Latvenergo Group publishes audited results and the Sustainability Report for 2018

Today, on 17 April, the audited financial results of Latvenergo Group for 2018, which were approved by the Management Board of Latvenergo AS on 16 April, are published. The Sustainability Report prepared according to GRI Standards and the Corporate Governance Report of Latvenergo AS for 2018 are published together with Latvenergo consolidated and Latvenergo AS annual report for 2018.

In 2018, the electricity market was influenced by dry and hot weather conditions in Europe, leading to an unexpected rise in electricity prices. In these circumstances, the group effectively took advantage of its diversified generating facilities by producing the largest amount of electricity at Latvenergo combined heat and power plants since 1990.

In 2018, Latvenergo Group is the most valuable energy company in the Baltic, with the value of assets reaching 3.8 billion euro at the end of the year. The Group’s revenue constitutes 878,0 million euro, which is 5% less than in 2017. Meanwhile, EBITDA has fallen by 41% and amounts to 321.6 million euro. The profit of the Group constitutes 76.0 million euros in 2018. The results were affected by a 44% reduction in electricity generation at Daugava hydropower plants (HPP) due to lower water inflow, as well as by the decision of Latvenergo AS to apply for one-off compensation by refusing to receive 75% of the annual electricity capacity payments for CHPP and thereby providing for the reduction of MPC.

In 2018, the activities and results of Latvenergo Group were influenced by global and regional factors of the operational environment such as rising prices for electricity, natural gas and CO2 emission allowances. Long-term hot and dry weather conditions significantly reduced generation by hydropower plants, particularly in Scandinavia, thereby contributing to an increase in electricity prices across Europe. In 2018, the average electricity price in Latvia was 44% higher than a year earlier, reaching almost 50 EUR/MWh.

In January 2018, Latvia even secured the status of the Baltic’s largest electricity exporter, but overall the generation by Daugava HPPs decreased by 44% in 2018 compared to the last year and was 2,380 GWh. Consequently, Latvenergo (CHPPs), which compensated for the shortage of hydropower, played a very important role in securing electricity demand this year. In 2018, CHPPs generated 2,644 GWh, which was by 87% more than last year. At the same time, this has been the largest amount electricity generated by the CHPPs since 1990. In total, in 2018, generating facilities of Latvenergo AS generated 5,076 GWh of electricity.

In 2018, Latvenergo Group was one of the leading energy traders in the Baltic states. With the opening of trade of natural gas in Lithuania, in October 2018, Latvenergo Group currently operates in all segments of the energy market in Latvia, Lithuania and Estonia.

Latvenergo constantly continues to develop new business directions and services, and the newest Elektrum service is trading of natural gas to Latvian households as of February 2019. The company effectively continues to develop its operations in the Baltic states by offering Elektrum Solārais (solar) and Elektrum Viedā māja (smart house) products to customers. In 2018, a total of 7.0 TWh of electricity was sold to retail customers in the Baltic, which is about as much as last year. The amount of electricity sold in Latvia is 4.4 TWh, Lithuania – 1.6 TWh and Estonia – 0.9 TWh.

In 2018, the mandatory procurement component was reduced, boosted by the decision of Latvenergo AS to refuse to receive 75% of the annual electricity capacity payments for CHPPs having received a one-off compensation from the state. Thus, in 2018, the impact of the CHPPs on mandatory procurement and capacity payments has decreased from 37% to 15%, or by 74.2 million euro.

By 75% lower CHPP electric capacity revenues and significantly lower generation by the Daugava HPP cascade negatively affected the Group’s financial results. Revenues of Latvenergo Group decreased by 5% in 2018 and reached 878,0 million euro. EBITDA decreased by 41% and amounted to 321.6 million euro. In 2018, the profit of the Group constituted 76.0 million euro (322,0 million euro in 2017). In 2017, the Group’s profit consisted of its operating result: a profit in the amount of 172.9 million euro and deferred tax reversal in the amount of 149.1 million euro as a result of the corporate income tax reform.

The total investments of Latvenergo Group amounted to 220,6 million euro in 2018. The largest amount of investments has been made in the modernisation of networks – around 80% of total investment, which ensure high quality of network services and improve technical performance and operational safety. In the reporting year, 21.1 million euro have been invested in the reconstruction of Daugava HPP hydropower units. Investments in major transmission projects – Kurzeme Ring and the Third electricity transmission network connection between Estonia and Latvia continue.

In 2018, the Group implemented both internal process and governance and external projects to improve communication with customers. The share of smart meters installed by Sadales tīkls AS by the end of the reporting year is 49% of the total number of meters, thereby effectively managing consumption information of customers. Latvenergo AS implemented customer service projects, which currently provide full digital service possibilities. Along with digitalisation, the effectiveness of the Group’s activities has increased, allowing for a reduction in the number of employees and the necessary resources, such as transport and immovable property.

On 19 March 2019, following the end of the reporting period, Moody's, the international credit rating agency retained the Baa2 credit rating of Latvenergo AS with a stable outlook.

The Sustainability Report of the Latvenergo Group has been prepared in accordance with the requirements of GRI Guidelines. The report contains information about the Group, its governance and operating segments. The document also provides information on the key economic, social and environmental aspects of the Group’s operations. The Sustainability Report for 2018 has been audited by PricewaterhouseCoopers SIA.

The Corporate Governance Report of Latvenergo AS for 2018 was also published along with the financial results of Latvenergo Group. The Corporate Governance Report shows that the Latvenergo Group respects all the principles of good corporate governance that apply to its operations. The Corporate Governance Report was first prepared for 2012 with the launch of the bond issuance programme and listing of issued bonds on Nasdaq Riga. The report has been prepared in line with the Financial Instruments Market Law and the “Principles of Corporate Governance and Recommendations on their Implementation” issued by Nasdaq Riga AS in 2010.

The reports are available in the Investors/Reports section.