Riga, 2018-04-18 15:05 CEST (GLOBE NEWSWIRE) -- Āris Žīgurs, the Chairman of the Management Board of Latvenergo AS, emphasises the following in describing year 2017: "Change and modernisation have been the key words of the first year of the Latvenergo Group Strategy (2017-2020). It has been full of events and new challenges that will play an important role in the further development of the energy industry. The technological leap of our time and the requirements of proactive users also bring new opportunities, and we are prepared to use them.
We are particularly satisfied with the high electricity output - 5.7 TWh of electricity were generated by the Latvenergo Group in 2017. Productive electricity generation by the Daugava hydro power plants played the most important role; after several years of comparatively low water levels in the Daugava River, the water inflow was high last year and thus it was a very successful year for electricity generation. Last year Latvenergo Group has attested its importance for the national economy as a responsible electricity generator whose decisions have helped in reducing the amount of the mandatory procurement component."
Energy production
In 2017, the generation of the power plants of Latvenergo Group was among the historically highest levels, i.e. 5,734 GWh which is 22% above the level of 2016. Electricity generation at the Daugava HPP's has increased by 74% in 2017 and amounts to 4,270 GWh (2,449 GWh in 2016). Water inflow in the Daugava River was the major reason behind the increase in electricity generation by the Daugava HPP's, therefore electricity generation in 2017 has been the highest since 1998 and the third highest since the beginning of monitoring in 1966. Considering the successful electricity generation by the Daugava HPP's in 2017, electricity generation at Riga CHPP in 2017 was 36% below the level of the preceding year and amounted to 1,411 GWh. The heat production 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 heat producers on the market.
Trade
Latvenergo was among the biggest electricity traders in the Baltics. The electricity market share of the 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. Totally 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. In April 2017 the natural gas market was opened in Latvia and Latvenergo Group started trading of natural gas to corporate customers in Latvia and Estonia.
Financial results
The revenue of Latvenergo Group in 2017 remained at the level of 2016 and amounted to 925.6 mill. EUR. The increase in electricity output at the Daugava HPP's contributed to the growth of the Group's profit. Besides the economic operations, also the Corporate Income Tax reform in Latvia provided a positive contribution to the profit. Latvenergo Group's EBITDA has increased by 38 % in the reporting year and amounted to 541.7 mill. EUR. In 2017, the Group’s profit was 322.0 mill. EUR and it consists of the Group’s operating result in the amount of 172.9 mill. EUR and a deferred tax reversal in the amount of 149.1 mill. EUR as the result of the tax reform*. 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 next few years amounts to 94.2 mill. EUR in 2018, 132.9 mill. EUR in 2019 and 127.1 mill. EUR in 2020.
On 14 March 2018, 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.
Investment
The total amount of investment of Latvenergo Group increased by 43.1 mill. EUR or 21% in 2017 compared to the last year and amounted to 243.8 mill. EUR. 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.
National Economy Importance
Latvenergo Group is among the biggest taxpayers in Latvia. In 2017 the Group has paid 238 mill. EUR to the state budget, including more than 90 mill. EUR as dividends for the use of the state capital.
Latvenergo AS has contributed to the reduction of the mandatory procurement component. 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 according to which a compensation of 454 mill. EUR is paid to Latvenergo AS. In order to finance the one-off compensation, the state applies its right as the Shareholder of Latvenergo AS to carry out a capital release of Latvenergo AS.
Strategic Development
On 14 November 2017, considering the development directions defined by the strategy of the 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 of the Group’s processes, centralisation and digitalisation with the overarching goal of maintaining the long-term profitability of the Group. This is the biggest Group’s optimisation plan in the last decade and its implementation will allow the Group to increase its value in the long-term and to maintain its competitiveness in an open market and the dynamic energy industry.
Sustainability Report
The Sustainability Report of the Latvenergo Group for the year 2017 has been prepared in accordance with the GRI Standards Guidelines for the first time. The Report provides for an extensive information about the Group, its governance and operating segments. The document also presents information about the economic, social and environment aspects essential for the Group's operations. The Sustainability Report for 2017 was audited by SIA „Ernst &Young Baltic”.
Corporate Governance
Improvements in the corporate governance of the Group were successfully implemented during the reporting year. The capacity of the Audit Committee was strengthened through two Members of the Supervisory Board joining it. The Supervisory Board of Latvenergo AS established the Human Resources Committee, whose main tasks are related to the personnel selection process, wages, performance assessment and merging of positions.
The Corporate Governance Report of Latvenergo AS for 2017 is published along with the financial results of the Latvenergo Group. The Corporate Governance Report attests that the Latvenergo Group has followed all the good corporate governance principles applicable to its operation in all major aspects. Corporate Governance Report is being prepared since 2012, when the Bond Issue Program was commenced and the issued bonds were listed by Nasdaq Riga Exchange. The Report has been prepared in compliance with the Law on the Financial Instruments Market and "Corporate governance principles and recommendations for implementation thereof" published by Nasdaq Riga in 2010.
The interim reports of the Latvenergo Group for 2018 will be published on the dates stated in the Financial Calendar.
* On 28 July 2017 the new Law on Corporate Income Tax (CIT) was adopted and entered into force as from 1 January 2018 providing for a different procedure of application of the CIT compared to the earlier provisions of the CIT Law.
In compliance with the provision of the Law on Annual Reports and Consolidated Annual Reports and International Accounting Standards the liabilities of the deferred tax are not recognised. The deferred tax liabilities (EUR 149.1 mill.) accrued over preceding years (1997 to 2017) are reversed in the Profit of Loss Statement of 2017. The reversal of the deferred tax does not affect the cash-flow of Latvenergo Group and does not increase the 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 | 3,448 | 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 | 322.0 3) | 130.6 |
| Assets | MEUR | 4,415.7 4) | 3,901.2 |
| Equity | MEUR | 2,846.9 | 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) | 7.7% | 3.5% | |
| Return on capital employed (ROCE) 5) | 6.8% | 5.3% | |
| Net debt / equity 6) | 0.21 | 0.25 |
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 at the end of the reporting year / equity at the end of the reporting year
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) | (385,814) |
| Personnel expenses | (113,289) | (96,019) |
|
Depreciation, amortisation and impairment of intangible assets and property, plant and equipment |
(307,614) | (232,626) |
| Other operating expenses | (73,681) | (63,043) |
| 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 |
| Current income tax | (51,199) | (23,498) |
| Deferred tax changes | 149,106*** | 5,146 |
| Profit for the year | 322,021 | 130,593 |
| Profit attributable to: | ||
| – Equity holder of the Parent Company | 319,670 | 129,045 |
| – Non–controlling interests | 2,351 | 1,548 |
* Audited Consolidated Financial Statements have been 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 | 13,413 | 14,534 |
| Property, plant and equipment | 3,308,985 | 3,355,797 |
| Investment property | 753 | 563 |
| Non–current financial investments | 40 | 40 |
| Other non–current receivables | 3,229 | 986 |
|
Investments in held–to–maturity financial assets |
16,984 | 17,034 |
| Total non–current assets | 3,343,404 | 3,388,954 |
| Current assets | ||
| Inventories | 76,247 | 41,458 |
| Prepayment for inventories | 81 | – |
|
Receivables from contracts with customers |
105,369 | 118,925 |
| Other current receivables | 646,761 | 155,033 |
| 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 | 1,072,321 | 512,277 |
| TOTAL ASSETS | 4,415,725 | 3,901,231 |
| EQUITY AND LIABILITIES | ||
| EQUITY | ||
| Share capital | 1,288,715 | 1,288,715 |
| Reserves | 1,126,521 | 937,074 |
| Retained earnings | 423,613 | 185,840 |
|
Equity attributable to equity holder of the Parent Company |
2,838,849 | 2,411,629 |
| Non–controlling interests | 8,042 | 7,084 |
| Total equity | 2,846,891 | 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 |
|
Deferred income on contracts from customers |
142,132 | 141,817 |
| Other liabilities and deferred income | 350,926*** | 53,590 |
| Total non–current liabilities | 1,238,556 | 1,173,375 |
| Current liabilities | ||
| Trade and other payables | 147,072 | 117,817 |
|
Deferred income on contracts from customers |
12,500 | 11 605 |
| Other deferred income | 31,728 | 2 417 |
| Income tax payable | 27,725 | 17,718 |
| Borrowings | 108,083 | 155,946 |
| Derivative financial instruments | 3,170 | 3,640 |
| Total current liabilities | 330,278 | 309,143 |
| TOTAL EQUITY AND LIABILITIES | 4,415,725 | 3,901,231 |
* Audited Consolidated Financial Statements have been 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.