Today, the audited financial results of Latvenergo Group for 2017 are published; the Management Board of Latvenergo AS has approved them on 17 April 2017.
In 2017, the power generation at Latvenergo Group has been among historically highest levels, and this has secured the revenues in the amount of EUR 925.6 mill. The Group's EBITDA has increased by 38% and amounted to EUR 541.7 mill., thus year 2017 has been particularly successful. Last year Latvenergo Group successfully commenced trade of natural gas in Latvia and Estonia and was recognised as the most valuable Baltic power utility.
Along with the Latvenergo Group consolidated and Latvenergo AS Annual Report 2017, the Sustainability Report which has been prepared in accordance with the GRI Standards Guidelines, and the Corporate Governance Report of Latvenergo AS for 2017 is published.
Āris Žīgurs, the Chairman of the Management Board of Latvenergo AS, emphasises the following in describing year 2017: "Change and modernisation have been the key words of the first year of the Latvenergo Group Strategy (2017-2020). It has been full of events and new challenges that will play an important role in the further development of the energy industry. The technological leap of our time and the requirements of proactive users also bring new opportunities, and we are prepared to use them. We are particularly satisfied with the high electricity output - 5.7 TWh of electricity were generated by the Latvenergo Group in 2017. Productive electricity generation by the Daugava hydro power plants played the most important role; after several years of comparatively low water levels in the Daugava River, the water inflow was high last year and thus it was a very successful year for electricity generation. Last year Latvenergo Group has attested its importance for the national economy as a responsible electricity generator whose decisions have helped in reducing the amount of the mandatory procurement component."
In 2017, the generation of the power plants of Latvenergo Group was among the historically highest levels, i.e. 5,734 GWh which is 22% above the level of 2016. Electricity generation at the Daugava HPP's has increased by 74% in 2017 and amounts to 4,270 GWh (2,449 GWh in 2016). Water inflow in the Daugava River was the major reason behind the increase in electricity generation by the Daugava HPP's, therefore electricity generation in 2017 has been the highest since 1998 and the third highest since the beginning of monitoring in 1966. Considering the successful electricity generation by the Daugava HPP's in 2017, electricity generation at Riga CHPP in 2017 was 36% below the level of the preceding year and amounted to 1,411 GWh. The heat production in 2017 has decreased by 2% compared to the last year and amounted to 2,612 GWh due to comparatively warmer weather during the heating season and entry of new heat producers on the market.
Latvenergo was among the biggest electricity traders in the Baltics. The electricity market share of the Group was around 27% of the total electricity retail market in the Baltics in 2017. The electricity sales outside Latvia account for 1/3 of the total retail sales of electricity. Totally 6.9 TWh of electricity were sold to retail customers in the Baltics in 2017: in Latvia– 4.6 TWh, in Lithuania – 1.3 TWh and in Estonia – 1 TWh. In April 2017 the natural gas market was opened in Latvia and Latvenergo Group started trading of natural gas to corporate customers in Latvia and Estonia.
The revenue of Latvenergo Group in 2017 remained at the level of 2016 and amounted to 925.6 mill. EUR. The increase in electricity output at the Daugava HPP's contributed to the growth of the Group's profit. Besides the economic operations, also the Corporate Income Tax reform in Latvia provided a positive contribution to the profit. Latvenergo Group's EBITDA has increased by 38% in the reporting year and amounted to 541.7 mill. EUR. In 2017, the Group’s profit was 322.0 mill. EUR and it consists of the Group’s operating result in the amount of 172.9 mill. EUR and a deferred tax reversal in the amount of 149.1 mill. EUR as the result of the tax reform*. In compliance with the Law "On Mid-term Budget 2018, 2019 and 2020", the forecasted amount of dividend payable to the state budget from the gained profit in the next few years amounts to 94.2 mill. EUR in 2018, 132.9 mill. EUR in 2019 and 127.1 mill. EUR in 2020.
On 14 March 2018, Moody’s maintained the credit rating of Latvenergo AS at the Baa2 level with a stable future outlook. In their assessment, Moody’s also took into account the one-off compensation from the state, the planned changes in the support intensity for the Riga CHPPs and the planned Latvenergo AS capital release.
The total amount of investment of Latvenergo Group increased by 43.1 mill. EUR or 21% in 2017 compared to the last year and amounted to 243.8 mill. EUR. The increase was due to higher investment in the transmission and generation segments. By continuing the reconstruction of the Daugava HPPs’ hydropower units, 41.8 million euros were invested in this project in the reporting year. To ensure high quality power network service, technical parameters and operational safety, a significant amount is invested in the modernization of the power network. The investment in the network assets accounts for 65% of the total investment.
National Economy Importance
Latvenergo Group is among the biggest taxpayers in Latvia. In 2017 the Group has paid 238 mill. EUR to the state budget, including more than 90 mill. EUR as dividends for the use of the state capital.
Latvenergo AS has contributed to the reduction of the mandatory procurement component. As of 1 January 2018, the fee has been reduced by 1 EUR/MWh and is now 25.79 EUR/MWh compared to the previous value of 26.79 EUR/MWh. This was made possible by the decision of Latvenergo AS to apply for the receipt of a one-off compensation from the Latvian state in October 2017, at the same time opting out of the receipt of 75% of the annual electrical capacity payments for Riga CHPPs. On 21 November 2017, the Cabinet of Ministers of the Republic of Latvia accepted an order according to which a compensation of 454 mill. EUR is paid to Latvenergo AS. In order to finance the one-off compensation, the state applies its right as the Shareholder of Latvenergo AS to carry out a capital release of Latvenergo AS.
On 14 November 2017, considering the development directions defined by the strategy of the Latvenergo Group, the Management Board of Latvenergo AS approved the Strategic Development and Efficiency Program. The strategic development section of the program contains a plan for implementation of major strategic projects. The efficiency section provides for review of the Group’s processes, centralisation and digitalisation with the overarching goal of maintaining the long-term profitability of the Group. This is the biggest Group’s optimisation plan in the last decade and its implementation will allow the Group to increase its value in the long-term and to maintain its competitiveness in an open market and the dynamic energy industry.
The Sustainability Report of the Latvenergo Group for the year 2017 has been prepared in accordance with the GRI Standards Guidelines for the first time. The Report provides for an extensive information about the Group, its governance and operating segments. The document also presents information about the economic, social and environment aspects essential for the Group's operations. The Sustainability Report for 2017 was audited by SIA "Ernst &Young Baltic".
Improvements in the corporate governance of the Group were successfully implemented during the reporting year. The capacity of the Audit Committee was strengthened through two Members of the Supervisory Board joining it. The Supervisory Board of Latvenergo AS established the Human Resources Committee, whose main tasks are related to the personnel selection process, wages, performance assessment and merging of positions.
The Corporate Governance Report of Latvenergo AS for 2017 is published along with the financial results of the Latvenergo Group. The Corporate Governance Report attests that the Latvenergo Group has followed all the good corporate governance principles applicable to its operation in all major aspects. Corporate Governance Report is being prepared since 2012, when the Bond Issue Program was commenced and the issued bonds were listed by Nasdaq Riga Exchange. The Report has been prepared in compliance with the Law on the Financial Instruments Market and "Corporate governance principles and recommendations for implementation thereof" published by Nasdaq Riga in 2010.
* On 28 July 2017 the new Law on Corporate Income Tax (CIT) was adopted and entered into force as from 1 January 2018 providing for a different procedure of application of the CIT compared to the earlier provisions of the CIT Law.
In compliance with the provision of the Law on Annual Reports and Consolidated Annual Reports and International Accounting Standards the liabilities of the deferred tax are not recognised. The deferred tax liabilities (EUR 149.1 mill.) accrued over preceding years (1997 to 2017) are reversed in the Profit of Loss Statement of 2017. The reversal of the deferred tax does not affect the cash-flow of Latvenergo Group and does not increase the financial resources.