Growth in EBITDA, revenues and in the volume of sales of electricity - good performance in H1 2020

During the first six months of 2020, the Enea Group, running its business in a demanding market environment and in the realities of an economy grappling with the effects of a pandemic, generated strong financial and operating results. Compared to the same period of last year, the Group’s EBITDA and revenue from sales improved 12.9% and 11.6%, respectively. In H1 2020, energy generation from renewable sources also grew, by 30% y/y. The Group’s consolidated financial statements, including net profit, were to a certain degree affected by non-recurring events, including the establishment of provisions and the posting of impairments of a non-cash nature. The Enea Group efficiently reorganized its operations in connection with the coronavirus epidemic, ensuring a safe and stable supply of electricity to its customers. 

• In H1 2020, the Enea Group generated an EBITDA of PLN 1.8 billion and revenue from sales of PLN 8.9 billion, which was an improvement compared to the corresponding period of last year.
• The volume of sales of electricity and gaseous fuel to retail customers rose by 2.8% y/y to 10.5 TWh.
• The Group’s net profit (PLN -81.6 million) was affected by the posting of impairments and provisions in the total amount of PLN 879 million.
• The volume of energy generated from renewable sources continues its upward trend: in H1 2020, it hiked by 30% y/y.
• According to the Group’s updated Development Strategy until 2030, projects involving electricity generation from renewable sources are managed by Enea Nowa Energia.
• The Group connected more than 34,000 renewable energy sources (including micro-installations) with a total capacity of 1.7 GW thousand to the distribution grid.

In H1 2020, the Enea Group generated an EBITDA of approx. PLN 1.8 billion (up by PLN 208 million, or 12.9%, y/y). Revenue from sales improved by 11.6% y/y, reaching PLN 8.9 billion. The Group recorded a net loss of PLN 81.6 million. In H1 2020, this result was affected by PLN 879 million in impairments and provisions posted by the company, of which PLN 523 million was an impairment on Enea Wytwarzanie’s generation assets and PLN 356 million was attributable to impairments and provisions related to the Ostrołęka C Power Plant construction project. These events were of a non-cash nature and as such did not affect the Group’s EBITDA.

During the first six months of 2020, approx. PLN 1.2 billion was allocated to capital expenditures, thereby maintaining a high level of performance of the Group’s investment plan. PLN 193 million was allocated to capital expenditures related to the Group’s environmental protection endeavors, including commercial connection of wind farms to Enea Operator’s grid and subsequent projects adapting the Group’s power plants to the BAT conclusions.

Generation area in the Enea Group with a constant upward trend in energy generation from renewable sources

The Enea Group’s highest EBITDA of PLN 872 million was earned in the generation area (up by PLN 142 million y/y). A significant improvement in EBITDA was recorded in the Must-Run Power Plant segment with a year-on-year increase of approx. PLN 114 million. In H1 2020, the Group generated more than 10 TWh of electricity. In this period, unit 11 at the Kozienice Power Plant was in operation for nearly 3,100 hours, having generated approx. 2.1 TWh of electricity. Electricity generation from renewable sources hiked 30% to more than 1.3 TWh.  Sales of heat in the generation segment reached 3,180 TJ.

According to the Group’s updated Development Strategy until 2030, projects involving electricity generation from renewable sources are developed and managed by Enea Nowa Energia, a company that has started running its operating business. First, the company will be entrusted with RES assets developed to date within Enea Wytwarzanie’s RES Segment   

Stable results in the distribution area

The EBITDA generated in the distribution area reached almost PLN 681 million, up PLN 166 million (more than 32%) y/y. This result was driven by higher margins on licensed activities and a higher result on other operating activities, driven mainly by changes in the provisions for grid assets. In H1 2020, Enea Operator provided almost 9.5 TWh of distribution services to end users. This signified a slight drop, by approx. 500 GWh (5% y/y), in the total sales volume of distribution services with a concurrent increase in the number of buyers and the volume of sales to households. In the period under analysis, Enea Operator connected more than 34,000 renewable energy sources (including micro-installations) with a total capacity of 1.7 GW thousand to its grid. For the sake of comparison, throughout 2019, 19,500 renewable energy sources were connected with a total capacity of 1.5 GW.

Increase in the volume of sales of electricity and gaseous fuel

The trading area posted an EBITDA of PLN 40 million (up by PLN 58 million y/y). This result was favorably affected by an increase in the average sales price of energy and a revaluation of CO2 contracts with a simultaneous increase in the costs of energy purchases and the costs of environmental obligations. In H1 2020, compared to the corresponding period of 2019, the volume of sales of electricity and gaseous fuel to retail customers stood at 10.5 TWh, up 289 GWh, or 2.8%. The increase was recorded in sales of electricity in the business customer segment and the household segment. The sales volume of gaseous fuel also increased compared to the corresponding period of the previous year (by 146 GWh, or 27.3%). In the period under analysis, the total revenue from sales increased by PLN 285 million y/y, or 10.3%, including revenue from sales of electricity and gaseous fuel.

Performance of the mining area operating in a tough market environment

In H1 2020, the LW Bogdanka Group generated revenue from sales of PLN 849 million (down 22.7% y/y) and a net profit of PLN 36.7 million (down 81.5% y/y). The company’s EBIT and EBITDA in this period reached PLN 49.9 million (down 79.4% y/y) and PLN 221.1 million (down 49.1% y/y), respectively. The company’s weaker operating performance in H1 2020 was driven down primarily by the reduced demand for steam coal from the commercial power and heat generation sectors. In Q1 2020, this decrease in demand resulted from a warm and windy winter, whereas Q2 2020 brought a reduction in the country’s energy demand due to the restrictions imposed in connection with the coronavirus pandemic, which resulted in a slowdown of economic processes.

In H1 2020, the output of steam coal stood at 5.5 million tons, down 25.3% from the previous year. The average yield was at 66.8%, compared to 65.1% the year before. In H1 2020, Bogdanka allocated PLN 399.5 million to capital expenditures, representing 61.1% of its annual plan (of PLN 654.2 million). The largest portion of this amount, PLN 167.1 million, was spent on the acquisition of a new 7 km (the world’s longest) longwall system. The next item in terms of the amount of expenditure was new mining pits and modernization of the existing mining pits – expenditures in this area reached PLN 146.1 million. After H1 2020, the company’s share in Poland’s steam coal market was 19.8%.  In turn, the company’s share in total coal supplies to the power sector stood at 25%, confirming Bogdanka’s robust position on this market. More than 82% of the company’s sales volume generated in H1 2020 was purchased by the Enea Group.

Gas-fired project at the Ostrołęka C Power Plant

In the period under analysis, the management boards of Enea and Energa made a joint decision to suspend the funding of the Ostrołęka C Power Plant construction project and at the same time indicated the need to conduct a review of the investment, including its technical and economic parameters. The review, completed in early June 2020, confirmed that the gas-fired scenario may be pursued at the current site of the originally planned coal-fired unit. This outcome was a consequence of regulatory changes at the European Union level, the lending policies of the pertinent financial institutions and the acquisition of control over Energa by PKN Orlen. At the beginning of June 2020, a trilateral agreement was entered into by and between Enea, Energa and PKN Orlen, defining the fundamental principles of the parties’ cooperation in the gas-fired project, including Enea’s participation as a minority shareholder with a limited amount of exposure.   

COMMENTS ON THE ENEA GROUP’S PERFORMANCE IN H1 2020:

Paweł Szczeszek, President of the Enea Management Board:

“The first six months of this year were a tough period for the global economy. Also our domestic power sector experienced a major decline in the activity of large businesses which triggered a dive in demand for electricity. However, despite these unfavorable circumstances, the Enea Group posted robust financial and operating results. The relatively minor decrease in our Group’s energy generation was offset by a major increase in sales of electricity in the trading area and an improvement in the performance of this area, while the slight decrease in sales of distribution services did not affect our EBITDA significantly. We went through the first months of the pandemic, which occurred in H1 2020, without major disturbances in our daily operations, while making sure not to compromise the safety and stability of the Enea Group. I want to thank the employees of our Group who, despite the need to work in completely new circumstances, keep providing our customers with a stable electricity supply on a daily basis, while ensuring the safety in their work environment and beyond,” said Paweł Szczeszek, President of the Enea Management Board.

Jarosław Ołowski, Vice-President of the Enea Management Board for Financial Matters:

“In H1 2020, we generated good financial results, represented by an increase in EBITDA and revenue from sales. The Enea Group’s net profit was affected by impairments, which were of a non-cash nature and thus did not affect its EBITDA. The following three areas recorded higher EBITDA y/y: generation, distribution and trading with increases of over PLN 142 million, PLN 166 million and PLN 58 million, respectively.  The net debt/EBITDA ratio improved to 1.60 (from 2.03 in the corresponding period of last year). This robust financial performance builds the stability of our Group,” said Jarosław Ołowski, Vice-President of the Enea Management Board for Financial Matters.     

Tomasz Siwak, Vice-President of the Enea Management Board for Commercial Matters:

In the trading area, we improved our results compared to H1 2019: EBITDA increased by PLN 58 million y/y. We recorded higher sales volumes of electricity and gaseous fuel in both the business customer segment and in the household segment, thus generating an increase in total revenue from sales by more than 10%. We are constantly developing our product offering with a view to increasing our revenues, which is why at the end of Q2 2020 we launched a new service for commercial undertakings. The Enea Optima service helps businesses to consciously and effectively manage their energy needs, enabling them to control their energy consumption and demand for capacity, which translates into some tangible savings,” said Tomasz Siwak, Vice-President of the Enea Management Board for Commercial Matters.    

Tomasz Szczegielniak, Vice-President of the Enea Management Board for Corporate Matters:

“Invariably, distribution is a stable area of the Enea Group’s business. In H1 2020, it generated an EBITDA higher by PLN 166 million compared to last year. The slight drop in sales of distribution services, caused by the slowdown in business activity which occurred Q2 2020, did not translate into a decrease in the area’s EBITDA. Enea Operator fulfills requests for the connection of renewable energy sources to the distribution grid in a timely manner.

In the Group’s power plants, new projects are being executed with a view to aligning the Enea Group’s operations to the BAT conclusions. At the Połaniec Power Plant, the modernization of unit 5 has been completed, meaning that the unit will achieve higher efficiency parameters and its capacity will increase to 242 MW. Since the announcement of the state of epidemic in Poland, we have been actively supporting activities aimed at limiting the spread of the coronavirus. We have supported medical institutions with grants of over PLN 4 million,” said Tomasz Szczegielniak, Vice-President of the Enea Management Board for Corporate Matters:      

Artur Wasilewski, Vice-President of the Lubelski Węgiel Bogdanka Management Board for Economic and Financial Matters:

“LW Bogdanka, as a supplier of raw materials for the commercial power sector, has been directly affected by the economic slowdown caused by the epidemic and the decline in electricity production from coal. We are currently focusing on preparing and securing our production, optimizing our production schedule and implementing strict cost control measures. We are taking the utmost care to observe the procedures we have put in place in our company to enable us to maintain business continuity in all areas of operation,” said Artur Wasilewski, Vice-President of the Lubelski Węgiel Bogdanka Management Board.