ENERGA Group: higher income and EBITDA in 2012

In spite of the lower demand for electricity and lower electricity prices on the domestic market, ENERGA Group ended 2012 with a 7.8% increase in income and 7.2% increase in EBITDA. A full 75% of EBITDA was generated by distribution, i.e. the key segment in the Group’s development strategy.

Stable source of income

According to the Consolidated Financial Statements of ENERGA Group, the Group’s income for 2012 totalled PLN 11,177m, which meant an increase by 7.8% in relation to 2011. In the period concerned, EBIDTA of ENERGA Group amounted to PLN 1,629m, which was 7.2% higher than the year before. The improvement in the Company’s performance is directly driven by the focusing of investment on the distribution area. Funds allocated to the development and modernisation of the distribution segment, which is partially regulated by the Energy Regulatory Office (ERO), guarantee predictable and stable income for the Group (owing to depreciation/amortisation and margins). Currently, ENERGA Group has the largest share of regulated income of any Polish energy group.

The Group’s net profit for 2012 amounted to PLN 456m. The lower result was mainly due to non-recurring items, i.e. write-downs on fixed assets and the establishment of a provision for a potential unfavourable ruling in a dispute with PSE SA. Last year, ENERGA Group recorded lower performance in generation segments, especially in hydropower generation (deterioration of hydrological conditions) and conventional generation (higher costs of fuel combined with lower selling prices of electricity).

Improved reliability of supply

Most of the PLN 1.85bn earmarked for investments last year, i.e. PLN 1.4bn, was allocated to investments in the field of distribution. This allowed 24,000 new customers to be connected, as well as 400 MW from Renewable Energy Sources. ENERGA built more than 2100 km and upgraded more than 1500 km of overhead and cable lines. The investment allowed power outages to be cut by almost a half and to reduce supply interruptions (measured by SAIDI / SAIFI indicators) by 30 percent. The grid loss rate, in turn, decreased to 6.15%. Energa-Operator is continuing development of the intelligent metering system (having installed approx. 100,000 remote-read meters) and of the smart grid. The improved efficiency of supplies, quality of service and a promotional campaign resulted in the increase in the number of the Group’s customers to 2.917 million.

ENERGA Group also improved on its key operational indicators. The heat output of the Group in that period amounted to 4100 TJ (compared to 3900 TJ in 2011). Sales to end-users increased, too (reaching 20.5 TWh), and so did the distribution of electricity (to 20.1 TWh). In 2012, ENERGA Group reduced electricity production to 4.1 TWh (from 4.7 TWh in 2011), mostly due to the market situation, maintenance shutdowns and worse hydrological conditions.

Development of environmentally friendly investments

In view of the energy security of the state, and also of the need to meet the requirements of the Polish energy policy, ENERGA considers the development and upgrading of its distribution systems to be its investment priority. In the coming years, the Group will focus its activities on projects characterised by the lowest carbon dioxide emission levels, moderate level of debt and low risk involved in the development of new generation capacities.

Last year, the Group generated more than 30% of its electricity using renewable sources. Furthermore, owing to the further connection of almost 400 MW of RES, approx. 35% of all renewable energy sources in Poland were connected to the grid of ENERGA Operator (including 52% of all installed wind farm capacities). In February this year, the Company signed wind farm asset purchase agreements with Iberdrola Group and DONG Energy, which will not become effective until the necessary approvals for the acquisitions are obtained from the Office of Competition and Consumer Protection (UOKiK). After completion of the transaction and activation of a biomass-fired unit in Elbląg (25 M), the installed RES capacities of the Group will amount to 533 MW, and the share of production of green energy in the total output of the Group will increase to almost 40%.

The investment programme is implemented through the diversification of financing sources. In 2012, ENERGA SA concluded an issuance agreement with Pekao SA and BRE Bank SA, establishing a domestic bond issuance programme worth approx. PLN 4bn. The first issue of bonds, totalling PLN 1bn, was addressed to Polish institutional investors and was a success. Thus, investors had a favourable opinion about the strategy adopted by the Group and its outcomes.

Structured organisation

The flexible adjustment to the needs of the market and of the customers was possible due, among other things, to the continuation of the restructuring process. As a result, the costs relating to management and administrative functions were cut by almost 10%, and employment was reduced by 4%. It was particularly important to structure the group around the value chain and key segments, including generation, distribution, trading, cogeneration and renewable energy sources. The integration of the core business areas allows for further improvement of profitability and cost optimisation.