ENEA Group’s performance remains stable amid volatile market environment – results summary after Q3 2018

In the first three quarters of 2018, ENEA Group generated robust financial results. With sales revenues in excess of PLN 9.3 billion, EBITDA reached close to PLN 2 billion and was in line with the plan on a year-to-year basis. From January to September 2018, the Group recorded improved operating data across the entire value chain: from coal production, electricity generation and the sales volume of distribution services to the sales volumes of electricity and gas fuel to retail customers. Capital expenditure exceeded PLN 1,450 million.

After Q1-Q3 2018, ENEA Group’s EBITDA grew by 1.3% to nearly PLN 2 billion, with a 12.2% y/y increase in net sales revenues, which reached PLN 9,384 million. The Group generated a net profit of PLN 620 million.

The largest EBITDA, PLN 872 million, was generated in the distribution area. The 9.3% y/y rise was mainly due to the increased sales volume of distribution services. The second largest EBITDA result was posted in the generation area and reached PLN 663.5 million, i.e. up by 8.8% on the corresponding period of the previous year. In Q1-Q3 2018, ENEA Group’s electricity generation rose by 31% on Q1-Q3 2017. This was the outcome of counter-balancing factors – on the one hand, the acquisition of Połaniec Power Plant at the end of Q1 2017 and the commissioning of Unit No. 11 at Kozienice Power Plant, and the periodically reduced availability of the Group’s power units due to their cyclical inspections and upgrades, including those related to their adjustment to the BAT conclusions, on the other. In the trading area, EBITDA reached PLN 38 million. This result was affected by increased costs of environmental obligations (mainly green obligations) and higher prices of purchasing electricity in retail trade, as well as rising prices of CO₂ emission allowances in wholesale trade. The financial result in the mining area stood at PLN 400 million.

From January to September 2018, the volume of electricity and gas sales to retail customers increased by 1.8 TWh, i.e. by 13% y/y. The total rise in sales volumes translated into higher sales revenues by PLN 435 million, i.e. up by over 14% on the corresponding period of 2017. Sales of heat also grew in this period, reaching 4,703 TJ (up by 8.7% y/y).

In Q1-Q3 2018, ENEA Group generated 19.9 TWh of electricity, i.e. 31% more than in the same period last year, with 18.5 TWh coming from conventional sources. Renewable energy generation rose by 7.9% y/y, reaching a total of 1,450 GWh after the third quarter. Sales of distribution services to end users amounted to 14.9 TWh, i.e. up by 4.3% y/y. The Group’s Q1-Q3 2018 CAPEX totalled PLN 1,454.8 million, including PLN 78 million spent on pro-environmental investment. The net debt/EBITDA ratio was at a safe level of 1.7.

After the first three quarters of 2018, LW Bogdanka’s net sales revenues reached PLN 1,335.6 million, i.e. were up by 2.2% y/y.

In the first three quarters of 2018, Bogdanka completed in total 28.6 km of excavations, as compared to 30.7 km in the entire 2017 (up by 27% y/y). This means that by the end of this year the company will have achieved a new length record of excavated galleries; however, this investment in the future increased extraction negatively affects current financial results. Excluding this factor, the financial results for Q3 2018 and for Q1-Q3 2018 were on a par with last year’s ones.

Apart from the factors listed above, the operating profit and net profit results were impacted by the higher value of depreciation, resulting from the reversal of impairment losses on property, plant and equipment recognised in 2015.

In Q3 2018, the production of commercial coal in LW Bogdanka totalled 2.3 million tonnes, i.e. up by 6.8% y/y; in Q1-Q3 2018, it rose by 1.6% to 6.8 million tonnes.

LW Bogdanka’s sales of commercial coal grew by 20.2% to 2.4 million tonnes in Q3 2018; in Q1-Q3 2018, they rose by 1.3% to 6.8 million tonnes.

After Q1-Q3 2018, LW Bogdanka’s shares in the steam coal market and in coal supplies to the power industry were 19% and 25.4%, respectively. More than 81% of the sales generated in the first three quarters of 2018 were delivered to ENEA Wytwarzanie and ENEA Połaniec.

COMMENTS ON THE Q1-Q3 2018 RESULTS OF ENEA GROUP:

Mirosław Kowalik, President of the Board at ENEA:

– In the first three quarters of 2018, ENEA Group posted stable financial results and improved its operating data. We generated an EBITDA of nearly PLN 2 billion, with sales revenues exceeding PLN 9.3 billion. This is more than in the same period of 2017 and in previous years. We are consistently strengthening the Group’s financial and operational potential enabling us to implement new investments based on modern technologies. As a vertically integrated group with a value chain stretching from coal mining to the sale and distribution of electricity to the end user, we are able to react flexibly to the changing market and regulatory environment.

The first capacity auction, through which we contracted the capacity of almost 3.7 thousand MW, including from Unit No. 11 at Kozienice Power Plant for a period of 15 years, is behind us. Thanks to our achieved financial results being in line with our baselines and to availability of financing, we are consistently implementing our CAPEX programme in individual areas of activities. In Q1-Q3 2018, we spent PLN 1,454.8 million on CAPEX investments across our Group, while pro-environmental investment rose to reach PLN 78 million in this period. We are developing responsibly in order to reinforce and further boost the power of Polish economy – said Mirosław Kowalik, President of the Board at ENEA.

Piotr Olejniczak, Vice-President of ENEA for Financial Affairs:

– Our financial results are on target, with EBITDA being year-on-year as planned. The distribution area remains invariably stable, with a steadily rising sales volume of distribution services and a growing number of new users. The current activities of ENEA Group are focused on raising our efficiency in response to the dynamic market situation in the areas of generation and trading. We expect the Group’s cash flows to receive a boost in the coming years from the launch of the capacity market and from the capacity contracts awarded through capacity market auctions. Of key importance for the generation area is the 15-year capacity contract awarded for Unit No. 11, launched in December 2017. Its parameters allow for the production of electricity at relatively low variable costs, as compared to higher emission and less efficient units. For the Group’s cash flow, the 5-year contract for modernised units is also important. Our good financial standing has been confirmed by external, international rating institutions. Earlier this year, Fitch Ratings agency affirmed ENEA’s long-term local- and foreign-currency ratings at “BBB” with stable outlooks, and ENEA S.A. and Lubelski Węgiel Bogdanka S.A. were included in FTSE Russell’s index at London Stock Exchange – commented Piotr Olejniczak, Vice-President of ENEA for Financial Affairs.

Piotr Adamczak, Vice-President of ENEA for Commercial Affairs:

– The energy sector has been under the influence of the dynamic market situation concerning the costs of CO₂ emission allowances and of the so-called “colour” certificates. The rising prices of CO₂ emission allowances have led to a spike in energy prices, which has significantly affected the results of the trading area across the entire sector. Therefore, in ENEA Group’s trading area, we have been consistently working on increasing revenues from the sale of electricity and gas fuel. After the first three quarters of this year, our sales volume grew by 13% compared to the same period in 2017. We have succeeded in attracting new customers by constantly expanding our product offer. We are also continuously improving our customer service. For example, we are just finishing preparations for launching an upgraded, more functional online customer service platform called eBOK 2.0. All our efforts are for our customers and with their best interest and comfort in mind – stated Piotr Adamczak, Vice-President of ENEA for Commercial Affairs.

Zbigniew Piętka, Vice-President of ENEA for Corporate Affairs:

– Nearly 40% of our CAPEX budget is spent on investment in the distribution area and the Group’s investment outlays on projects related to environmental protection are growing. In July, ENEA Operator completed two investment projects which are crucial for energy security in north-western Poland. The first one was the comprehensively upgraded Main Power Supply Point Zdroje, which was commissioned in Szczecin in West Pomerania. And the second one was the redevelopment of another 110 kV overhead high voltage line between Leszno Gronowo and Śrem in Greater Poland. This was the last stage of redevelopment of over 110 km of the strategically important line between Leszno and Września. In the generation area, works are under way to adapt our generation units to the BAT conclusions. Under the Phoenix project- resumed for Unit No. 5 in ENEA Połaniec, prefabrication of turbine elements has commenced. Also, this year we launched our own original project of cooperation with vocational and technical schools. In the first three quarters of 2018, ENEA Group assumed the patronage of six educational institutions in the areas of operations of our companies. Our target is to have a total of fourteen schools under our patronage by the end of this year – added Zbigniew Piętka, Vice-President of ENEA for Corporate Affairs.

Artur Wasil, President of LW Bogdanka:

– Among the positive factors in the third quarter of 2018 should be listed high coal production and high sales revenues at a higher price year-on-year. At the same time, there was an increase in costs resulting from the general situation in the country – the rises were recorded mainly in the costs of third-party services and of materials and energy, as well as in labour costs. On the whole, however, it should be emphasized that if we exclude the effects of costs associated with less favourable geological conditions and the record-high scope of excavation works, our EBITDA results are on a similar lever to last year’s ones. Also, we once again uphold our annual coal production target of at least 9 million tonnes – assured Artur Wasil, President of LW Bogdanka.