Estimated results of Energa Group for Q1 2020

Current Report No. 46/2020

Date: 28 May 2020

Subject: Estimated results of Energa Group for Q1 2020

Legal basis: Article 17 (1) of MAR - inside information

The Management Board of Energa SA hereby reports preliminary estimates of selected Energa Group's financial and operating data for the first quarter of 2020:

Revenues of the Group: PLN 3,289 million (vs. PLN 2,971 million in Q1 2019)

EBITDA of the Group: PLN 568 million (vs. PLN 554 million in Q1 2019), including:

EBITDA of the Distribution Business Line: PLN 493 million (vs. PLN 548 million in Q1 2019),

EBITDA of the Generation Business Line: PLN 69 million (vs. PLN 118 million in Q1 2019),

EBITDA of the Sales Business Line: PLN 34 million (vs. PLN -95 million in Q1 2019).

Net profit of the Group: PLN 111 million (vs. PLN 186 million in Q1 2019)

CAPEX of the Group: PLN 331 million (vs. PLN 369 million in Q1 2019).

Distribution of electricity: 5,694 GWh (vs. 5,811 GWh in Q1 2019).

Gross production of electricity: 801 GWh (vs. 1,025 GWh in Q1 2019).

Retail sales of electricity: 4,922 GWh (vs. 4,968 GWh in Q1 2019).

In Q1 2020, the Energa Group generated PLN 568 million in EBITDA (operating profit before amortization and impairment of non-financial non-current assets), a 3% increase compared to the same period last year. This result was mainly due to the following factors:

a) PLN 493 million in EBITDA generated by the Distribution Business Line. A key factor which adversely affected this Line's performance was a lower distribution margin including grid losses. This was mainly due to the unfavourable valuation of the non-invoiced estimate of grid losses, despite an increase in the invoiced profit margin. Operating costs were also higher year-on-year. The increase was mainly driven by the rising cost of employee benefit expenses and some external services (e.g. renovation work, collector's services), related, among other things, to an increase in the minimum wages and salaries. The lower balance from other activities was due in part to higher real property tax costs.

b) PLN 69 million in EBITDA generated by the Generation Business Line. The performance of the Line was subdued mainly by factors related to revenues (including decreased sales revenues of electricity and system services of the Ostrołęka power plant, as well as lower production volumes from hydroelectric power plants). As a consequence of reduced output from conventional sources, the cost associated with the consumption of fuel for production purposes and with the purchase of emission allowances was reduced.

c) PLN 34 million in EBITDA generated by the Sales Business Line. The higher Q1 2020 result, compared to the same period of the previous year, was significantly influenced by the low comparative base. The Q1 2019 result (EBITDA of PLN -95 million) was low as revenue was lost due to the application of the Act "on energy prices in 2019". In the absence of an executive regulation to the Act, the Sales Business Line charged lower rates to a vast majority of customers, without accounting for the compensation due under the Act. The estimated loss of the Business Line's revenue due to this was approximately PLN 209 million in the first quarter of 2019. In Q1 2020, a new tariff for households was effective, whose negative effect on the results for this quarter was largely neutralized by using part of a specific provision created at the end of 2019.

The estimated impact of the COVID-19 pandemic on the Group's EBITDA in Q1 2020, e.g. reflected by reduced energy sales and distribution volumes, amounted to ca. PLN 27 million.

A net result of PLN 111 million vs. PLN 186 million in Q1 2019 is due, among other things, to recognizing a share of the losses of entities accounted for using the equity method (PLN -19 million) in 2020, while in 2019 the Group recognized its share of their profits (PLN 9 million).

The figures presented here are estimates and are subject to change. Final financial results will be provided in the consolidated statements for Q1 2020.