Polenergia Group CONSOLIDATED QUARTERLY REPORT FOR THE FIRST QUARTER OF Jacek Głowacki President of the Management Board

Transcription

1 CONSOLIDATED QUARTERLY REPORT FOR THE FIRST QUARTER OF 2018 Jacek Głowacki President of the Management Board Michał Michalski Member of the Management Board Warsaw, May 16th 2018

2 Table of contents A. INTRODUCTION TO THE CONSOLIDATED QUARTERLY REPORT Consolidated statement of profit or loss for the first quarter ended March 31st The Group s organisational structure... 9 B. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31ST Policies applied in the preparation of the interim condensed consolidated financial statements Duration of the Company and other Group companies Periods covered by the interim condensed consolidated financial statements Approval of the financial statements Policies applied in the preparation of the financial statements Adjusted EBITDA and adjusted net profit Operating segments Other notes Non-current assets held for sale Revenue Operating expenses, by nature of expense Other income Other expenses Finance income Finance costs Cash flows Goodwill Current financial assets Current liabilities Notes explaining seasonal or cyclic nature of the issuer s operations in the reporting period Interest-bearing borrowings Changes in accounting estimates Issue, redemption and repayment of debt and equity securities Dividend paid or declared- aggregate and per share amounts, separately for ordinary and preference shares Changes in contingent liabilities or contingent assets subsequent to the end of the previous financial year Proceedings pending before common courts of law, arbitration courts or governmental authorities, brought by or against the Company or its subsidiaries Significant related-party transactions Loan sureties or guarantees issued by the issuer or its subsidiary where the aggregate value of such outstanding sureties and guarantees issued to a single entity or its subsidiary is significant Other information the issuer considered material to the assessment of its human resources, assets, financial condition and financial performance, and changes in any of the 2

3 foregoing, as well as information material to the assessment of the issuer s ability to fulfil its obligations Factors which in the issuer s opinion will affect its performance over at least the next quarter Objectives and policies of financial risk management Interest rate risk Currency risk Credit risk Liquidity risk Capital management Events subsequent to the date as at which these interim condensed financial statements were prepared, which have not been presented in the statements but may have a material bearing on future financial performance C. OTHER INFORMATION TO THE CONSOLIDATED QUARTERLY REPORT Discussion of key economic and financial data disclosed in the interim financial statements, in particular factors and events, including non-recurring ones, with a material effect on the issuer s operations and profits earned or losses incurred in the financial year; discussion of development prospects in a period covering at least the next financial year Brief description of significant achievements or failures in the reporting period, including identification of key events Management Board s position on the feasibility of meeting any previously published forecasts for a given year in light of the results presented in the quarterly report Factors and events, especially of non-recurring nature, with a material bearing on financial performance Shareholders holding, directly or indirectly through subsidiaries, 5% or more of total voting rights at the General Meeting of the issuer as at the date of issue of the quarterly report, including information on the number of shares held by those sharehoders, their interests in the share capital, the resulting number of votes at the General Meeting and their share in total voting rights at the General Meeting, and any changes in the ownership structure of major holdings of the issuer shares after the issue of the previous quarterly report Effects of changes in the Group s structure, including changes resulting from mergers, acquisitions or disposals of Group entities, long-term investments, demergers, restructuring or discontinuation of operations General information Composition of the parent s Management and Supervisory Boards D. QUARTERLY FINANCIAL INFORMATION OF POLENERGIA S.A

4 A. INTRODUCTION TO THE CONSOLIDATED QUARTERLY REPORT 4

5 1. Consolidated statement of profit or loss for the first quarter ended March 31st 2018 Presented below is the combined statement of profit or loss for the first quarter of In Q1 2018, the Polenergia Group generated an adjusted (normalised) EBITDA of PLN 38.9m and net profit of PLN 2.5m, down by PLN 3.6m (-8%) and PLN 0.4m (-14%), respectively, on the corresponding period of the previous year. Polenergia Group s performance (PLNm) 3M M 2017 Change y/y Change y/y [%] Revenue % Cost of sales (723.3) (684.4) (38.9) 6% including operating expenses (110.3) (106.0) (4.3) 4% Gross profit (2.0) -8% Distribution costs and administrative expenses (9.2) (8.2) (0.9) 11% Other income/(expenses) (0.4) -32% A Operating profit (EBIT) (3.4) -18% Depreciation and amortisation (0.5) -2% EBITDA (3.6) -8% Elimination of purchase price allocation effect (0.7) (0.7) _ 0% Adjusted EBITDA* (3.6) -8% B Finance income (1.4) -52% C Finance costs (13.9) (16.1) % A+B+C Profit/(loss) before tax (2.5) -48% Income tax (2.6) (3.6) % Net profit/(loss) (1.5) -93% Elimination of purchase price allocation effect _ Elimination of unrealised exchange differences effect 0.0 (0.8) 0.8 Elimination of AMC loan valuation effect (0.0) Impairment losses 0.2 _ 0.2 Adjusted net profit* (0.4) -14% Adjusted EBITDA margin 5.2% 6.0% Trading segment revenue Trading segment costs of sale (603.0) (569.6) (33.4) Adjusted EBITDA (excluding trading segment) (1.6) -4% Adjusted EBITDA margin (excluding trading segment) 28.1% 30.4% *) Adjusted for non-cash/one-off income (expenses) recognised in the financial year. Revenue for the first quarter of 2018 was up 5% year on year, chiefly on higher revenue generated by the trading segment. Adjusted EBITDA for the period came in at PLN 38.9m, down PLN 3.6m year on year, due mainly to a lower margin on electricity trading earned by the trading segment, partially offset by a higher margin of the wind power segment. The wind power segment saw its EBITDA rise by PLN 2.7m, primarily as a result of higher selling prices of green certificates and reduced operating expenses, partially offset by a lower generation volume. 5

6 The conventional energy segment s EBITDA declined by PLN 1.7m, driven by higher prices of gas and CO2 emission allowances, as well as a lower forecast gas compensation amount. The trading segment s EBITDA fell PLN 2.0m year on year, reflecting negative valuation of contracts in the trading portfolio, the effect of which was partially offset by a higher result on the wind farms portfolio. The distribution segment s EBITDA dropped PLN 0.6m year on year, mostly as a result of reduced connection fees and a lower distribution margin due to a postponed effective date of the updated tariff. Compared with a year earlier, the biomass segment posted lower EBITDA (down PLN 0.6m), reflecting a decline in sales volumes and prices of pellets, coupled with higher costs of materials from which pellets are made. The development and implementation segment s EBITDA went down PLN 0.4m, as costs relating to projects at an early stage of development were not capitalised. At the level of unallocated Group management costs, EBITDA was down PLN 0.9m, which was mainly attributable to allocation of the Group s operating expenses (a lower share of allocated expenses) and additional costs relating to public charges payable. As a consequence of these developments, adjusted EBITDA margin (excluding the trading segment) stood at 28.1%, having declined 2pp year on year. Net finance income/costs and income tax stayed largely flat year on year. Other key information regarding the Group s situation Debt of the Group s portfolio companies is monitored on an ongoing basis. Wind farm debt reprofiling in under way. Significant progress has been made in debt restructuring. The reprofiling of Dipol s debt was completed in December 2017, and work on reprofiling the debt of Amon, Talia, Gawłowice, Skurpie, and Rajgród is well under way. The restructuring of biomass projects has begun. Divestment of Biomasa Południe s assets is in progress. Work has also been undertaken to prepare onshore wind farm projects (185 MW), a biomass-fired power plant project (31 MW) and photovoltaic power station projects (40 MW) for participation in the auctionbased system over the next two years. In the distribution segment, an investment programme implemented in 2016 is progressing as planned. Polenergia Dystrybucja is currently developing a new investment plan for The Group is preparing the construction of two offshore wind farms (Polenergia Bałtyk II and Polenergia Bałtyk III) in the Baltic Sea, with a total capacity of up to 1,200 MWe. The time of launching the construction will depend on the effective date of the relevant regulatory regime. In addition, the Group is looking into the possibility of resuming preparatory work on the Polenergia Bałtyk I project. As announced in Current Report No. 13/2018 of May 2nd 2018, with reference to the Group s earlier reports, on May 22nd 2018 the Group expects to sign a final agreement for sale of 50% of shares in companies running projects to develop and construct offshore wind farms (Polenergia Bałtyk II and Polenergia Bałtyk III). 6

7 3M 2018 (PLNm) Wind Power Conventional Energy Trading Distribution Biomass Development Unallocated Group management costs Purchase price allocation Revenue Operating expenses (28.6) (62.7) (603.0) (19.0) (5.8) (0.5) (1.1) (2.5) (723.3) incl. depreciation and amortisation (14.2) (5.4) (0.0) (1.1) (0.5) - (0.2) (2.5) (24.0) Gross profit (0.5) (0.5) (0.8) (1.9) 23.5 Gross margin 22.8% 18.0% 0.2% 16.9% -8.9% n/a % % 3.1% Administrative expenses (0.6) (1.7) (2.6) (1.4) (0.4) (0.2) (2.3) - (9.0) Net other income/expenses 1.1 (0.4) (0.2) (0.0) Operating profit (1.2) 2.6 (0.8) (0.9) (3.1) (1.9) 15.3 EBITDA (1.2) 3.7 (0.3) (0.7) (2.9) EBITDA margin 62.5% 22.4% -0.2% 16.1% -5.7% n/a % 100.0% 5.3% Elimination of purchase price allocation effect (0.7) (0.7) Adjusted EBITDA (1.2) 3.7 (0.3) (0.7) (2.9) Adjusted EBITDA margin 62.5% 22.4% -0.2% 16.1% -5.7% n/a % 0.0% 5.2% Net finance income (12.7) (0.3) (1.2) (0.5) (0.1) (0.0) (12.6) Profit/(loss) before tax (3.7) 11.3 (2.4) 2.1 (0.9) (0.9) (0.9) (1.9) 2.7 Income tax (2.6) Net profit/(loss) for period 0.1 Elimination of purchase price allocation effect 1.5 Elimination of unrealised exchange differences effect 0.0 Elimination of AMC loan valuation effect 0.7 Impairment losses 0.2 Adjusted net profit 2.5 TOTAL 7

8 3M 2017 (PLNm) Wind Power Conventional Energy Polenergia Group Trading Distribution Biomass Development Unallocated Group management costs Purchase price allocation Revenue Operating expenses (28.6) (54.5) (569.6) (17.8) (9.6) (0.1) (1.6) (2.5) (684.4) incl. depreciation and amortisation (14.3) (5.4) (0.0) (1.1) (1.0) - (0.2) (2.5) (24.5) Gross profit (0.6) (0.1) (1.0) (1.9) 25.5 Gross margin 17.9% 21.9% 0.5% 20.0% -6.2% n/a % % 3.6% Administrative expenses (1.0) (1.5) (2.4) (1.4) (0.3) (0.1) (1.4) - (8.0) Net other income/expenses 1.0 (0.4) (0.1) Operating profit (0.6) (0.3) (2.2) (1.9) 18.7 EBITDA (0.3) (1.9) EBITDA margin 58.8% 27.0% 0.1% 19.4% 3.7% n/a % 100.0% 6.1% Elimination of purchase price allocation effect (0.7) (0.7) Adjusted EBITDA (0.3) (1.9) Adjusted EBITDA margin 58.8% 27.0% 0.1% 19.4% 3.7% n/a % 0.0% 6.0% Net finance income (12.2) (0.6) (0.9) (0.4) (0.1) (0.0) (13.5) Profit/(loss) before tax (6.0) 12.9 (0.1) 2.8 (0.8) (0.3) (1.4) (1.9) 5.2 Income tax (3.6) Net profit/(loss) for period 1.6 Elimination of purchase price allocation effect 1.5 Elimination of unrealised exchange differences effect (0.8) Elimination of AMC loan valuation effect 0.7 Adjusted net profit 2.9 TOTAL 8

9 2. The Group s organisational structure Polenergia S.A. Energopep Sp. z o.o. Polenergia Kogeneracja Sp. z o.o. Polenergia Dystrybucja Sp. z o.o. Polenergia Elektrownia Północ Sp. z o.o. Polenergia Obrót S.A. * 0,10% 94,10% 20% Geo Kletnia Sp. z o.o. 99,99% Polenergia Elektrociepłownia Nowa Sarzyna Sp. z o. o. PPG Polska Sp. z o.o. Polenergia Bałtyk I S.A. 99,90 0,10% 0,01% 0,1% 99,9% *0,1% przysługuje spółce Energopep Sp. z o.o., 33,9 % POL-SA, 33% POL-D, 33% Dipol; 9

10 B. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31ST

11 INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at Mar Assets Note Mar Dec I. Non-current assets 1,829,095 2,049, Property, plant and equipment 1,625,637 1,790, Intangible assets 27,407 30, Goodwill related to subordinated entities 109, , Financial assets 37,179 14, Long-term receivables 4,410 4, Deferred tax asset 24,806 24, Prepayments and accrued income II. Current assets 917, , Inventories 30,330 26, Trade receivables 7 98, , Current tax asset 3,050 1, Other short-term receivables 39,446 39, Prepayments and accrued income 14,427 6, Current financial assets , , Cash and cash equivalents 271, , Non-current assets held for sale ,846 - Total assets 2,746,639 2,664,264 Equity and liabilities Note Mar Dec I. Equity 1,181,813 1,181,988 Equity attributable to owners of the parent 1,180,882 1,181, Share capital 90,887 90, Share premium 680, , Capital reserve from valuation of options 13,207 13, Other capital reserves 401, , Retained earnings/(deficit) (6,631) 81, Net profit/(loss) 100 (87,726) 7. Translation differences Non-controlling interests II. Non-current liabilities 866, , Bank and other borrowings 682, , Deferred tax liability 67,951 73, Provisions 7 22,226 22, Accruals and deferred income 55,764 56, Other liabilities 38,098 35,897 III. Current liabilities 698, , Bank and other borrowings , , Trade payables , , Income tax payable Other liabilities , , Provisions 7 3,360 3, Accruals and deferred income 14,301 15, Liabilities directly associated with non-current assets classified as held for sale 4.1 9,282 - Total equity and liabilities 2,746,639 2,664,264 11

12 INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS For the three months ended March 31st 2018 Note For 3 months ended Mar Mar Revenue , ,942 Cost of sales 4.3 (723,299) (684,402) Gross profit 23,514 25,540 Other income 4.4 1,297 1,732 Distribution costs 4.3 (160) (238) Administrative expenses 4.3 (9,007) (8,002) Other expenses 4.5 (360) (360) Finance income 4.6 1,289 2,666 Finance costs 4.7 (13,872) (16,116) Profit/(loss) before tax 2,701 5,222 Income tax 7 (2,596) (3,639) Net profit/(loss) 105 1,583 Net profit/(loss) attributable to: 105 1,583 Owners of the parent 100 1,584 Non-controlling interests 5 (1) Earnings/(loss) per share: Weighted average number of ordinary shares 45,443,547 45,443,547 - basic/diluted earnings (loss) for period attributable to owners of the parent INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the three months ended March 31st 2018 For 3 months ended Mar Mar Net profit for 105 1,583 Other comprehensive income that may be reclassified to profit or loss once specific conditions are met - Cash-flow hedges (35) Translation differences (28) (30) Net other comprehensive income (63) 758 COMPREHENSIVE INCOME FOR THE PERIOD 42 2,341 Comprehensive income for period: 42 2,341 Owners of the parent 37 2,342 Non-controlling interests 5 (1) 12

13 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the three months ended March 31st 2018 Note For 3 months ended Mar Mar A. Cash flows from operating activities I. Profit/(loss) before tax 2,701 5,222 II. Total adjustments 47,510 10, Depreciation and amortisation ,044 24, Foreign exchange/(gains) losses 223 (1,571) 3. Interest and profit distributions (dividends) 13,082 14, Gain/(loss) on investing activities 650 1, Income tax (2,443) (1,141) 6. Change in provisions (977) (610) 7. Change in inventories 4.8 (4,116) 6, Change in receivables 4.8 (110,292) 75, Change in current liabilities (net of borrowings) ,106 (97,899) 10. Change in accruals and deferrals 4.8 (9,775) (10,660) 11. Other adjustments III. Net cash from operating activities (I+/-II) 50,211 16,187 B. Cash flows from investing activities I. Cash receipts Disposal of intangible assets and property, plant and equipment Proceeds from financial assets, including: - 13 a) repayment of long-term loans advanced - 13 II. Cash payments 6,605 4, Acquisition of property, plant and equipment 6,572 4, Payments for financial assets, including: a) acquisition of financial assets III. Net cash from investing activities (I-II) (6,603) (4,542) C. Cash flows from financing activities I. Cash receipts - 9, Proceeds from borrowings - 9,747 II. Cash payments 65,273 55, Repayment of borrowings 52,652 41, Payment of finance lease liabilities Interest paid 12,159 13, Other cash payments related to financing activities III. Net cash from financing activities (I-II) (65,273) (45,507) D. Total net cash flows (A.III +/- B.III +/- C.III) (21,665) (33,862) E. Net increase/decrease in cash, including: (26,367) (33,729) - effect of exchange rate fluctuations on cash held (50) cash classified as assets available for sale 4.1 (4,652) F. Cash at beginning of period 297, ,862 G. Cash at end of period, including: 271, ,133 - restricted cash , ,357 13

14 External financing sources bank borrowings (statement of cash flows) For 3 months ended Mar Mar item C.I.1 Proceeds from borrowings - 9,747 item C.II.1 Repayment of borrowings (52,652) (41,284) Change in external financing sources, including: (52,652) (31,537) net increase in investment facilities (46,913) (29,364) net increase/decrease in overdraft facility (5,739) (2,173) 14

15 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the three months ended March 31st 2018 Share capital Share premium Capital reserve from valuation of options Other capital reserves Retained earnings Net profit Translation differences Equity attributable to owners of the parent Noncontrolling interests Total equity As at Jan , ,777 13, ,970 (6,414) ,181, ,181,988 Change in accounting policies (217) - - (217) - (217) Comprehensive income for period - Net profit/(loss) for period Other comprehensive income for period (35) - - (28) (63) - (63) As at Mar , ,777 13, ,935 (6,631) ,180, ,181,813 Share capital Share premium Capital reserve from valuation of options Other capital reserves Retained earnings Net profit Translation differences Equity attributable to owners of the parent Noncontrolling interests Total equity As at Jan , ,810 13, ,659 (3,721) ,266, ,267,426 Comprehensive income for period - Net profit (loss) for period ,584-1,584 (1) 1,583 - Other comprehensive income for period (30) Transactions with owners of the parent recognised directly in equity - Allocation of profit - (85,033) - 85, As at Mar , ,777 13, ,447 81,312 1, ,268, ,269,767 15

16 1. Policies applied in the preparation of the interim condensed consolidated financial statements 1.1 Duration of the Company and other Group companies The Company and all of its related entities have been established for an indefinite period. 1.2 Periods covered by the interim condensed consolidated financial statements These interim condensed consolidated financial statements cover the three months ended March 31st 2018 and contain comparative data for the three months ended March 31st 2017 and as at December 31st The statement of profit or loss and the notes to the statement of profit or loss cover the three months ended March 31st 2018, as well as comparative data for the three months ended March 31st These interim condensed consolidated financial statements have been prepared on the assumption that the Company and the Group will continue as going concerns in the foreseeable future, that is for at least 12 months after the reporting period, i.e. March 31st Approval of the financial statements These interim condensed consolidated financial statements were authorised for issue by the parent s Management Board on May 16th Policies applied in the preparation of the financial statements These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 and cover the three months from January 1st to March 31st 2018, a comparative period from January 1st to March 31st 2017, as well as data as at December 31st 2017, presented in the statement of financial position. These interim condensed financial statements for the three months ended March 31st 2018 have not been reviewed by an independent auditor, whereas the comparative data for the financial year ended December 31st 2017 have been audited. These interim condensed consolidated financial statements have been prepared in compliance with the historical cost convention, except for the following material items in the statement of financial position: - financial derivatives, measured at fair value, The International Financial Reporting Standards comprise standards and interpretations approved by the International Accounting Standards Board ( IASB ) and the International Financial Reporting Interpretations Committee ( IFRIC ). Some of the Group companies keep their accounts in accordance with the accounting policies defined in the Polish Accounting Act of September 29th 1994, as amended (the Act ), and secondary legislation issued thereunder (the Polish Accounting Standards ). In these interim condensed consolidated financial statements certain adjustments have been made to bring the financial statements of these companies into conformity with the IFRSs, which are not disclosed in their books of account. These interim condensed consolidated financial statements do not include all the information and disclosures required in the case of full-year consolidated financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31st These interim condensed consolidated financial statements have been prepared using the same accounting policies and calculation methods as those applied in the most recent full-year financial statements, for the year ended December 31st

17 A number of new Standards, amendments to Standards and Interpretations were not yet effective for the annual periods ended December 31st 2018 and, consequently, they have not been applied in preparing these interim condensed consolidated financial statements. None of the new Standards, amendments to Standards, and Interpretations will have a material effect on the Group s financial statements. The Group has applied IFRS 9 and IFRS 15 using the modified retrospective approach with effect from January 1st As permitted by the standard, the Group chose not to restate the comparative data. Data as at December 31st 2017 and for the first quarter of 2017 was prepared based on IAS 39 and IAS 18. IFRS 9 is intended to replace IAS 39. The standard is effective for annual periods beginning on or after January 1st The standard introduces the following categories for financial assets: measured at amortised cost and measured at fair value through profit or loss or at fair value through other comprehensive income. Assets are classified on initial recognition depending on an entity s financial instrument management model and the characteristics of contractual cash flows from such instruments. IFRS 9 introduces a new impairment recognition model based on expected credit losses. The majority of requirements under IAS 39 concerning classification and measurement of financial liabilities were incorporated into IFRS 9 unchanged. The key change is the new requirement that entities present in other comprehensive income changes in their own credit risk related to financial liabilities designated to be measured at fair value through profit or loss and the requirement that the effects of renegotiation of credit agreements that do not result in derecognition of the liabilities be recognised immediately in profit or loss. Changes were also made to the hedge accounting model to factor in risk management. 1. Receivables applying an expected loss impairment model Under the impairment model applicable before December 31st 2017, an entity was required to assess whether objective evidence of impairment existed and (where such evidence was found) to estimate impairment based on expected cash flows. A description of the previously applied accounting policies and information on credit risk, past due receivables and impairment of trade receivables are provided in Notes 9.18, 20 and 39 to the 2017 Consolidated Financial Statements. IFRS 9 requires that expected losses be estimated regardless of whether there is evidence of impairment. The standard provides for a three-stage approach to accounting for impairment of financial assets: (1) Stage 1 where credit risk has not increased significantly since initial recognition and where entities are required to recognise 12 month ECL; (2) Stage 2 where credit risk has increased significantly since initial recognition and where entities are required to recognise lifetime ECL; (3) Stage 3 where a financial asset is credit impaired. The standard permits the use of a simplified approach to short-term receivables whereby they are classified as Stage 2. Homogenous/smaller-balance trade receivables that have been classified as unimpaired based on a portfolio analysis (Stages 1 and 2) impairment will be determined using a provision matrix based on historical data adjusted for forward-looking estimates. Trade receivables with individually significant entities (customers purchasing large volumes of products in a given category, cooperation under long-term contracts) impairment will be estimated on the basis of an analysis of receivables from each individual customer. 2. Credit facility renegotiation Bank borrowings the effects of renegotiating a credit facility agreement, previously recognised by adjusting the effective interest rate on the liabilities to account for the difference between the carrying amount of the liabilities and the discounted value of modified future payments over the expected financing period, are recognised immediately in profit or loss in accordance with IFRS 9. It was determined that amortised cost had to be adjusted using the effective interest rate determined as at the date of the credit facility agreement due to the modification made to the agreement. The effect of the above modification on the Group s consolidated financial statements as at January 1st 2018 was PLN 217 thousand. No other items that would require alignment with IFRS 9 were identified. 17

18 IFRS 15 Revenue from Contracts with Customers is effective for annual periods beginning on or after January 1st The provisions of IFRS 15 apply to all contracts giving rise to revenue. The fundamental rule provided for in the new standard is that revenue is to be recognised upon transfer of goods or services to a customer at a transaction price. Any goods or services that are sold in bundles and are distinct within the bundle should be recognised separately, and any discounts and rebates on the transaction price should be allocated to specific bundle items. Where a contract contains elements of variable consideration, under the new standard such variable consideration is recognised as revenue only if it is highly probable that the revenue will not be reversed in the future as a result of revaluation. Furthermore, in accordance with IFRS 15, the cost of obtaining and securing a contract with a customer should be capitalised and amortised over the period in which the contract s benefits are consumed. Revenue from grid connection fees In the first quarter of 2018, the Group recognised revenue from grid connection fees when it was earned (upon completion of connection), in accordance with the accounting policies applied in previous years. There is no settled market practice as to how grid connection fees should be recognised under IFRS 15, although an approach whereby the fees would be recognised over time (over the useful lives of assets) is being considered. According to the Group s estimates, a change to accounting policies reflecting this approach would have reduced retained earnings by PLN 6.8m and increased deferred income by a corresponding amount of PLN 6.8m in the consolidated financial statements prepared as at March 31st Adjusted EBITDA and adjusted net profit EBITDA, adjusted EBITDA and adjusted net profit attributable to owners of the parent are not defined in the IFRSs and may be computed differently by other entities. The Group presents its EBITDA, adjusted EBITDA and adjusted net profit attributable to owners of the parent in order to show its performance without the effect of factors that are unrelated to the Group s core operations and that lead to no cash flows in the reporting period. The Group defines EBITDA as profit before tax less finance income plus finance costs, plus depreciation and amortisation, plus impairment losses on non-financial non-current assets, which are not directly attributable to its operations. The definition is principally to ensure comparability of the metric which is the key performance measure used in the industry in which the Company and its Group operate. If circumstances arise enabling the Group to reverse an impairment loss on nonfinancial non-current assets not directly attributable to its operations, this will be reflected in the calculation of EBITDA. 18

19 EBITDA and adjusted EBITDA For 3 months ended Mar Mar Profit/(loss) before tax 2,701 5,222 Finance income (1,289) (2,666) Finance costs 13,872 16,116 Depreciation and amortisation 24,044 24,507 Impairment loss on development projects EBITDA 39,575 43,179 Purchase price allocation: Valuation of long-term contracts (681) (681) Adjusted EBITDA 38,894 42,498 Adjusted net profit attributable to owners of the parent For 3 months ended Mar Mar NET PROFIT/(LOSS) attributable to owners of the parent 100 1,584 Unrealised foreign exchange (gains)/losses 13 (814) (Income)/costs from valuation of long-term bank borrowings Impairment loss on development projects Purchase price allocation: Depreciation and amortisation 2,532 2,532 Valuation of long-term contracts (681) (681) Tax (351) (351) Adjusted NET PROFIT/(LOSS) attributable to owners of the parent 2,514 2, Operating segments For management purposes, the Group performed an analysis to identify operating segments, as a result of which it identified the following operating segments, corresponding to the reportable segments: wind power segment comprising the generation of electricity, conventional energy segment comprising the generation of electricity and heat, electricity and certificates of origin trading segment, distribution segment comprising the distribution and sale of electricity to commercial, industrial and household customers, biomass segment responsible for the production of pellets from energy crops, development and implementation segment comprising the development and construction of wind farms and a conventional power plant, The Management Board monitors the respective segments operating performance to make decisions on the allocation of resources, and evaluate the results of the allocation and the segments operating performance. The Group defines EBITDA as profit before tax less finance income plus finance costs, plus depreciation and amortisation, plus impairment losses on non-financial non-current assets, which are not directly attributable to its operations. If circumstances arise enabling the Group to reverse an impairment loss on non-financial non-current assets not directly attributable to its operations, this will be reflected in the calculation of EBITDA. Income tax is monitored at the Group level and is not allocated to the operating segments. Unallocated assets comprise the Company s cash. Prices used in transactions between the operating segments are determined on arm s length basis, as in the case of transactions with unrelated parties. All consolidation adjustments are allocated to the relevant segments. 19

20 Izba Rozliczeniowa Giełd Towarowych S.A. (the Warsaw Commodity Clearing House) is the only customer whose transactions with the Group have reached or exceeded 10% of the Group s total revenue. 99.9% of the segments assets are located in Poland. 20

21 For 3 months ended Mar Wind power Conventional energy Trading Distribution Biomass Development and implementation Unallocated Group management costs *) Purchase price allocation Revenue from sales to external customers 37,090 76, ,145 22,908 5, ,813 Gross profit/(loss) 8,462 13,713 1,178 3,862 (469) (546) (835) (1,851) 23,514 Administrative expenses (593) (1,680) (2,558) (1,390) (379) (154) (2,253) - (9,007) Interest income/(expense) (11,131) (299) (1,042) (427) (37) 10 1,714 - (11,212) Finance income/(costs) from unrealised exchange gains/losses (199) (16) Other finance income/(costs) (1,332) (85) (319) (36) (22) (17) (1,355) Other income/(expenses) 1,110 (353) (228) (2) Profit/(loss) before tax (3,683) 11,345 (2,448) 2,094 (901) (935) (920) (1,851) 2,701 Income tax (2,947) 351 (2,596) Net profit/(loss) Total EBITDA **) 23,185 17,091 (1,201) 3,680 (299) (681) (2,881) ,575 Segment assets 1,321, , , ,165 52, , ,401,124 Unallocated assets ,603 16, ,515 Total assets 1,321, , , ,165 52, , ,603 16,912 2,746,639 Segment liabilities 976, , ,805 69,997 8,526 1, ,525,762 Unallocated liabilities ,927 37,137 39,064 Total liabilities 976, , ,805 69,997 8,526 1,364 1,927 37,137 1,564,826 Depreciation and amortisation 14,206 5, , ,532 24,044 *) Head office costs unallocated to other segments. **) EBITDA is defined in Note 2. 21

22 For 3 months ended Mar Wind power Conventional energy Trading Distribution Biomass Development and implementation Unallocated Group management costs *) Purchase price allocation Revenue from sales to external customers 34,845 69, ,603 22,259 9, ,942 Gross profit/(loss) 6,224 15,295 3,037 4,462 (562) (113) (952) (1,851) 25,540 Administrative expenses (1,019) (1,480) (2,378) (1,378) (292) (74) (1,381) - (8,002) Interest income/(expense) (12,163) (388) (92) (398) (66) (12,828) Finance income/(costs) from unrealised exchange gains/losses 1,359 (81) (265) - (1) (7) - - 1,005 Other finance income/(costs) (1,348) (134) (531) (34) (60) (14) (1,627) Other income/(expenses) 971 (354) (101) 162 1,134 Profit/(loss) before tax (5,976) 12,858 (146) 2,795 (751) (293) (1,414) (1,851) 5,222 Income tax (3,990) 351 (3,639) Net profit/(loss) ,583 Total EBITDA **) 20,483 18, , (288) (1,943) ,179 Segment assets 1,414, , , ,839 68, , ,376,886 Unallocated assets ,699 27, ,735 Total assets 1,414, , , ,839 68, , ,699 27,036 2,841,621 Segment liabilities 1,053, , ,520 62,199 12,618 36, ,530,222 Unallocated liabilities ,265 41,632 Total liabilities 1,053, , ,520 62,199 12,618 36, ,265 1,571,854 Depreciation and amortisation 14,307 5, , ,532 24,507 *) Head office costs unallocated to other segments. **) EBITDA is defined in Note 2. 22

23 4. Other notes 4.1 Non-current assets held for sale On March 5th 2018, having obtained on the same date all relevant corporate approvals, Polenergia S.A. (the Company ) executed a conditional preliminary agreement (the Preliminary Agreement ) on sale of 50% of shares (the Shares ) in each of the following subsidiaries of the Company: Polenergia Bałtyk II Sp. z o.o. and Polenergia Bałtyk III Sp. z o.o. (jointly the SPVs ), which are carrying out projects to construct offshore wind farms in the Baltic Sea (the Project ). The Preliminary Agreement was made with Statoil Holding Netherlands B.V. ( Statoil Holding Netherlands ), a member of the Statoil Group ( Statoil ). Shares in the SPVs are to be sold as part of the parties cooperation involving joint implementation of the Project (the Transaction ), as agreed on by the parties. The Preliminary Agreement provides for the conclusion of a final agreement transferring the ownership of Shares held by the Company to Statoil Holding Netherlands. Conclusion of the final transfer agreement depends on satisfaction of the following conditions precedent: 1. obtaining by each party of unconditional clearance of the Transaction from the President of the Office of Competition and Consumer Protection such clearance was received by the parties on May 27th obtaining by Polenergia and the SPVs of the final registration of share capital increase resolutions by amending each SPV s articles of association, which had been passed before the conclusion of the Preliminary Agreement the registration was obtained by the Company and the SPVs on April 21st The total base sale price of Shares in the SPVs was set at PLN 94,275 thousand, determined based on actual capital expenditure incurred on the Project, taking into account a standard adjustment mechanism based on each SPV s financial position at the time of transferring the ownership of Shares, as described in the Preliminary Agreement, increased by EUR 5,000 thousand, payable in instalments by September 30th The parties also agreed on additional conditional payments, depending on completion of particular Project milestones or achievement of specific targets. As both these conditions precedent were satisfied, the Company and Statoil Holding Netherlands agreed that the final agreement would be signed on May 22nd Therefore, as at March 31st 2018, all assets and liabilities of the SPVs were presented as held for sale. After the Transaction is completed, 50% of the SPV shares will be recognised at fair value in the consolidated financial statements under non-current financial assets, and the SPVs will be consolidated using the equity method. Mar Mar Assets Goodwill 75,000 - Property, plant and equipment 148,287 - Receivables Cash 4,652 - Non-current assets held for sale 228,846 - Liabilities Deferred tax liability 8,257 - Current liabilities 1,025 - Liabilities directly associated with non-current assets held for sale 9,282-23

24 4.2 Revenue For 3 months ended Mar Mar revenue from sale and distribution of electricity 628, ,644 - revenue from certificates of origin 10,611 6,811 - revenue from sale of heat 6,964 6,526 - revenue from consulting and advisory services income from lease and operator services revenue from sale of merchandise 146 1,485 - revenue from sale of pellets 5,111 7,568 - rental income income from compensation for stranded costs and cost of gas 26,691 24,376 - net revenue from sale and distribution of gas 67,466 75,759 - other Total revenue 746, , Operating expenses, by nature of expense For 3 months ended Mar Mar depreciation and amortisation expense 24,044 24,507 - raw materials and consumables used 56,868 50,949 - services 11,602 14,050 - taxes and charges 7,731 6,677 - salaries and wages 7,936 7,840 - social security and other benefits 1,364 1,225 - other operating expenses Total expenses by nature 110, ,046 - cost of merchandise and materials sold (+) 622, ,596 - distribution costs (-) (160) (238) - administrative expenses (-) (9,007) (8,002) Total cost of sales 723, ,402 24

25 4.4 Other income For 3 months ended Mar Mar reversal of impairment losses and write-downs, including: impairment losses on receivables provisions reversed, including: provision for site restoration other, including: 997 1,724 - compensation and additional charges settlement of grants gain on disposal of non-financial non-current assets other Total other income 1,297 1, Other expenses For 3 months ended Mar Mar impairment losses and write-downs, including: impairment losses on receivables impairment losses on property, plant and equipment other, including: penalties, fines, compensation other development costs loss on disposal of non-financial non-current assets other Total other expenses Finance income For 3 months ended Mar Mar income from interest on deposits and loans 1,097 1,183 - interest on finance leases foreign exchange losses, including: 156 1,433 - unrealised 183 1,382 - realised (27) 51 - valuation of financial liabilities other 4 1 Total finance income 1,289 2,666 25

26 4.7 Finance costs For 3 months ended Mar Mar interest expense 12,341 14,046 - foreign exchange losses, including: unrealised realised fees and commissions valuation of financial liabilities *) other Total finance costs 13,872 16,116 *) Related to bank borrowings measured at amortised cost. 4.8 Cash flows Restricted cash For 3 months ended Mar Mar cash for credit facility repayments 25,713 33,387 - cash for the settlement of compensation for stranded costs - 64,409 - cash for long- and medium-term overhauls 5,632 3,461 - other restricted cash Total 31, ,357 Explanation of differences between changes in certain items in the statement of financial position and changes in the statement of cash flows Inventories: For 3 months ended Mar Mar change in inventories in the statement of financial position (4,116) 5,690 - recognition of inventories under non-current assets Change in inventories in the statement of cash flows (4,116) 6,335 Receivables: For 3 months ended Mar Mar change in short-term and long-term receivables, net, in the statement of financial position 25,665 39,544 - change in receivables classified as held for sale (907) - - change in financial receivables (135,050) 36,085 Change in receivables in the statement of cash flows (110,292) 75,629 Liabilities: For 3 months ended Mar Mar change in liabilities, net of borrowings, in the statement of financial position 134,406 (96,322) - change in finance lease liabilities change in liabilities classified as held for sale 1, change in investment commitments 1,842 (2,723) - change in financial liabilities (289) 990 Change in liabilities in the statement of cash flows 137,106 (97,899) 26

27 Accruals and deferrals: For 3 months ended Mar Mar change in accruals and deferrals in the statement of financial position (9,874) (10,199) - commissions on bank borrowings 99 (461) Change in accruals and deferrals in the statement of cash flows (9,775) (10,660) 4.9 Goodwill Goodwill related to subordinated entities, recognised as a result of the contribution of the Neutron Group assets to the Group, is attributable to the difference between the purchase price and the fair value of net assets acquired. Goodwill following from that transaction amounted to PLN 184m. As at March 31st 2018, it fell by PLN 75m owing to the Group s plans to sell 50% of shares in Polenergia Bałtyk I and Polenergia Bałtyk II, whose assets are disclosed as held for sale in accordance with the applicable accounting standards (as described in Note 4.1). Therefore, goodwill amounts to PLN 109m and is attributable to the following segments and cashgenerating units: (i) PLN 40m conventional energy segment comprising Polenergia Elektrociepłownia Nowa Sarzyna; (ii) PLN 25m distribution segment comprising Polenergia Dystrybucja and Polenergia Kogeneracja; (iii) PLN 44m trading segment comprising Polenergia Obrót Current financial assets Mar Dec valuation of futures and forward contracts 231, ,301 Total current financial assets 231, , Current liabilities Mar Dec bank and other borrowings 269, ,013 - trade payables 141, ,613 - to related entities to other entities 140, ,037 - income tax payable other liabilities 260, ,972 - to the state budget 8,945 7,746 - prepaid deliveries 1, other financial liabilities valuation of futures and forward contracts 226, ,293 - salaries and wages payable 1,028 1,414 - special accounts under settlement of long-term contracts 18,751 16,436 - other 3,301 2,475 Total current liabilities 671, ,888 27

28 5. Notes explaining seasonal or cyclic nature of the issuer s operations in the reporting period The Polenergia Group operates in the following market segments: Wind power, Conventional energy, Trading, Distribution, Biomass, Development of building projects and project implementation. Of these, conventional energy and wind power generation are seasonal by nature. The Polenergia Group s key customers use the heat and electricity supplied by the Group mainly for production purposes at their industrial facilities, and this business is not subject to seasonal fluctuations. However, a small proportion of heat delivered by the Group is used for heating purposes, both by industrial and municipal customers. Those delivery patterns are seasonal, with higher consumption of heat in the first and the fourth quarters of the financial year. However, this seasonality does not have a material effect on the Group s financial performance. Moreover, the wind conditions, which determine the output of wind farms, are uneven during the year: in autumn and winter they are significantly better than in spring and summer. The wind farm sites were selected by the issuer based on professional wind measurements confirmed by independent and reputable experts. That said, there can be no assurance that the actual wind conditions will not be different than those used in the Group s models for specific investment projects. 6. Interest-bearing borrowings On January 15th 2018, Grupa PEP Farma Wiatrowa 1 Sp. z o.o., Grupa PEP Farma Wiatrowa 4 Sp. z o.o., and Grupa PEP Farma Wiatrowa 6 Sp. z o.o. partly prepaid a credit facility provided by the consortium of BOŚ and EBRD in connection with distribution made to Polenergia S.A. in December 2017 in accordance with the credit facility agreement. As a result, the credit facility repayment schedule was modified so as to shorten the facility term by the number of full instalments equal to the prepaid amount. On March 30th 2018, Grupa PEP Biomasa Energetyczna Wschód Sp. z o.o. applied for a waiver of the lender s rights under a credit facility agreement in connection with the Company s planning to report DSCR as at March 31st 2018 below the minimum level stipulated in the credit facility agreement. As at the date of issue of these financial statements, the waiver had not been granted to the Group. The Group is reviewing the project s situation, including changes in its legal environment. In accordance with the applicable accounting standards, the credit facility contracted to finance the project was recognised entirely in the Group s statement of financial position under current liabilities. On March 19th 2018, Amon Sp. z o.o. and Talia Sp. z o.o. applied for a waiver of the lender s right to demand top-up of the Debt Servicing Reserve, which had been partly used by the companies to make principal and interest payments due on September 30th 2017 and December 31st The waiver was granted to the companies by the financing banks. In accordance with the prudence concept, the credit facility contracted to finance the projects was recognised entirely in the Group s statement of financial position under current liabilities. The Group assumes that negotiations being held with the financing banks will lead to reprofiling of the project debt and that the credit facility agreements will be amended within the coming months. 28