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Energa Group’s EBITDA and net profit up in the first half of 2018

August 09, 2018

In the first half of this year, the Energa Group recorded an increase in net profit to PLN 557 million and an increase in EBITDA to PLN 1,161 million. Both key growth indicators of the Group were higher than in the first half of 2017. The Distribution Business Line continues to be the driving force behind the growth of the Energa Group. In the first half of the year, the Group's revenues were at a similar level as in the previous year.

In the first half of the year, the Energa Group generated a net profit of PLN 557 million. It is 14 per cent higher than the result achieved in the same period last year. After 6 months of the current year, EBITDA amounted to PLN 1,161 million and was higher by PLN 18 million than in 2017. The Group generated revenues of PLN 5,034 million, which were 3% lower than in the previous year. In the first half of the year, Energa recorded an increase in EBITDA in the Distribution and Sales Business Lines. A decrease was recorded in the Generation Business Line.

In the first half of 2018, the Energa Group made investments of PLN 624 million, including PLN 524 million in the Distribution Business Line. From January to June of this year, as a result of a consistently implemented investment plan, 20.6 thousand new customers were connected in the Energa Group, 1,949 km of high, medium and low voltage lines were built and modernised and 15.4 MW of new RES sources were connected to the grid.

In the first half of this year, organisational and legal activities were conducted in order to finalise the process of launching the Ostrołęka C investment project. These actions led in early July to the signing by the special purpose vehicle Ostrołęka Power Plant of an agreement with the General Contractor, a consortium of GE Power and Alstom Power Systems, for the construction of a new power unit with a capacity of approx. 1,000 MW. The consortium's bid, worth PLN 5.05 billion net, or PLN 6.023 billion gross, was selected in April in a tendering procedure announced by Ostrołęka Power Plant. The implementation of this investment project will improve the country's energy security. 

- The economic data for the first half of the year show that despite a number of negative external factors, we are achieving solid results, which assures us of planned implementation of the projects included in the strategy. Activities are systematically and consistently carried out in the structure of the Energa Group to optimise the effectiveness of the management processes and rationalise costs. With adequate operating income, as confirmed by the results for the first semester, we can safely carry out projects that build our competitive edge, especially in the Distribution Business Line, and implement projects that strengthen our market position in power generation. The construction of a modern conventional power plant with a capacity of 1,000 MW is important both for the development of our generation assets and strategically for strengthening the security of the domestic power system – said Alicja Barbara Klimiuk, acting President of the Management Board of Energa SA. 

The Management Board of the Energa Group has consistently sought to resolve disputes with certain counterparties operating in the wind farm sector. As a result of substantive discussions with its business partners, Energa Obrót, a subsidiary of the Energa Group, has concluded several agreements, satisfactory to both parties. The total capacity of the facilities with which settlements have been concluded so far accounts for more than 31% of the total installed capacity of all the wind farms sued.

- The results of the first six months of the year show that we take the right approach to ensuring stability and predictability in all areas of our business. We closely monitor the market situation and analyse factors that have or will have an impact on long-term results. We take appropriate actions on an ongoing basis to counteract potential effects. We are already seeing that the energy sector is suffering from an increase in the price of CO2 emission allowances, combined with a decreasing pool of free allowances. In addition, we observe a clear increase in electricity prices in the market, which is going to affect the results of power companies in the coming quarters. That is why our priority is to consistently implement our strategy, constantly improve our effectiveness and maintain safe financial indicators and covenants. As a result, we are a reliable partner for the market and financial institutions supporting the implementation of our strategy – stressed Jacek Kościelniak, Vice-President for Finance at Energa SA. 

Results of the Business Lines in the first half of 2018 

The Distribution Business Line continues to have the largest share in the growth of the Energa Group. In the first half of the year, it generated an EBITDA result of PLN 990 million, as compared to PLN 931 million a year earlier. In the second quarter of the current year EBITDA amounted to PLN 481 million and accounted for 90% of the Group's quarterly EBITDA. The solid, positive result of this Business Line was strongly influenced, especially in the second quarter of this year, by a significantly higher margin on distribution. The final result of this Business Line was also affected by a decrease in revenues from connections, an increase in costs of the property tax and a level of OPEX costs higher than in the previous year.   

In the first half of the current year, the Generation Business Line achieved PLN 168 million, down by PLN 9 million year on the previous year. The share of this line in the EBITDA of the Group in the second quarter of this year was 12%. The decrease in EBITDA, as compared to the first half of 2017, is not surprising, as it results mainly from a clear increase in market prices of CO2 emission allowances and a smaller pool of free allowances for 2018, seen since the first quarter of this year. The final EBITDA result of the Generation Line in the first half-year was affected not only by higher costs of purchase of the emission allowances, but also by lower revenues from heat sale. These factors were partly offset by higher revenues from the sale of electricity and higher revenues from the sale of "green" certificates. 

The Sales Business Line’s EBIDTA in the whole first semester amounted to PLN 57 million, compared to PLN 11 million a year ago. In the second quarter of this year the EBITDA result stood at PLN 4 million. The EBITDA result of that period was adversely affected by the effects of high energy prices in the market as well as by arbitration decisions and settlements. In the first six months of the year, the function of Offtaker of Last Resort was significantly limited, which was due to a significantly lower obligation to purchase energy from wind farms located in the territory of the Energa Group. These legal and contractual burdens resulted in a higher margin on electricity sales. In consequence of all these factors, the result after the first 6 months of the year of this Business Line was significantly higher than in the same period of the previous year. 

Energy production, sale and distribution

In the first half of 2018, the Group's production assets generated 1,888 GWh of electricity, 8 per cent less than in the first half of 2017. This was due to factors such as: lower compulsory power generation at Ostrołęka Power Plant for the Transmission System Operator in Poland, overhaul of one of the units at this plant in the second quarter and a slight decrease in power generation in hydro and wind assets due to weather conditions in the second quarter of this year.

On the other hand, the total volume of electricity sold increased during the first half of this year. It amounted to 11,816 GWh, which means an increase by 113 GWh in comparison to 2017.

The volume of electricity distributed in the first half of the year was also higher. It was higher by 4% than in the corresponding period of the previous year and amounted to 11,440 GWh (11,019 GWh in the first half of 2017).   

In the first half of 2018, capital expenditures in the Energa Group amounted to PLN 624 million, of which the most capital-intensive investments were made in the Distribution Business Line, i.e. PLN 534 million. Investments in this Business Line included the modernisation of the power grid to improve the reliability of electricity supply and the expansion of the grid to connect new customers and producers. In addition, a part of the expenditures was incurred on innovative technologies and network solutions. In the Generation Business Line, the outlays in the first half of the year amounted to PLN 76 million and were related to the adjustment of assets to environmental requirements and modernisation of the Ostrołęka B Power Plant.