Registration Document
Nelja Energia AS
A public limited liability company organized under the laws of the Republic of Estonia
Business Registration number 11183009
Listing on Oslo Børs
Manager:
18 November 2015
This Registration Document does not constitute an offer to buy, subscribe or sell the securities described herein.
This Registration Document combined with the relevant Securities Document and SUMMARY serves as a listing Prospectus as required by applicable laws and no securities are being offered or sold pursuant to this Prospectus.
IMPORTANT NOTICE
This Registration Document (the “Registration Document”) has been prepared by Nelja Energia AS (“Nelja Energia” or “the Company”) for use in connection with the listing of Company’s bonds on the Oslo Børs (the “Listing”).
The Registration Document combined with the relevant Securities Note and SUMMARY constitutes a Prospectus (the “Prospectus”). For the definitions of terms used throughout this Registration Document, see Section 10 “Definitions and Glossary”.
This Registration Document has been prepared to comply with chapter 7 of the Norwegian Securities Trading Act of 29 June 2007 No. 75 (Nw: Verdipapirhandelloven) (“Norwegian Securities Trading Act”) and related secondary legislation including the Prospectus Directive (EC Commission Regulation EC/809/2004). The Financial Supervisory Authority of Norway (Nw: Finanstilsynet) (“NFSA”) has reviewed and approved this Registration Document in accordance with Section 7-7 and 7-8 of the Norwegian Securities Trading Act per 18 November 2015. The Norwegian FSA has not verified or approved the accuracy or completeness of the information provided in this Prospectus. The NFSAs control and approval solely relates to the issuers descriptions according to a pre-defined list of requirements. The NFSA has not undertaken any form of control or approval of corporate matters described in, or in any way included in the prospectus. The Registration Document has been prepared in the English language only.
The information contained herein is as of the date of this Registration Document and subject to change, completion or amendment without notice. In accordance with Section 7-15 of the Norwegian Securities Trading Act, any new factor, significant error or inaccuracy that might have an effect on the assessment of the Bond Issue contemplated hereby and emerges between the time of approval of the Registration Document and the Listing, will be included in a supplement to the Registration Document. Neither the approval nor distribution or use of this Registration Document shall under any circumstances create any implication that the information herein is correct as of any date subsequent to the date of the Registration Document.
All inquiries relating to this Registration Document should be directed to the Company. No other person has been authorized to give any information about, or make any representation on behalf of, the Company in connection with the Listing and, if given or made, such other information or representation must not be relied upon as having been authorized by the Company.
Unless otherwise indicated, the source of the information in this Registration Document is the Company. The contents of this Registration Document are not to be construed as legal, business or tax advice. Each reader of the Registration Document should consult with its own professional advisors for legal, business and tax advice. If you are in any doubt about the contents of this Registration Document, you should consult your stockbroker, bank manager, lawyer, accountant or other professional advisor.
An investment in bonds involves inherent risks. Prospective investors in Bonds issued by the Company should carefully consider the risks associated with the investment when reading the information contained in this Registration Document, and be aware of the risk of losing such investment in its entirety, before deciding to invest. A summary of risk factors are set out in Section 1 “Risk Factors”. However, prospective investors should read the entire Registration Document before making any investment decision.
Offering restrictions
The distribution of this Registration Document may in certain jurisdictions be restricted by law (including, but not limited to, the United States, Canada, Australia, Japan and South Africa). Persons in possession of this Registration Document are required to inform themselves about and to observe any such restrictions. This Registration Document does not constitute an offer of, or an invitation to subscribe or purchase, any bonds or other securities
The securities described in this Registration Document have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S of the U.S. Securities Act). Furthermore, the bonds may not be offered or sold in or into Canada, Japan, the Republic of South Africa or Australia.
In relation to the United Kingdom, this Registration Document is only directed at, and may only be distributed to, persons who fall within the scope of Article 19 (Investment Professionals) and 49 (High Net Worth Companies, Unincorporated Associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) or who are persons to whom the document may i
otherwise be lawfully distributed. This Registration Document may only be distributed in circumstances which do not result in an offer to the public in the United Kingdom within the meaning of Public Offers of Securities Regulations 1995 (as amended). The distribution (which term shall include any form of communication) of this Registration Document may be restricted pursuant to Section 21 (Restrictions on Financial Promotion) of the Financial Services and Markets Act 2000 (as amended).
Except for the approval by NFSA as described above, no action has been taken or will be taken in any jurisdiction by the Company or the Manager that would permit a public offering of Bonds issued by the Company, or the possession or distribution of any documents relating to the Listing, or any amendment or supplement thereto, hereunder but not limited to this Registration Document, in any country or jurisdiction where specific action for that purpose is required. Any person receiving this Registration Document is required by the Company and the Manager to inform themselves about and to observe such restrictions.
The restrictions and limitations listed and described herein are not exhaustive, and other restrictions and limitations that are not known or identified by the Company or the Manager at the date of this Registration Document may apply in various jurisdictions as they relate to the Listing and the Registration Document.
This Registration Document is subject to Norwegian law, unless otherwise indicated herein. Any dispute arising in respect of this Listing or this Registration Document is subject to the exclusive jurisdiction of the Norwegian courts, with Bergen District Court as exclusive venue.
ii
Table of contents
1 Risk Factors ...... 4
2 Responsibility Statement ...... 12
3 Company Overview ...... 13
4 Board and Management ...... 30
5 Corporate Governance ...... 33
6 Legal Matters ...... 35
7 Financial Information ...... 37
8 Share Capital and Shareholder Matters ...... 47
9 Additional Information ...... 48
10 Definitions and Glossary ...... 50
11 Notice regarding Forward Looking Statements ...... 52
12 Lead Manager’s Disclaimer ...... 53
13 APPENDIX 1 – ARTICLES OF ASSOCIATION ...... 54
14 APPENDIX 2 – Bond agreement ...... 60
1 RISK FACTORS
Investing in the Bonds involves inherent risks. Prospective investors should carefully consider the risk factors set out in herein, in addition to the other information presented in this Registration Document, in the Securities Document and in ANNEX 1, collectively referred to as the Prospectus, before making an investment decision. If any of the following risks occur, potential investors could lose the entire value of their investment in the Company’s securities.
Investors should carefully consider all the risks related to the Company, and should consult his or her own expert advisors as to the suitability of an investment in securities of the Company. An investment in securities of the Company entails significant risks and is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of the investment. Against this background, an investor should thus make a careful assessment of the Company and its prospects before deciding to invest. 1.1 Risks Related to Nelja Energia’s Business and Industry
1.1.1 Debt servicing
The Company is a holding company and its ability to serve its payment obligations under the Bonds depends on the receipt of funds from its subsidiaries and participations. The Company is a holding company with no significant assets other than its interests in its Subsidiaries and participations. Its ability to serve its payment obligations under the Bonds mainly depends on the receipt of sufficient funds from its Subsidiaries and participations which in turn depends on the business, financial condition and the financial performance of these Subsidiaries and participations. Furthermore, the transfer of funds from Subsidiaries and participations may be or become subject to legal and contractual restrictions entered into by the Subsidiaries and participations such as lease agreements and asset pledges. The realization of any of these risks could have a material adverse effect on the Group’s cash flows, financial condition and financial performance.
1.1.2 Price of electricity
Energy price risk is the risk of variations in the price of electricity, renewable energy subsidy and other benefits. The risk for the Company occurs in cases where and to the extent that the Company’s energy sales have not been hedged, in which cases fluctuations in prices in the electricity market would have a direct impact on consolidated operating earnings (currently the electricity market model in Estonia; for more information on electricity market see section 3.8). Generally, there is a risk of a long-lasting decline in or continued low level for energy prices. Further, there is a volume risk if delivery of electricity is hedged prior to relevant electricity production capacity has been commissioned, i.e. if production capacity is delayed or interrupted. In any case, risks associated with variations in the price of electricity and of electricity certificates or continued low level for energy prices could adversely affect the Company’s earnings and indicate risk for declining value in existing investments. If the annual cumulative wind production of subsidy eligible wind energy producers is in excess of 600 GWh in Estonia (from time to time) the subsidy payment will stop until the end of the calendar year and thus reduce the Company’s earnings. During the past years parliamentary discussion has taken place in Estonia regarding changing the renewable energy subsidy schemes. Today such discussions are suspended but it cannot be excluded that they will be resumed in the future. Possible changes in the renewable energy subsidy schemes may reduce the Company’s earnings.
1.1.3 Variations in output
The Group’s revenue is dependent on actual output from its operating business, which in turn depends on wind conditions during the actual period in question at the locations concerned, and the technical availability of the wind farms. The wind conditions vary between seasons over the course of the year but also between individual years. By establishing a portfolio of projects in different geographical locations, performing extensive wind measurements and by evaluating which wind turbines are most suitable for the specific geographical location prior to making decisions regarding investments, the risk of variations in output is reduced. Further, there may be discrepancies between production estimates and actual output from operating wind farms after commissioning. Unfavourable weather conditions, changes in climate, technological failures and significant discrepancies between estimates and actual electricity production may have a negative impact on earnings.
4
1.1.4 Technological development
The electricity produced from the Group’s operations is transported and consumed in the same manner as electricity generated by other energy sources, meaning that different energy sources compete with each other. Technology advances mean that new wind power, biogas or biomass energy may be developed more favourably than already existing technology allows it to and it could also mean that competing electricity-producing technologies could be developed to produce energy in a more favourable manner than both wind power and biomass energy. Within the wind power sector, biogas and biomass energy sector, there is also a risk that the technology chosen by the Company may entail risks that are unknown today or where the known risks have broader consequences than anticipated. Although the Company attaches significant importance to selecting modern but well proven technology, technological development during the cycle of the Group’s wind farms, CHP-s and pellet plants could adversely affect its earnings.
1.1.5 Political and regulatory impact
A large number of regulations issued by numerous national, regional and local authorities apply to the business of the Group. In respect to wind and CHP power, even if the marginal cost is low, investments in new power production has historically been and still remains dependent (as is the case for new investments in many other power production technologies) on economic incentives to be competitive with already existing electricity-producing assets in the market. The Group is therefore dependent on the additional revenues it receives from the renewable energy subsidy system in Estonia, the fixed electricity prices in Latvia and Lithuania as well as on the continued pursuit of current objectives by the various governmental authorities and agencies involved in the drive to expand wind power in the Baltic region. However, the Company will receive the renewable energy subsidy in Estonia and fixed prices for the electricity in Lithuania for the first 12 years (10 years in Latvia in case of CHP). The large number of administrative entities involved can make the process of obtaining permits to construct and operate an energy project long and complex, which could adversely affect Company’s result and expansion of operations.
The expansion of operations is also affected by laws governing environmental permits under the different environmental laws or similar regulations. Revisions to such regulations could thus adversely affect Company’s result and expansion of its operations. Potential amendments to support systems, licensing or other regulatory impacts on the Group’s operations could adversely affect the Group’s earnings. In Latvia there is a strong political incentive to decrease the amount of existing support that is available to the renewable energy producers. For example in 2014 a specialised tax was introduced in regard to the income received from subsidies that is currently being reviewed by the Constitutional Court. It is therefore possible that the existing support systems may experience modifications resulting in a decreased amount of the support.
Awarded subsidies are conditional on the producer meeting tight project development deadlines and the subsidies may be cancelled in case the producer fails to meet the project development milestones.
1.1.6 Regulatory liabilities
The nature of the Group’s operations exposes it to a wide range of environmental, health and safety regulation that could result in significant liabilities. The environmental, health and safety regulation may also become stricter, in which case the Group’s operations may become non-compliant with applicable requirements. Wind farms may cause environmental hazards or nuisances to their local human populations, flora and fauna and nature generally. The noise and shadows of turbine blades may cause a nuisance to the local (human) population. The CHP plants cause CO2 emissions. The Group does not have in place easements over all properties neighbouring its wind turbines that are being affected by negative influences of the latter (including noise, vibration and shadowing). Given the lack of such easements whereunder the owners of the neighbouring properties would be obliged to tolerate such negative influences the latter (in some cases also public authorities) may request the Group companies to pay compensation in respect of such negative influences or request the operation of the wind turbines to be temporarily or permanently suspended. The Group’s current and future operations that are conducted in the Baltic region are therefore subject to environmental regulations.
Specifically, in Lithuania in 2011 the maximum noise level of the wind farms in residential areas has been reduced from 55 dB to 45 dB. Currently valid requirements for acoustic noise foresee that the wind farms for which building permits were issued prior to 1 November 2011 may exceed the maximum limits of acoustic noise by up to 10 dB until 1 November 2016, and therefore did not impact currently operating wind farms. However, upon expiry of the period of exception, the wind farms in Lithuania will have to comply with the requirements for the reduced noise levels. The practical implications of this requirement are so far unclear, as there is no valid method or procedure for measuring the actual acoustic noise of 5
wind turbines, and the acoustic noise level is based on theoretical calculations, which do not take into consideration the particular environment or other actual or potential sources of acoustic noise. However, compliance with the changed requirements may require reassessment of current sanitary protection zones established for the wind farms, and the costs of compliance associated with changes in noise and environmental regulations could require significant expenditures, and breaches of such regulations may result in the imposition of material fines and penalties or temporary or permanent suspension of production operations.
1.1.7 Project development
A large part of the Company’s operations is to develop wind power projects from the conclusion of a land lease with a landowner to actual commissioning of a turbine or CHP plant. A number of risks are associated with a project’s development phase, including that the wind conditions in a specific location are too weak to enable continued development or that a permit cannot be obtained in time. There is also a risk that even if a wind farm has become operational it may take significant additional time to pass grid related compliance tests. Renewable energy subsidy will be paid only to wind farms that have passed such tests and have been declared to meet the applicable requirements by the grid company. Possible delays in passing such tests or subsequent non-compliance with the applicable requirements may cause delayed commencement or subsequent suspension of payment of renewable energy subsidies, thus having an adverse effect on the Company’s financial position. The Company’s estimates are based on forecasts and models produced by internal and external resources within the relevant area. The estimates are thus based on knowledge and experience but also on assumptions, meaning that there is a risk of significant discrepancies between estimates, measurements and actual outcomes, which could adversely affect the Company’s financial position. Further, the Company and its partners are in their project development dependent on the availability of suitable sites for bankable wind turbine projects, including necessary wind resources and grid capacity, permit granted or possible to seek, and suitable ground conditions for foundations, roads and cables. If such availability declines dramatically it could adversely affect the Group’s expansion of its operations, which in its turn could have an adverse effect on the Company’s financial position.
Conflicts with other cultural and environmental interests as well as with local inhabitants, telecom, military and airport interests may delay or impede the permitting process for new projects. These conflicts centre on issues such as the changes to the landscape or animal life, the impact of noise and shadows on places where people or animals live, the impact on recreational values and the impact on natural and cultural environments. Delays may also result from transportation or construction problems or when connecting turbines to electrical grids, which are areas, where the Company is in many cases dependent on external parties and weather conditions.
1.1.8 Relations with suppliers
The Company’s business includes the development, construction, operation and maintenance of wind energy and biomass energy projects. The Group’s operations require delivery and assembly of numerous components of technical equipment from various suppliers. The Group is therefore dependent on agreements with and undertakings by external suppliers and by the suppliers’ ability to fulfil the agreements in respect to agreed standards of quality, delivery times and other factors. As delivery periods for the required input goods are relatively long and some technology is relatively young, construction errors or otherwise incorrect or delayed deliveries or the non-delivery of goods could result in delays or stand-still in the Company’s existing and new projects, which in turn could adversely affect the Group’s earnings. Delays in the development of the Group’s project portfolio could result in an inability to fulfil its obligations under concluded agreements, which could adversely affect the Group’s earnings.
1.1.9 Customers
Electricity generated by the Group is sold on Nord Pool, under bilateral agreements to customers in Estonia and to transmission system operators in Latvia and Lithuania. If the Company’s customers fail to meet their obligations, it could adversely affect the Group’s sales, financial position and earnings.
In some cases, the Company has fixed delivery commitments towards its end customers with respect to electricity. In case the actual output falls below the pre-sold output, the Company would be forced to purchase the difference on the power exchange, i.e. Nord Pool, or from other producers. This entails a risk in case the price of the balance exceeds the price of the pre-sold power.
6
1.1.10 Landowners and leases
The Company’s subsidiaries have a number of land leases with landowners providing rights but not obligations to erect wind turbines, CHP plants, pellet plants, substations, cable lines, access roads and other necessary infrastructure on the property of such landowners. If a plant’s utilisation period was to exceed the contracted duration of the land lease, there is a risk that the Company would be unable to continue to operate the plant in the leased location as the land lease would expire unless a new agreement on extension could be concluded with the landowner. Therefore material new investments in existing plants are subject to extension of the relevant land lease or conclusion of a new land lease.
In a number of cases the Company does not have direct lease agreements with the landowners, but is subleasing land from the original lessees. As a result, validity of the sublease agreements concluded by the Group is dependent on the validity of the lease agreements concluded by the original lessees and the land owners. The Group has taken measures to protect itself from the effects of termination of the sublease agreements by obtaining additional in rem rights (building rights and/or easements) for the land plots, where wind turbines and transformer substations are erected. However in case of termination of the lease agreements the landowners may seek remuneration for usage of the land plots, which may not be at the level of current rent fees payable by the Group.
The lease of plant plots may also be lost if the respective subsidiary fails to meet its contractual obligations, in particular if it fails to pay the agreed rent or does not pay it on time.
1.1.11 Access to sites
The Company is reliant on the use of land owned by third parties to develop, construct and operate its wind farms, CHP-s and pellet plants. To develop, build and operate its wind farms, CHP and pellet plants, the Group requires rights of use to a large number of land plots, which are used as an access route, cable route to the feed-in point, a site for technically necessary ancillary facilities or for establishment of sanitary protection zones. None of this land is owned by the Company and is normally secured by lease agreements, easements, building rights, written agreements or unilateral consents of the land owners. Due to the size of the projects and a number of third parties involved, it may be that not all the land required for the relevant wind farm, CHP and pellet plant is covered to the necessary extent (in some cases the Company has indeed detected lack of necessary land use rights). This may have happened for a number of reasons, including (without limitation) because the relevant land plot has been overlooked or because a corresponding right has not been agreed to. The lack of, or cancellation of rights of use to essential and not otherwise replaceable land plots can lead to the operation of wind farm, CHP and pellet plant having to be completely or partially suspended or to additional costs being incurred because existing facilities have to be moved to or new agreements have to be concluded on unfavourable terms.
Even if the necessary rights of use have been guaranteed contractually, it cannot be ruled out that such rights of use may be revoked or otherwise terminated prematurely by the respective owner or its creditors. The rights of use a required plant plot may also be lost if the respective subsidiary fails to meet its contractual obligations, in particular if it fails to pay the agreed rent or other fee or does not pay it on time. It may be expected that fee levels related to land use will increase in time which will adversely affect the earnings of the Group’s new projects where such fees would have to be agreed upon at increased levels.
1.1.12 Permits and plans
Environmental impact assessment (or a survey, in cases where EIA is not required), planning and zoning decisions, building permits or other approvals are necessary to build wind farms, CHP-s and pellet plants. It cannot be ruled out that permits, which have been granted will be reassessed within the scope of formal proceedings. Therefore, there is a risk of a permit being revoked in whole or in part, which could lead to a project not being implemented, or not being implemented to the planned extent, or having to partially or fully dismantled. The aforementioned risks could have a material adverse effect on the business activities, assets, financial condition and results of operations of the Group.
The construction process of a CHP and pellet plant involves continuing improvements and amendments to the initial technical design. If specific type of improvements or amendments is introduced in the technical design then the relevant subsidiary will need to obtain the required permits anew or request additional permits to be issued. It is possible that in specific situations the new or additional permits cannot be obtained or the receipt of such permits can be time consuming. Due to changes in the chosen equipment of Broceni CHP project, the Group has amended previous technical design for the construction of the foundation has obtained a new building permit for the construction of the remaining CHP plant. These activities can involve obtaining additional consents and approvals and can also be appealed by parties that are potentially infringed by these activities. An appeal of the building permit will 7
interrupt the operation of the building permit, will cause a stoppage of construction works and thereby can result in the subsidiary failing to meet the tight project development timeline and losing the awarded subsidy for the CHP plant. If there is an appeal submitted that stops the construction process the Group plans requesting the administrative court to reinstate the operation of the building permit and allowing the continuation of the construction.
1.1.13 Operations and maintenance
The Company’s operations and maintenance activities comprise a number of processes whose primary objective is to prevent any suspension or interruption in, and to optimise, the production of electricity. Suspensions and interruptions can occur as a result of a breakdown, externally inflicted damage (by fire or otherwise) or scheduled maintenance, and can have consequences for the Group’s ability to fulfil its obligations to its customers. Such suspensions or interruptions could adversely affect the Group’s operations, financial position and earnings. Recently a fire broke out in one WinWinD wind turbine operated by VV Tuulepargid OÜ in Viru-Nigula causing the need to decommission the damaged turbine. The cause of the fire is being investigated. Although additional checks have been carried out in regard to other WinWinD turbines, it cannot be excluded that similar incidents will occur in the future, adversely affecting the Group’s operations, financial position and earnings.
The Company has an O&M strategy in place in the absence of WinWinD performing O&M obligations. The Company has installed its own SCADA system and entered into service agreements to provide scheduled and unscheduled maintenance regarding WinWinD projects and to provide other operational services and spare parts procurement services. The Company has established a warehouse to storage spare parts for WinWinD sites to reduce/remove the lead time waiting for spare parts which in turn have a positive effect on long term availability at the WinWinD sites. The Group companies are also performing themselves O&M of the biogas stations and CHP plants. Irrespective of the Company taking the described measures to minimize downtime of its production units, suspensions or interruptions in the work of the production units may still occur either due to lack of necessary spare parts, lack of know-how or competence to deal with particular problems, unavailability of necessary repair or maintenance services or other similar reasons. As the full service agreement with WinWinD and contractor of the biogas stations and CHP plants has been terminated there is no producer’s performance guarantee for such downtime in place.
Over time, costs for service and maintenance on the Group’s equipment may differ from those on which the cost estimate for the investment is based and actual decommissioning costs could exceed those set aside or budgeted, which could adversely affect the Company’s earnings.
The Company’s business is exposed to the risks inherent in the construction and operation of wind energy, biogas and biomass energy projects, such as breakdowns, fire, manufacturing defects, natural disasters and certain environmental hazards.
1.1.14 Dependence on key individuals
The Company’s future performance is affected by the knowledge, experience and commitment of its management and other key individuals. The Group has concluded employment contracts and option schemes with key individuals on terms that are deemed to be consistent with current market conditions. Despite this, there is no guarantee that the Group will be able to retain such key individuals or that it will be able to recruit new, qualified staff.
1.1.15 Management and accounting systems
The Company intends to expand its operations. It cannot be excluded that the complexity of the operations and the responsibilities placed on management will not thereby increase, placing an increasing burden on the Company’s management and operational resources. Future profits are to some extent dependent on human resources and technological management systems. Although the Company believes its current resources and systems are adapted for the expansion, there is a risk that the effectiveness of those resources and systems over time will not grow at the same pace as the Group’s operational requirements, which in turn could adversely affect the Group’s operations, financial position and earnings.
1.1.16 Dependence on IT
The Group is dependent on an efficient and uninterrupted operation of its information and communication systems. Information and communication systems are generally prone to failures, damage, power 8
outages, computer viruses, fire and similar events. A failure or interruption in the operation of these systems can therefore not be ruled out. Failures or interruptions in the operation of the computer and data processing systems used by the Group could result in the interruption of operations This could have a material adverse effect on the assets, financial condition and results of operations of the Group.
1.1.17 Grids, wind turbines, CHP-s, etc.
The installation of a wind energy, biogas and biomass energy project requires a connection to the power grid in order to transmit and deliver electricity. The Company cannot guarantee that it will obtain sufficient grid connections or capacity for future projects within planned timetables and budgetary constraints. Connecting wind farms, CHP and pellet plants to the grid is a complex and time consuming process and unanticipated delays may occur which may adversely affect the Company’s earnings. Transmission and distribution networks may experience congestion, outages or technical incidents and operators of these grids may fail to meet their contractual transmission and distribution obligations or terminate the contracts involved or require payment of additional fees. Such events could adversely affect the Company’s operations, financial position and earnings.
If wind turbines, CHP-s, pellet plants, transmission grids or other electrical installations are damaged or destroyed, for instance due to natural catastrophes, fire or other factors beyond the control of the Company, the Group may be unable to deliver electricity to its customers. Under such circumstances, and if the Group is unable to find alternative resources or repair its existing ones, this could adversely affect the Group’s operations, financial position, cash flow and earnings. Furthermore, the life of a wind turbine is approximately 25 years and this is the figure on which the cost estimate for the investment is normally based. The life of CHP-s, biogas and pellet plants are approximately 15 years and this is figure on which the cost estimate for the investment is normally based. In wind turbine cases where the utilisation period proves to be less than 25 years and in CHP, biogas and pellet plants cases where the utilisation period proves to be less than 15 years this could adversely affect the Company’s earnings and cash flow.
1.1.18 Impact of market interest rates
In accordance with the objectives defined by the Company, the funding of each wind farm, biogas and biomass energy project includes a large portion of borrowed capital, approximately 60-75 per cent of the total project investment. As a result of this funding arrangement, the Company is exposed to variations in interest rates. Interest risk is defined as the risk of a fall in earnings caused by a change in market interest rates. A significant factor affecting interest risk is fixed-rate periods. The Group’s financial policy includes guidelines on fixed-rate periods (interest rate duration). The management of interest risk is aimed at reducing negative effects from changes in market interest rates. The Group strives to achieve a balance between cost-effective borrowing and risk exposure on the one hand, and a negative impact on earnings in the event of a sudden major change in interest rates on the other hand. The exposure is hedged using interest rate swaps, which cover parts of the Company’s long-term borrowing. Increased market interest rates over time will increase interest costs for the Company, which means that its operations, earnings and financial position could be adversely affected unless such increased interest costs are compensated by otherwise increased income or reduced costs.
1.1.19 Financing risk
The Company is in a situation where significant additional capital will be required to fund its planned growth. Financing risk is defined as the risk that the Company will be unable to meet its liabilities due to insufficient liquidity or difficulties in obtaining funding. The Company is dependent on its ability to refinance existing facilities at their due date and to obtain additional financing at market terms in connection with new projects. In case the Company is unable to refinance existing facilities or obtain additional financing at market terms, as a result of a deficiency in the capital market or for any other reason, it could adversely affect the Company’s operations, earnings and financial position. The Company is also dependent on its ability to finance short-term fluctuations in cash flow and unforeseen major payment obligations. A situation where the Company is unable to meet its financial obligations towards its creditors due to lack of liquidity could adversely affect the Company’s financial position. Further, it could result in the Company being under an obligation to prepay existing financing, which could in turn adversely affect the Company’s operations, earnings and financial position.
1.1.20 Breach of covenants
The Group currently has financing agreements in place with certain banks and financial institutions. Some of these agreements contain certain restrictive financial and non-financial covenants, which have to be
9
maintained and followed throughout the term of the respective financing agreements. There can be no assurance that the Group will be able to comply with these covenants. As a consequence, the Group may be obliged to repay the borrowed facilities prematurely. Financing agreements normally have a cross- default clause, meaning that in case of breach of one of the financing agreement could result in the termination of other formally unrelated financing agreements. This could materially and could have a material adverse effect on the business activities, assets, financial condition and the Company's ability to make payments under the Bonds.
1.1.21 Asset pledges
As a rule, all assets and receivables of the Subsidiaries as well as the shares of the Subsidiaries are pledged to secure the financing granted by banks or other financial institutions for the development of a respective wind farm and biogas projects. Furthermore, in some cases the wind turbines are being leased from financial leasing companies, with the ownership of wind turbines retained by the providers of financial leasing until full repayment of the facility. Therefore, unsecured creditors would be entitled to recover their debts from the assets and receivables of the Group only after the claims of existing and future secured creditors would be satisfied in full.
1.1.22 Counterparty risk
Counterparty risk is the risk of incurring a loss if a counterparty fails to meet its obligations. Commercial counterparty risk encompasses the solvency of business partners or customers and is managed by the Company’s central finance function through careful monitoring of payment track records, customers’ and partner’s financial reports as well as good communications. The Company’s total counterparty risk will be distributed across several customers, which will account for the Company’s trade receivables. Financial counterparty risk arises when temporary excess liquidity is invested for the purpose of obtaining an increased return. Excess liquidity may only be invested in assets with a low counterparty risk that have been approved by the board of directors of the Company. If the Company does not succeed in managing its counterparty risks, this could adversely affect the Company’s sales, financial position and earnings.
1.1.23 Disputes
The Company is currently not party to any dispute which could adversely affect the Group’s earnings or financial position. However, it cannot be excluded that the Company will become involved in disputes in the future. The Company can give no assurances as to the results of any future investigation, proceeding, litigation or arbitration brought by private parties, regulatory authorities or governments. In addition, if an unfavourable decision were to be given against the Company, significant fines, damages and/or negative publicity could adversely affect the Company’s earnings and financial position.
1.1.24 Taxes
The Company has obtained advice from independent tax advisors on tax-related issues. However, it cannot be excluded that the Company’s interpretation of applicable rules and administrative practice is not entirely correct, or that rules and practice may change, possibly with retroactive effect. The decisions of tax authorities could change the Group’s previous or current tax situation, which could adversely affect Company’s earnings.
1.1.25 Region
The Group’s principal assets and operations are located in the Baltic region and it sells all its products and services to this region. Any adverse change in the economic or political environment and future or retroactive amendment of feed-in tariffs and/or premiums, in the Baltic region may, subject to protections afforded to the Company or its subsidiaries under the terms of the licences, would seriously affect the profitability and possibly the viability of the Group’s business.
1.1.26 Insurance
The Group is unable to insure against all risks and may be exposed under certain circumstances to uninsurable hazards and risks. Accordingly, the Group could incur substantial losses if an event which is not fully covered by insurance occurs, which would have a material adverse effect on the Group’s business, results of operations and financial condition.
10
1.1.27 Disaster
The performance of the Group may be affected by reason of events such as radioactive, chemical or biological contamination, environmental disasters such as fires or earthquakes and acts of terrorism which are outside its control. The occurrence of such events may have a variety of adverse consequences for the Group, including risks and costs related to the damage or destruction of property, suspension of operation and injury or loss of life, as well as litigation related thereto..
11
2 RESPONSIBILITY STATEMENT
2.1 Responsibility Statement by Persons Responsible This Registration Document has been prepared by Nelja Energia AS in connection with the Bond Issue and an investment therein. Nelja Energia confirms that it has taken all reasonable care to ensure that such is the case, the information contained in the Registration Document is, to the best of Nelja Energia’sknowledge, in accordance with the facts and contains no omission likely to affect its import.
Tallinn, Estonia 18 November 2015
Kalle Kiigske CFO, Member of the Management Board
Nelja Energia AS
Regati puiestee 1 Tallinn 11911 ESTONIA
12
3 COMPANY OVERVIEW
3.1 Incorporation, Registered Office and Registration Number The legal name of the Company, which is the legal entity that registers for the purpose of financing its operations, is Nelja Energia AS, the Republic of Estonia. The Company is incorporated as a public limited company (legal form: aktsiaselts) operating under Estonian legal framework. The Company’s business registration number with the Estonian Commercial Register is 11183009, registered by the Tartu County Court Registration Department. Nelja Energia is the parent company of the Nelja Energia group (“Group”). The Company’s main purpose is to own shares in its subsidiaries, separate SPVs that hold the Company’s wind and biomass assets. The parent company is responsible for the Group’s operational and investment activities and is generally responsible for the overall management of the Group, and it sets out the Group’s budget, goals and strategy.
According to the Articles of Association, the Company’s registered office is at Regati puiestee 1, Tallinn city, Harju County, 11911, Estonia. The Company’s telephone number is +372 639 6610 and telefax number is +372 639 6620. The Company’s web site is www.neljaenergia.ee. The Group also has offices in Latvia and Lithuania.
Date of first entry into the Estonian Commercial Register is November 3, 2005.
As stated in the Company’s Articles of Association, the Company undertakes to focus their business activity on the production of renewable energy in Estonia, Latvia and Lithuania and to ensure that its subsidiaries do the same.
Nelja Energia’s Articles of Association are listed in the Appendix 1 of this Registration Document. 3.2 Company Overview and History Nelja Energia is the result of a merger between three renewable energy companies that were both actively developing and managing wind energy assets in the Baltic States: Vardar Eurus AS, Nelja Energia OÜ and Freenergy AS.
Vardar Eurus AS was established in 2004 by Norwegian municipal company Vardar AS for the purpose of developing, owning and operating wind and other renewable energy assets in the Baltics. Martin Kruus was hired as its CEO. The Nordic Environment Finance Corporation (“NEFCO”), a Nordic financial institution aimed at funding development in the Baltics, became a shareholder in Vardar Eurus in 2005 by acquiring 30% in the company. Later, in 2010 NEFCO sold 2/3 of its shareholding back to Vardar leaving it with 10% holding in Vardar Eurus.
Freenergy AS is an investment holding vehicle that was incorporated in 2005. The company was backed by a group of local investors with interests in developing wind energy assets in the Baltics and Eastern Europe. Historically, as Vardar Eurus and Freenergy’s interests were aligned they have developed several assets in co-operation. As a result, an Estonian project management company was founded by the two in 2005 – Nelja Energia OÜ. Martin Kruus was appointed CEO of the Nelja Energia OÜ and Kalle Kiigske as CFO to manage the assets that Freenergy and Vardar Eurus had thus far developed. Freenergy secured a further equity investment from the European Bank for Reconstruction and Development (“EBRD”) in 2009 and from Skype founders’ investment vehicle Ambient Sound Investments in 2011.
In 2012 Vardar Eurus acquired a majority shareholding in Freenergy in a non-cash transaction. The holding company was subsequently renamed Nelja Energia AS.
EBRD sold its 11% stake in 2014 to current majority shareholder Vardar, as part of a broader sales process. Vardar which exercised its pre-emption rights also acquired 6% of shares from local investors, effectively increasing its total shareholding in Nelja Energia AS to 77%.
13
The majority of Nelja Energia’s wind Figure 1: Capacity development timeline (MW) assets have been developed by the current management team from pre- 250 223 223 permission greenfield sites, the 193 exceptions to which are Virtsu I and 200 Esivere which were acquired as 150 operational assets. 116 116
82 As of start of 2015 the Company’s 100 73 assets comprised of 223 MW of 52 50 operational onshore wind capacity with 28 28 a substantial development pipeline. 0 Nelja Energia also has minority in two 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 biogas plants with total 2.6 MWel and additional interests in one of the Installed capacity (MW) region’s largest electricity traders and a wind turbine O&M business. Source: Company
3.3 Goals and Strategy The main areas of business of Nelja Energia are the development of the renewable energy industry and the operation of power production assets. Nelja prefers to focus on renewable energy sources, mainly wind, biomass and biogas.
Nelja Energia has grown from a green field developer of wind projects into a cross-border power producer with revenues exceeding EUR 40 million, having grown at an annual rate of 20% in the past six years. Although the Company does not foresee such rapid growth going forward, Nelja Energia still has a substantial wind pipeline of assets to deploy during the next five years. In addition the Company also plans to enter into the pellet production market, constructing a combined heat and power (CHP) and pellet factory in Broceni, Latvia.
Medium-term development pipeline includes:
Figure 2: Capacity development timeline } Šilute 60 MW wind farm in Lithuania under construction, expected to be commissioned in Q3 2016 400 } Tooma II 6.9 MW wind farm under construction, having secured all 84 permits. Expected completion by end of 300 2015 0 } Broceni biomass CHP 4 MWel 71 combined with pellet production facility 0 is in construction, expected 200 commissioning in 2016
MW 375 } Pipeline includes two wind projects in Lithuania (Šilute II and Silale II with total 51.5 MW) and one project in 100 220 Latvia (Dundaga 32.2MW), expected to be commissioned in 2018 } Total development pipeline includes 151 MW of wind capacity, out of which 0 66.9 MW is in construction 2014 2015 E 2016 E 2017 E 2018E Total
Source: Company
In addition to the development pipeline Nelja Energia has plans to develop offshore wind parks, notably a 700MW in Hiiumaa Offshore in Estonia and 400MW in Lithuania. However offshore wind is currently not competitive in Estonia or Lithuania and delivery of offshore assets has been excluded from the Company’s business plan pre 2020.
14
3.4 Corporate Structure Nelja Energia owns 100% in its entire wind assets portfolio. Assets are held in separate SPVs usually associated with project financing arrangements. Nelja Energia also owns 95% in Hiiumaa Offshore, an offshore development project.
Nelja Energia’s biogas assets are held through 70% holding in 4E Biofond, which in turn owns 2.6 MW biogas plants in Estonia. The electricity trading business Nordic Power Management (NPM) is owned 51% by the Company with the remainder owned by its management. Empower 4Wind, the wind O&M business is 40% owned by Nelja Energia.
The Company owns 100% in its Latvian subsidiary 4 Energia SIA and 81% in its Lithuanian subsidiary 4 Energia UAB.
Figure 3: Corporate structure
Source: Company
Figure 4: the Company’s shares in significant subsidiaries:
Company Operation Capacity, MW Ownership Status Pakri 18.4 Operating 100% OÜ Pakri Tuulepargid Paldiski 22.5 Operating Virtsu I 1.2 Operating Virtsu II 6.9 Operating OÜ Roheline Ring 100% Tuulepargid Esivere 8.0 Operating Virtsu III 6.9 Operating Tooma I 16.0 Operating Tooma Tuulepark OÜ 100% Tooma II 6.9 Under construction Vanaküla 9.0 Operating VV Tuulepargid OÜ 100% Viru-Nigula 12.0 Operating Aseriaru Tuulepark OÜ Aseri 24.0 100% Operating Oceanside OÜ Ojaküla 6.9 100% Operating Iverneta UAB Mockiai 12.0 100% Operating Sudenu vejo elektra UAB Sudenai 14.0 100% Operating Silales vejo elektra UAB Silale 13.8 100% Operating Naujoji energija UAB Ciuteliai 39.1 100% Operating Šilutes vejo projektai UAB Šilute 60.0 100% Under construction Continued on next page
15
Figure 4 continued: Company Operation Capacity, MW Ownership Status Silute 2 UAB “Šilutes vejo Šilute II 40.0 100% Development parkas 2” Silute 3 “Šilutes vejo parkas 3” Šilute III 20.0 100% Development UAB Baltic Energy Group UAB Offshore 400.0 95% Development Silale vejas UAB Silale 11.5 100% Development Enercom SIA Dundaga 3220.0 100% Development OÜ Hiiumaa Offshore Offshore 700.0 95% Development Tuulepark
OÜ 4E Biofond Biogas plants 69.88% Nordic Power Management Energy trading 51% OÜ 4energia UAB Operation 81% 4energia SIA Operation 100% SIA Technological Solutions CHP 100% Under construction SIA Pellet 4Energia Pellet production 100% Under construction Source: Company The Group also has interests in the following associates:
Figure 5: the Company’s associates Company Operation Ownership Status Empower 4 Wind OÜ Wind park maintenance 40% Marble Invest OÜ Renewable energy technologies 1.62% Marble Management OÜ Management 5% Wind Controller JV OY Wind park maintenance 10% Shareholdings through subsidiaries OÜ Oisu Biogaas Biogas plant (4E Biofond OÜ) 40% OÜ Vinni Biogaas Biogas plant (4E Biofond OÜ) 46.5% Source: Company Significant influence over Marble Invest OÜ, Marble Management OÜ and Wind Controller JV OY is obtained via additional influential rights set forth in the shareholder agreements. 3.5 Ownership Structure Vardar Eurus AS is an investment vehicle, owned by Vardar AS (90%) and Nefco (10%). Vardar AS is a Norwegian utility company owned by Buskerud Fylkeskommune (county) and Norwegian municipalities. Nordic Environment Finance Corporation (NEFCO) is an international finance institution established by Nordic countries.
Private investors include prominent Estonian HNWIs Jüri Mõis (JMB Investeeringute OÜ), Hannes Tamjärv (HTB Investeeringute AS), Aivar Berzin (Vestman Energia AS) and Peeter Mänd (Ivard OÜ)
Ambient Sound Investments is the investment vehicle of Skype’s founders.
Management of Nelja - CEO Martin Kruus (Solarcom OÜ) and CFO Kalle Kiigske (Atradius OÜ) own a combined 4.6% in the Company.
Figure 6: Ownership structure
16
HTB Invest. OÜ
JMB Invest. 2.4% Atradius OÜ OÜ 2.3% 4.0% Solarcom OÜ 2.3% Vardar Eurus 77.2% 22.8% Other AS investors Vestman 4.2% 1.4% ASI OÜ Energia AS 0.5% Greatway OÜ 5.2% 0.3% UPI OÜ Ivard OÜ0.2% Kakssada Kakskümmend Volti OÜ
Source: Company
3.6 Overview of Nelja Energia’s Main Business Areas Nelja Energia’s main business area is the development, ownership and operation of wind assets in the Baltics. In addition to its core business focus Nelja also operates in three related business areas: 4E Biofond, Nordic Power Management (“NPM”) and Empower 4Wind.
Figure 7: Business areas
Source: Company
4E Biofond owns and operates two biogas assets in Estonia: Oisu (1.2 MWel/1.2MWth) and Vinni (1.4 MWel/1.4MWth). Biogas plants utilise biogas from organic waste (such as manure and dung) in a biogas engine, for the production of energy. The organic waste is collected from nearby farms in cooperation with the farmers and then harnessed in the biogas plant where biogas is formed by anaerobic microorganisms. These organisms produce methane and carbon dioxides as metabolic waste products. These gases as then used in the biogas engine to produce electricity and useful heat. The subsidiary also works with farmers to provide subordinated loans to biogas projects, aiming to provide a universal project development service from planning, financing to technology management.
Nelja Energia’s power trading activities are managed through Nordic Power Management, which offers services in all activities related to the purchase and sale of electricity. NPM’s electricity portfolio is approximately 0.7 TWh per annum and Nelja Energia accounts for close to 40% of traded electricity. Portfolio and balance management make up 80% of the company’s revenues with the remainder being split between trading and advisory. Advisory services are provided to large industrial clients that wish to optimise their energy costs. NPM also updates its clients of legislative changes as well as grid developments and other market events. Nelja owns 51% of NPM.
17
Nelja also has interests in a wind service and maintenance company Empower 4 Wind, established based on Empower AS wind energy maintenance division in 2010 as a joint-venture with Empower, one of the largest service providers for telecommunications and energy in Finland and the Baltics. Today the company services and maintains wind parks and provides construction, installation, troubleshooting and other related services to the wind energy sector in Estonia. It provides maintenance to over half of the installed wind capacity in Estonia including part of the O&M for Nelja Energia’s WinWinD fleet. Empower 4Wind’s ambition is to become the largest wind turbine maintenance company in the Baltics, able to serve both turbine manufacturers and wind farm developers.
18
3.7 Planned New Activities As part of the use of proceeds from the Bond Issue, Nelja Energia has a strategic plan to enter a new sphere of operation by constructing a biomass CHP facility in Broceni, Latvia. The plan is to capitalise on the synergy between cogeneration and pellet production of the plant. The envisaged project is a 4.0 MWel biomass CHP combined with a 144 000 t.p.a. pellet production factory.
Latvia is one of the largest wood pellet’s producers in Europe due to abundant Figure 8: CHP/ pellet factory key details wood resources and waste wood availability and a relative proximity to CHP capacity } 4.0 Mwel/ 14.4 MWth seaports. The latest forestry audit Pellet production } 144 000 t.p.a. performed by Latvian Ministry of capacity Agriculture in 2008 shows that forest covers approximately 3.2 million Green electricity } 31 040 MWh p.a. hectares of Latvian territory, translating quota to coverage of 54%. This forest Tariff scheme } 10-year feed-in tariff coverage is fourth largest in Europe, } 124EUR/ MWh till end of 2017 after Finland, Sweden and Slovenia. } 130 EUR/ MWh from 2018
Latvia has an installed annual pellet production capacity of approximately Location } Good hinterland road connections to site 1.2 million tonnes. Broceni is an attractive place for a new pellet } Major ports of Riga, Ventspils and Liepaja within 100 km production facility, as waste wood is abundantly available and there are no other large pellet producers nearby. } 16 ha land acquired 3 Land Approximately 2,000 thousand m of } Further project expansion possible loose wood is available covering the projected annual need (1,056 thousand m3) of the CHP and pellet production Grid connection } Broceni substation 330/110kv line combined by approx. ~2 times. Two near by large wood processing companies } 20kv line at site located nearby are ready to deliver around 1,600 m3 loose wood chips/ sawdust, which is 1.26 times more than Source: Company the projected need of CHP and pellet production combined
The heat produced in the CHP will be used in the pellet production process and the electricity produced (estimated 31 GWh annually) will be sold under a feed-in tariff (FIT) for 10 years for ~124 EUR (currently) per MWh.
Nelja Energia has conducted the tendering process for the plant’s equipment and turnkey agreements signed with Hekotek/ Stella and UPB/ Bono. The whole construction process is managed by AF Consult and Inspecta and expected total investment envisage at EUR 31.3 million.
Once fully operational, the Company expects the project to produce an annual EBITDA of EUR 6.0 million by 2017.
19
3.8 Market
3.8.1 Baltic electricity market
The Baltic States’ electricity market is the Figure 9: Baltic electricity balance, 2014 Company’s key operating area. Estonia After accession to the European Union the 12 Baltic countries were required to implement a 8 8.1 common energy policy and fulfil the union’s 10.9 internal directives, including common rules 4
Wh 2.8 for internal market and energy supplies. T 0 During this process the local energy markets were dramatically restructured and -4 reoriented. The energy policies focus on -8 security of energy supply by encouraging Production Consumption Balance diversification of energy sources and increased self-provision of power generation Latvia as well as the promotion of renewable 12 energy. 8 The Baltics as a whole, especially Latvia and 4 7.2 4.9
Lithuania, are dependent on imported energy Wh
T 0 resources. In 2014 the three countries -2.3 produced on aggregate approximately 18.8 -4 TWh of electricity while consuming 25.9 TWh, at a deficit of 7.1 TWh. -8 Production Consumption Balance Oil shale based electricity production, albeit with relatively low energy efficiency and Lithuania heavily polluting, is a dominating energy 12 source in Estonia. Close to 86% of all energy 8 was produced from oil shale in Estonia in 4 10.6 2014, followed by biomass with 4.7% and 3.0
Wh 0
wind with 4%. T -4 -7.6 In Latvia electricity is generated mostly by -8 three Daugava hydro power plants and gas -12 plants, followed closely by gas-powered Production Consumption Balance generation. Wind energy generation in Latvia is only at 1.3%. Source: Elering, Statistics Estonia, AST, Litgrid After the decommissioning of the Ignalina nuclear power plant (NPP), Lithuania relies heavily on gas PP and electricity import. This is further exacerbated by lack of viable interconnections with Poland and Sweden.
3.8.2 Nord Pool market
The Baltics are part of Nord Pool since June 2013, a single energy market for electricity for Denmark, Sweden, Finland, Norway, Estonia, Latvia and Lithuania. This market currently incorporates more than 36 million people and more than 70% of the region’s total electricity consumption is traded through Nord Pool Spot. Interconnections link the system with neighbouring markets in Germany, Poland, Russia and the Netherlands and forward prices are provided by Nasdaq OMX.
Nord Pool’s integrated electricity market has a single system price that is determined hourly by the balance between supply and demand across the market participants. Nord Pool is separated into bidding areas which have their own prices, which help regulate the constraints of international transmission systems.
Undersea cables EstLink 1 and 2 (1,000 MW) connect the Estonian and Finnish power systems, allowing trading electricity between Baltics and Scandinavia. More new transmission capacities between the Baltics and other European countries will be constructed within the next five years, giving better access to a transparent and deep forward market.
20
Planned new interconnections include:
} Lithuania-Poland (LitPol) 500 MW ready in 2016 and additional 500 MW in 2020 } Lithuania-Sweden (NordBalt) 700 MW ready in 2016 } Norway-UK 1,400 MW agreed to be built by 2020 } Norway–Germany 1,400 MW agreed to be built by 2018 } Denmark–Netherlands 700 MW agreed to be built by 2017
3.8.3 Baltic wind energy market
The Baltic region benefits from a Figure 10: Baltic wind load hours relatively good wind flow characteristics due to the Baltic Sea and North Sea creating a „wind corridor“, enabling higher load hours than neighbouring countries. Estimates indicate a possibility of 2,500 – 3,000 full load hours per annum.
Following from that, Baltics as sparsely populated areas and good wind conditions are highly suitable for developing wind energy projects.
As part of the European Renewable Energy targets for 2020 the Baltic States started to develop a framework for incentivising investments into green energy production and efficiency. Source: European Environment Agency
This included developing local support schemes, including for wind, varying by country.
Wind energy in Estonia is promoted by a fixed feed-in premium of EUR 53.7 per MWh on top of the market electricity price. Producers sell energy to the market and the TSO pays eligible companies the subsidy premium directly. Power prices in Estonia have been between EUR 30-50 per MWh, therefore the effective electricity offtake price is approximately EUR 80-100 per MWh.
This subsidy scheme is expected to be changed to a contract-for-difference with a strike price of EUR 93 per MWh. New draft legislation has also been prepared by the previous parliament however is currently on hold as Estonia had parliamentary elections in March, 2015. No major changes are expected to be made to the draft law, as the European Commission has given its state aid approval to the new draft law. The new Electricity Market Act is expected to be reviewed by the parliament in winter 2015-2016.
Alternatively to the subsidy scheme an investment grant system was available in Estonia by the Environmental Investment Centre. The grants are tendered based on the investment size and development stage of the project. Projects that receive this grant are excluded from the 600 GWh subsidy cap. Nelja’s Ojaküla farm has been constructed with the aid from the Environmental Investment Centre.
Lithuanian subsidy system has historically been a feed-in tariff of EUR 86.9 per MWh. This level was set in 2004 for development of 240 MW of wind capacity and will be in effect for 12 years from commissioning. From 2013 a new tender-based system was introduced for a further of 210 MW of installed wind capacity where developers are required to bid for prices. Tariffs are then allocated to lowest bids.
The first tender round was launched in January 2013 where three wind projects secured tariffs in the amount of 151 MW. Winning bids were at EUR 71/MWh for 12 years. Second round of tenders was announced in July 2013 awarding EUR 69.5/MWh concessions for 60 MW of wind capacity to Nelja Energia’s Šilute project (currently in construction).
21
The Latvian renewable electricity generation is supported by a complex system of subsidies that is based on a feed-in tariff of approximately EUR 100 per MWh. The existing support system is currently on hold due to concerns that an excessive amount of subsidies, especially for biomass and biogas, have been awarded. Most of these concessions will not be realised, however the overall size of potential subsidies payable is highly excessive in the public eye. Historically production concessions have been granted to projects at very high feed-in tariff prices, often up to EUR 200 per MWh (biogas). The concern is that if realised these projects will have significant impacts on consumer electricity prices. Currently existing wind energy projects are still eligible for support under the old structure.
Figure 11 below sums the current subsidy schemes for Estonia, Latvia and Lithuania.
Figure 11: Baltic subsidy schemes
Wind Biomass Biogas Small hydro Solar Estonia } Feed-in premium EUR 53.7 per MWh on top of electricity price. Electricity sold in the market } Producers' balancing obligation create balancing costs } Support is paid for 12 years } Wind energy annual support is capped at 600 GWh produced } Planned new subsidy scheme of contract for difference at 93.0 EUR per MWh } Both the existing and the new schemes have been granted state aid approval from the European Commission
Latvia } Feed-in tariff } Two different support schemes } Feed-in tariff } Feed-in tariff EUR 100-120 per } Renewable energy support: for plants 427 EUR/ MWh depending depending on capacity and smaller than MWh for 20 on the capacity natural gas price feed-in tariff 5 MW years for 10 years EUR 160-190 per MWh for 10 depending on } 60% of the years, 75% of this tariff for the capacity and previous tariff in next 10 years natural gas price 140-160 the next 10 years } Biomass cogeneration support: No more new depending on capacity and EUR/ MWh allocation of natural gas price feed-in tariff for 10 years, then 80% of quotas until 2016 EUR 170-190 per MWh for 10 years this tariff for the next 10 years
Lithuania } Feed-in tariff 86.9 } Feed-in tariff } Feed-in tariff } Feed-in tariff } Feed-in tariff „old“ EUR/ MWh for 12 86.9 EUR/ 86.9 EUR/ 75.3 EUR/ 370-520 EUR/ years MWh for 12 MWh for 12 MWh for 12 MWh for 12 years years years years } Tariff revoked for projects that did not make investments
Lithuania } Competitive tender } Competitive tender in 2013 resulted in feed-in for biogas of 136 EUR/ „new“ in 2013 MWh and for biomass of 97 EUR/MWh Projects } First stage of the starting tender resulted in a 2013 tariff ~70 EUR / MWh for 12 years
Source: Company
22
Since 2002 the Baltic installed wind capacity has increased by an average of 31.5% per annum (CAGR) to 642 MW as of end of 2014. Estonia has the highest installed capacity with a total of 303 MW, 47% of the Baltic total, followed by Lithuania with 279 MW or 42%. Latvia has been lagging behind so far having only 60 MW installed wind capacity due to the fact that the government has currently frozen the subsidy scheme until January 2016 over transparency concerns. Latvia however is still committed to developing its wind energy sector, having a target of 236 MW onshore capacities by 2020.
Figure 12: Baltic wind capacity development, 2002-2014
700
600
500 279 279
225 400
60 60 300 179 60 163
Installed capacity (MW)capacity Installed 91 200 31 31 28 294 303 54 269 100 50 16 48 27 184 10 27 142 149 27 27 27 58 78 31 31 0 24 27 23 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Estonia Latvia Lithuania
Source: company websites, Estonian Wind Power Association, Nelja Energia
Out of the total installed capacities, Nelja Energia boasts an impressive market share, having produced approximately 38% of total wind energy in 2014 and 35% of total installed capacity. Market shares are based on information gathered by the Company from publicly available sources.
Figure 13: Largest producers by produced energy, 2014
600 495 500 Nelja Energia 400 38 253 300 % Total GWh 185 1 313 200 62 117 GWh 85 % 100 56 46 41 35 0 Others
Source: company websites, Estonian Wind Power Association, Nelja Energia
23
Nelja Energia is followed by Estonian national energy company Eesti Energia with an installed capacity of 111 MW and Lithuanian renewable energy producer Renerga (Achema Group) with 50 MW.
Figure 14: Largest producers by installed capacity, 2014
250 223 Nelja Energia 200
150 134 35 % 111 Total
MW 642 100 MW 50 65 % 34 30 50 20 20 20 Others 0
Source: company websites, Estonian Wind Power Association, Nelja Energia
3.8.4 Industry information
While the Company has compiled, extracted and reproduced such market and other industry data from external sources, the Company has not independently verified the correctness of such data. Thus, the Company takes no responsibility for the correctness of such data, and cautions prospective investors not to place undue reliance on the above mentioned data.
Although the industry and market data is inherently imprecise, the Company confirms that where information has been sourced from a third party, such information has been accurately reproduced and that as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. Where information sourced from third parties has been presented, the source of such information has been identified.
In addition, although the Company believes its internal estimates to be reasonable, such estimates have not been verified by any independent sources and the Company cannot assure prospective investors as to their accuracy or that a third party using different methods to assemble, analyze or compute market data would obtain the same results. The Company does not intend to or assume any obligations to update industry or market data set forth in this Prospectus.
Finally, behavior, preferences and trends in the marketplace tend to change. As a result, prospective investors should be aware that data in this Registration Document and estimates based on those data may not be reliable indicators of future results. 3.9 Wind Portfolio
3.9.1 Overview
Since inception the Company’s wind portfolio has been rapidly developed. The majority of sites have been constructed from pre-permitted greenfield projects with Virtsu I and Esivere being exceptions having been bought as operational assets. The total installed capacity has grown at an average annual rate of 20% for the period of 2005-2014.
24
Figure 15: Nelja Energia’s wind capacity development, 2005-2017E
300
250
139 139 200 , MW 79 79 79
150 79 capacity
100 26 26 Installed 14 144 144 148 148 14 141 114 50 90 90 68 52 59 28 28 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Estonia Lithuania
Source: Company Nelja Energia’s current operational capacity is at 220 MW at 15 different wind farm locations in Estonia and Lithuania. In addition the Company has a pipeline of onshore and offshore development projects.
The operational assets are geographically well diversified, with all of the wind parks located within 20 km of the shorelines, having excellent wind conditions.
Figure 16: Asset locations
Source: Company
25
Nelja Energia’s wind portfolio primarily comprises 1 Figure 17: Parks by technology of high quality wind turbines sourced from well- known producers. Having top-tier technology vendors for turbines ensures higher reliability and Siemens availability. Nordex 5% 7% Enercon turbines make up approximately 40% of the Company’s fleet (including Šilute), followed by 40% Enercon GE with 29% and WinWinD with 19%. Nordex WinWinD 19% Total turbines are used in the Parki 18 MW park in Estonia and Siemens in the 12 MW Silale park in 280 MW Lithuania.
Nelja Energia has outsourced day to day 29% operations and maintenance to each project’s technology vendor and has signed long term GE contracts under the direction of the Company’s Operations Managers. Source: Company For WWD turbines the Company implements its own O&M strategy, verified by Sgurr Energy.
The majority of the Company’s wind turbines are relatively young in age, with the weighted average age for wind parks at 4.9 years (as of May, 2015). A further key attraction in the portfolio is the long remaining life of the turbines which can be maximised due to land leases providing a minimum on 25 years of minimum life.
Figure 18: Asset age distribution (May 2015)
21.5% 33.1% 25.6% 12.8% 7.0% 300 20 250 36
(MW) 200 72
150 280 capacity 100 93
Installed 50 60 0 Construction 1-3 years 4-6 years 7-9 years 10 and older Total
Source: Company
1 Including Šilute under construction 26
The key characteristics of Nelja Energia’s portfolio are detailed in Figure 16 below.
Figure 19: List of wind assets and key metrics
Farm Country Start Technology Turbines MW Production Availability Load Operational Virtsu I EST Oct 02 Enercon E-40 2 1.2 3 314 97.3% 31.5% Pakri EST May 04 Nordex N-90 8 18.4 47 776 94.2% 29.6% Esivere EST Oct 05 Enercon E-70 4 8.0 17 165 97.3% 24.5% Viru-Nigula EST Jul 07 WWD-3 D100/ HH90 7 21.0 48 307 95.0% 26.3% Virtsu II EST Apr 08 Enercon E-70 3 6.9 15 110 97.3% 25.0% Sudenai LIT Dec 08 Enercon E82 7 14.0 29 134 97.3% 23.8% Vanaküla EST Jan 10 WWD-3/100 3 9.0 16 394 95.0% 20.8% Virtsu III EST Feb 10 Enercon E-70 3 6.9 16 340 97.3% 27.0% Tooma I EST Jun 10 Enercon E82 8 16.0 37 899 97.3% 27.0% Mockiai LIT Nov 10 Enercon E82 6 12.0 35 305 97.3% 33.6% Aseri EST Sep 11 WWD-3/100 8 24.0 54 274 95.0% 25.8% Silale LIT Sep 12 Siemens SWT-101 6 13.8 38 418 95.2% 31.8% Ciuteliai LIT Nov 12 Enercon E82 17 39.1 98 800 97.3% 28.8% Paldiski EST Dec 12 GE-120 9 22.5 61 300 96.2% 31.1% Ojaküla EST Jan 14 Enercon E82 3 6.9 19 800 97.3% 32.8% Total 94 219.7 539 336 96.2% 28.0%
Construction Šilute LIT 2016 GE-120 24 60.0 237 100 96.2% 45.1% Total construction 24 60.0 237 100 96.2% 45.1%
Total in operation and construction 118 279.7 776 463 96.2% 31.7% Source: Company Production estimates, availability and load factors in Figure 19 are based on Sgurr Energy’s wind study on the Company’s operational data from the projects. 3.10 Business Overview
3.10.1 Organisational structure
As a lean organisation, Nelja is able to operate effectively and ensure cost efficiency. As of May, 2015 the Company employed a total of 36 FTE’s. The majority of the staff is located in Tallinn in Nelja Energia’s headquarters.
The core management team of Martin Kruus (CEO) and Kalle Kiigske (CFO) has been in place since the Company’s inception. Technical Manager Andrus Zavadskis joined the team in 2006, moving to CTO position in 2007. The Lithuanian team consists of six employees, led by Tadas Navickas. Power trading and energy consultancy services are handled by 9 people in NPM, headed by Tiit Nigul. Latvian office 4Energia SIA is the Company’s newest addition, handled by four persons.
27
Figure 20: Nelja business structure
Source: Company
Nelja Energia AS is the parent company in the group and is generally responsible for the overall management of operations, goals and strategy. The Group’s main assets are held in individual wind SPVs and other subsidiaries and Nelja Energia AS as a holding company does not itself hold any significant assets other than interests in its subsidiaries. The Company’s ability to serve its bond payment obligations depends on the receipt of funds from its subsidiaries and participations which in turn depends on the business, financial condition and the financial performance of these subsidiaries and participations.
As of the date of this Registration Document VV Tuulepargid loan has been repaid in full and Tooma Tuulepark loan refinanced. Nelja Energia AS does not have external interest bearing liabilities apart from the issued bonds.
Figure 21: Subsidiaries with external interest bearing debt as at December 31, 2014
Source: Company
3.10.2 Management of the operating portfolio
Managed as a lean company, Nelja’s management has sought to minimise the number of technical and commercial managers in order to build up each manager’s networks and help streamline and standardise contracts. This principle has also helped in keeping the Company’s low personnel and overhead costs.
Currently Nelja Energia has eight persons in asset management, who are in charge of O&M, construction management, reporting. This team is run by Andrus Zavadskis who is additionally a member of the Company’s Management Board.
28
Since 2013 the fleet is monitored by SCADA software which enables independent monitoring of the Company’s performance. SCADA provides independent data generation, reporting and proprietary means of evaluating performance metrics such as electrical losses and availability.
3.10.3 Operations and management
Everyday operations and maintenance is sourced from each project technology vendor, with the exception of WinWinD. Nelja Energia’s operations managers supervise whether parks are meeting their guaranteed availability targets as well as ensuring day-to-day monitoring.
As with all wind generator producers the Company had a service, maintenance and availability agreement with WinWinD. However, following WinWinD’s insolvency Nelja has replaced outstanding O&M contracts by servicing the turbines itself through Empower 4Wind and WindController. Empower 4Wind provides troubleshooting and maintenance while WindController provides 24/7 surveillance, technical support, solves complex maintenance issues and sources spare parts. WindController was set up by Jari Valle, a former WinWinD employee.
Having set a new O&M strategy and keeping a stockpile certain components and by significantly retrofitting the wind turbines, with major components changed/ upgraded, Nelja has considerably increased WinWinD parks’ availability to over 95% in the beginning of 2015.
Figure 22: Availability guarantees
Project Turbine Availability guarantee Long-term availability Virtsu I Enercon E-40 95.0% 97.3% Pakri Nordex N-90 95.0% 94.2% Esivere Enercon E-70 97.0% 97.3% Viru-Nigula WinWinD WWD-3 D100/HH90 n/a 95.0% Virtsu II Enercon E-70 97.0% 97.3% Sudenai Enercon E82 97.0% 97.3% Vanaküla WinWinD WWD-3/100 n/a 95.0% Virtsu III Enercon E-70 97.0% 97.3% Tooma I Enercon E82 97.0% 97.3% Mockiai Enercon E82 97.0% 97.3% Aseri WinWinD WWD-3/100 n/a 95.0% Silale Siemens SWT-101 96.0% 95.2% Ciuteliai Enercon E82 97.0% 97.3% Paldiski GE-120 97.0% 96.2% Ojaküla Enercon E82 97.0% 97.3% Šilute GE-120 97.0% 96.2% Source: Company, Sgurr Energy (long-term estimates)
29
4 BOARD AND MANAGEMENT
4.1 Management Board The group’s executive management is responsible for the daily management and the operations of the Company and its subsidiaries. Nelja Energia’s Management Board consists of three members: Martin Kruus (Chairman of the Management Board), Kalle Kiigske and Andrus Zavadskis.
The Company’s registered business address and postal address is: Regati puiestee 1 Tallinn, Estonia and also serves as c/o address in relation to the senior managements’ employment in the Company. The majority of Nelja Energia’s 35 full-time employees are based at the headquarters, including NPM trading team with smaller offices in Latvia and Lithuania. The Company confirms that no member of its Management Board holds positions in or is active in areas outside of the Company that are of importance to the Company.
Martin Kruus } CEO since 2005 CEO } Previous experience from Eesti Energia, Ministry of Founding partner Economic Affairs, Estonian Privatization Agency Chairman of the } Education from Tallinn Technical University - Thermal Management Board Engineering
Kalle Kiigske } CFO since 2005 CFO } Previously Partner with Hansabank Group (now Founding partner Swedbank), United Partners Group Member of the } Education from Estonian Business School – Banking and Management Board of Financial Management Nelja Energia
Andrus Zavadskis } CTO since 2006 CTO } Previous experience from Estonian TSO OÜ Põhivõrk and Siemens Power Transmission and Distribution Member of the Management Board of } Education from Tallinn Technical University – M.Sc. In Nelja Energia Electrical Engineering
4.2 Supervisory Board of Nelja Energia The Supervisory Board is responsible for the Company’s affairs and for ensuring that its operations are organized in a satisfactory manner.
The Company confirms that no member of its Supervisory Board holds positions in or is active in areas outside of the Company that are of importance to the Company.
Tor Ottar Karlsen } Leader of Administration for the Social democratic group in the Norwegian Parliament Chairman of the Board } Chairman of the County Council (elected Governor) of Vardar AS, Director of HR Buskerud (1999 – 2007) and PR } Education from the Norwegian University College for Social education
30
Iren Bogen } Vardar’s CFO since 2010 Vardar AS, CFO } Prior to her position as CFO served as Vardar’s Business Developer Member of Nelja Energia’s Audit Committee } CEO of Vardar Eurus AS } Leads Vardar’s wind power business in the Baltics
Egil Smevoll } Innovation Manager in Vardar AS since 2011 Vardar AS, Innovation } Prior to joining Vardar AS was Managing Director of Manager Balfour Beatty Rail } Master’s in Electrical and Electronics Engingeering from the Norwegian University of Science and Technology Rail
Ingvild Myhre } CEO of Network Norway (2006-2009) Rådgiverne LOS, Partner } CEO of Telenor Mobil (2000-2004)
Tarmo Kõuhkna } CEO of Vestman Bioenergy since 2012 AS Vestman Energia } CEO of Scandinavian Clinics Estonia } Serves as Member of the Supervisory Board at Vestman Bioenergy and Vestman Energia } eMBA in International Business/ Trade/Commerce from Helsinki School of Economics
Sander Rebane } Successful long-term track record in investment management Ivard OÜ, CIO } AS EfTEN Capital, member of the management board } SEB Eesti Ühispank (SEB), Private banking department, investment manager (2003-2005) } Education from University of Tartu, Law
Solveig Nordström } Consultant and Special Adviser to NEFCO Consultant and Special } NEFCO – senior management positions 1990-2010 Adviser to NEFCO Member of Nelja Energia’s Audit Committee
4.3 Conflict of Interests The Company’s CEO Martin Kruus and CFO Kalle Kiigske are both shareholders in the Company through holding companies OÜ Solarcom and OÜ Atradius respectfully, each owning a 2.3% stake. Other members of the Management and Supervisory Board are independent of the Company`s major shareholders and the Company`s main business relations. Related party transactions are described in section 6.2 and a detailed list of all of the Company’s shareholders are described in section 8.3 of this Registration Document.
There are no other potential conflict of interests between the management’s and the directors’ duties to the Company, and their private interests and/or other duties.
31
4.4 General During the last five years preceding the date of this Registration Document, no member of the Board or the senior management has been subject to any convictions in relation to indictable offences or convictions in relation to fraudulent offences, nor has any member of the Board or the senior management received any official public incrimination and/or sanctions by any statutory or regulatory authorities (including designated professional bodies) or ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company. No member of the Board or the senior management has been declared bankrupt or been associated with any bankruptcy, receivership or liquidation in his capacity as a founder, Director or senior Managers of a company. 4.5 Environmental Influences The environmental aspects of energy projects are addressed on the basis of local and EU regulations. A thorough assessment of potential environmental impacts is carried out in all planned wind farms which helps prevent environmental problems such as noise, impact on animals’ and birds’ habitats, social environments, etc.
During assessing the environmental impacts, the developer and several interest groups (local inhabitants, citizen associations and environmental organisations) have the opportunity to jointly reach acceptable solutions. Therefore social issues are of critical importance for each new plan. Non-profit associations have been founded in four Estonian local municipalities– Hanila, Noarootsi, Aseri and Viru-Nigula - and in three Lithuania local municipalities, with the purpose of promoting the economic, environmental, cultural and social development of the rural municipality. The wind farms donate EUR 0.32 per each MWh of electricity produced to these non-profit associations. During 2014 the wind farms donated a total of EUR 150,627 which was used for supporting local cultural events, hobby groups, scholarships and investments.
The wind farms in operation are monitored on the basis of the observations and requirements specified in the environmental impact assessment. During 2014 no environmental impacts that did not comply with the regulations or exceeded any normative limits were registered for Nelja Energia’s wind farms. Also, no violations were identified and no penalties imposed in the environmental, social and health protection areas in the companies of the consolidation group.
In 2014 bat and wind activity monitoring was carried out in three of the Company’s wind farms: in Paldiski, Aseri and Virtsu III.
During 2014 four complaints from the Aseriaru wind farm region’s populations were received. Oral complaints were received from the local population to the noise caused by the turbines. Aseriaru wind farm started negotiations with neighbouring households to find measures for making houses more soundproof. All the households have settled with the compensatory measures.
The total contribution of wind farms and biogas plants within the group to the reduction of greenhouse gases totalled 515,448 tonnes of CO2 equivalent.
32
5 CORPORATE GOVERNANCE
The Company is a public limited company (aktsiaselts) organized under Estonian law with a governance structure based on the Estonian Commercial Code. The Company complies with the Estonian code of practice for corporate governance. 5.1 Management Board The Company is managed by the Management Board which consists of up to 5 members. The Management Board is elected and removed by the Supervisory Board. If the Management Board has more than two members the Supervisory Board shall elect a chairman.
It is the Management Board’s duty to direct the Company in a diligent manner and give a thorough overview of its financial situation when presenting annual accounts. Violating this obligation and damaging the company the management will be jointly liable for the compensation for damage caused to the company in accordance with Estonian laws.
The rights and obligations of a member of the Management Board are established in the agreement with him/ her. It is in the sphere of competence of the Supervisory Board to make changes to and terminate said employment agreement.
Members to the Management Board have the power to represent the Company. 5.2 Supervisory Board The Supervisory Board consists of 5 – 9 members who are in charge of planning the Company’s activities, organising its management and exercise supervision over the Management Board.
Nelja Energia’s Supervisory Board elected a new chairman at the Supervisory Board meeting held on October 27 2015. The new chairman is Tor Ottar Karlsen
The Supervisory Board is elected by the shareholders’ general meeting for a term of 5 years. The chairman of the Supervisory Board is elected amongst the members themselves who has the responsibility to organise the Board’s activities.
On August 17 2015, the Supervisory Board of the Company decided to establish an Audit Committee. The members of the committee are Iren Bogen and Solveig Nordström. The audit committee’s responsibility is to monitor the Company’s financial reporting process, monitor the effectiveness of the internal controls and risk management systems, follow the statutory audit and annual and consolidated accounts, review and monitor the independence of audit firm. The audit committee is obliged to provide recommendations and proposals to the supervisory board on the above mentioned issues.
The Supervisory Board’s address is the same as the Company’s. 5.3 Supervisory Board Meetings The Supervisory Board meets at least 4 times per annum and at least every three months. The quorum for the Supervisory Board is if i) at least more than half of its members are present and ii) at least one of the members appointed by the majority shareholder and at least one member appointed by the minority shareholders is present.
The Board has decision-making power if more than half of the participating members vote in favour of a resolution, except in cases where a larger majority is required by law of agreement.
The consent of the Supervisory Board is required for the conclusion of transactions which are beyond the everyday economic activities of the Company.
33
5.4 Meeting of Shareholders Shareholders exercise their rights at the general meeting of shareholders, which is the highest directing body of the Company. An annual general meeting is called at least once a year.
It is within the competence of the general meeting to decide on matters provided for in the subsection 298 (1) of the Commercial Code. In other matters related to the activity of the company the general meeting may adopt resolutions only if required to do so by the Management Board or the Supervisory Board.
The auditor(s) are appointed by a general meeting of the Company. The auditor(s) are appointed to conduct a single audit or fora specific term. The Management Board submits a list of auditors of the Company to the Commercial Register.
A more detailed overview of corporate governance is given in the Articles of Association in the appendix of this Registration Document.
34
6 LEGAL MATTERS
6.1 Legal and Arbitration Proceedings The Company and its subsidiaries may from time to time be involved in disputes in the ordinary course of its business activities, c.f. Section 1 “Risk Factors” above. The Company and its subsidiaries are not involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) which may have significant effects on the Group’s financial position or profitability.
VV Tuulepargid OÜ was a party in the ICC International Court of Arbitration Case No 20108/MHM where Tradco B.V. claimed (on the basis of alleged claims acquired from WinWind Eesti OÜ) from VV Tuulepargid OÜ making of contractual payments of EUR 2,566,376 plus interest under the turnkey agreement for Viru-Nigula windfarm and returning of the unjustly received sum of EUR 2,742,535 plus interest. On 3 April 2015 the ICC International Court of Arbitration rendered the Final Award in this case with which it found that it has jurisdiction to hear the case and decided that the claims of Tradco B.V. are fully time-barred and dismissed all claims of Tradco B.V. against VV Tuulepargid OÜ in full.
The Tallinn Circuit Court informed the Company’s subsidiary VV Tuulepargid OÜ that it has on 26 June 2015 commenced proceedings on the basis of Tradco B.V.’s application of 11 May 2015 against VV Tuulepargid OÜ for nullification of the 3 April 2015 Final Award of ICC International Court of Arbitration with which the ICC Arbitration Court dismissed the claims of Tradco B.V. against Viru-Nigula Tuulepargid OÜ in full.
On 6 November 2015 the Tallinn Circuit Court has made a decision in civil case no 2-15-7082 by which the court decided not to satisfy the application of Tradco B.V. and not to nullify the 3 April 2015 Final Award of the ICC International Court of Arbitration with which the ICC Arbitration Court dismissed the claims of Tradco B.V. against VV Tuulepargid OÜ in full.
According to the Estonian Code of Civil Procedure the 6 November 2015 decision of the Tallinn Circuit Court in civil case no 2-15-7082 is final and Tradco B.V. does not have the right to appeal against this decision to a higher court. The Issuer is of the opinion that the described legal proceedings have ended.Related Party Transactions 6.2 Related parties transactions All transactions with close associates have been carried out at arms-length prices and are settled on a regular basis and according to the Commercial Code.
Tadas Navickas has an option to acquire an additional 1% of shares in 4Energia UAB. After such transcation he will own 20% in 4Energia UAB.
There are no other agreements or transactions between the Company and its officers and key employees, except for ordinary employment agreements and consultancy agreements and transactions.
Section 3.4 of this Registration Document provides information about the Group’s corporate structure, including the details of the subsidiaries and the holding company. The following table provides the total amount of transactions that have been entered into with related parties for 2014.
Figure 23: Related party transactions, as at December 31, 2014
2014, EUR ‘000 Sales Purchases Amounts owed by Amounts owed to Empower 4 Wind OÜ 0 0 0 125 Marble Invest OÜ 7 0 1 0 Oisu Biogaas OÜ 15 277 15 31 Vinni Biogaas OÜ 8 300 7 34 Total 30 577 23 190 Source: Company
35
6.3 Material Contracts outside Ordinary Course of Business Neither the Company, nor any other company within the Group, has entered into any material contracts other than in the ordinary course of business.
36
7 FINANCIAL INFORMATION
7.1 Financial Information and Accounting Policies
7.1.1 Historical financial information on Nelja Energia AS
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments. The consolidated financial statements are presented in euro and all values are rounded to the nearest thousand (€ 000), except when otherwise indicated. The consolidated financial statements provide comparative information in respect of the previous period.
The interim financial reports for the period ended 30 June 2015 and 2014 have been prepared in accordance with IFRS and have not been audited. The Company’s audited annual reports for 2014 and 2013 are incorporated by reference.
Notes to the Company’s financial statements can be found in Nelja Energia’s 2014 annual report on pages 14-58.
7.1.2 Auditing of historical annual information and the Company’s Auditor
Ernst & Young Baltic AS (registered with the Estonian commercial register under number 10877288) has audited the annual financial statements for the Company for the years ended 31 December 2014 and 2013. The auditors responsible for audit are Ivar Kiigemägi (Authorised Auditor number 527) and Riina Alt (Authorised Auditor number 618).
Ernst & Young Baltic AS is a member of the Estonian Board of Auditors (“Audiitorkogu”)
Their address is Rävala 4, 10143 Tallinn, Estonia. Telephone number +372 611 4610, website www.ey.com, e-mail address [email protected]. 7.2 Historical Financial Information
7.2.1 Consolidated income statement for the Company
Figure 24: Nelja Energia Consolidated Income Statement
€ 000 Q2 2015 Q2 2014 1H 2015 1H 2014 2014 2013 (restated) Sale of goods and services 11 185 9 930 26 219 25 297 51 546 47 177 Revenue 11 185 9 930 26 219 25 297 51 546 47 177
Other operating income 3 982 3 103 10 233 7 658 15 956 14 731
Goods, raw materials and services -6 319 -6 506 -13 183 -14 270 -30 406 -27 076 Employee-related expenses -584 -467 -1 023 -852 -1 824 -1 860 Depreciation and amortisation -3 680 -3 608 -7 354 -7 110 -14 831 -12 943 Other expenses -508 -385 -956 -840 -1 481 -2 283 Finance costs -2 259 -2 206 -4 184 -4 317 -8 674 -8 238 Finance income 8 182 15 286 391 399 Share of profit of an associate 52 23 85 66 128 115 Profit before income tax 1 877 66 9 852 5 918 10 805 10 022 Income tax expense -1 082 -1 089 -1 327 -1 336 -1 742 -1 132 Net profit 795 -1 023 8 525 4 582 9 063 8 890
Other comprehensive income (to be reclassified to profit or loss in subsequent periods) Currency translation differences 0 5 0 0 0 -7 Net movement on cash-flow hedges -40 -753 -308 -525 -2 538 4 937 Total Comprehensive income 755 -1 771 8 217 4 057 6 525 13 820
Profit attributable to: Equity holders of the parent 713 -684 8 347 4 762 8 594 8 141
37
Non-controlling interests 82 -339 178 -180 469 749 795 -1 023 8 525 4 582 9 063 8 890 Total comprehensive income attributable to: Equity holders of the parent 673 -1 432 8 039 4 237 6 056 13 071 Non-controlling interests 82 -339 178 -180 469 749 755 -1 771 8 217 4 057 6 525 13 820 Source: Company
7.2.2 Consolidated balance sheet for the Company
The table below summarizes the audited balance sheet for the Group as of 31 December 2014 and 2013 (from the Annual Report) and unaudited interim period ended June 30, 2015.
Figure 25: Nelja Energia Consolidated Balance Sheet
€ 000 30.06.2015 31.12.2014 31.12.2013
Assets Non-current assets Property, plant and equipment 257 743 255 150 257 579 Intangible assets 87 432 87 454 87 533 Investment in an associate 410 326 215 Non-current financial assets 10 678 10 700 9 580 Deferred tax assets 1 885 1 886 2 067 358 148 355 515 356 974 Current assets Inventories 1 037 1 297 1 485 Trade and other receivables 5 895 9 917 9 749 Prepayments 3 246 1 848 1 569 Other current financial assets 21 1 163 Cash and short-term deposits 41 825 13 457 29 743 52 024 26 520 42 709 Total assets 410 172 382 035 399 683
Equity and liabilities Equity Issued capital 82 794 82 794 82 794 Share premium 90 099 90 099 90 099 Statutory capital reserve 3 445 3 445 3 000 Risk hedge reserve -7 378 -7 070 -4 532 Currency translation differences -5 -5 -5 Retained earnings 19 087 23 385 19 664 Retained earnings of the financial year 8 347 Equity attributable to equity holders of the parent 196 389 192 648 191 020 Non-controlling interests 1 857 1 933 1 811 Total equity 198 246 194 581 192 831
Non-current liabilities Interest-bearing loans and borrowings 174 229 147 944 166 361 Other non-current financial liabilities 10 364 9 145 6 303 Government grants 0 0 4 283 Deferred revenue 369 706 1 463 184 962 157 795 178 410 Current liabilities Trade and other payables 6 185 5 192 4 750 Interest-bearing loans and borrowings 16 469 19 288 18 353 Other current financial liabilities 2 829 3 739 3 867 Tax payable 1 481 1 440 1 473 26 964 29 659 28 443 Total liabilities 211 926 187 454 206 853
Total equity and liabilities 410 172 382 035 399 683 Source: Company
The consolidated balance sheet at year-end 2014 totalled EUR 382 million (2013: EUR 399.7 million). Total equity increased on the back of higher retained earnings, from EUR 192.8 million in 2013 to EUR 194.6 million by end of 2014.
38
7.2.3 Consolidated cash-flow statement for the Company
The table below summarizes the audited cash flow statement for the Group for the years ended 31 December 2014 and 2013 (from the Annual Report) and unaudited interim 1H periods for 2015 and 2014.
Figure 26: Nelja Energia Consolidated Cash Flow Statements
€000 Q1 2015 Q2 2014 1H 2015 1H 2014 2014 2013
Operating activities Profit before tax 1 877 66 9 852 5 918 10 805 10 022 Adjustments to reconcile profit before tax to net cash flows: Depreciation and amortisation 3 680 3 608 7 354 7 110 14 831 12 943 Disposal of fixed assets 0 0 0 0 249 0 Deferred revenue recognition -184 -77 -337 -210 -684 -578 Deferred expense recognition 0 0 8 0 87 0 Finance income -8 -182 -15 -286 -391 -399 Finance costs 2 259 2 206 4 184 4 317 8 674 8 238 Share of profit of an associate -52 -23 -85 -66 -128 -115 Capitalised revenue (test period) 0 0 161 161 2 774 Movements in provisions 0 0 0 635 Working capital adjustments: 0 0 Increase in trade and other receivables 1 692 3 858 2 641 4 164 -447 -2 535 Increase in inventories 256 307 260 321 188 -1 079 Decrease in trade and other payables 1 766 -1 822 924 -2 395 538 -3 152
Income tax paid -1 082 -1 089 -1 327 -1 336 -1 561 -1 132 Net cash flows from operating activities 10 204 6 852 23 460 17 697 32 322 25 622
Investing activities Purchase of property, plant and equipment -6 708 -2 878 -9 909 -2 900 -17 374 -3 297 Sale of fixed assets 0 934 0 934 0 29 Purchase of intangible assets -2 -247 -16 -265 -225 -145 Purchase of an investment 0 0 -254 0 Disposal of a non-controlling interest in 0 0 77 154 subsidiary Loans given 0 0 -20 -119 -420 -1 065 Dividends received 0 0 66 68 Interest received 0 11 25 69 79 Net cash flows used in investing activities -6 710 -2 180 -9 945 -2 325 -18 061 -4 177
Financing activities Payment of finance lease liabilities -693 -667 -1 380 -1 328 -2 681 -2 820 Proceeds from borrowings 47 898 87 52 898 87 814 21 493 Repayment of borrowings -22 082 -3 330 -28 061 -7 832 -15 702 -14 945 Receipt of government grants 0 714 0 714 714 0 Interest paid -2 259 -1 796 -4 074 -4 546 -8 865 -8 557 Other outflows from financing activities 1 -600 22 -218 -218 -602 Dividends paid to equity holders of the parent -4 297 -4 246 -4 297 -4 246 -4 246 -8 526 Dividends paid to non-controlling interests -254 -347 -254 -347 -347 -349 Net cash flows from financing activities 18 314 -10 185 14 854 -17 716 -30 531 -14 306
Net increase in cash and cash equivalents 21 808 -5 513 28 368 -2 344 -16 272 7 139 Net foreign exchange difference 0 0 0 0 -14 -15 Cash and equivalents at beginning of 20 017 32 912 13 457 29 743 29 743 22 619 period Cash and equivalents at end of period 41 825 27 399 41 825 27 399 13 457 29 743 Source: Company
39
7.3 Comments to the Financial Statements
7.3.1 Income statement
Operating revenue
Operating income for the Group in 2014 totalled EUR 51 546 thousand (2013: EUR 47 177 thousand). The increase in income was mainly attributed to better wind conditions, slightly higher energy prices and the addition of Ojaküla wind farm to the portfolio.
In 2014 the Group’s wind farms and biogas plants produced 510 075 MWh of electricity (2013: 494 854 MWh). During the year the testing period ended for Ojaküla (6.0 MW) wind farm in Estonia and the farm was commissioned in April.
In terms of sales by geographical areas, Lithuania amounted to EUR 24 303 thousand (2013: 18 988) and Estonia following with EUR 23 002 thousand (2013: 19 267 thousand).
Figure 27: Sale of goods and services By geographical areas 2014 2013 (restated) €000 Estonia 23 002 19 267 Lithuania 24 303 18 988 Latvia 0 3 Finland 0 154 Austria 0 45 Norway 4 240 8 720 Total 51 546 47 177 Source: Company Correction of the comparative period of 2013 in the statement of comprehensive income was needed due to the fact that open delivery sale by windfarms and purchase by Nordic Power Management OÜ were eliminated from sales of electricity and from fixed and open supplies in 2013.
Figure 28: Other income and adjustments €000 2014 2013
Subsidy 15 078 13 589 Compensation for low availability of wind farm* 0 718 Recognition of deferred income** 684 324 Other 194 100 Total 15 956 14 731 Source: Company *According to an agreement with Vardar AS, the Company is compensated for the loss from WinWinD wind farm’s low availability.
**The income incurred upon acquisition of Eurodigit OÜ (merged with Paldiski Tuulepark OÜ in 2010) was recognised as income in 2013 due to the acceptance of Paldiski wind farm by Elering. Bank guarantee received in Aseriaru Tuulepark OÜ was recognised as income in the amount equal to windfarm service expenses, that in 2014 amounted to 684 thousand euros.
Figure 29: Changes in accounting policies and disclosures Consolidated statement of comprehensive income 2013 Correction 2013 (restated) €000 Sale of goods 49 441 -2 264 47 177 Sale of electricity 24 707 -2 264 22 443
Goods, raw materials and services -29 340 2 264 -27 076 Fixed and open supplies -24 204 2 264 -21 940
Source: Company
40
Goods, raw materials and services
Total COGS in 2014 were EUR 30 408 thousand (2013: EUR 27 076 thousand). The increase in COGS was driven by significantly higher maintenance costs.
Figure 30: Goods, raw materials and services COGS 2014 2013 (restated) €000 Fixed and open supplies -23 478 -21 940 Maintenance of the wind farm -5 652 -3 866 Insurance expenses -466 -336 ERU auditing fees 0 -143 Phone and communication expenses -21 -22 Consumption of electricity -36 -44 Land lease and taxes -685 -572 Other purchased services -87 -153 Total -30 406 -27 076 Source: Company
41
Employee-related expenses
Total salaries in 2014 were EUR 1,373 thousand (2013: EUR 1,402 thousand). The total level of salaries with taxes was largely in line with 2013, totalling EUR 1,824 thousand in 2014 (2013: 1,860 thousand).
Figure 31: Employee-related costs Salaries, taxes and related costs 2014 2013 €000 Salaries -1 373 -1 402 Social taxes -424 -405 Other personnel costs -27 -53 Total -1 824 1 860 Source: Company In the financial year, Nelja Energia group had 33 employees – 26 in Estonia, 6 in Lithuania and 1 in Latvia. The employees were paid salaries in the amount of EUR 1,824 thousand (2013: EUR 1,860 thousand). In the 2014 financial year, the management of Nelja Energia AS consisted of 3 members who were paid remunerations in the total amount of EUR 252 thousand (2013: EUR 254 thousand).
Operating profit before depreciation (EBITDA)
The operating result before depreciation (EBITDA) amounted to EUR 33,791 thousand (2013: EUR 30,689 thousand), equating to a margin of approximately 50.1% (2013: 49.6%). The operating profit was EUR 18,960 thousand in 2014 (2013: EUR 17,746 thousand).
Net financial items in 2014 were EUR -8,283 thousand (2013: EUR -7,839 thousand). The largest items in the financial items are interests on loans and derivatives.
Figure 32: Financial items
Finance costs 2014 2013 €000 €000 Interest on loans -4 723 -4 536 Interest on derivatives -3 937 -3 686 Currency translation differences -14 -16 Total -8 674 -8 238
Finance income 2014 2013 €000 €000 Interest on loans 332 250 Interest on cash in bank and bank deposits 59 81 Received dividends 0 68 Total 391 399
Net financial items -8,283 -7,839 Source: Company
As at 31 December 2014 all long-term bank loans of the Group had a floating interest rate based on 1 month, 3 month or 6 month EURIBOR. As the Group uses derivative instruments, specifically swap- contracts and cap-contracts, to manage the interest risk of long-term bank loans, the financial expense does not depend on the movement of the European financial markets.
42
7.3.2 Consolidated balance sheet
Property, plant and equipment
Figure 33: Property, plant, equipment Construction Other tangible Prepay- Land Buildings Total in progress assets ments €000 €000 €000 €000 €000 €000 Cost or valuation At 1 January 2013 1 414 184 412 107 063 563 155 293 580
Additions 0 0 3 274 23 0 3 297 Disposals 0 0 0 -29 0 -29 Borrowing costs 0 0 1 070 0 0 1 070 Reclassification 2013 1 661 92 598 -94 014 -245 0 0 Other changes 0 0 -2 774 0 0 -2 774 At 31 December 2013 3 075 277 010 14 619 285 155 295 144 Additions 0 2 380 14 980 15 0 17 374 Grants 0 -4 997 0 0 0 -4 997 Disposals 0 -269 0 0 -4 -273 Borrowing costs 0 0 76 0 0 76 Reclassification 2014 0 9 785 -9 785 0 0 0 Reclassification to inventory 0 -1 484 0 0 0 -1 484 Reclassification from inventory 0 1 381 0 0 0 1 381 Other changes 0 0 -161 0 0 -161 At 31 December 2014 3 075 283 806 19 729 300 151 307 061
Depreciation and impairment At 1 January 2013 0 25 145 0 69 0 25 214 Depreciation 0 12 304 0 47 0 12 351 At 31 December 2013 0 37 449 0 116 0 37 565
Disposal depreciation 0 -24 0 0 -24 Grants amortization 0 -186 0 0 -186 Reclassification to inventory 0 -104 0 0 -104 Depreciation 0 14 611 0 49 0 14 660 At 31 December 2014 0 51 746 0 165 0 51 911
Net book value At 31 December 2014 3 075 232 060 19 729 135 151 255 150 At 31 December 2013 3 075 239 561 14 619 169 155 257 579 Source: Company
Accepted wind farms
Figure 34: New wind farms Wind farm Capacity MW Accepted Depreciation start 2013 Paldiski 22,5 Jun.2013 Jun.2013 Viru-Nigula 24 Apr.2013 Apr.2013 Ciuteliai/Naujoji 39,1 May 2013 May 2013 2014 Ojaküla 6,9 Apr.2014 Apr.2014 Source: Company
Liabilities
For the purpose of the Group’s capital management, capital includes issued capital, convertible preference shares, share premium and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Group’s capital management is to maximise the shareholder value.
In order to achieve this overall objective, the Group’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Failure to meet the financial covenants would permit the bank to immediately call loans and borrowings. 43
The Group manages its capital structure and makes adjustments in light of changes in the economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. Net debt includes interest bearing loans and borrowings, trade and other payables, less cash and short-term deposits, excluding discontinued operations.
Figure 35: Capital management Capital management 2014 2013 €000 €000 Interest-bearing loans and borrowings 167 232 184 714 Trade and other payables 6 632 6 223 Less: cash and short-term deposits -13 457 -29 743 Net debt 160 407 161 194 Equity 194 581 192 831 Equity and net debt 354 988 364 194 Gearing ratio 45,19% 45,53% Source: Company
The Group’s net interest-bearing debt totalled EUR 167.2 million as of 31 December 2014 (2013: EUR 184.7 million).
Figure 36: Interest bearing loans and borrowings
Interest bearing loans and borrowings, 31 December 2014 Current Non-current Total Loans from banks 14 172 115 965 130 137 Obligations under finance leases 2 786 19 913 22 699 Other loans 2 330 12 066 14 396
Total interest bearing loans and borrowings 19 288 147 944 167 232 Source: Company
Figure 37: Guarantees
As at 31 December 2014 Shares of subsidiaries secured Lender Value of shares €000 Roheline Ring Tuulepargid SEB 32 Tooma Tuulepark OÜ SEB 4 965 Pakri Tuulepargid OÜ SEB, Pohjola 32 Oceanside OÜ SEB 150 Aseriaru Tuulepark OÜ Swedbank 7 989 Naujoji energija UAB SEB, Pohjola 9 818 Silales vejo elektra UAB SEB 5 160 Iverneta UAB Swedbank Lizingas UAB 3 739 Sudenu vejo elektra UAB Swedbank Lizingas UAB 1 710 33 595
Other guarantees Receiver Amount End date €000 Guarantee for Tooma Tuulepark OÜ loan SEB 2 745 25 Apr.2019 Guarantee for Tooma Tuulepark OÜ loan Nordea 8 235 25 Apr.2019 Guarantee for NPM OÜ administration contract AS Elering 64 Nord Pool Spot AS 30 11 074
Source: Company
As of the date of this Registration Document, guarantees relating to Tooma Tuulepark OÜ loans have been terminated and loans refinanced. Additionally the Company has granted a Completion Guarantee for the Silute project in the amount of EUR 89.3 million.
Shares of the subsidiaries secure the loans which are related to the project financing of wind farms.
44
7.4 Investments The Company currently has three projects under construction: Šilute 60 MW wind farm in Lithuania, Tooma II 6.9 MW wind farm in Estonia and the Broceni Pellet/ CHP project in Latvia. The table below outlines new investments to these projects, after the last published financial statements. Tooma II investments include investment in connection point and substation (accounted proportionally with Tooma I)
Figure 38: Investments Actual Actual New investments EUR ’000 31.12.2014 30.06.2015 1H 2015 Šilute 16 902 22 717 5 815 Broceni 112 3 077 2 965 Tooma II 1 116 1 420 304 Source: Company
Šilute 60 MW wind farm: The Company is currently constructing a large 60 MW wind park in Šilute, on the South-Western coast of Lithuania. The location has excellent wind conditions for wind park operation, with expected net capacity factor at over 45% (Nelja Energia weighted average load is currently at 28%), The wind conditions have been verified by both the Company’s extensive measurement data and wind energy consultant Squrr Energy. The estimated annual net production for Šilute is 237 GWh. The park’s turbines are supplied by GE, comprising of 24 GE 2,5 MW turbines with height of 120 m. Nelja Energia has secured a wind energy feed-in tariff of 69,5 EUR/ MWh for the first 12 years of operation . After the end of the tariff power will be sold on NordPool market. The project is scheduled for commissioning during Q3 of 2016.
Tooma 6.9 MW wind farm: This project is an add-on of 6.9 MW capacity to the already operational Tooma I 16 MW wind farm, located on the Western coast of Estonia. The location has fairly good wind conditions with the existing turbines demonstrating a net capacity factor of 27%. The wind farms use Enercon 2MW E82 wind turbines. Tooma I has been operational since February 2010. As of the date of this Registration Document, Tooma II wind turbine foundations have been finished cable installations are ongoing. Construction is planned to be completed by December 2015.
Please refer to section 3.7 Planned New Activities for further information on the Broceni Pellet/ CHP plant.
Planned total investments with financing for these projects are outlined below
Figure 39: Investments Loan Bond Equity Total EUR million Šilute 89.3 30.1 119.6 Broceni 25.0 6.3 31.3 Tooma II 9.1 2.3 11.4 Source: Company The Company plans to finance the equity needed for these projects from retained earnings
Figure 40: Investments by year 2014 2015 2016 EUR million Šilute 16.9 35.8 66.9 Broceni 0.1 11.6 19.6 Tooma II 0.4 8.4 1.6 Source: Company
45
7.5 Trend Information There has not been any significant change in the financial or trading position of the group which has occurred since the end of the last financial period for which either audited financial information or interim financial information have been published on December 31, 2014.
There has been no material adverse change in the prospects of the Company since the date of its last published audited financial statements.
The Company and its management are not aware of any known trends, uncertainties, demands, commitments or events that are likely to have a material effect on the Company’s prospects for at least the current financial year.
46
8 SHARE CAPITAL AND SHAREHOLDER MATTERS
8.1 Share Capital
Figure 41: Issued capital an reserve
Issued capital and reserve Ordinary shares pcs €000 At 31 December 2013 8 279 414 82 794 At 31 December 2014 8 279 414 82 794
Ordinary shares unit price pcs
2014 10 8 279 414 2013 10 8 279 414 Source: Company
The Company’s share capital as of the date of this Registration Document is EUR 82,794 million, consisting of 8 279 414 ordinary shares, with a par value of EUR 10.00 per share, fully paid up and registered. There is one class of shares. The shares are equal in all respects, and each share carries one vote at the Company’s general meeting. Statutory capital reserve According to the Commercial Code of the Republic of Estonia and the articles of association of the parent company, at least 5% of net profit is entered in the legal reserve each year until the legal reserve accounts for at least 10% of share capital. The legal reserve may not be paid out as dividends, but it may be used to cover loss if losses cannot be covered from available equity. The legal reserve may be also used to increase share capital. 8.2 Type and Class of the Shares The Company has one class of shares. The shares are created under the laws of Estonia. The Company’s shares are in registered form and are registered with the Estonian Central Register of Securities under the Commercial registry code 11183009. 8.3 Shareholders As of the date of this Registration Document, Nelja Energia AS had a total of 11 direct shareholders. Vardar Eurus AS is an investment vehicle, owned by Vardar AS (90%) and Nefco (10%). Vardar AS is a Norwegian utility company owned by Buskerud Fylkeskommune (county) and Norwegian municipalities. Nordic Environment Finance Corporation (NEFCO) is an international finance institution established by Nordic countries. Vardar Eurus is a controlling shareholder in the Company, which in turn is controlled by Vardar AS. Nelja Energia’s CEO Martin Kruus (Solarcom OÜ) and CFO Kalle Kiigske (Atradius OÜ) both own 2.3% in the Company. Figure 42: Shareholders
Shareholder Ordinary shares 2014 2013 pcs % pcs % VARDAR EURUS AS 6 389 418 77.17% 4 981 919 60.17% EBRD 0 0.00% 900 273 10.87% AS VESTMAN ENERGIA 348 610 4.21% 431 404 5.21% HTB INVESTEERINGUTE AS 201 465 2.43% 431 404 5.21% IVARD OÜ 431 404 5.21% 431 404 5.21% JMB INVESTEERINGUTE OÜ 331 177 4.00% 387 427 4.68% OÜ ATRADIUS 190 426 2.30% 270 713 3.27% OÜ SOLARCOM 190 426 2.30% 248 382 3.00% AMBIENT SOUND INVESTMENTS OÜ 117 647 1.42% 117 647 1.42% OÜ GREATWAY 43 978 0.53% 43 978 0.53% OÜ KAKSSADA KAKSKÜMMEND VOLTI 12 532 0.15% 12 532 0.15% OÜ UNITED PARTNERS INVESTMENTS 22 331 0.27% 22 331 0.27% Total 8 279 414 100% 8 279 414 100% Source: Company
47
9 ADDITIONAL INFORMATION
9.1 Third Party Information Certain information in this Registration Document has been sourced from third parties. Nelja Energia confirms that this information has been accurately reproduced. As far as the Company is aware and is able to ascertain from information published by that third parties, no facts have been omitted that would render the reproduced information inaccurate or misleading. Where relevant, Nelja Energia has accurately identified the source(s) such the information.
Third party sources used:
} Elering (www.elering.ee) } Statistics Estonia (www.stat.ee) } Augstsprieguma tīkls (Latvian Transmission System Operator, www.ast.lv) } Litgrid (Lithuanian Transmission System Operator, www.litgrid.eu) } Nord Pool Spot (www.nordpoolspot.com) } European Environment Agency (http://www.eea.europa.eu/) } Estonian Wind Power Association (http://www.tuuleenergia.ee/) } Eesti Energia (https://www.energia.ee/) } Renerga (www.renerga.lt/) } Vėjo gūsis (www.vejogusis.lt/) } RAO Nordic (www.raonordic.com) } The Windpower (http://www.thewindpower.net/) } Sgurr Energy Portfolio Technical Due Diligence, December 2013 9.2 Documents on Display For the life of this Registration Document, the following documents (or copies thereof) may be inspected at www.neljaenergia.ee or at the Company’s business address:
i. The Articles of Association of the Company ii. Historical financial information for the Company’s annual accounts for 2013 and 2014 and interim 1H accounts for 2014 and 2015 iii. Loan agreements for the bonds issued by the Company and listed at any stock exchange at that time iv. Sgurr Energy Portfolio Technical Due Diligence, December 2013 9.3 Incorporation by Reference The information incorporated by reference in this Registration Document shall be read in connection with the cross-reference list as set out in the table below. Except as provided in this Section, no other information is incorporated by reference into this Registration Document.
The Company incorporates its consolidated annual reports for the financial years ended 31 December 2014 and 2013 and unaudited interim financial reports for 1H 2015 and 2014.
Section in Incorporated by reference Reference document and link Registration Document
7 Interim financial report for Q2/H1 2015 http://admin.4energia.ee/wp- content/uploads/2015/10/Nelja-Energia- report-2Q-2015-bors.pdf
7 Interim financial report for Q2/H1 2014 http://admin.4energia.ee/wp- content/uploads/2015/11/Nelja-Energia- report-2Q-2014-bors.pdf
7 Consolidated annual report, accounting http://admin.4energia.ee/wp- principles, notes and auditor’s report for the content/uploads/2015/10/4E_annual_report_ financial year 2014 2014_final_wo-f.pdf
7 Consolidated annual report, accounting http://admin.4energia.ee/wp- principles, notes and auditor’s report for the content/uploads/2015/10/4Energia_consol_2 financial year 2013 013_eng.pdf
48
9.4 From wind to revenue Wind revenues are dependent on a number of key factors:
} Wind speed potential is essential for every wind turbine and depends on both average wind speed and availability } Availability along with efficiency and the wind turbines total effect determines the total electricity production } In addition to production volume, revenues are generally a function of the electricity price and other revenue sources such as feed-in tariffs and other subsidies.
As a rule of thumb, the following conversion can be applied to wind farms: } Megawatt (MW) = Capacity measure ˗ 1 wind turbine generator (WTG) 1.6-3.0 MW
} Megawatt hour (MWh) = Energy (production) measure ˗ 1 MW wind power = 2,450 MWh in a full year (at a load factor of 28%) ˗ 1,000,000 MWh = 1,000 GWh = 1 TWh ˗ 1 TWh ~ 100 WTG x 2.5 MW x 4,000h
9.5 Transfer of listing Due to the fact that Nelja Energia is an Estonian company, operating under Estonian law, the Company had to request approval from the Estonian Financial Supervisory Authority («Finantsinspektsioon») to hand over the registration of listing its bonds to Oslo, Norway. According to the Estonian Securities Market Act («Väärtpaberituru seadus») paragraph 19 the Estonian FSA can grant handing over the application to another country’s regulator if the regulators are in mutual agreement. On October 5, 2015 Finanstilsynet granted their approval for registering the bonds and on October 6, 2015 the Estonian FSA sent their approval decision (management decision no. 4.1-1/108) to Nelja Energia for handing over registration procedures to Finanstilsynet.
49
10 DEFINITIONS AND GLOSSARY
The following definitions and glossary apply in this Registration Document unless dictated otherwise by the context, including the foregoing pages of this Registration Document. 10.1 Definitions
Figure 43: Definitions
Articles of Association: The Articles of Association of the Company Management Board: The Board of Directors of Nelja Energia AS Bond Agreement: The bond agreements related to the Bonds issued by Nelja Energia AS and made between Nelja Energia AS and the Bond Trustee Bondholders: The holders of Bonds issued by the Company Bonds: Bonds issued by the Company Bond Trustee: Nordic Trustee ASA Group: The Company and all its subsidiaries Nelja Energia AS: Nelja Energia AS with company registration number 11183009 EEA: European Economic Area EU European Union Forward Looking Statement A business slang term for predictions about future business conditions Green Bond The Company is issuing the Bond Issue as a “green bond” and has received a second party opinion from DNV GL. It is DNV GL’s opinion that the Company’s “green bond” is in line with the stated definition of green bonds within the green bond principles, which is to enable capital-raising and investment for new and existing projects with environmental benefits. IFRS: International Financial Reporting Standards, issued by the IASB Company: Nelja Energia AS, a company incorporated under the laws of Estonia with company registration number 11183009 Listing: The Listing of the Company’s FRN Senior Unsecured Bond Issue 2014/2018 Manager: Swedbank AS EUR: Euros Non-resident Bondholders: Bondholders who are not resident in Norway for tax purposes Norwegian Bondholders: Bondholders who are resident in Norway for tax purposes Norwegian Corporate Shareholders: Shareholders who are limited liability companies (or similar entities) resident in Norway for tax purposes Norwegian Personal Shareholders: Shareholders who are individuals resident in Norway for tax purposes Norwegian Securities Trading Act: The Securities Trading Act of 19 June 1997 no. 79 (“Verdipapirhandelloven”) Norwegian Stock Exchange The Stock Exchange Regulations of 17 January 1994 no. 30, last amended Regulations: by Regulation of 9 December 2005 nr. 1427 (“Børsforskriften”) Oslo Børs: Oslo Børs ASA (translated “the Oslo Stock Exchange”) Prospectus: This Registration Document, the Securities Document and the SUMMARY PROSPECTUS for the relevant bond loan. Registration Document: This Registration Document dated 18 November 2015, first time prepared in connection with the application for Listing. Securities Document: A Securities Document may be issued for each bond loan issued by the Company, and should be read in connection with the Registration Document. Subsidiary Subsidiary of Nelja Energia AS The Company: Nelja Energia AS UK United Kingdom U.S. United States USD: United States Dollars VPS account: An account with VPS for the registration of holdings of securities VPS: Verdipapirsentralen (Norwegian Central Securities Depository), which organizes the Norwegian paperless securities registration system.
50
10.2 Glossary of Terms Terms and expressions used in the industry and technical terms used in the description of the Company are set out below.
Figure 44: Glossary
AS Aktsiaselts (Estonian, Public Limited Company) CAGR Compound Annual Growth Rate CEO Chief Executive Officer CFO Chief Financial Officer CHP Combined heat and power CTO Chief Technical Officer dB Decibel EBRD European Bank for Reconstruction and Development EIA Environmental Impact Assessment FiT Feed-in Tariff FiP Feed-in Premium FTE Full-time employee GWh Gigawatt hours EBITDA Earnings, before interest, tax, depreciation and amortization H1 First half HNWI High net-worth individual ICC International Chamber of Commerce MW Megawatt MWh Megawatt hour MWel Megawatts electricity MWth Megawatts thermal NEFCO The Nordic Environment Finance Corporation NFSA Financial Supervisory Authority of Norway (Nw: Finanstilsynet) NPM Nordic Power Management NPP Nuclear Power Plant O&M Operations and maintenance OÜ Osaühing (Estonian, Private Limited Company) p.a. Per annum PP Power Plant Q1 First quarter Q2 Second quarter Q3 Third quarter Q4 Fourth quarter SCADA Supervisory Control and Data Acquisition system SIA Sabiedrība ar ierobežotu atbildību (Latvian, Private Limited Company) SPV Special Purpose Vehicle T.p.a. Tonnes per annum TSO Transmission System Operator TWh Terawatt hours UAB Uzdaroji Akcine Bendrove (Lithuanian: Private Limited Company) WTG Wind turbine generator WWD WinWinD
51
11 NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this Registration Document that are not statements of historical fact, may constitute as “forward-looking statements”. Often, but not always, forward-looking statements can be identified by the use of words such as “may”, “will”, “could”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other equivalent or comparable words. This is relevant for Sections 3.3, 3.7, 3.9 and 7.4 in this Registration Document.These statements are only predictions and involve known and unknown risks, uncertainties and other factors which could cause the actual results, performance or achievements of the Company to be materially different from the historical results or from any future results, performances or achievements expressed or implied by such forward-looking statements. In evaluating these statements, prospective investors should specifically consider various factors, including the risks outlined below. These factors may cause the actual results to differ materially from any forward-looking statement. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement.
Except as may be required by applicable law or stock exchange regulations, the Company undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances, after the date of this Registration Document or to reflect the occurrence of unanticipated events. Accordingly, readers should not place undue reliance on forward-looking statements.
52
12 LEAD MANAGER’S DISCLAIMER
Swedbank Norway, branch of Swedbank AB (publ) (the Lead Manager) has assisted the Company in preparing this Registration Document. The Lead Manager has not verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and the Lead Manager expressively disclaim any legal or financial liability as to the accuracy or completeness of the information contained in this Registration Document or any other information supplied in connection with bonds issued by Nelja Energia or their distribution. The statements made in this paragraph are without prejudice to the responsibility of the Company. Each person receiving this Registration Document acknowledges that such person has not relied on the Lead Manager nor any person affiliated with it in connection with its investigation of the accuracy of such information or its investment decision.
Confidentiality rules and internal rules restricting the exchange of information between different parts of the Lead Manager may prevent employees of the Lead Manager who are preparing this Registration Document from utilizing or being aware of information available to the Lead Manager and/ or any of their affiliated companies and which may be relevant to the recipient’s decisions
Oslo (Norway), 18 November 2015
Swedbank Norway, branch of Swedbank AS (publ.)
53
13 APPENDIX 1 – ARTICLES OF ASSOCIATION
ARTICLES OF ASSOCIATION OF NELJA ENERGIA AS
1. BUSINESS NAME AND SEAT OF THE PUBLIC LIMITED COMPANY
a. The business name of the public limited company is Nelja Energia AS b. The seat of the public limited company is Tallinn, the Republic of Estonia c. The public limited company undertakes to focus their business activity on the production of renewable energy in Estonia, Latvia and Lithuania and to ensure that its subsidiaries do the same
2. SHARE CAPITAL AND SHARES
a. The minimum share capital of the public limited company shall be 40,000,000 euros and the maximum share capital shall be 160,000,000 euros. b. The share capital shall be divided into registered shares with a par value of 10 euros each. There shall be only one class of shares c. Share can be paid for both by monetary and non-monetary contributions. Monetary contributions shall be paid into the bank account of the public limited company. Valuation of non-monetary contributions shall be performed by the Management Board or an expert designated by the Management Board and such valuation shall be audited by an auditor. d. In order to cover losses or increase its share capital, the public limited company shall form reserve capital whose amount shall be one-tenth of the share capital. In each financial year, one-twentieth of the net profit of the public limited company shall be entered in the reserve capital until the reserve capital reaches the prescribed amount. e. The public limited company is entitled to issue shares for a price exceeding their nominal value (premium). f. The public limited company may issue convertible bonds if so decided by the general meeting of the public limited company. g. The majority shareholder is a shareholder who has the biggest holding in the public limited company (hereinafter majority shareholder), but only if the holding of the respective shareholder is over 40%. If there are two shareholders with a holding of 40% or more, the majority shareholder is the shareholder who owns the biggest number of shares. If their holdings are equal, the majority shareholder will be the shareholder who has been the majority shareholder until now. h. A majority shareholder is a shareholder of shareholders, who is not Vardar Eurus AS or any other person to whom Vardar Eurus AS (or the future acquirer of all or part of its shares) has transferred all of their shares or part thereof (hereinafter minority shareholder or shareholders).
3. TRANSFER OF SHARES
a. Shareholders are entitled to freely transfer their shares. The shareholders who have concluded a shareholder agreement on 26 November 2014 (hereinafter shareholder agreement) undertake the obligation to transfer shares in the future only according to the said agreement. b. Upon the death of a shareholder, his or her shares shall be transferred to the successor of the shareholder.
4. MANAGEMENT BOARD
a. The public limited company shall be directed by its Management Board consisting of 1 to 5 members b. The members of the Management Board shall be elected and removed by the Supervisory Board. If the Management Board has more than two members, a chairman of the Management Board shall be elected by the Supervisory Board. c. The Management Board shall direct the public limited company with due diligence, give a thorough overview of the financial situation of the public limited company when presenting annual accounts to shareholders and perform other duties prescribed by Estonian laws. d. Members of the Management Board who cause damage to the public limited company by violation of their obligations shall be jointly and severally liable for compensation for the damage caused in accordance with the Estonian laws. The limitation period for assertion of a claim against a member of the Management Board is five years.
54
e. The rights and obligations of a member of the Management Board (the director) shall be established in the agreement to be made with him or her. The Supervisory Board shall make, amend and terminate such agreements. f. Each member of the Management Board may represent the public limited company.
5. SUPERVISORY BOARD
a. The Supervisory Board consists of 5 to 9 members. The Supervisory Board shall plan the activities of the public limited company, organise the management of the public limited company and supervise the activities of the Management Board. b. Members of the Supervisory Board shall be elected and removed by the general meeting of shareholders. The shareholders who are parties to the shareholder agreement shall elect the Supervisory Board according to the shareholder agreement. A member of the Supervisory Board shall be elected or appointed for a term of five years. c. If minority shareholders own more than 5% of the shares, the minority shareholders who own at least 75% of the votes represented with the shares of minority shareholders shall have the right to appoint one member of the Supervisory Board and the remaining members of the Supervisory Board are elected according to clause 5.2., if this right is not exercised, the Supervisory Board members are elected according to clause 5.2. d. Members of the Supervisory Board shall elect from among themselves the chairman of the Supervisory Board who shall organise the activities of the Supervisory Board.
6. MEETINGS OF THE SUPERVISORY BOARD
a. Meetings of the Supervisory Board shall be held at least four times per year but not less frequently than once every three months. A meeting shall be called by the chairman of the Supervisory Board or by a member of the Supervisory Board substituting for the chairman. b. The Supervisory Board meetings are held at the seat of the public limited company, unless two thirds of the Supervisory Board members have agreed upon otherwise. Participation at the meeting is permitted either in person or by phone or using other communication equipment which is permitted according to the provisions of the Commercial Code. If the meeting is held without participating in person, the resolutions can be approved in writing, in case of which a resolution enters into force when signed and approved by all of the members of the Supervisory Board. c. Advance notice of at least 10 business days shall be given of the holding of a meeting unless the members of the Supervisory Board have revoked the term of notification. The agenda and documents relating to the meeting shall be delivered to the members of the Supervisory Board meeting together with the notice convening the Supervisory Board meeting, if possible, but in case not later than 5 business days prior to the date of the meeting. d. The Supervisory Board meeting has a quorum if (i) at least more than half of the Supervisory Board members are present and (ii) at least one of the members appointed by the majority shareholder and at least one member appointed by the minority shareholders is present (given that the minority shareholders have the right to appoint a member). If the Supervisory Board meeting does not have a quorum because the members appointed by the minority shareholder or elected from among the persons named by the minority shareholder are absent, the chairman of the Supervisory Board shall summon a new meeting with the same agenda and an advance notice provided in Section 6.3, which will have a quorum if more than half of the members are present regardless of the presence of the members appointed by the minority shareholders or elected from the persons named by minority shareholder. e. A resolution of the Supervisory Board shall be adopted if more than half of the members of the Supervisory Board participating in the meeting vote in favour of the resolution, except in case of adoption of resolutions requiring a larger majority vote under section 5.9 or applicable laws in which case such greater majority of affirmative votes is necessary for adoption of the resolution by the Supervisory Board. Each member of the Supervisory Board shall have one vote. A member of the Supervisory Board shall not have the right to abstain from voting or to remain undecided. If the votes are divided equally, the vote of the chairman of the Supervisory Board shall be decisive. A member of the Supervisory Board shall not be presented by another member of the Supervisory Board or by a third person at a meeting or in the adoption of a resolution.
55
f. Upon the consent of all the Supervisory Board members in each respective case, the Supervisory Board shall have the right to adopt resolutions without calling a meeting in accordance with § 323 of the Commercial Code. If a resolution is made pursuant to the procedure provided for in § 323 of the Commercial Code, the resolution shall be adopted if more than half of the votes of all members of the Supervisory Board are in favour, except in case of adoption of resolutions referred to in Section 6.8, which require at least the amount of affirmative votes provided in Section 6.8 and 6.9. g. The Supervisory Board shall adopt resolutions pursuant to the procedure and within the authority established by law. The Supervisory Board shall give orders to the Management Board for organisation of the management of the public limited company. The consent of the Supervisory Board is required for conclusion of transactions which are beyond the scope of everyday economic activities of the public limited company. h. In addition to the matters provided for by the law, the following matters are in the competence of the Supervisory Board and the resolution in the following matters shall be considered as decided if at least 75% of the Supervisory Board members participating in the meeting vote in favour of the said resolution: i. Appointing or dismissing the members of the Management Board; ii. Changing the number of members of the Management Board and their remuneration; iii. Providing consent to allocate the proceeds from any sale of the assets of the public limited company in an amount of two million euros (2,000,000 euros) or more to any purpose that is not in line with the dividend policy and the annual business plan of the public limited company; iv. Providing consent to the creation, issue, redemption or change of the securities related to the equity, incl. shares, options or warrants by the public limited company or changing the employees’ share options or their acquirement, or providing the consent of the public limited company for such changes in relation to any of their subsidiaries; v. Providing consent to the conclusion of any agreement by which the public limited company or any of its subsidiaries makes a loan to or guarantees any debt of a third person agrees (on a contingent basis or otherwise) to purchase or otherwise acquire such debt or assumes or agrees to compensate a creditor for damage or to provide any security or issue bonds; vi. Providing consent to any change in the accounting policies of the public limited company or any of its subsidiaries, taking into account that any accounting policies used by the public limited company shall meet the International Reporting Standards (IFRS); vii. Providing consent to the conclusion of contracts, financial commitments or expenditures which are beyond everyday economic activities, not prescribed in of the budget or annual business plant of the public limited company, and which exceed in the aggregate 5% of the budget or annual business plan of the public limited company. viii. Providing approval to any financial commitment or expenses of the public limited company or any of its subsidiaries in excess of one hundred thousand euros (100,000 euros) for any purpose that is not directly related to the activities of the public limited company or subsidiary of the public limited company in the production of renewable energy; ix. Providing approval to any debt in excess of five million euros (5,000,000 euros) to be taken, or premature repayments of loans to be made, by the public limited company or any of its subsidiaries, and any agreement to make a loan or guarantee any debt by the public limited company or any of its subsidiaries, except the debt from an established credit institution to finance projects within the scope of activities of the public limited company or its subsidiary; x. Providing confirmation by the public limited company to any amendment to the articles of association of a subsidiary of the public limited company and confirmation to increase the share capital of a subsidiary by the public limited company (unless only the public limited company or its subsidiary subscribe for all the shares in relation to the share capital increase); xi. Providing confirmation by the public limited company to change the type, rights or form or any class of subsidiaries’ shares or create a new class or type of shares of any of its subsidiaries; xii. Providing approval to the sale of all or part of the business of the public limited company or any of its subsidiaries or the assets of the public limited company or any of its subsidiaries in excess of five million euros (5,000,000 euros). If the matter is to be decided at the general meeting, Section7.8.9 shall apply;
56
xiii. Providing approval to any transaction between (i) the public limited company and a subsidiary, or (ii) the public limited company and a shareholder or its affiliate, or (iii) a subsidiary and a shareholder or its affiliate, pursuant to which the public limited company or a subsidiary would incur a financial commitment or expenditure in excess of one million euros (1,000,000 euros) (whereas the respective shareholder or their affiliate are not allowed to participate in the voting) (given that for the purposes of Section 6.8.13 a “transaction” is either a single transaction or a series of related transactions). xiv. Providing approval to any expenses beyond the scope of everyday economic activities of the public limited company until the minority shareholders have their representative in the Supervisory Board. i. A resolution on a matter set forth in Sections 6.8.12-6.8.14 is deemed adopted if at least 75% of the Supervisory Board members participating in the meeting vote in favour of such resolution and the affirmative votes include the vote of the representative of the minority shareholders. j. Members of the Supervisory Board who cause damage to the public limited company by violation of their obligations shall be jointly and severally liable for compensation for the damage caused in accordance with the Estonian laws. The limitation period for assertion of a claim against a member of the Supervisory Board is five years.
7. GENERAL MEETING
a. Shareholders shall exercise their rights at the general meeting of shareholders, which is the highest directing body of the public limited company. The public limited company shall have annual and special general meetings. b. An annual general meeting of shareholders shall be called at least once a year, not later than within six months from the end of the financial year. c. The Management Board shall call the general meetings of shareholders. Notice of an annual and special general meeting together with the agenda shall be given at least 3 weeks in advance. The general meeting may only decide on the matters which have been described on the agenda in a manner that the shareholders are able to consider the proposition before the general meeting is held. A general meeting shall be held at the seat of the public limited company, unless otherwise agreed by all shareholders. d. It is within the competence of the general meeting of the shareholders to decide on the matters provided for in subsection 298 (1) of the Commercial Code. In other matters related to the activity of the public limited company the general meeting of the shareholders may adopt resolutions only if required to do so by the Management Board or the Supervisory Board. e. The shareholders have agreed that the general meeting has a quorum only if 75% of the voters represented with shares are present, whereas (i) Vardar Eurus AS, if a shareholder, is present and (ii) if minority shareholders own more than 5% of the votes represented with shares, at least 75% of the votes represented with the shares of minority shareholders are present. f. If the general meeting of the shareholders does not have a quorum, the Management Board shall summon a new meeting with the same agenda within the following 3 weeks, but not sooner than in 2 weeks g. A resolution of the general meeting is considered to be adopted if more than half of the votes represented at the meeting are given in favour, except in case of the resolutions which, according to Sections 7.8-7.10 or the current legislation, need a larger majority vote to be adopted. h. In the following matters a resolution shall be considered as adopted if at least 75% of the voters represented with shares are given in favour: i. The resolution to amend or supplement the articles of association of the public limited company (including change the financial year of the public limited company) or to reduce the share capital of the public limited company; ii. The resolution to change the class or form of any class of the shares, the rights related thereto or create a new class of the shares of the public limited company; iii. The resolution on the restructuring, merger, division, dissolution or liquidation of the public limited company or transformation of the company into another company; iv. The resolution to change the nature of the business activities of the public limited company or any of its subsidiaries related to the provisions of Section 1.3; v. The resolution to approve a mechanism for the distribution of profit, including a silent participation or other means of distributing the profit; vi. The resolution to limit or annul pre-emptive rights; vii. The resolution to impose limitations on the disposal of the shares of the private limited company; 57
viii. If the minority shareholders do not have a representative in the Supervisory Board, the resolution to approve any costs not related to the everyday economic activity of the company;
ix. The resolution to approve that the public limited company or any of its subsidiaries (A) is acquiring or selling the shares or securities of another company; (B) is selling the shares of any of its subsidiaries or (C) acquiring or selling any company or assets thereof. The said requirement (A, B, and C) only applies when the purchase price is over twenty million euros (20,000,000 euros). x. The resolution to change the number of members in the Supervisory Board or their remuneration; xi. The resolution to appoint auditors for the private limited company and to approve the audited annual report. i. In order to adopt the resolution to increase the share capital of the public limited company, it is required that 90% of all the votes represented with shares are in favour thereof unless a greater majority vote is provided for by the law. The required number of votes in favour provided for in Sections 7.8 and 7.9 is calculated on the basis of all the voting shares in circulation at the given moment, not the number of shares represented at the general meeting. j. Minority shareholders, either jointly or separately owning at least 25% of all the votes represented with the shares of the minority shareholders, shall have the right of veto over the special matters provided for in Sections 7.8.1-7.8.8 and in order to adopt the said resolutions a majority vote of at least 75% of all the votes represented with shares is required, including 75% of the votes represented with the shares of the minority shareholders. k. Each share shall grant to its holder 1 vote at the general meeting l. Minutes shall be taken at a general meeting. Requisite data prescribed by law shall be entered in the minutes.
8. AUDITOR
a. The auditor(s) shall be appointed and the number of auditors shall be determined by a general meeting of the public limited company. The auditor(s) shall be appointed to conduct a single audit or for a specific term. The Management Board shall submit a list of the auditors of the public limited company to the Commercial Register.
9. REPORTS
a. A financial year of the public limited company shall begin on 1 January and end on 31 December. b. After the end of each financial year, the Management Board shall prepare the annual accounts and management report pursuant to the procedure and within the term provided for by law and present the same together with the auditor’s report and profit distribution proposal to the shareholders for approval. c. The Management Board shall submit the approved annual report to the Commercial Register together with the profit distribution proposal and the auditor’s report not later than six months after the end of a financial year. Along with the annual report the list of holders of registered shares who hold more than ten per cent of the votes determined by shares as at the date of the general meeting that approved the annual report shall be submitted.’
10. DISTRIBUTION OF PROFIT
a. The shareholders shall participate in the distribution of profit in accordance with the nominal value of the shares held by them. The public limited company’s own shares shall not be taken into account in the distribution of profit. b. The shareholders are entitled to net profit, unless the distribution of profit is precluded by law or by a resolution adopted by a general meeting of shareholders. c. Within 30 days from approval of the annual report for the previous financial year at the general meeting of shareholders the public limited company shall distribute 100% of the retained profits of the previous financial years, in any, between the shareholders of the public limited company in the form of dividend payments. The said threshold may be (i) reduced in any financial year to 50% if decided by a majority vote of 90% of all the votes represented with shares or (ii) reduced in any financial year to 0% upon the unanimous approval of all the shareholders. The public limited company does not distribute dividends in a rate not permissible according to the applicable legislation.
58
d. The Management Board shall make a proposition which has been approved by the Supervisory Board, to the general meeting of shareholders to distribute 100% of the retained profits of the last financial year, if any, to the shareholders of the public limited company in the form of dividend payments, unless it is prohibited by the applicable legislation.
11. FINAL PROVISIONS
a. The public limited company shall be dissolved, merged, divided or transformed pursuant to the procedure established by law. The members of the Management Board shall act as the liquidators of the public limited company.
The articles of association have been approved with the resolution of the shareholders of 05.03.2015.
The translation is made by Ene Joon, Sworn Translator of Estonian into English, who was granted the profession of a Sworn Translator on 28 January 2008 by the Minister of Justice of the Republic of Estonia, holding Professional Certificate No.22, issued on 31 January 2014.
The translation is made from Estonian into English of the original document, which consists of the notarially certified printout of the Articles of Association of Nelja Energia AS issued in Estonian.
59
14 APPENDIX 2 – BOND AGREEMENT
60
Nelja Energia AS
Regati puiestee 1 Tallinn 11911 Estonia
Tel: +372 639 6610 Fax: +372 639 6620 E-mail: [email protected] www.neljaenergia.ee
Swedbank Norway
Filipstad Brygge 1 P.O. Box 1441 Vika N-0115 Oslo Norway
Tel: +47 23 23 80 00 www.swedbank.no
Swedbank Estonia
Liivalaia 8, 15040 Tallinn Estonia
Tel: +372 6310 310 Fax: +372 6310 410 E-mail: [email protected] www.swedbank.ee
61