Annual Report 2010 – 2011 Creating New Energy! Contents ADDRESS BY THE CHAIRMAN OF THE MANAGEMENT BOARD 3 11 Division of financial instruments by category 108 12 Trade and other receivables 110 13 Derivative financial instruments 111 MANAGEMENT REPORT 14 Credit quality of financial assets 113 In Brief 6 15 Available-for-sale financial assets 114 16 Financial assets at fair value through profit or loss Strategy 10 17 Deposits at banks with maturities of more than 3 months Business Environment 12 18 Cash and cash equivalents 115 19 Share capital, statutory reserve capital and retained earnings Financial Results 20 20 Dividends per share Financing and Investments 29 21 Hedge reserve 116 Outlook for 2012 34 22 Borrowings 23 Trade and other payables 117 Sustainability 36 24 Deferred income 25 Provisions 118 CONSOLIDATED FINANCIAL STATEMENTS 26 Revenue 119 27 Other operating income Consolidated Income Statements 66 28 Raw materials and consumables used Consolidated Statements of Comprehensive Income 67 29 Payroll expenses 120 30 Other operating expenses Consolidated Statements of Financial Position 68 31 Net financial income (-expense) Consolidated Statements of Cash Flows 69 32 Corporate income tax 121 33 Cash generated from operations Consolidated Statements of Changes in Equity 70 34 Off-balance sheet assets, contingent liabilities and commitments 122 Notes to the Consolidated Financial statements 71 35 Assets and liabilites of disposal group classified as held for sale 123 36 Discontinued operations 124 1 General information 37 Business combinations and other business entities acquired 2 Summary of principal accounting and reporting policies 38 Earnings per share 126 3 Financial risk management 89 39 Related party transactions 4 Critical accounting estimates and assumptions 95 40 Events after the reporting period 5 Segment reporting 96 41 The effect of the change in the presentation of consolidated cash flow statement 127 6 Property, plant and equipment 102 42 Financial information on the parent company 7 Operating lease 104 8 Intangible assets 105 INDEPENDENT AUDITOR’S REPORT 132 9 Investments in associates 107 10 Inventories 108 PROFIT ALLOCATION PROPOSAL 133 Eesti Energia Annual Report 2010 – 2011 2 Translation of Estonian Original Address by the Chairman of the Management Board Contents Dear Owner, Investors, Clients and Partners The financial year 2011 was a year in which we at Eesti Energia worked to secure our future. Projects we focus on today will lay the foundation of Sandor Liive success, strength and competitiveness of Eesti Energia in the future. Chairman of the Management Board Eesti Energia’s total revenue grew by 8% in 273 million euros while sales of electricity at We achieved positive economic value added 2011, reaching 858 million euros, and our ope- regulated market decreased by 9% to 168 mil- (EVA) of 34 million euros last year and paid the rating profit increased by 13% to 168 million lion euros, Sales of network services grew 7% Estonian state 56 million euros in dividends. euros. The major drivers of the growth in opera- to 189 million euros. ting profit were the increased profitability of our In 2011 we invested half a billion euros in the oil sales and an improvement in the sales margin Our financial results were also boosted by inc- Estonian electricity network as well as in elect- of network services. rease in the revenues from the sales of liquid ricity generation and fuel production capacity. fuels due to the higher global oil prices. The sales Our investments were more than double what we More than half of the growth in Eesti Energia’s of liquid fuels produced from oil shale grew by earned from operations in 2011. revenue came from markets that are open to almost 20 per cent to 61 million euros. competition. The decision to build a new power plant in Auve- The revenue growth was primarily driven by Other revenues also showed strong growth with re was the most important investment decision sales of electricity on the unregulated market a notable increase in the sales at Technology of the year. The new plant will use environmen- and successful energy trading on the Nordic and Industry (Tehnoloogiatööstus) and successful tally more sustainable technology and up to Baltic power exchanges. More than half of our launches for our new maintenance and tech- 50% of its fuel mix will be biofuel, alongside the revenues from the sale of electricity came from nical and measurement inspection services. more traditional oil shale. This will cut our CO2 highly competitive environments. Sales of elect- Total other revenue increased by more than half emissions dramatically and make sure that the ricity at unregulated prices reached a record to 97 million euros. environmental impact of electricity generation Eesti Energia Annual Report 2010 – 2011 3 Translation of Estonian Original Contents from oil shale comply with the principles of the Eesti Energia is the leading generator of elect- We are making final efforts to be ready for the European Union’s climate policy. The new plant ricity in the Baltic states full electricity market opening in 2013 in Estonia. will also improve Estonia’s security of supply for In the past year we generated a total of 10.4 TWh electricity. In order to carry out the investment of electricity, which would be sufficient to provide We realise that the upcoming changes in the the government of Estonia is applying for per- electricity to around 7.5 million people. Our goal electricity market will mean that our clients have mission from the European Commission for free is to maintain our generating capacity for the many more questions than usual, and so we have distribution of CO2 emissions allowances for long term while moving towards more diversified increased the number of operators in our call 2013–2020. and sustainable electricity generation. centre from the usual 80 to almost 180. We also plan to increase the size of our customer service Electricity clients in Estonia are more directly We have reached the final stage in the installa- staff in branches across Estonia. affected by the investments in the distribution tion of modern desulphurisation equipment on network, to which we expect to invest a total four of the generating units of the Eesti power In order to comply fully with the requirements of of 300 million euros in the next three years. plant.This investment of more than 100 million the unregulated market, we have separated our euros will help our Narva power plants to meet electricity sales business from our network services, Our other important investment projects are the limits on sulphur emissions which came into which is a natural monopoly. As a result we rolled the construction of new Enefit-280 oil plant in force on 1 January 2012 and which are three out a new client information system last spring. Auvere, the waste-to-energy unit at the Iru power times more stringent than before. It allows us plant, the wind park on the closed ash fields in to maintain the generating capacity of the Narva We want to be able to offer our clients expert Narva, and the installation of desulphurisation power plants at 9 TWh a year. and efficient service. We are proud to have been filters on the Narva power plants. able to maintain the outstanding quality of our We increased the use of biofuel in the Balti customer service, which was confirmed by our The Estonian government plans to strengthen power plant by partially replacing the usage of excellent fourth place in the independent Esto- Eesti Energia’s investment muscle by increasing oil shale in order to reduce our environmental nian Service Index for 2011. our equity by 150 million euros. This increase impact. We are building two new wind parks shows that the state stands solidly behind our and investing in small-scale combined heat The new network tariffs approved in 2011 will activities. and power plants. allow us to improve the reliability of the network and the quality of the electricity supply. We enhanced our liquidity position by signing We are successful in the unregulated electricity The continuing work to improve the quality and loan agreements for 500 million euros in 2011. markets of Estonia, Latvia and Lithuania. reliability of the electricity network is the undoub- We also signed a new loan agreement with the Eesti Energia has kept a market share of around ted first priority of Eesti Energia’s Distribution European Investment Bank for 95 million euros 72% in the unregulated market.. The market Network. We aim to reduce the number of outa- to finance the construction of wind parks and the share and number of clients of our subsidiaries ges per household by almost 20% over the next Iru waste-to-energy unit. In 2012 the focus will in Latvia and Lithuania operating under the Enefit three years. In 2011 we built a total of 716 new similarly be on raising additional long-term debt brand have shown significant growth. Enefit now substations and 1267 kilometres of electrical to enable us to implement our capital expenditu- has 15% market share in Latvia and 7% in Lit- lines, of which 984 kilometres were underground re programme. huania, with client numbers rising by 148% and cables. In the next few years we will increase the 39% respectively. pace of network renovation even further. Eesti Energia Annual Report 2010 – 2011 4 Translation of Estonian Original Contents To avoid increase in scheduled outages we have In America we acquired Oil Shale Exploration Responsibility Initiative of the Year at the Swedish introduced changes to our working procedures Company, which is working on developing oil Business Awards 2011 and in September it came and we now doing more work on live lines.