Energa Group’s first quarter: higher profits and revenues
Net profit topped PLN 300 m, sales revenues were up and the results of the Energa Group’s key Distribution Segment rose. Those are the key highlights of the Group’s performance in Q1 2017. The Company successfully placed a EUR 300 m issue of Euronotes to raise additional funds, mainly for capital expenditures in distribution.
The Group’s Q1 sales revenues totaled PLN 2,710 m, up 3%, i.e. PLN 89 m from Q1 2016. The Group owes this mainly to the Distribution Segment’s revenues, which rose PLN 65 m (or 6%) from the previous year’s figures. The Group's net result in Q1 2017 was PLN 313 m, up PLN 302 m from the corresponding period of last year when impairment losses were recognized.
The Group’s Q1 EBITDA was PLN 601 m, down 7% from the first three months of 2016, driven by the declining EBITDA in the Sales Segment (a dip of PLN 38 m) and in the Generation Segment (a dip of PLN 29 m). Those declines were partially offset by a PLN 31 m improvement in the Distribution Segment’s EBITDA.
In Q1 2017, the Energa Group raised very attractive financing totaling EUR 300 m in the form of 10-year Euronotes; the issue was oversubscribed 4 times. The Moody’s rating agency upheld the long-term ratings for the Euronote issue program and for Energa SA at the previous level (Baa1 with a stable outlook).
“We continue to strengthen the Group’s financial safety by adding new and favorable financial instruments. In parallel, we are optimizing the operation of the entire Group. We have identified areas where we see room for clear efficiency improvements and we are making changes in those areas. We are carefully assessing and analyzing our environment in Poland and abroad. We want to stay one step ahead of the market as long as that is possible and viable, and introduce solutions that contribute to entrenching our competitive advantage”, emphasized Daniel Obajtek, President of the Energa SA Management Board.
Energa SA plans to achieve such advantages among others through the development of electromobility; in Q1 2017 it launched the first electric car sharing operation in Poland and opened another EV charging station, the seventh one in the Tri-City area. Last quarter, Energa began the construction of the first Smart Parking Lot in Pelplin in the Pomerania region. The Group has also signed another power reduction agreement, thereby raising its potential to provide DSR services (demand-side response using negawatts) to 600 negawatts, the best result in Poland.
In Q1 2017, the valuation of the options for Polimex-Mostostal S.A. shares exerted a positive impact on the Group’s pre-tax result. This valuation took into account the share price of Polimex-Mostostal S.A. as at 31 March 2017. It increased the Group’s financial income by PLN 53 m.
Segment results in Q1 2017
Distribution Segment, the traditional driver of the Energa Group’s growth, earned 88% of the Group’s EBITDA in Q1 2017, compared to 77% in Q1 2016. In Q1 of this year, the Distribution Segment’s sales revenues were up 6% compared to the corresponding period of the previous year. The Segment’s EBITDA and operating profit climbed by the same percentage, to PLN 530 m and PLN 339 m, respectively. The margin on the sale of distribution services (with network losses), an important contributor to the operating result, improved by PLN 50 m, driven among others by the adjustment of PSE’s transition fee and a more advantageous sales mix. The net profit in Q1 2017 was PLN 21 m higher than in the corresponding quarter of the previous year.
Generation Segment – in Q1 of this year, its contribution to the Group’s total EBITDA was 17% (21% one year earlier). Compared to the previous year, the Segment’s EBITDA fell by PLN 29 m, or 22%. This drop was caused mainly by factors not attributable to this Segment: lower prices of green certificates and a higher property tax on wind farms.
Sales Segment – the Segment’s revenues in the first three months of the year stood at PLN 1,350 m, i.e. they sank by 4% compared to Q1 2016. In Q1 2017, the Segment also posted a yoy reduction of its EBITDA (by PLN 38 m) which, combined with the lower EBITDA of the Generation Segment, translated into EBITDA for the whole Group dropping below its Q1 2016 level. This was caused mainly by the lower margin on the sales of electricity and natural gas. The margin on electricity sales, the key contributor to the Segment’s results, fell by PLN 25 m yoy. This resulted mainly from regulatory matters: reduction of the G tariff by over 4% by the Energy Regulatory Office, the rise in the costs of acting as Offtaker of Last Resort, as well as the impact of long-term contracts signed many years before to purchase “green certificates” at higher than market prices.
Production, sales and distribution of electricity
In Q1 2017, the Energa Group generated 1023 GWh of electricity, or 18 GWh more than the year before. It reported a decline in coal-fired production (by 11 GWh), in pumped-storage plants (5 GWh) and in biomass-fired units (1 GWh), which was offset by the increased energy production in run-of-the-river hydro sources (24 GWh) due to better hydrological conditions and from wind (12 GWh), mainly due to the output of the new Parsówek wind farm.
In the first three months of 2017, the overall volume of electricity sold was 5,943 GWh, which represented a slight decline of 0.3% (or 20 GWh) when compared to Q1 2016.
On the other hand, the energy distribution volume stayed flat at a level similar to the one in the corresponding period of the previous year, i.e. at 5,623 GWh (5,644 GWh in Q1 2016).
Capital expenditures
In Q1 2017, the ENERGA Group incurred capital expenditures of PLN 217 m, of which PLN 168 m in the Distribution Segment. The projects carried out in the Distribution Segment included expansion of the grid to connect new customers and generators as well as modernization to enhance the reliability of electricity supply. Expenditures were also incurred for innovative grid technologies and solutions.
As a result of those capital expenditures, in the first quarter, 8.3 thousand new customers were connected, 989 km high, medium and low voltage lines were built and modernized and 5.3 MW of new renewable energy sources were connected to the grid.
The consistently high capital expenditures in the Distribution Segment contribute to constant improvement in the reliability of electricity supply, which in recent years has placed Energa among the top companies in Poland in this respect. In 2016 alone, the average duration of electricity supply interruption per customer (SAIDI index) was reduced by 20% yoy. The average frequency of interruptions per customer (SAIFI index) slumped 18%, from 3.4 to 2.8. However, in the first three months of the year, adverse weather conditions (snow storms, hard rime and ice, hurricane winds resulting in falling trees and branches) contributed to a greater number of interruptions in the electric power network. This in turn contributed to higher SAIDI and SAIFI indices compared to the corresponding period of the previous year (to 35.9 min./customer and 0.6 interruptions, respectively). The larger scope of scheduled network maintenance work also exerted an impact by causing additional interruptions for customers.
The capital expenditures incurred in the Generation Segment in Q1 2017 dipped PLN 45 m to PLN 18 m. They were designated mainly for investments to ensure compliance with environmental requirements and for modernization projects in the Ostrołęka B Power Plant.