In Estonia profits in business sector down 12 per cent in the first quarter

Total profits in the Estonian business sector were EUR521m in Q1’16, 12 per cent down on the same period a year ago.
In Estonia profits in business sector down 12 per cent in the first quarter

Tallinn, Estonia (Dennis Jarvis, CC BY-SA)

According to Statistics Estonia, total profits were down across almost all area of economic activity, with the largest contribution to growth made by information and communication enterprises. Growth in profits in the business sector was negatively influenced mostly by manufacturing and transportation and storage enterprises.

In the first quarter of this year enterprises sold goods and services worth EUR11.7bn, 2 per cent more than in the same period a year ago. Revenues of trade enterprises – which have the biggest share in the total turnover of the business sector – increased 7 per cent, influenced mostly by an increase in wholesale trade. Growth was supported also by retail and motor trade. The turnover of manufacturing enterprises stayed on the level of the previous year.

Compared to the same period a year ago, the total costs of enterprises increased 2 per cent, including a 6 per cent increase in personnel expenses. The number of people employed as well as the number of hours worked increased 3 per cent. Labor productivity in the business sector on the basis of value added amounted to an average of EUR4,900 per person employed per quarter, i.e. 2 per cent more than in the first quarter of 2015.

Business investment activity continues to be at a low level, with enterprises investing EUR443, 5 per cent less than in the same period the year before, in the first quarter of 2016.

Investments were made mostly in buildings and machinery and equipment. The main investors were manufacturing, trade, energy and transportation enterprises, who made more than a half of the total investments of enterprises. Compared to the first quarter of 2015, investments in transport equipment and computer systems increased. Other investments fell, with the biggest decrease registered in investments in land.

The Institute of Economic Research (EKI) estimates that the economic situation has deteriorated but that the six-month outlook is moderately positive, predicting 2.5 per cent growth for the Estonian economy this year.

Estonian exports will amount to EUR12bn, unemployment reach 5.7 per cent, nominal wages reach EUR1,105 and real wages grow 3.2 per cent this year, while consumer prices will rise by roughly 1 per cent, the EKI said.

Some 35 per cent of the analysts expect the economic situation will have improved six months from now, 41 per cent believe there will be no change and 24 per cent anticipate a deterioration. The overall assessment of the six-month outlook is 5.5 points, 0.1 point higher than in September.

The investment situation is expected to improve over the next six months by 24 per cent, remain unchanged by 47 per cent and turn for the worse by 29 per cent of the analysts. Six percent believe the private consumption situation will improve, 59 per cent think it will not change and 35 per cent expect the situation to worsen.

Export volumes are expected to increase by 41 per cent, stay at present levels by 35 per cent and decrease by 24 per cent of EKI analysts. At the same time 47 per cent think imports will grow, while 35 per cent expect no change and 18 per cent think the volume of import will decline.

As many as 71 per cent of analysts believe inflation will pick up in 2016, while 29 per cent expect no change. Consumer prices are forecast to rise by 1.1 per cent in 2016 and the long-term forecast until 2020 is 2 per cent.

Despite the slowdown some business are expanding

M&A transactions are one of the best way to expand the business even in a not so flourishing environment. Statista.com data shows that in 2015 M&A transactions in Estonia were only 5 per cent of all transactions in the Baltic countries but the majority of companies that buy Estonian, Latvian and Lithuanian enterprises come from the Baltic and Nordic countries, according to the findings of the “Baltic M&A Deal Points Study”. The acquisition by Europe’s largest wood pellet producer, Estonia’s Graanul Invest of the 556MW Langerlo power plant is an excellent example. Graanul Invest plans to convert Langerlo to burn biomass by the second half of 2017. The value of the transaction was EUR250m.

„We have been on a lookout for projects like this for a couple of years and I hope that by carrying out this project we are able to prove that sustainable use of biomass is one of the best ways to make use of existing energy infrastructure and a viable and solid alternative to whatever other renewable energy technologies,” Graanul Invest board chairman Raul Kirjanen said.

Wood pellet producer German Pellets acquired the Langerlo plant from Eon in December 2015, but shortly afterwards filed for insolvency. Ownership of Langerlo subsequently passed to Peter Leibold, the founder of German Pellets.

Situated in the Flanders region of Belgium, the Langerlo NV plant has a capacity of 656 megawatts, of which 86 megawatts is gas-powered and 470 megawatts coal-powered.

Langerlo has green certificates to convert its coal burning units into wood pellet burning units. Working at full capacity, the plant will use 1.8 million tons of pellets per year.

The conversion of the plant that covers about 8 per cent of the electricity needs of the Flanders region must be completed by fall 2018.

German utility Eon had held discussions with potential contractors which are still under consideration for the conversion, Graanul Invest said, which would allow a relatively quick timeline for the works. Under Eon’s conversion plans, the coal-fired plant would become a 400MW wood-pellet fuelled plant.

„I am glad that a capable investor has been found for this project who has strong expertise in forestry, production of pellets, logistics and energy alike. We hope that Graanul Invest is able to continue the project and bring it to a successful conclusion,” said the manager of the Langerlo plant, Marc Rommens.

The plant, located in Flanders, Belgium, will use 1.8mn t/yr of wood pellets once converted. Graanul Invest – the biggest wood pellet producer in Europe – is still considering its supply options and is likely to secure part of Langerlo’s supply from the market.

US pellet producer Enviva had previously signed a 10-year supply agreement for 450,000mn t/yr of wood pellets to be delivered to the plant from 2017 and that is still an option, Graanul Invest said.

Graanul Invest has a pellet production capacity of around 2.3mn t/yr in Estonia, Latvia and Lithuania, and although a proportion of its output is contracted the firm would not need to build further production capacity to supply the plant, it said.

Tallinn, Estonia (Dennis Jarvis, CC BY-SA)

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