Revenue growth and increased electricity generation – ENEA Group reports FY 2018 results
In 2018, ENEA Group recorded growth in its key operational results – total generation of electricity and sales volume of distribution services and of electricity and gaseous fuel to retail customers. In a demanding market environment, the Group posted higher revenues of PLN 12,673 million (up by 11.1% y/y) and continued to heavily invest across the entire value chain. ENEA is consistently pursuing the Group’s Development Strategy adopted in 2016. Owing to consistently implemented investments, ENEA Group reduced its CO2 emission per 1 MW by more than 7% in the years 2016-2018. Moreover, ENEA generated 11% more renewable energy in 2018 than in the year before.
The year 2018 brought about many new, often strategic business and market challenges. Despite this demanding environment, ENEA Group generated an 11.1% increase in net sales revenues, which totalled PLN 12,673 million at the end of the reported period. The consolidated net profit amounted to PLN 719 million, with the net profit attributable to shareholders of the parent company reaching PLN 686.7 million. The consolidated FY 2018 EBITDA stood at PLN 2,348 million and the net debt/EBITDA ratio remained at a safe level of 2.4. In the reported period, the Group spent PLN 2,307 million on CAPEX, including PLN 173 million on pro-environmental investment.
In FY 2018, the highest EBITDA, PLN 1,111 million, was generated in the area of Distribution, i.e. up by 3.5% y/y. This result was achieved on the back of higher sales volumes of distribution services to end users, which reached 19.9 TWh (up by 3.2% y/y). The largest increase in EBITDA, of PLN 869 million, was posted in the Generation area (up by 18.1% y/y). The Group’s electricity generation rose to 26.5 TWh – by 26.4% y/y – thanks to, inter alia, the launch of Unit No. 11 in Kozienice Power Plant, which also helped achieve the highest monthly energy generation in the 50-year history of the plant, recorded in July.
However, ENEA Group sees the potential of increasing its electricity generation even further. In the reported period, a number of counterbalancing factors influenced the volume of generated energy – the positive ones were the better availability of Połaniec Power Plant and a quarter-to-quarter improvement in the utilisation of Unit No. 11’s potential; and the negative ones – shutdowns of Units Nos. 9 and 10 in Kozienice Power Plant for upgrade works, related to the ongoing adaptation of the Group’s generation units to the BAT conclusions.
Moreover, ENEA Group also increased its renewable energy production in 2018. The total volume of RES generation grew by 11% to 2,025 GWh, which was an all-time record-high level for the Group.
2018 also saw the volume of energy and gaseous fuel retail sales rise to 21.5 TWh, i.e. by over 13.4%, mainly through sales to business customers – in this segment, the growth in sales volume exceeded 18%. The financial results of the Trading area were influenced mainly by external factors. In the retail market, those factors included higher costs of energy purchase and environmental obligations (mainly green obligations); in the wholesale market, higher prices of CO2 emission allowances lowered the Trading area’s EBITDA. Throughout 2018, the prices of CO2 emission allowances remained at record-high levels, which significantly affected the pricing of previously concluded contracts.
In 2018, an important process of internal changes within ENEA Group was completed. In the Heat Segment, ENEA Ciepło merged with another ENEA Group company – Elektrociepłownia Białystok (operator of Heat and Power Plant Białystok). This optimised heat production and distribution under one, recognisable brand. Białystok, the capital of Podlasie, is an important spot on the map of ENEA Group’s activities. By strengthening ENEA’s presence on this market, the Group also gained new opportunities. In the reported period, the sales of heat went up by 7.4% y/y.
In 2018, the consolidated revenues of LW Bogdanka Group reached PLN 1,756.7 million, with PLN 469.2 million of EBITDA, PLN 62.0 million of operating profit and the net profit of PLN 53.8 million. In the reported period, LW Bogdanka built over 37 km of galleries as compared to 30.7 km in 2017 (up by 20% y/y), which was a record-high value for the company. However, the intensification of preparatory works, related to the planned increase in the level of production in the following years, negatively affected the financial results recorded in the reported period. Also, a hike in costs of external services, materials and energy as well as in labour costs further deflated the 2018 results. Despite a single-digit increase in the price of coal sold, the Company’s margins suffered. The operating profit and net profit, apart from the factors mentioned above, were additionally impacted by higher depreciation resulting from the reversal of impairment losses on property, plant and equipment recognised in the 2017 financial statements.
Throughout 2018, LW Bogdanka’s share in coal sales for commercial power industry remained high (24.7%), helping it maintain its strong market position, while its share in steam coal sales overall reached 18.7%. In 2018, Bogdanka extracted 9 million tonnes of raw material and met its sales target of 8.9 million tonnes. About 85% of Q1-Q4 2018 sales were obtained from deliveries to ENEA Wytwarzanie and ENEA Połaniec.
2018 in ENEA Group – highlights:
- The first full year of commercial operation of Unit No. 11 in Kozienice Power Plant.
- The Group’s successful performance on the capacity market – a total of 3,663 MW of capacity obligations were contracted in three separate auctions, including a 15-year capacity contract for Unit No. 11 in Kozienice Power Plant.
- Market launch of new products – ENEA Eco supporting the fight against smog and ENEA Smart with the Heating Package, which allows for smart management of the home heating system.
- Initiating the support programme for vocational education by developing a network of umbrella schools and starting the first edition of a dual study programme.
- Development of electricity infrastructure in Kostrzyń-nad-Odrą, powering the territory of the Kostrzyn-Słubice Special Economic Zone.
- Finalising the redevelopment of more than 110 km of the 110 kV overhead high voltage line from Leszno to Września and launching the modernised Main Power Supply Station Zdroje in Szczecin.
- Signing the cooperation agreement between the Transmission System Operator (PSE) and Distribution System Operators, including ENEA Operator, on repairing power grid breakdowns.
- Contributing to the development of electromobility in Poland – participation in the e-Van programme and establishing cooperation with Kolejowe Zakłady Łączności (Railway Communication Plants) as regards distribution and installation of charging stations for electric vehicles.
- The 50-year anniversary of Kozienice Power Plant – the construction of the first unit started in spring 1968.
COMMENTS TO ANNUAL PERFORMANCE
Mirosław Kowalik, President of the Board at ENEA:
– ENEA Group enhances its position as the runner-up on the power generation market and also ensures reliable power supplies to the clients who chose the Group as their energy provider. We are consistently executing investments in generation assets and power grids as well as in the distribution infrastructure. We are implementing environmental solutions and minimise the impact of our activities on the natural environment. Between 2016 and 2018, the CO2 emission per 1 MWh of electricity generated by the Group decreased by over 7%. In comparison with 2017, the volume of electricity produced from renewable sources increased by 11%. After the launch of Unit No. 11 and completion of the preparation works related to the adaptation of our units to the BAT conclusions, we are going to concentrate on investments in renewable energy sources in order to reach a balanced energy mix, in accordance with current market trends and technologies. 2018 is the year when the Group’s position in a demanding market was stabilised. We achieved excellent operation results. The Group recorded a dynamic growth in generation of electricity and retail sale of energy and gas fuels. We use the synergy of our value chain in an optimal way and that allows us to react with flexibility to the changing market and regulations. Concluded capacity contracts will provide a stable potential for financing continued development of our Group in the medium- and long-term perspective – said Mirosław Kowalik, President of the Board at ENEA.
Piotr Olejniczak, Vice-President of ENEA for Financial Affairs:
– Our financial performance in 2018 was affected by the dynamic market environment. Despite demanding conditions, we achieved revenue growth and we improved our essential operational results. The highest EBITDA increase was posted in the Generation area, where the volume of energy produced from conventional sources, as well as from renewable sources, increased thanks to our investments. The results of the area remain under the pressure of increasing variable production costs. This year’s plans include the modernisation of power units related to their adjustment to the BAT conclusions, which will be compensated by the work of Unit No. 11. It will be essential for revenues in this area. Distribution, responsible for over 40% of ENEA Group’s EBITDA, is the area stabilising our cash flows. Worse results in the Trading area were mostly the result of increasing wholesale prices of electricity and revaluation of previously concluded contracts for carbon emission allowances. Our financial position remains stable and is confirmed by external international rating institutions. Last year, Fitch Agency affirmed ENEA’s long-term local and foreign-currency ratings at the “BBB” level with stable outlooks. Additionally, starting from 2021, the Group’s cash flows will be supported through revenues from the capacity contracts concluded as a result of capacity market auctions won by our units in December 2018 – said Piotr Olejniczak, Vice-President of ENEA for Financial Affairs.
Piotr Adamczak, Vice-President of ENEA for Commercial Affairs:
– Our participation in the first capacity market auctions was successful. The share of long-term capacity contracts in our Group’s portfolio is the largest of all other auction participants. The most important aspect, from the production point of view, is the conclusion of the 15-year capacity contract for Unit No. 11 in Kozienice Power Plant. We created synergies between our two power plants and the wholesale trade area. We obtained an additional financing source for the modernisation of our units in the base load plants, as well as the development of renewable energy sources. In the Trading are, our operations in 2018 were influenced by the record-high prices of CO2 emission allowances and rising prices of certificates of origin which resulted in higher wholesale electricity prices. These tendencies are visible in the operating results of the entire energy industry. We continue to expand our product portfolio, acquiring new customers – both businesses and households – and increasing the sales volume of electricity and gas fuel, which in 2018 rose by 13.4% – said Piotr Adamczak, Vice-President of ENEA for Commercial Affairs.
Zbigniew Piętka, Vice-President of ENEA for Corporate Affairs:
– 2018 was the first full year of operation of Unit No. 11, the newest power unit in Kozienice Power Plant. The unit certainly contributed to an increase of the volume of energy generated within the Group and stabilisation of the national power system. Thanks to Unit No. 11, last July, in spite of the planned renovation of other generation units, was the record-breaking month when we generated the largest volume of electricity in the entire 50-year history of our plant. As for the Ostrołęka C Power Plant project, implemented jointly with Energa, the project’s SPV issued a Notice to Proceed. Meanwhile, ENEA Group continues to adapt its generation units in both power plants to the BAT environmental requirements. In Kozienice Power Plant, two power units, with a capacity of 560 MW each, were modernised. The synchronisation of Unit No. 10 with the national power system was conducted in May 2018. Modernisation of boiler room and engine room equipment is currently being carried out in Unit No. 9. Our activities in Kozienice and Połaniec are part of a plan aiming to improve generation and to raise our production capacity while reducing emissions intensity – said Zbigniew Piętka, Vice-President of ENEA for Corporate Affairs.
Artur Wasil, President of Lubelski Węgiel Bogdanka S.A.:
– The record-breaking scope of preparatory works completed last year lets us plan this year’s extraction at the level of approx. 9.4 million tonnes. In 2018, coal prices continued to rise, both on the international and domestic markets, which resulted in higher prices in our contracts concluded for the current year. This, combined with the planned rise in production, allows us to look positively towards 2019. Our priorities for this year, apart from increasing production to 9.4 million tonnes, will be: ongoing work on our costs and optimisation of our CAPEX, continued efforts to increase our yield and preparation for making the Ostrów deposit available – we want to commence its exploitation in Q4 2020, initially based on the underground infrastructure – said Artur Wasil, President of LW Bogdanka S.A.