Distribution Segment drives Energa Group’s growth in 2016

Distribution Segment drives Energa Group’s growth in 2016

Better financial results in the Group’s key Distribution Segment, increase in the retail sales volume and improvement of reliability of energy supplies – this is, in a nutshell, the Energa Group’s summary of 2016. The Group’s net result was affected negatively mainly by the impairment losses on non-financial non-current assets. Despite the exceptionally challenging market environment the Energa Group recorded financial results ensuring its stable development and good foundations for pursuance of the new development strategy until 2025.

In 2016, the Energa Group, despite unfavorable market and regulatory conditions, started execution of the planned investment projects and continued the process of optimizing the operations of the entire Group. Its revenues on sales in 2016 stood at PLN 10,181 m. Their decrease was limited to 6 percent relative to 2015, when the revenues reached PLN 10,804 m.

Net profit amounted to PLN 147 m. It should be emphasized that it was burdened with impairment losses on non-financial non-current assets, primarily in the Generation Segment (for PLN 573 m gross). The net result, without the impact of these non-cash events, was PLN 629 m. In 2015, it was PLN 858 m.

The Group's EBITDA in 2016 amounted to PLN 2,027 m, which was 9% less than last year. This is attributable primarily to decrease of EBITDA in two Segments – by PLN 133 m (77%) yoy in the Sales Segment and by PLN 77 m ( 20%) compared to 2015 in the Generation Segment. A positive contributor to EBITDA included the Distribution Segment – increase by PLN 32 m (or 2%).

Operating in the challenging environment and strong competition the Energa Group improved many parameters. Energa Operator recorded a 1% increase in the number of customers relative to 2015. As at the end of 2016, the Company supplied energy to 3,007 thousand customers.

Thanks to the constantly developed commercial offering and effective customer acquisition policy, in 2016, the Energa Group recorded a dynamic growth in the retail sales volume of electricity (+17% yoy) and gas (2.5 times increase yoy).

Once again, Energa improved also its supply continuity ratios. In 2016, the average outage duration per customer (SAIDI index) was reduced by 20 percent. The average frequency of interruptions in the supply of electricity per user (SAIFI index) dropped by 18% – from 3.4 to 2.8.

In response to the challenging market conditions and changing regulations, in the fall of 2016 the Energa Group adopted its development strategy until 2025. Implementation of the objectives outlined in the strategy, which has just commenced, will enable the Group to maintain a stable financial position, build competitive advantage and guarantee opportunities for sustainable development.

– I can see some areas where we can leverage the growth potential and synergy effect much better. Our objective is to decisively improve the efficiency of the Group’s operations, quality of provided services, market position and capacity to execute investments. In 2017, the Energa Group will go through an organization process which will bring better and more efficient operations. The new Group model will surely make it possible to use optimal solutions for all parties involved in the process – says Daniel Obajtek, President of the Energa SA Management Board.

Execution of the strategy will strengthen the Group’s position

The strategy adopted in the fall of 2016 concentrates on two objectives: development of modern infrastructure in the regulated business and technologically advanced offering for the customers, which will enable the Group to earn stable revenues and execute profitable investment projects.

Energa has already started expanding its offering for the customers, comprising new activity areas. Approx. 100 new products and new sales channels will enable the Group to shift from electricity seller to provider of utilities and integrated solutions for home, business and local governments. By 2020 the Group is planning to earn from the new products approx. PLN 100 m in EBITDA to reach PLN 300 m by 2025.

As part of the investment plan, which assumes expenditures in the range of PLN 20.6 bn by 2025, Energa will execute investments based on strategic partnerships and the regulated market, while maintaining the Group’s financial security. As much as 65% of the pool of expenditures will be incurred in the Distribution Segment to build the regulatory value of assets and keep the quality requirements of DSO performance. In the Generation Segment there will be investment projects associated with modernization of assets and construction of new capacities for which approx. 30% of the resources will be earmarked.

Results in individual segments in 2016

The Distribution Segment contributed nearly 85% to ENERGA Group's EBITDA (nearly 76% in 2015). The segment recorded very good results in tariff conditions that were much more difficult than the year before. EBITDA increased by nearly 2% and net profit in 2016 was almost PLN 36 m higher yoy than in 2015. This was a consequence of a better operating result of the Segment and better financial activity balance. Capital expenditures of the Segment amounted to PLN 1,263 m, that is almost PLN 140 m more than the year before.

The Generation Segment’s contribution to the Group's total EBITDA was 16% (18% in the year before). The drop in EBITDA was PLN 77 m and was caused primarily by the lower revenues on sales of electricity and property rights. The Segment’s net result was significantly affected by the impairment losses on non-financial non-current assets with the total amount of PLN 573 m.

The Sales Segment in 2016 generated PLN 40 m in EBITDA, i.e. 2% of the Energa Group’s EBITDA. The Segment’s revenues in 2016 stood at PLN 5,626 m, i.e. decreased by PLN 114 m (by 2%) compared to 2015. This was driven mainly by a 4% decrease in the total electricity sales volume. In addition, the margin on electricity sales fell by PLN 83 m yoy.

Energy Generation

In 2016, the Energa Group produced approx. 191 GWh (or 5%) less electricity than in the corresponding period of the previous year. The main reason was:

decline in production in the must-run power plant in Ostrołęka, caused, among others, by the general overhaul of one of the units and PSE’s lower demand for must run operation;
decrease in production of energy from biomass co-burning (by 598 GWh), which follows from change of the fuel mix in the Ostrołęka power plant;
decrease in production from the Group’s wind farms (by 48 GWh) due to worse wind conditions, despite the commissioning of a new 26 MW wind farm in Parsówek.

In 2016 the Group recorded higher electricity production in run-of-the-river hydro power plants (by 117 GWh), mainly due to favorable hydrological conditions.

Investments building market potential

In 2016, Energa completed investment projects for PLN 1.56 bn, which is comparable to the year before (PLN 1.58 bn). Of this figure, 81% was in the Distribution Segment, where expenditures stood at PLN 1.3 bn. In 2016, they included:

grid expansion to connect new customers and generators,
modernization aimed at improving the reliability of electricity supply, development of innovative technologies and network solutions, including the implementation of smart grids and AMI metering.

As a result of these efforts:

33 thousand new customers were connected,
4,490 km of high-, medium- and low-voltage lines were built and upgraded,
2,296 new renewable energy sources (including 2,236 microinstallations) were connected to the grid.