Riga, 2018-02-28 13:30 CET (GLOBE NEWSWIRE) -- The following major factors describe 2017 as particularly favourable for the Group’s operations:
- the electricity output has increased considerably reaching 5,734 GWh, which is one of the historically largest output levels. Along with the successful electricity generation, during the year Latvia achieved positive electricity trade balance exporting a part of the generated electricity;
- the Group successfully commenced natural gas trade in Latvia and Lithuania.
Last year, electricity prices in the Baltic countries continued approximation and approaching the level of the Nordic countries. In 2017, there was an increase in electricity spot prices in the Nordic countries and Estonia, while, in Latvia and Lithuania they decreased by 4%. This was mainly due to the operation of NordBalt interconnection reducing the price difference between the Baltic countries and the Nordic countries.
In 2017, electricity output of the power plants of Latvenergo Group was one of the historically largest output levels – it was 5,734 GWh, which is 22% more than in 2016. Electricity generation at the Daugava HPPs has increased by 74% in 2017 and amounts to 4,270 GWh (2,449 GWh in 2016). Higher water inflow in the Daugava River was the major reason behind the increase in electricity generation by the Daugava HPPs; therefore, electricity output in 2017 was the largest since 1998 and the third largest since the beginning of monitoring in 1966. Considering the high electricity generation by the Daugava HPPs, electricity generation at the Riga CHPPs in 2017 was 36% lower than the year before and amounted to 1,411 GWh.
The thermal energy output in 2017 has decreased by 2% compared to the last year and amounted to 2,612 GWh due to comparatively warmer weather during the heating season and entry of new thermal energy producers on the market.
In April 2017, the natural gas market was opened in Latvia and Latvenergo Group started natural gas trade to corporate customers in Latvia and Estonia. The amount of natural gas trading transactions by Latvenergo equals 36% of the gas consumption in Latvia in 2017, including the gas being purchased in the free market and sold to customers in Latvia and Estonia.
Latvenergo Group was among the biggest electricity traders in the Baltics. The electricity market share of Latvenergo Group was around 27% of the total electricity retail market in the Baltics in 2017. The electricity sales outside Latvia account for 1/3 of the total retail sales of electricity. In total, 6.9 TWh of electricity were sold to retail customers in the Baltics in 2017: in Latvia – 4.6 TWh, in Lithuania – 1.3 TWh and in Estonia – 1 TWh.
The revenue of Latvenergo Group in 2017 remained at the level of 2016 and amounted to 925.6 million euros. The increase in electricity output at the Daugava HPPs contributed to the growth of the Group’s profit, which was also positively affected by the corporate income tax reform in Latvia. Latvenergo Group's EBITDA has increased by 38 % in the reporting year and amounted to 541.7 million euros. In 2017, the Group’s profit was 322.2 million euros consisting of the Group's annual operating result in the amount of 173.1 million euros and a deferred tax reversal in the amount of 149.1 million euros as the result of the tax reform[2]. In compliance with the Law on Mid-term Budget 2018, 2019 and 2020, the forecasted amount of dividend payable to the state budget from the gained profit in the coming years amounts to 94.2 million euros in 2018, 132.9 million euros in 2019 and 127.1 million euros in 2020.
Latvenergo Group is among the biggest taxpayers in Latvia. In 2017, the Group has paid 238 million euros to the state budget, including more than 90 million euros as dividends for the use of the state capital.
In 2017, the total amount of investment of Latvenergo Group increased by 43.1 million euros or 21% compared to the last year and amounted to 243.8 million euros. The increase was due to higher investment in the transmission and generation segments. By continuing the reconstruction of the Daugava HPPs’ hydropower units, 41.8 million euros were invested in this project in the reporting year. To ensure high quality power network service, technical parameters and operational safety, a significant amount is invested in the modernization of the power network. The investment in the network assets accounts for 65% of the total investment.
Latvenergo AS has contributed to the reduction of mandatory procurement public service obligation fee (MP PSO fee). As of 1 January 2018, the fee has been reduced by 1 EUR/MWh and is now 25.79 EUR/MWh compared to the previous value of 26.79 EUR/MWh. This was made possible by the decision of Latvenergo AS to apply for the receipt of a one-off compensation from the Latvian state in October 2017, at the same time opting out of the receipt of 75% of the annual electrical capacity payments for Riga CHPPs. On 21 November 2017, the Cabinet of Ministers of the Republic of Latvia accepted an order which supports the compensation payment in the amount of 454.4 million euros to Latvenergo AS. In order to finance the one-off compensation, the state applies its right as the Shareholder of Latvenergo AS uses its right to carry out a capital release of Latvenergo AS.
On 7 September 2017, Moody’s maintained the credit rating of Latvenergo AS at the Baa2 level with a stable future outlook. In their assessment, Moody’s also took into account the one-off compensation from the state, the planned changes in the support intensity for the Riga CHPPs and the planned Latvenergo AS capital release.
On 14 November 2017, considering the development directions set out in the strategy of Latvenergo Group, the Management Board of Latvenergo AS approved the Strategic Development and Efficiency Program. The strategic development section of the program contains a plan for implementation of major strategic projects. The efficiency section provides for review, centralisation and digitalisation of the Group’s processes with the overarching goal of maintaining the long-term profitability of the Group. This is the Group’s largest optimization plan in the last decade, and it will allow the Group to increase its value in the long run and to remain competitive in an open market and a changing energy industry.
The audited financial statements of Latvenergo Group for 2017 and the Corporate Governance Report for 2017 will be published on 18 April 2018.
[1] EBITDA – earnings before interest, corporate income tax, share of profit or loss of associated companies, depreciation and amortisation and impairment of intangible and fixed assets
[2] The new Corporate Income Tax (CIT) Law was adopted on 28 July 2017 and entered into force as of 1 January 2018, providing for a different application procedure for the CIT compared to the former CIT Law. In accordance with the International Financial Reporting Standards and the Law On Annual Financial Statements and Consolidated Financial Statements, deferred tax liabilities will no longer be recognised. The accrued deferred tax liabilities in amount of 149.1 million euros recognised in previous years (from 1997 to 2017) are reversed and recorded as income in the profit and loss statement for 2017. Reversal of the deferred tax does not affect Latvenergo Group’s cash flow and does not increase financial resources.
Latvenergo Group’s Performance Indicators
Operational Figures
| 2017 | 2016 | ||
| Electricity supply | GWh | 10,371 | 10,140 |
| Retail* | GWh | 6,923 | 7,665 |
| Wholesale** | GWh | 3,449 | 2,474 |
| Electricity generation | GWh | 5,734 | 4,707 |
| Thermal energy generation | GWh | 2,612 | 2,675 |
| Number of employees | 3,908 | 4,131 | |
| Moody's credit rating | Baa2 (stable) | Baa2 (stable) |
* Including operating consumption
** Including sale of energy purchased within the mandatory procurement on the Nord Pool
Financial Figures
| 2017 | 2016 | ||
| Revenue | MEUR | 925.6 | 931.6 |
| EBITDA 1) | MEUR | 541.7 | 393.4 |
| Profit | MEUR | 322.2 3) | 130.6 |
| Assets | MEUR | 4,412.1 4) | 3,901.2 |
| Equity | MEUR | 2,847.1 | 2,418.7 |
| Net debt 2) | MEUR | 590.8 | 607.6 |
| Investments | MEUR | 243.8 | 200.7 |
1) EBITDA – earnings before interest, corporate income tax, share of profit or loss of associated companies, depreciation and amortisation and impairment of intangible and fixed assets
2) Net debt – borrowings at the end of the reporting year minus cash and cash equivalents at the end of the year
3) Including a one-off compensation for the Riga CHPPs’ capacity payments – EUR 140 million is recognized as other income in the year 2017
4) Including a deferred tax reversal in the amount of EUR 149.1 million as a result of the corporate income tax reform
Financial Ratios
| 2017 | 2016 | ||
| Net debt / EBITDA 1) | 1.1 | 1.7 | |
| EBITDA margin 2) | 59% | 42% | |
| Return on equity (ROE) 3) | 12.2% | 5.8% | |
| Return on assets (ROA) 4) | 7.8% | 3.5% | |
| Return on capital employed (ROCE) 5) | 6.8% | 5.3% | |
| Net debt / equity 6) | 21% | 25% |
1) Net debt / EBITDA – average value of net debt / EBITDA (12-month rolling)
2) EBITDA margin – EBITDA (12-month rolling) / revenue (12-month rolling)
3) Return on equity (ROE) – net profit (12-month rolling) / average value of equity
4) Return on assets (ROA) – net profit (12-month rolling) / average value of assets
5) Return on capital employed (ROCE) – operating profit (12-month rolling) / average value of equity + average value of borrowings
6) Net debt / equity – net debt / equity
Consolidated Statement of Profit or Loss*
| 2017 | 2016 | |
| EUR’000 | EUR’000 | |
| Revenue | 925,627 | 931,619 |
| Other income | 149,950** | 6,656 |
| Raw materials and consumables used | (346,911) | (385,813) |
| Personnel expenses | (113,289) | (96,019) |
| Other operating expenses | (73,681) | (63,044) |
| EBITDA | 541,696 | 393,399 |
| Depreciation, amortisation and impairment of intangible assets and property, plant and equipment | (307,614) | (232,626) |
| Operating profit | 234,082 | 160,773 |
| Finance income | 1,243 | 2,328 |
| Finance costs | (11,211) | (14,156) |
| Profit before tax | 224,114 | 148,945 |
| Income tax | (51,029) | (23,498) |
| Deferred tax changes | 149,106*** | 5,146 |
| Profit for the year | 322,191 | 130,593 |
| Profit attributable to: | ||
| - equity holder of the Parent Company | 319,840 | 129,045 |
| - non–controlling interests | 2,351 | 1,548 |
* Unaudited Condensed Consolidated Financial Statements. Prepared in accordance with the IFRS as adopted by the European Union.
** Other income in 2017 includes one-off compensation payment for the electric power capacity installed at Latvenergo AS Riga TEC–1 and Riga TEC–2 CHPPs in the amount of EUR 140,000 thousand
*** In 2017 deferred tax liabilities reversed in the Statement of Profit or Loss in accordance with the changes of tax regulations and laws of the Republic of Latvia starting from1 January 2018
Consolidated Statement of Financial Position*
| 31/12/2017 | 31/12/2016 | |
| EUR'000 | EUR'000 | |
| ASSETS | ||
| Non–current assets | ||
| Intangible assets and property, plant and equipment | 3,322,398 | 3,370,331 |
| Investment property | 753 | 563 |
| Non–current financial investments | 41 | 41 |
| Investments in held–to–maturity financial assets | 16,984 | 17,034 |
| Other non–current receivables | 286 | 986 |
| TOTAL non–current assets | 3,340,462 | 3,388,955 |
| Current assets | ||
| Inventories | 76,247 | 41,458 |
| Prepayment for inventories | 81 | – |
| Trade receivables and other receivables | 751,427 | 273,957 |
| Deferred expenses | 3,241 | 3,227 |
| Derivative financial instruments | 4,619 | 6,134 |
| Investments in held–to–maturity financial assets | – | 3,520 |
| Cash and cash equivalents | 236,003 | 183,980 |
| TOTAL current assets | 1,071,618 | 512,276 |
| TOTAL ASSETS | 4,412,080 | 3,901,231 |
| EQUITY AND LIABILITIES | ||
| Equity | ||
| Share capital | 1,288,715 | 1,288,715 |
| Reserves | 1,126,520 | 937,074 |
| Retained earnings | 423,783 | 185,840 |
| Equity attributable to equity holder of the Parent Company | 2,839,018 | 2,411,629 |
| Non–controlling interests | 8,042 | 7,084 |
| TOTAL equity | 2,847,060 | 2,418,713 |
| Liabilities | ||
| Non–current liabilities | ||
| Borrowings | 718,674 | 635,620 |
| Deferred income tax liabilities** | – | 315,759 |
| Provisions | 21,910 | 18,643 |
| Derivative financial instruments | 4,914 | 7,946 |
| Other liabilities and deferred income | 522,362*** | 195,407 |
| TOTAL non–current liabilities | 1,267,860 | 1,173,375 |
| Current liabilities | ||
| Borrowings | 108,083 | 155,946 |
| Trade and other payables | 143,428 | 117,817 |
| Income tax payable | 27,555 | 17,718 |
| Deferred income | 14,924 | 14,022 |
| Derivative financial instruments | 3,170 | 3,640 |
| TOTAL current liabilities | 297,160 | 309,143 |
| TOTAL liabilities | 1,565,020 | 1,482,518 |
| TOTAL EQUITY AND LIABILITIES | 4,412,080 | 3,901,231 |
* Unaudited Condensed Consolidated Financial Statements. Prepared in accordance with the IFRS as adopted by the European Union.
** Deferred tax liabilities in the amount of 149,106 thousand EUR (the Company: 10,082 thousand EUR) are reversed in the Statement of Profit or Loss for 2017 and 166,653 thousand EUR – in the equity on 31 December 2017 (the Company: 116,178 thousand EUR), as initially they were accounted for within the equity, in accordance with the amendments to the laws and regulations of the Republic of Latvia that entered into force from 1 January 2018
*** Recognised compensation in the amount of EUR 314,413 thousand for abandonment from State-guaranteed fee for the electric power capacity installed at Latvenergo AS Riga TEC–1 and Riga TEC–2 CHPPs in the support period, to be recognised as revenue in the next periods by fulfilling the commitments stated in the Regulations No. 221 of the Cabinet of Ministers of the Republic of Latvia till the end of State support - 23 September 2028
Additional information:
Jānis Irbe
Group Treasurer
Phone: +371 67 728 239
E-mail: investor.relations@latvenergo.lv
About Latvenergo
Latvenergo Group is the largest pan-Baltic power supply utility operating in electricity and thermal energy generation and trade, natural gas trade, electricity distribution services and lease of transmission system assets. Latvenergo AS has been acknowledged as the most valuable company in Latvia for several times. International credit rating agency Moody’s has assigned Latvenergo AS an investment-grade credit rating of Baa2/stable.
Latvenergo Group is comprised of the parent company Latvenergo AS (generation and trade of electricity and thermal energy, trade of natural gas) and seven subsidiaries - Latvijas elektriskie tīkli AS (lease of transmission system assets), Sadales tīkls AS (electricity distribution), Elektrum Eesti OÜ (trade of electricity and natural gas in Estonia), Elektrum Lietuva UAB (trade of electricity and natural gas in Lithuania), Enerģijas publiskais tirgotājs AS (administration of mandatory electricity procurement process) and Liepājas enerģija SIA (generation and trade of thermal energy in Liepaja, electricity generation). All shares of Latvenergo AS are owned by the state and held by the Ministry of Economics of the Republic of Latvia.
