Stable financial results of the Energa Group in Q3 2016

In Q3 2016, the Energa Group recorded an increase in net profit, stable results in its key Distribution Segment and an increase in sales of electricity. The lower revenues and EBITDA resulted primarily from historically low prices of green certificates and the loss of aid for the hydro power plant in Włocławek. Energa is focused on optimizing its operations: the implementation of the Group’s new business model is underway and a new development strategy will be presented the day after tomorrow.

The Energa Group’s operating profit in Q3 2016 increased by PLN 41 m compared to Q3 of the previous year to PLN 313 m and net result went up to PLN 190 million from PLN 168 million a year earlier. The increase in operating result and net result were driven in large by a reversal of the impairment loss for fixed assets under construction in the amount of PLN 110 m in the subsidiary company Elektrownia Ostrołęka SA. This was associated with unfreezing the construction of a new energy block in the Ostrołęka power plant.

The Energa Group’s sales revenues amounted to PLN 2,436 m and were PLN 96 m lower than in Q3 2015 (-4% year on year).

A decline in revenues was recorded in the Generation Segment (by 17%) and the Distribution Segment (by 4%). The decline in the latter was primarily due to historically low prices of property rights and the loss of aid in the form of green certificates for electricity generated in the hydro power plant in Włocławek. The decline in the Distribution Segment was mainly affected by a lower volume of distributed electricity (by nearly 2%) and lower revenues on connections by almost PLN 11 m compared to the same quarter in 2015 (down 46%).

On the other hand, revenues increased in the Sales Segment (up 2%), driven mainly by a 3% upswing in the total volume of electricity sales.

In Q3, the Group’s EBITDA was PLN 439 m, down 12% compared to the same period of the previous year.

“The whole power sector is undergoing a transition, of which our Group is no exception. Our response to these changing and challenging market conditions will be our development strategy for the coming years which will put us on a new path of development and thus a path to increasing the value of the Group, including shareholder value,” says Dariusz Kaśków, President of the Energa SA Management Board. “In parallel, we have undertaken efforts aimed at optimizing our organizational structure in order to more effectively manage our business lines, simplify our procedures and achieve greater operating flexibility, which will facilitate the implementation of our strategy.”

Distribution Segment

Traditionally, this Segment remains the Group’s leading business. In Q3 2016, it accounted for 89% of the Group’s EBITDA (81% in Q3 2015). Revenues were down 4% compared to the same period of the previous year. The decrease in revenues was driven mainly by a lower volume of distributed electricity (by nearly 2%). EBITDA was maintained at a level similar to last year’s and amounted to PLN 390 m (down by approx. 3%). The lower volume of network losses driving up the margin and increased impairment losses on trade receivables had an important impact on the operating result.

In Q3 2016, the supply continuity ratios proved to be materially better than in the same period of the previous year. The average duration of an interruption per user (SAIDI index) decreased on a year-on-year basis to 57 minutes compared to 114 minutes in Q3 2015. The average frequency of interruptions in the supply of electricity per user (SAIFI index) plummeted to 0.8 from 1.1 a year earlier.

Generation Segment

In Q3 2016, the Generation Segment’s EBITDA was PLN 27 m, down PLN 40 m from the figure generated the year before. This drop was caused primarily by the lower revenues on sales of electricity and property rights, which were partly offset by lower fuel consumption expenses. The decrease in revenues on sales of electricity was caused by two major factors: First of all, electricity sale prices in the Ostrołęka Power Plant business line fell due to lower prices on the spot market and on the balancing market. Secondly, energy production fell yoy in wind farms (by 17%) and power plants (by 2%). These decreases in revenues were partly offset by a higher volume of production from hydro power sources (by 39%).

Sales Segment

In Q3 2016, this Segment generated EBITDA of PLN 36 m compared to PLN 49 m a year earlier. Revenues in Q3 2016 stood at PLN 1,353 m, having increased by PLN 32 m (or 2%) compared to Q3 2015. This was driven mainly by a 21% increase in electricity sales in the retail market. Despite the upswing in volume, the margin on electricity sales, which is the key component generating the Segment’s results, fell by PLN 11 m quarter on quarter. This was due to the lower unit margin obtained and a less favorable structure of sales across tariff groups.

The Segment is consistently developing its gas sales business. In this area, the volume of sales increased more than twofold: from 207 GWh in Q3 2015 to 447 GWh in the same quarter of this year.

Investments

In the period from January to the end of September 2016, Energa’s investment expenditures were PLN 1.1 billion (out of PLN 1.6 bn planned for the whole of this year), compared to PLN 996 m spent in the same period of the previous year (with PLN 1.58 bn spent in all of 2015).

The ENERGA Group’s total capital expenditures in Q3 2016 were PLN 329 m vis-à-vis PLN 377 m in Q3 2015.

Key investment projects in the Distribution Segment included grid expansion associated with connecting new customers and modernizing the distribution network in order to improve the reliability of supplies and expenditures on innovative grid technologies and solutions (Smart Grid, SID). As a result of the successful execution of these projects:

8.3 thousand new customers were connected,
985 km of high-, medium- and low-voltage lines were built and upgraded,
a total of 10 MW of new renewable energy sources were connected to the grid.

A key investment project in the Generation Segment is the PLN 35 m overhaul and environmental expenditure undertaking in the Ostrołęka Power Plant.