Sustainable development of Enea Group increases its value and energy security of the country

2017 was a breakthrough year for Enea Group in many respects. Enea became the second-largest producer of electricity by increasing its production capacities as a result of the acquisition of Połaniec Power Plant and commissioning the strategic investment of the Group - Unit No. 11 of Kozienice Power Plant. In 2017, Enea Group showed a two-digit y/y increase in EBITDA (15.3%) and net profit (37.2%), which indicate the consistency in the implementation of the adopted Development Strategy and provide a stable basis for further growth. The consistently customer-oriented attitude and the expansion of the offer range with more attractive products made Enea increase its electricity sales to retail customers by 1.219 GWh, or 7.3% y/y. Thanks to investments, Enea Group stands out today in the industry as an entity with the lowest emission ratios in the sector and with the highest share of its own raw material in production.

The activities and projects undertaken by Enea Group in 2017 include initiatives and solutions that strengthen the country's energy security and the reliability of energy supplies to customers and contribute to the development of the national economy and innovation. They are reflected in good financial and operational results as well as Enea's stable position on the Polish energy market.

In 2017, Enea Group generated EBITDA of PLN 2,684 million (increase by 15.3% y/y) and net sales revenue of PLN 11,406 million (increase by 1.3% y/y). The net profit amounted to PLN 1,165 million (increase by 37.2% y/y), and the net profit attributable to equity holders of the parent company amounted to PLN 1,070 million (increase by 36.4%.) The Group allocated PLN 4,187 million for investments, i.e. 52.7 % more than in the same period of the preceding year.

The production and sales of coal in 2017 remained at a similar level of 9 million tonnes net. A significant growth, by 54.6% up to 21 TWh, could be seen in the production of electricity - this is the result of the acquisition of Połaniec Power Plant. The Group also increased the generation of energy from renewable sources by 1.3 TWh. The sales of distribution services to end users increased to 19.3 TWh (increase by 2.8% y/y), while the volume of the sales of electricity and gas fuel to retail customers increased by 5.2% y/y to 18.9 TWh.

In the analysed period, the highest EBITDA of PLN 1,073 million was generated in the Distribution Area. The largest increase in EBITDA by PLN 218 million (42.1% y/y) occurred in the Generation Area, where EBITDA amounted to PLN 735 million. This was due to the increase in generation capacity as a result of the takeover of Połaniec Power Plant (EBITDA consolidated since 14/03/2017). The Trading Area generated EBITDA of PLN 178 million, which indicated an increase of 23.8 million, or 15.4% y/y. In the Mining Area, EBITDA increased by 15.9% and amounted to PLN 709 million. This result was affected by the release of provisions arising from the execution of an agreement on in-kind coal allowances granted to retired workers of the LW Bogdanka mine.

The financial results generated stem from the sustainable growth of Enea Group's business areas. The Group started to take advantage of the synergy and potential of the Kozienice-Bogdanka-Połaniec mining and generation area. The business model implemented allows the Group to stand out in the industry as an entity with one of the lowest emission ratio in the sector and the highest share of its own raw material in energy production. This is important given the care for the environment and the supporting activities related to the improvement of the quality of air in Poland.

The highlights of 2017 in Enea Group:

• The acquisition of Połaniec Power Plant - thanks to the acquisition, Enea Group significantly increased its generating assets, becoming the second-largest entity in the area of electricity production in Poland.
• Enea Operator launched in Poznań the most modern Power Dispatch Centre which manages the operator's high voltage network in north-western Poland. Such an organization of services enables flexible and quick response to events occurring in the entire 110 kV network.
• Three times during the year, severe weather and strong winds caused massive breakdowns and destroyed part of the network infrastructure in the Enea Operator distribution area. Thanks to the efficient work and commitment, teams of power engineers restored energy supplies to the recipients.
• The LW Bogdanka mine received a licence for the extraction of hard coal from the “Ostrów” deposit. LWB has currently 391 million tonnes of the mining potential in three licence areas.
• Enea Group commissioned a modern power unit for supercritical parameters with a capacity of 1,075 MW in Kozienice Power Plant. Unit No. 11 is the largest investment in the history of the Group and the most modern generation unit of this type in the country.

COMMENTS ON THE ANNUAL RESULTS OF ENEA GROUP:

Mirosław Kowalik, the President of the Management Board of Enea and CEO:

– Last year was the time of further sustainable development of Enea Group, which significantly brought us closer to the implementation of the strategic goals set in all areas of the value chain. The acquisition of Połaniec Power Plant, the commissioning of the 1.075 MW unit at Kozienice Power Plant and the mining licence for the Ostrów deposit strengthened our market position in the mining and generation area. We ended this period with good financial and operational results, which constitute solid foundations for further development of the Group. One of our strategic goals is to develop the right synergy between our assets and to achieve balance within the Group, which the consistent investments in the generation capacity should contribute to. We are already well on the way to achieving this goal today. The increase in the Group's generating capacity goes hand in hand with the increase in the sales of electricity to retail customers, whose volume in the previous year increased by 1.219 GWh, or over 7% y/y. Investments, striving for operational excellence, activities aimed at optimizing operational costs and increasing financial and organizational potential build value for our shareholders. At the same time, we strengthen the country's energy security by complying with the economic policy of Poland. In the coming years, we are going to direct the developed financial potential of Enea Group at initiating investment projects that will respond to new trends, especially those in the field of low-carbon, renewable energy and electromobility -  said Mirosław Kowalik, the President of the Management Board of Enea and CEO.

Piotr Olejniczak, Vice President of the Management Board, CFO:

– Good financial and operational results of the business areas, 15.3% increase in EBITDA and 37.2% increase in the net profit prove the dynamic development of the Group. Our strategic activities in the generation area partly translated into results. As regards Unit No. 11, in the case of which the end of 2017 was the start-up period, its impact on the results will be more visible in the subsequent quarters and years. In addition, due to the repairs of units in 2017, we see the potential for an increase in production in the following years. We consistently implement our strategy and benefit from the synergy of the group's mining and generation potential. It is seen in a larger volume of the sales of electricity to retail customers and the sales of coal within the Group. We are a reliable and dependable partner. By working on further improvement of efficiency, we are already thinking about future projects that will respond to global technological trends in power industry or electromobility – said Vice President of the Management Board, CFO.  

 Piotr Adamczak, Vice President of the Management Board for Commercial Affairs:

– Our work on improving the product offer and its development in consistence with the needs of customers bears fruit. In 2017 another record was shown in the volume of the electricity sales. We introduced new products on the market, including the Enea Smart line with three packages: security, protection and savings. In addition to energy, we offer modern solutions in the field of energy management, or the protection of home and property. We strive to make our products innovative, improve the quality and comfort of our customers' lives, and also give tangible savings. We are actively involved in the struggle for the quality of our air. Enea Eco with a lower energy price during night hours is our proposal for those interested in switching to electrical heating or charging electric cars. The fight against smog is going to be a long-term activity and it must also be based on the change of customer awareness as regards environmental protection – said Piotr Adamczak, Vice President of the Management Board for Commercial Affairs.

Zbigniew Piętka, Vice-President of the Management Board for Corporate Affairs

– 2017 is not only the year of the completion of the strategic investment and commissioning of Unit No. 11. As in the previous years, the Group realized the largest capital expenditure in the area of generation and distribution. At Kozienice Power Plant, apart from the installation of the catalytic denitrification of flue gas (SCR) system in units No. 4 and 8, we modernized, among other things, the turbines of units No. 3 and 8, which significantly improved the dynamic condition of turbine sets at a moderate cost of this investment. The distribution area completed high and medium voltage investments related to the expansion, automation and modernization of stations and power grids. The Group constantly implements an ambitious development and investment programme that leads to the implementation of the goals set out in our Strategy – said Vice President of the Management Board for Corporate Affairs.

Sławomir Karlikowski, Deputy President for Production Affairs - Head of the Mining Plant Operations, LW Bogdanka:

– We consider 2017 as a good year in terms of results for LW Bogdanka. Cost control and optimization of investment outlays helped us achieve favourable results. Due to the fact that we base our activity on long-term contracts, we sold coal at prices close to the year-on-year level, despite the fact that growth was visible on the spot market. We assume that in 2018 the prices of coal sold by us will increase by several percent. We completed the production plan set for 2017. In 2018, we anticipate extraction at the level of approx. 9.0 million tonnes – said Sławomir Karlikowski, Deputy President for Production Affairs - Head of the Mining Plant Operations, LW Bogdanka.

2017 in ENEA GROUP - DETAILED SUMMARY: 

Enea increases its share in the generation of electricity in Poland up to 19%

The inclusion of Połaniec Power Plant in Enea Group increased the annual generation of electricity to the level of 21 TWh. For approximately PLN 1.26 billion, Enea acquired an important system power plant, which has undergone an intensive modernization program of about PLN 1.5 billion in recent years. Połaniec Power Plant consists of "the Green Unit" with a capacity of 225 MW, producing electricity from biomass, a renewable energy source. Thanks to the acquisition, Enea concentrated energy assets operating in the south-eastern part of the country. In 2017, the production of energy from renewable sources also increased by 1.3 TWh.

On 19 December 2017, a report on the commissioning of the strategic investment of Enea Group in Kozienice Power Plant was signed. Thus, the construction of Unit No. 11 was officially completed. Unit No. 11 is a high-performance power unit with 1,075 MW of gross capacity. Thanks to the use of advanced technology solutions for supercritical parameters, the unit achieves net efficiency of 45.6%, which allows carbon dioxide emissions to be reduced by approx. 25% compared to emissions from the existing coal-fired units. Unit No. 11 is therefore the most environmentally friendly energy unit of this type in Poland.

Both power plants consistently modernize their units, adapting them to the EU industrial emissions requirements and future requirements of BAT conclusions. In 2017, Kozienice Power Plant developed further installations for catalytic denitrification of flue gas (SCR) on units 4 and 8 (200 MW), and the installation on Unit No. 10 (500 MW) is at the final stage of implementation. At Połaniec Power Plant, the flue gas desulphurisation system (FSG) was modernized and units No. 2, 3, 6 and 7 were equipped with a catalytic denitrification of flue gas (SCR) system. These investments have contributed to the improvement of the energy efficiency of the units with lower consumption of coal, reduction of CO₂ emissions and reduction of nitrogen oxides.

• EBITDA of the generation area of PLN 735 million

A stable financial position supports development and investment plans

The dynamic development of the raw material and energy corporation is connected with the implementation of investment projects. Capital expenditure in 2017 was at PLN 4,187 million, i.e. 52.7% more than in the preceding year, with the net debt/EBITDA ratio at a safe level of 2.1.

By implementing many strategic investments, the Group also optimizes the sources of their financing. Obtaining EU funds in order to implement the Group's objectives is just one example of an effective use of the advantages of external capital. This was the case in the distribution area. In 2017, Enea Operator received approx. PLN 180 million of EU support for investment projects related to network modernization, among others.

One of the Group's priorities is the use of synergies and further improvement of operational efficiency, in order to adjust to dynamic market changes and technological trends in Europe and in the world in an optimal and quick manner. Enea conducts its investment policy responsibly and engages in innovative projects, seeking partners both among the leading energy sector groups in Poland, global entities, but also the newly established enterprises initiated by Polish entrepreneurs, seeking capital and competence support.

• capital expenditure in the generation area PLN 1,094 million
• capital expenditure in the distribution area PLN 1,022 million
• capital expenditure in the mining area PLN 373 million

The security of energy supply to customers of utmost importance

2H 2017 was particularly significant in terms of the scale and frequency of weather phenomena that affected the distribution area of ​​Enea Operator. In total, as a result of the August storms and Grzegorz and Ksawery hurricanes approx. 3,600 power poles and almost 450 km of power lines were damaged. Working in difficult conditions, teams of power engineers restored electricity supply to a total of over 1 million recipients. Meeting this great challenge was possible thanks to the proper logistics, preparation and, above all, the commitment and great work of Enea Group's engineers.

In 2017, Enea Operator rebuilt, among others, the Pakość, Jachcice Main Supply Points (Kujawsko-Pomorskie Province) and the Kostrzyn Main Supply Point (Lubuskie Province), which strengthen the energy security in the north-western part of the country. In Śmiłów (Wielkopolskie Voivodship) a new Main Supply Point was launched, which covers the growing energy demand in northern Wielkopolskie Province. Moreover, a new 110 kV high voltage overhead line from Nowogród Bobrzański to Żary (22 km) was connected, improving the safety of customers from the southern part of the Lubuskie Province. Subsequent stages of the construction of the energy bridge between Poznań and Gorzów Wielkopolski were also completed: reconstruction of the 110kV HV line from Skwierzyna to Międzyrzecz and the construction of two 110kV HV lines between Zielomyśl-Międzyrzecz (17 km) and Zielomyśl-Międzychód (15 km).

• EBITDA of the distribution area PLN 1,073 million
• sales of distribution services to end users of 19.3 TWh
• PLN 180 million of EU funding for investment projects

LW Bogdanka Mine - big market share and solid results

LW Bogdanka generated consolidated revenue of PLN 1.78 billion in 2017, compared to PLN 1.79 billion a year earlier. Net profit excluding one-off events amounted to PLN 173.1 million compared to PLN 182 million a year earlier, the operating profit stood at PLN 236.4 million versus PLN 237 million a year earlier, and EBITDA was at PLN 594 million as compared to PLN 606.5 million in 2016. Bogdanka considers the achieved financial results to be good. The company invariably stands out in the industry with good results thanks to continuous cost control and optimization of investment outlays. In 2017, the Bogdanka mine maintained a high 25.3% share in the sales of coal to the power industry, confirming its strong market position. Last year, the company extracted 9.05 million tonnes of raw material compared to 9.04 million tonnes a year earlier. The average yield was 64.7% and was higher than in 2016 (62.8%).

 Obtaining a mining licence for the “Ostrów” deposit by LW Bogdanka in 2017 is a basic element of the plan aimed at doubling the operational resources, provided for in the “Strategy for LW Bogdanka – the Mining Area of ​​Enea Group until 2025”. Additional extension of the "Bogdanka" deposit by another 33 million tons of operational resources together with the already existing licence in Ostrów will allow the Company to extend its lifetime to approx. 50 years (from about 25 years now). Increasing the resource base means the possibility of long-term planning and securing the development of the mine and providing Enea Group with a stable raw material base.

• EBITDA of the mining area at PLN 594 million (excluding one-off events)
• net coal production of 9,050 thousand tonnes
• 30.7 km of heading excavations

Customer-oriented activities and record sales volume

Enea constantly works on improving its offer by launching innovative products and solutions to customers. An example of such an approach is Enea Smart, i.e. a combination of a comprehensive electricity sales contract with smart home solutions. The smart home system will ensure safety and warn against fire, flooding or burglary. The devices available under Enea Smart allow you to measure the electricity consumption of home appliances and, thus, save money.

By putting the customer and their needs in the centre of attention, Enea invariably cares about the quality of service, for instance through the development and promotion of remote communication channels. In 2017, activities were conducted to promote the electronic Customer Service Centre (eBOK). Enea also launched a chat for clients on its website - another, apart from the helpline and e-mail, channel of fast contact with the company. In order to ensure the continuity of operations of the helpline and improve the quality of the service, a new location for the helpline was opened in Szczecin.

• EBITDA of the trading area at PLN 178 million
• Increased volume of sales of electricity to retail customers by over 7% y/y.
• sale of electricity and gas fuel to retail customers 18.9 TWh