Profitability growth of the ENERGA Group after the first two quarters of 2014

The ENERGA Group recorded 15% EBITDA growth and 16% net profit growth in the first half of 2014. Profitability improved with the EBITDA margin climbing 5 percentage points while the net profit margin rose 2 percentage points compared to the first half of 2013.

In the first half of 2014 the ENERGA Group generated net profit of PLN 606 million (up 16%) and EBITDA of PLN 1 281 million (up 15%). These results were attained on revenues that fell 9% to PLN 5 287 million. The Group generated stable results by enhancing its operating efficiency. In the first half of 2014 ENERGA improved its EBITDA margin by 5 percentage points to reach the level of 24%. In the second quarter alone its growth was 2 percentage points as compared to the same period last year.

In Q2 the Group achieved revenues of PLN 2 539 million vs. PLN 2 856 million in the same period last year. Net profit amounted to PLN 292 million (down 16%), while EBITDA equaled PLN 638 million (down 2%). Higher expenses associated with actuarial reserves, additional costs following the obligation of redeeming “yellow” and “red” certificates and ENERGA-OBRÓT acting as the "ex officio seller" made a material contribution to the results generated in Q2.

"We are focusing on individual areas and developing our business in each one of them”, says Mirosław Bieliński, CEO of Energa SA. “In the Distribution Segment the efficiency of undertaken investments has been raised by cutting costs. In addition, in the first half of this year we surpassed one million remote readings of AMI meters and chances are to reach two million in the upcoming six months. We are modifying our strategy in the Sales Segment and restructuring activities underway help us improve profitability in this area, too. We have also expanded the Group’s generation capacity in the Generation Segment by another 25 MWe by completing a biomass power unit in Elbląg,” – he adds.

The net standalone profit, which is the basis for dividend pay-out, stood at PLN 700 million after the first six months, 24% up as compared with the first half of 2013. Stable financial position of ENERGA SA supports the pursuit of an ambitious dividend policy assuming the disbursement of up to 92% of the standalone net profit generated within a year. It is the Management Board’s intention to adhere consistently to the company’s declared profit distribution policy.

Outlook for the latter half of the year

The results in the second half of the year will hinge on the incremental costs related to the obligation of redeeming yellow and red certificates, electrical energy prices and the timeliness of awarding property rights. Higher costs are expected in the Distribution Segment. The generation results, especially in the RES area, will depend on weather and hydro-meteorological conditions.

Download graphics here:  net profit, revenues and EBIDTA 

One million remote readings, RES capacity growth and sales strategy amendment

In the first half of 2014 the Distribution Segment reported similar results to the same period last year. EBITDA reached PLN 794 million and accounted for 61% of the Group’s result. The results improved despite the decline in the weighted-average cost of capital (WACC), which affects the revenues in this area. In H1 ENERGA distributed 10 TWh of electrical energy, a quantity similar to last year’s level. In Q2 the Distribution Segment executed the planned investments on lower expenses. Moreover, the Group utilizes smart solutions to a greater degree. The number of remote readings from AMI meters for invoicing purposes topped one million in Q2, reaching the level of 150 thousand readings a month.

The Group is working on a continuous improvement of the energy distribution efficiency. Although the continuity of supply ratios rose temporarily in the first half of the year, a material decline is observed over the last few years. The average interruption duration in the supply of electricity per off-taker (SAIDI index) fell roughly 40% compared to H1 2011, while the average interruption frequency per off-taker (SAIFI index) declined roughly 32% in this period.

The growth in the average interruption duration in the supply of electricity (SAIDI) in the first half of the year largely stemmed from modernizing transformer stations to accommodate advanced metering infrastructure (AMI). In the future, this work will translate into material benefits for clients. The average interruption frequency (SAIFI index) was higher than recorded in H1 2013, which was caused among other things by extensive outages due to unfavorable weather conditions in Q1.

The Generation Segment achieved EBITDA of PLN 373 million compared to PLN 99 million last year. Last year’s impairment charge for power unit B in ENERGA Elektrownie Ostrołęka SA, which reduced the financial result by PLN 123 million, contributed to the result’s growth magnitude in this area. Higher production in the conventional power plant and incremental income from the wind assets acquired last year made a positive input to the Segment’s result in the first half of the year. In this period the Group generated 2.5 TWh of electrical energy, in other words roughly 2% more than in the first half of the previous year. Higher energy generation from coal and wind offset the drop off in hydro production precipitated by worse hydrological conditions. Moreover, the construction of a new biomass power unit in the Elbląg CHP plant was concluded in the first half of the year, which expanded the Group’s installed RES capacities by 25 MWe and 30 MWt.

The Sales Segment sustained EBITDA at the level of PLN 77 million, the same level as last year, despite the adverse impact exerted by the costs incurred in acting as the "ex officio seller" and the reinstatement of the duty of redeeming „red” and „yellow” property rights. The volume of electrical energy sold to final recipients by ENERGA-OBRÓT in the first half of the year was 8.1 TWh, 13% less than a year before. This decline mostly came from tariff groups A and B with respect to which ENERGA does not extend unprofitable contracts.