Current Report No. 27/2019

Subject: Estimated results of ENERGA Group for Q2 and first half of 2019

Date: 9 September 2019

Legal basis: Article 17 (1) of MAR - inside information 

The Management Board of ENERGA SA hereby reports preliminary estimates of selected ENERGA Group’s financial and operating data for the second quarter and the first half of 2019.

Financial and operational results achieved in Q2 2019:

EBITDA of the Group: PLN 704 million (vs. PLN 535 million in Q2 2018), including:

EBITDA of the Distribution Business Line: PLN 428 million (vs. PLN 481 million in Q2 2018),

EBITDA of the Generation Business Line: PLN 54 million (vs. PLN 65 million in Q2 2018),

EBITDA of the Sales Business Line: PLN 235 million (vs. PLN 4 million in Q2 2018).

Distribution of electricity: 5,351 GWh (vs. 5,584 GWh in Q2 2018),

Gross production of electricity: 925 GWh (vs. 849 GWh in Q2 2018),

Retail sales of electricity: 4,837 GWh (vs. 4,754 GWh in Q2 2018).

Financial and operational results achieved in H1 2019:

EBITDA of the Group: PLN 1,258 million (vs. 1,161 in H1 2018), including:

EBITDA of the Distribution Business Line: PLN 976 million (vs. PLN 990 million in H1 2018),

EBITDA of the Generation Business Line: PLN 172 million (vs. PLN 168 million in H1 2018),

EBITDA of the Sales Business Line: PLN 140 million (vs. PLN 57 million in H1 2018).

Distribution of electricity: 11,162 GWh (vs. 11,440 GWh in H1 2018),

Gross production of electricity: 1,950 GWh (vs. 1,888 GWh in H1 2018),

Retail sales of electricity: 9,804 GWh (vs. 9,998 GWh in H1 2018).

In Q2 2019, ENERGA Group generated EBITDA of PLN 704 million, which means an increase by 32% compared to the same period of previous year. This result was affected mainly by the following factors:

1. a) EBITDA achieved by the Distribution Business Line in the amount of PLN 428 million. The main factor contributing to the lower result of this Line was the lower margin on distribution, mainly due to the increase in the cost of grid losses as a consequence of higher energy prices. Furthermore, a high base effect was observed, as the change in the method for estimating non-invoiced sales in Q2 2018 had a positive impact on the margin at that time (switching to reports from the new billing system).
2. b) EBITDA achieved by the Generation Business Line in the amount of PLN 54 million. The increase in the cost of fuel consumption and CO2 emission allowances, as well as the increase in fixed costs (interim overhaul of one of the generating units) were mainly responsible for the reduction of the Line's result. Higher revenues from the sale of energy and green property rights had a positive impact on EBITDA of this area.
3. c) EBITDA achieved by the Sales Business Line in the amount of PLN 235 million. The result of the second quarter of 2019 compared to the corresponding period of the previous year was mainly due to the following factors:

- low base effect, as Q2 2018 was characterised by low results due to unexpected and dynamic growth of energy prices in the market at that time,

- creation of a provision in the amount of PLN 31 million fully securing possible future claims against Energa-Obrót S.A. in connection with possible necessity of payment of any contractual penalties resulting from framework contracts for the sale of property rights resulting from renewable energy certificates (CPA agreements) - one-off event,

- release of PLN 50 million of provision created in 2018 in the total amount of PLN 136 million for contracts giving rights to charges regarding G tariff (one-off event). This event to a great extend secured the financial results of Q2 2019 against negative impact of the Act of 13 June 2019 amending the Act on amending the Act on Excise Duty and Certain Other Acts, the Act on Energy Efficiency and the Act on Biocomponents and Liquid Biofuels (hereinafter referred to as the Act).

In connection with the entry into force of the Act as well as the Regulation of the Minister of Energy of 19 July 2019 on the method of calculation of the price difference and financial compensation and on the method of determining the reference prices, Energa-Obrót S.A. included in its H1 2019 results the downward adjustment of sales revenues (in connection with the necessity to reduce sales prices to the level of prices from 30 June 2018) and booked the estimation of the price difference amount (commonly called “compensation”) for this period, calculated on the basis of the published components for calculation of this difference.

In the first half of 2019, the ENERGA Group generated EBITDA of PLN 1,258 million, which means an increase by 8% compared to the first half of 2018. The Group's EBITDA level was mainly due to:

1. a) EBITDA of the Distribution Business Line in the amount of PLN 976 million. In addition to similar factors that affected the result for Q2 2019, the delayed approval of the distribution tariff (as of April this year) and the increase in OPEX costs, mainly in the area of employee benefits, played an important role in generating comparable year-to-year results. The positive impact had the increase in revenues from connections.
2. b) EBITDA of the Generation Business Line in the amount of PLN 172 million. The growth achieved in comparison to the corresponding period of the previous year was based, similarly as in the second quarter of 2019 alone, on higher revenues from the sale of electricity and green property rights, with a simultaneous increase in the cost of fuels and cost of emission allowances purchase.
3. c) EBITDA of the Sales Business Line of PLN 140 million. The year-to-year increase in this result was possible mainly due to a one-off event in the form of the release of part of the 2018 provision for contracts giving rights to charges regarding G tariff in the amount of PLN 87 million and the low base effect of the previous year, as indicated above, with simultaneous creation of the provision for possible penalties connected with CPA agreements (PLN 31 million).

The presented values are estimates and as such are subject to change.