 11
0
50
100
150
200
250
Revenue Networkservice
Networklosses
Laborcosts
Repairs Others EBITDA
mln euros
Trans-mission
Profit and Loss Statement
31
million euros 2012 2011 Change
Revenues 868.5 857.5 1.3%
Expenses (excl. depreciation) 590.0 592.4 -0.4%
EBITDA 278.4 265.1 5.0%
Depreciation (excl. impairment) 115.0 95.6 20.3%
Impairment of power generation assets 63.3 1.5 42.2x
EBIT 100.1 168.0 -40.4%
Net financial income (-expenses) -5.2 -3.2 61.0%
Income tax 17.8 14.7 21.6%
Net profit 76.9 149.2 -48.5%
Balance Sheet
32
million euros31 December
201231 December
2011Change y-o-ymillion euros
Total current assets incl. 395.5 253.5 142.0
Cash and cash equivalents 60.1 40.9 19.2
Deposits with maturity of more than 3 months 90.0 0.0 90.0
Trade receivables 112.2 102.2 10.0
Inventories 48.3 38.0 10.3
Other 84.9 72.4 12.5
Total non-current assets 2,101.9 1,779.8 322.1
Total assets 2,497.4 2,033.3 464.0
Total liabilities, incl. 1,088.2 796.6 291.5
Trade payables 110.6 94.3 16.3
Other 232.0 251.7 19.7
Borrowings 732.7 436.2 296.5
Current liabilities 1.4 1.5 0.1
Long-term liabilities 731.3 434.7 296.6
Provisions 12.9 14.4 1.5
Equity 1,409.2 1,236.7 172.5
Total liabilities and equity 2,497.4 2,033.3 464.0
Cash flows
33
million euros 2012 2011 Change
Net cash from operating activities 185.2 161.8 14.5%
Purchase of fixed assets -499.4 -417.4 19.6%
Net change in deposits with maturities greater than 3 months
-90.0 181.4 -149.6%
Contribution to the share capital 150.0
Recieved bank loans 27.6 138.1 -80.0%
Repayment of bank loans -26.5 -59.1 -55.2%
Proceeds from bonds issued 297.0
Dividend payment -65.2 -56.1 16.3%
Other adjustments 40.5 38.0 6.7%
Net cash flows 19.2 -13.3 -244.8%
Business Overview
Appendix 2
Distribution
� Improvement of the distribution network� €300m investment plan for 2011-14 regulatory period
on the back of 7.83% WACC on RAB� Reduction of network losses and provision of reliable
service to clients
Power Generation and Supply
� Refurbishment of existing generation portfolio to maintain compliance with more stringent regulation
� Investment into new generation capacity with lower CO2 footprint
� Maintaining significant market share in Baltic retail market to hedge generation portfolio
Shale Oil
� Expansion of shale oil production in Estonia with Enefit 280 plant expected to record substantial production in 2013
� Exploring shale oil upgrading into lighter products� Exploiting shale oil production expertise and proprietary
technology internationally
Eesti Energia Business Strategy
35
9.4 TWh of powergenerated in 2012
6.4 TWh of power distributed to clients in 2012
16m tonnesof oil shalesold in 2012
189 thousand tonnesof shale oil sold to clients in 2012
10 TWh ofpower sold in 2012
Deregulated Retail Sales in Baltics
Unregulated
Regulated
Shale Oil Production
Power Sales
Shale Oil Sales
Power and Heat Generation
12,9
1,9 1,4
Power Oil Externalclients
0
2
4
6
8
10
12
14
5,6
2,8
1,6
Opening in2013
Retailderegulated
Wholesalederegulated
0
2
4
6
88,8
0,5
Oil shale andother
Renewable0
2
4
6
8
10
Distribution network
Power Sales on Nord Pool Spot
Eesti Energia Business Model in Brief
36
Oil Shale Mining
Overview
� Mining licence provides exclusive right to mine oil shale within defined area� Exception to the auction process for new licences applied to companies with reserves depleting within five years� 2 underground and 1 opencast mine� Viru underground mine closing in 2013� 542 million tonnes of measured geological resource licensed to Eesti Energia as of 31 December 2012
Narva opencast mine
Mining — Business Overview
37
Estonia underground mine
Overview
� Narva oil plant currently has two Enefit 140 units, each of which has the installed capacity to process 140 tons of oil shale per hour
� New Enefit280 unit which will double production capacity started hot comissioning in H2´2012� The shale oil produced in Enefit140 comprises three fractions:
� shale heavy fuel oil (78% by mass)� shale gasoline (18-20% by mass)� shale light fuel oil (2-4% by mass)
� The key customer segments for current product (primarily heavy fuel oil) are bunkering and heating sectors
(1) Calorific value 46 MJ/Nm3
Enefit 140 and Enefit280 units
Shale Oil — Business Overview
38
Generation Portfolio (as at 31 December 2012)
Generation — Business Overview
39
Overview Map of Operations
� The Group is the largest distributor of electricity in Estonia, having distributed around 6.4 TWh of power in 2012
� Distribution area covers ca 42,400 km2, which contains c. 92% of Estonia’s population
� The network operates over 60,000 km of overhead and underground cables
� Average RAB of 2012 was €580m� Number of connections: ca 655,000� Allowed pre-tax return WACC 7.83% from
1 August 2011
Distribution — Business Overview
40
Imatra Elekter
Regulatory Framework Regulatory Building Blocks
� Regulated Asset Base (RAB), calculated at book value
– RAB1 is calculated as RAB0 plus capex less regulatory depreciation
� Allowed pre-tax return (WACC)– applied on RAB plus expected working capital
requirement (ca.5% of the expected revenue)� Regulatory depreciation of average 35 years (with
some exceptions) — different from actual accounting depreciation
� Allowed operating costs of the company are subject to annual cost escalation by CPI-1.5%, agreed with ECA for 2012-14
� Regulation is in place from 2005
CAPEX
RAB
Return oncapital
Return ofcapital
OPEX
DepreciationAllowed
pre-tax return
Allowed Revenue
Distribution — Regulatory Overview
41
Domestic Market International Markets
� Eesti Energia is dominant player in the domestic market
� The Group operates out of 14 customer service offices in Estonia and relies heavily on electronic channels (internet, call centre)
� 24% Baltic retail market share in 2012� Estonian full market opening in 2013, 408 000
agreements signed by the end of 2012 coveringmore than 58% of connection points in Estonia
Latvia � Operates through 100%-owned subsidiary SIA
Enefit� Started business in 2008.Lithuania� Operates through 100%-owned subsidiary UAB
Enefit� Started active business in 2010
Market Shares in Baltic Markets (2012)
Other, 32%
Eesti Energia; 74%
Estonia deregulated
Other, 80%
SIA Enefit20%
Latvia
Other, 92%
UAB Enefit
8%
Lithuania
Supply — Business Overview
42
Concession Area in Jordan� The Group has entered into a 44 year concession agreement in the Attarat region in Jordan
� Pre-development of 38,000 bbl/d shale oil industry ongoing and to last until at least 2016.
� Development of a project for constructing and operating 500 MW (gross) oil shale fired power station could reach financial close by the end of2013
– Tender results for EPC contract expected tobe received in Q2´13
� The Group may reduce its holding and engage additional capital to finance the projects beyond the pre-development phase.
� Total oil shale resource ca 3.5 billion tonnes (of which 0.9 bn tonnes „measured“ status and 2.6bn tonnes „inferred“ status before pre-technicalanalysis) based on 44 year concession agreement
� The Group has 65% ownership in the Jordan projects while YTL Power International Berhad controls another 30%
Development Projects in Jordan
43
Resource in USA, Utah� In March 2011, the Group acquired 100% of Enefit American Oil Co. (formerly known as Oil Shale Exploration Company)
� Pre-development of shale oil industry (including mines and processing facilities) ongoing and to last at least until 2016
� Oil shale resource in Utah, approximately 300 km east of Salt Lake City
� Access to 6.6 billion tonnes of oil shale (estimationprior to pre-technical analysis)
� Pre-development of shale oil industry with capacity of up to 50,000 bbl/d
Development Project in USA
44