Eesti EnergiaEesti EnergiaEesti EnergiaEesti Energia Unaudited Financial Unaudited Financial Unaudited Financial Unaudited Financial Results for Q2Results for Q2Results for Q2Results for Q2 2011201120112011
29 July 2011
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DisclaimerDisclaimerDisclaimerDisclaimer
Revenues
42 43
132
0
30
60
90
120
150
Q2 2009 Q2 2010 Q2 2011
m€
+207.9%
Investments
5569
26
0
20
40
60
80
Q2 2009 Q2 2010 Q2 2011
m€
-62.2%
EBIT
3138 37
0
10
20
30
40
50
Q2 2009 Q2 2010 Q2 2011
m€
+1.3%
Operating cash flow
Continued Revenue GrowthContinued Revenue GrowthContinued Revenue GrowthContinued Revenue Growth
147 170206
0
50
100
150
200
250
300
Q2 2009 Q2 2010 Q2 2011
m€
+21.2%
3
61%
39%
Open markets Regulated markets
53%
47%
Open markets Regulated markets
86%
14%
60%
40%
Approximately 90% of EBIT from Approximately 90% of EBIT from Approximately 90% of EBIT from Approximately 90% of EBIT from Open Open Open Open MarketsMarketsMarketsMarkets
Q2 2010
Revenues €170m
EBIT €38m
Q2 2011
Revenues €206m
EBIT €37m
4
* Open market – electricity, shale oil, telecommunication, metal products, other services* Regulated market – network services, electricity, oil shale
Revenue share from open markets continues to grow
Profitability of regulated business declining
Prices in Estonian price area, spread with Finnish and Lithuanian price area
Estonian Estonian Estonian Estonian and Finnish and Finnish and Finnish and Finnish Prices Equal ca 40% Prices Equal ca 40% Prices Equal ca 40% Prices Equal ca 40% of of of of HoursHoursHoursHours
• The average quarterly price in the Nord Pool Estonian price area was 45.1 €/MWh (+24.1%), in the Finnish price area 51.8 €/MWh (+24.7%) and on BaltPool 46.7 €/MWh (+12.3%)
• Nord Pool Estonia prices 1.5 times higher than on regulated market
• The hourly prices in the Estonian and Finnish price areas were equal 38.5% of the time during Q2
• High levels of hydroreserves impacted Finnish price area
5
-60
-40
-20
0
20
40
60
80
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11
€/MWh
Nord Pool Estonia price area
Estonian and Finnish price area spread
Estonian and Lithuanian price area spread
Revenue Increase from NonRevenue Increase from NonRevenue Increase from NonRevenue Increase from Non----Recurring Recurring Recurring Recurring TransactionsTransactionsTransactionsTransactions
170
206
+1
+6+2
+6
+21
150
160
170
180
190
200
210
RevenuesQ2 2010
Electricitysales at
regulatedprices
Electricitysales at non-
regulatedprices
Sales ofnetworkservices
Sales ofliquid fuels
Otherrevenues
Revenues Q22011
m€
Non-recurring revenues +€16.2 m
Breakdown of Revenues Q2 2011Change of Group Revenues by Products
37
65
40
4
9
16
17
18
Electricity sales at regulated pricesElectricity sales at non-regulated pricesSales of network servicesSales of heatSales of oil shaleSales of liquid fuelsOther services and productsOther income
m€
6
Stable Elektricity Sales at Regulated Stable Elektricity Sales at Regulated Stable Elektricity Sales at Regulated Stable Elektricity Sales at Regulated PricesPricesPricesPrices
CommentsGroup Electricity Sales at Regulated Prices
+3.8% +2.7%
• Sales volume increase mostly from sales to private customers (+6.1%, +23 GWh)
• Average sales price in the regulated market 30.4 €/MWh (-1.0% compared to Q2 2010)
7
CommentsGroup Eelectricity Sales at Non-Regulated Prices
+13.5%+10.6%
75% Market Share 75% Market Share 75% Market Share 75% Market Share in Estoniain Estoniain Estoniain Estonia
• Retail sales 473 GWh (+11 GWh), sales on exchanges and to wholesale buyers 794 GWh (+141 GWh)
• Average open market shares in Q2: 75% in Estonia, 14% in Latvia and 7% in Lithuania
• Average sales price on the open market excluding renewable energy subsidies was 47.2 €/MWh (4.2%)
• Change in regulation decreased renewable energy subsidies 36% to 5.5 mln euros
• In Q2 2011 electricity sales hedged against price risk amounted to 980 GWh (+555 GWh y-o-y)
8
Sale of Network Services StableSale of Network Services StableSale of Network Services StableSale of Network Services Stable
CommentsSales of Network Services
+1.0% +3.6%
• Average network fees 29.2 €/MWh (2.6%):
– Change in network fees on 1 July 2010 due to an increase in Elering’s transmission fees (+18.9%)
– New average network fees of 33.0 €/MWh from 1 August 2011
• Network losses were at 4.3% (-0.2 percentage points)
9
10
16
Revenues (m€)
CommentsSales of Liquid Fuels
+17.5%
+55.2%
Strong Oil Prices Boosting RevenuesStrong Oil Prices Boosting RevenuesStrong Oil Prices Boosting RevenuesStrong Oil Prices Boosting Revenues
• Increased production volumes and better reliability of production equipment increased sales volumes
• Average sales price was 375 €/t(+32.1%) due to higher fuel oil prices on the world market
– Excluding price hedges average price was 423 €/t
– Average price of heavy fuel oil, the reference product, was 461 €/t
• In Q2 2011 the sales hedged against price risk amounted to 15 thousand tonnes with an average price of 333 €/t
10
36
42
Sales volume (th tonnes)
Q2 2010 Q2 2011
10
295
4
7
9
5
6
2010 II kv 2011 II kv
m€
Sales of electrical equipment
Sales of oil shale
Sales of heat
Other revenue
27
48
• Increase mainly by non-recurring revenue from the sale of 11% share in Jordanian development project (+€16.2m)
• Sales of technological equipment increased due to the construction of new shale oil plant (+€1.3m)
• Oil shale sales increased (+€2m, sales volume +9.0%) due to higher production volumes
CommentsOther Revenues
Other Revenues Increased by NonOther Revenues Increased by NonOther Revenues Increased by NonOther Revenues Increased by Non----recurring Revenuesrecurring Revenuesrecurring Revenuesrecurring Revenues
+83.1%
11
Higher Prices Increase Variable ExpensesHigher Prices Increase Variable ExpensesHigher Prices Increase Variable ExpensesHigher Prices Increase Variable Expenses
12
CommentsChange in Operating Expenses
• Variable expenses increased due tp price increases by €14 million:
– Higher transmission fees (€1.9m)
– Higher taxes in mining and generation (€1.8m)
– Higher explosives prices in miningand generation (€1.5m)
– Higher fuel costs (€1.5m)
• Fixed expenses increased mainly due to larger repair costs
• Non-recurring expenses include enivronmental provisions
132
169
147
79
0
20
40
60
80
100
120
140
160
180
OpexQ2 2010
Impact ofinput pricechanges to
variableexpenses
Impact ofvolume tovariable
expenses
Fixedexpneses
Non-recurringexpenses
OpexQ2 2011
m€
EBIT Divisional BreakdownQ2 2011 *EBIT Change Breakdown by Divisions
* Excluding other and eliminations
EBIT Growth From Fuels DivisionEBIT Growth From Fuels DivisionEBIT Growth From Fuels DivisionEBIT Growth From Fuels Division
13
m€
Retail Profitability Hampered by Lower Retail Profitability Hampered by Lower Retail Profitability Hampered by Lower Retail Profitability Hampered by Lower MarginsMarginsMarginsMargins
� -0.9 million euros from lower sales margins
� -0.9 million euros from implementation of new IT systems
Impact on Retail division (excl. Jaotusvõrk) profitability:Retail Division
Q2 2010 Q2 2011
Q2 2010 Q2 2011
Electricity sales (GWh) 1548 1674
100
14
86
0
20
40
60
80
100
120
Revenue Opex EBIT
m€
107
7
100
0
20
40
60
80
100
120
Revenues Opex EBIT
m€
14
Profitability of Distribution Grid below Profitability of Distribution Grid below Profitability of Distribution Grid below Profitability of Distribution Grid below Permitted ReturnPermitted ReturnPermitted ReturnPermitted Return
Impact on Distribution Network’s Profitability:Eesti Energia Jaotusvõrk
Q2 2010 Q2 2011
Q2 2010 Q2 2011
Electricity distributed (GWh) 1427 1445
Distribution network ROIC 9,3% 4,9%
� +0.3 million euros from higher sales of network services
� -2.0 million euros due to rise in transmission fees
� -1.6 million euros due to changes in amortization of connection fees
� -1.0 million euros due to increase in depreciation
� -0.7 million euros due to an increase in maintenance costs
42
12
30
0
10
20
30
40
50
Revenues Opex EBIT
m€
42
7
35
0
10
20
30
40
50
Revenues Opex EBIT
m€
15
105
19
86
0
30
60
90
120
Revenues Op ex EBIT
m€
� +1.7 million euros due to lower depreciation
� -8.7 million euros due to environmental provisions
� -4.8 million euros due to increased maintenance costs
� -3.3 million euros due to decrease in renwable energy subsidies
� -1.5 million euros due to decrease in electricity sales margin
Impact on Generations Profitability:Electricity and Heat Generation Division
Q2 2010 Q2 2011
Electricity sales (GWh) 2398 2527
Electricity generation (GWh) 2250 2316
Electricity purchase (GWh) 151 213
Q2 2010 Q2 2011
110
2
109
0
30
60
90
120
Revenues Opex EBIT
m€
Provisions and Maintenance Costs Reduce Provisions and Maintenance Costs Reduce Provisions and Maintenance Costs Reduce Provisions and Maintenance Costs Reduce Generation’s Generation’s Generation’s Generation’s ProfitsProfitsProfitsProfits
16
� +16.2 million euros due to sale of 11% shareholding in Jordanian development project
� +5.6 million euros due to increased oil sales volume and price
� -0.8 million euros due to increase in depreciation
� -0.4 million euros due to increase in fixed expenses
Impact on Fuels (excl Mining) division:Fuels Division
Q2 2010 Q2 2011
Shale oil sales (th tonnes) 36 42
Q2 2010 Q2 2011
57
7
50
0
20
40
60
80
100
Revenues Opex EBIT
m€
92
27
65
0
20
40
60
80
100
Revenues Opex EBIT
m€
Fuels DivisionFuels DivisionFuels DivisionFuels Division Boosted by NonBoosted by NonBoosted by NonBoosted by Non----Recurring Recurring Recurring Recurring Revenues Revenues Revenues Revenues
17
� +3.7 million euros due to increased sales volume
� -2.9 million euros due to higher input purchase prices and tax rates
� -2.3 million euros due to increase in labor costs
Impact on Mining profitability:Eesti Energia Kaevandused
Q2 2010 Q2 2011
Oil shale production (m tonnes) 3,7 4,1
Sales of oil shale (m tonnes) 3,3 3,7
Q2 2010 Q2 2011
44
3
41
0
10
20
30
40
50
60
Revenues Opex EBIT
m€
50
2
48
0
10
20
30
40
50
60
Revenues Opex EBIT
m€
Higher Input Prices Weigh on Mining Higher Input Prices Weigh on Mining Higher Input Prices Weigh on Mining Higher Input Prices Weigh on Mining SubsidiarySubsidiarySubsidiarySubsidiary
18
19
Group EBIT Affected by NonGroup EBIT Affected by NonGroup EBIT Affected by NonGroup EBIT Affected by Non----recurring recurring recurring recurring RevenuesRevenuesRevenuesRevenues
Impact on Group’s profitability:
38 37+6
+16 -9
-5
-3-3
-2
0
10
20
30
40
50
60
70
EBIT Q2 2010 Profitable oilsales
Non-recurringrevenue from
saleof 11% stake in
Jordanianproject
Environmentalprovisions
Repair expenses Change in fixedexpenses (excl.
repairs)
Renewableenergy
Lowerprofitability of
electricity sales
EBIT Q2 2011
m€
Development of operating cash flows :
Operating Cash Flows Impacted by Operating Cash Flows Impacted by Operating Cash Flows Impacted by Operating Cash Flows Impacted by Income Tax and COIncome Tax and COIncome Tax and COIncome Tax and CO2222 PurchasesPurchasesPurchasesPurchases
20
61
26
+5
+23 -5-9
-13
-20
-15
20
30
40
50
60
70
80
90
100
EBITDA Non-monetarycomponents in
EBITDA
Tradereceivables
Inventories Trade payables CO2 purchases Other currentassets andliabilities
Income tax Operting cashflow
m€
Dividend payment earlier compared to 2010
Incl.:-€16.2m due to sale of stake in Jordanian project and reclassification of remaining stake+€8.7m due to environment provisions-€1.7m from amortisation of connection fees +€13.3m CO2 provision
Incl.:-€8.5m due to higher VAT prepayment as a result of growing investments -€6.6m due to personnel taxes-€2.0m due to decrease in prepayments in Tehnoloogiatööstus
Implementation of Capex Programme Implementation of Capex Programme Implementation of Capex Programme Implementation of Capex Programme ContinuesContinuesContinuesContinues
Major projectsCapex divisional breakdown Q2 2011
• New Enefit-280 shale oil plant 37 million Euros
• New CFB power plant 29 million Euros
• Distribution networks 17 million Euros
• Iru waste-to-energy plant 12 million Euros
• Narva wind park 11 million Euros
• Oil shale mining equipment 6 million Euros
• Desulphurisation equipment in Narvapower plant 4 million Euros
€18m
€64m
€47m
€4m
RetailElectricity and Heat GenerationFuelsOther
Capex€132m
21
Update on Capex ProgrammeUpdate on Capex ProgrammeUpdate on Capex ProgrammeUpdate on Capex Programme
Investment Project Capex up to 30 June 2011
Expected Future Capex
Project Deadline
Distribution networks 2008-2011 218 million euros 6 million euros 2011
New Enefit-280 oil plant 96 million euros 111 million euros 2012
Development of oil shale industry infrastucture
4 million euros 20 million euros 2012
Desulphurisation equipment in NPP
77 million euros 27 million euros 2012
Narva wind park 17 million euros 42 million euros 2012
Paldiski wind park 6 million euros 27 million euros 2012
Iru waste-to-energy plant 28 million euros 77 million euros 2013
Distribution networks 2011-2014 - 300 million euros 2014
CFB power plant in Narva 30 million euros 610 million euros 2015
Predevelopment of liquid fuels industry in USA
29 million euros 48 million euros Development up to 2016
Predevelopment of liquid fuels and electricity industry in Jordan
3 million euros 23 million euros Development up to 2016
22
Focus on Financing due to Large Capex Focus on Financing due to Large Capex Focus on Financing due to Large Capex Focus on Financing due to Large Capex ProgrammeProgrammeProgrammeProgramme
• Liquid assets decreased to 162 million euros
• EIB credit line of 136 million euros dispursed from July 2011
• Consulting with regional and international banks ongoing regarding additional credit lines in the amount of ca 300 million euros
• Preparations for raising long-term capital
– Talks with EIB for signing additional loan agreement
– Talks with sole shareholder for raising additional equity in 2012
23
* (excl. Changes in deposits and financial assets)
Liquidity Comments
SummarySummarySummarySummary
24
� Revenues continue to grow, operating profit remains stable:
– Revenues 206 million euros, + 21.2%
– EBITDA 61 million euros, +0.1%
– EBIT 37 million euros, -1.3%
� Profitability impacted mostly by:
– Sale of 11% stake in Jordanian development project and revaluation of remaining stake, +16.2 million eiuros
– Environmental provisions, -8.7 million euros
– Repair expenses of power stations, -4.8 million euros
�Continuous implementation of investment plan, investments growing more than two times
�Ongoing talks for raising additional capital
APPENDICESAPPENDICESAPPENDICESAPPENDICES
25
Source: Statistics Estonia, Estonian Unemployment Insurance Fund
Estonian labour market
• GDP growth in the second quarter continued to be positive
• Growth driven by exports- compared to May 2010 exports have grown by 57.4%
Economic growth driven by exportsEconomic growth driven by exportsEconomic growth driven by exportsEconomic growth driven by exports
Estonian economy
• Unemployment in Estonia 8.8%, down 4.5 percentage points compared to Q2 last year
• Average gross salaries growing
26
-40%
-20%
0%
20%
40%
January 2008 January 2009 January 2010 January 2011
GDP (real) GDP (nominal)Inflation Industrial production indexPrivate consumption
% v.e.a.
-10%
0%
10%
20%
January 2008 January 2009 January 2010 January 2011
Inflation Change in average gross salary Unemployment
% v.e.a.
Crude Crude Crude Crude OOOOilililil Price TrendsPrice TrendsPrice TrendsPrice Trends
Fuel price movement January 2008 – June 2011
Comments
• Average Brent crude oil market price in Q2 2011 was 82.0 €/barrel (117.9 $/barrel), up 33.1% (50.8%) y-o-y. Six month average was 79.6 €/barrel (111.7 $/barrel), up 36.0% (43.7%).
• Weaker Euro, lower consumption, 60 million barrels of crude oil put on the market from IEA reserves and IMF’s reduced GDP forecast for developed countries reduced the crude oil market price in June and July 2011.
• Average fuel oil price in Q2 2011 was 461.8 €/t (664 $/t).
27
0
20
40
60
80
100
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
€/ba
rrel
0
100
200
300
400
500
€/t
Brent crude oil (€/barrel) Fuel oil (€/t)
Markets *Markets *Markets *Markets *
28
Nord Pool Finnish price areas Brent crude oil
Light fuel oil December 2011 CO 2 emission allowance
* Forward contracts as of 30 June 2011
Electricity Fuel oil
Closed positionsClosed positionsClosed positionsClosed positions
29
Profit and Loss StatementProfit and Loss StatementProfit and Loss StatementProfit and Loss Statement
Q2 Change 6 months Change
million euros 2011 2010 % 2011 2010 %
Revenues 206.0 170.0 21.2% 443.0 401.1 10.4%
Expenses 168.7 132.1 27.6% 361.4 302.9 19.3%
EBITDA 60.7 60.6 0.2% 127.3 145.5 -12.5%
Depreciation 23.3 22.8 2.2% 45.8 47.3 -3.2%
EBIT 37.3 37.8 -1.3% 81.5 98.2 -17.0%
Net financial income /(-expenses) -1.6 -1.1 45.5% -3.4 -2.5 36.0%
Income tax on dividends 14.6 22.1 -33.9% 14.6 22.2 -34.2%
Income from discontinued operations 27.4 -100.0%
Net profit 21.2 14.6 45.2% 63.6 101.5 -37.3%
30
Balance SheetBalance SheetBalance SheetBalance Sheet
million euros 30 June 2011 30 June 2010Change
million euros
Total current assets incl. 296.4 604.3 -307.9Cash and cash equivalents 87.3 197.8 -110.5Deposits with maturity of more than 3 months 55.0 274.8 -219.8Trade receivables 99.8 92.0 7.8Inventories 34.7 37.2 -2.5Other 19.6 14.6 24.6
Total non-current assets 1525.8 1256.3 269.5Total assets 1822.2 1860.6 -38.4
Total payables, incl. 684.3 660.1 24.2Trade payables 125.5 121.0 4.4Other 134.3 127.6 6.7Borrowings 357.4 362.3 -4.9Current liabilities 26.8 3.6 23.2Long-term liabilities 330.6 358.7 -28.1
Provisions 67.1 49.1 36.7Equity 1137.9 1191.6 -4.5Total liabilities and equity 1822.2 1860.6 -38.4
31
Cash flowsCash flowsCash flowsCash flows
Q2 Change 6 months Change
million euros 2011 2010 % 2011 2010 %
Net cash from operating activities 25.9 68.5 -62.2% 130.8 157.9 -17.2%
Purchase of fixed assets 117.3 47.0 149.6% 189.2 85.6 121.0%
Net change in deposits with maturities greater than 3 months 143.0 106.1 34.8% 126.4 269.7 -53.1%
Received long-term bank loans 1.3 0.4 225.0% 1.5 1.0 50.0%
Repayment of bank loans 1.1 1.1 0.0% 1.9 1.7 11.8%
Dividend payment 56.1 - 100.0% 56.1 - 100.0%
Other adjustments 17.3 -1.3 -1430.8% 21.7 -0.5 -4440.0%
Cash flows from discontinued operations - - - - 360.2 -100.0%
Net cash flows 13.0 125.7 -89.7% 33.2 161.6 -73.6%
32
Sound FSound FSound FSound Financialinancialinancialinancial PPPPositionositionositionosition
1.6
-0.4
1.0
-1
0
1
2
Q2 2009 Q2 2010 Q2 2011
24.1% 23.2% 23.9%
0%
10%
20%
30%
Q2 2009 Q2 2010 Q2 2011
Net debt / EBITDA* Financial leverage
Net Debt Debt Maturity
050
100150200250300350
2011 2013 2015 2017 2019 2021 2023 2025
m€
Debt maturity EIB loan drawn on 20 July 2011
33
Net debt = borrowings – cash and cash equivalents (incl. deposits with maturities more than 3-months)
* EBITDA for running 12 months Financial leverage = borrowings / (borrowings + equity)
211
-100
225
-150
-50
50
150
250
Q2 2009 Q2 2010 Q2 2011
m€