POLENERGIA 1Q 2018 Results 16 th of May 2018
1Q 2018 Highlights 1 Market environment Parliament is working on the draft amendment to the Renewable Energy Act. On May 8 an extraordinary subcommittee of the Energy and Treasury Committee adopted the draft and sent it to the Energy and Treasury Committee. The project assumes auctions for new wind farms (more than 1GW) and confirms the amount of RET at the level before the Wind Farms Investment Act. Possible adoption by the end of June. The key players' activities indicate that the chances of implementing offshore wind farm projects are growing. Orlen - tender proceedings for a project to build offshore wind farms. PGE intensification of works on offshore projects. The President of the Energy Regulatory Office approved the power market regulations. Auctions are planned for 4Q 2018. PSE publicly confirms the possibility of connecting next offshore wind farms - a possibility to implement the project Bałtyk I. The price of CO2 emission allowances has exceeded 14 EUR (an increase of about 62% between XII 2017 and III 2018). Green certificates and electricity prices PLN/MWh Cena GC price ZC [lewa] [left] 80 Cena Electricity EE (IRDN24) price (IRDN24) [prawa] [right] 34,6 63,0 70 xx The average price of GC in the quarter - weighted by transaction volume 60 50 40 30 20 01/2017 04/2017 07/2017 10/2017 01/2018 04/2018 PLN/MWh 380 330 280 230 180 130 80 Stock performance of Polenergia S.A. PLN/share 20 18 16 14 12 Transaction Wolumen w tys. volume [prawa] [right] Share Cena akcji price [lewa] [left] xx Share price at the end of the quarter 15,8 10 0 01/2017 04/2017 07/2017 10/2017 01/2018 04/2018 16,9 thousands of shares 250 200 150 100 50 2 Group activities Signing a preliminary agreement with Statoil (currently Equinor) for sale of 50% stake in Offshore (Polenergia Bałtyk II i Polenergia Bałtyk III). As a result of the fulfillment of key suspensive conditions, the Group plans to sign the agreement on May 22, 2018. Bringing a lawsuit against Tauron Polska Energia S.A. due to the break of long-term energy sales and property rights contracts concluded by a subsidiary of Tauron with WF Amon and WF Talia. The total amount of the dispute is 343 mpln. Signing an agreement with Vestas regarding settlements related to a turbine failure on the project. A one-off positive impact of the agreement in the amount of approx. 2.9 mpln will be recognized in 2Q2018. Claim brought by Eolos Polska Sp. z o.o. against subsidiaries of Polenergia S.A. (Polenergia Obrót S.A. and Certyfikaty Sp. z.o.o.) for alleged non-performance of contracts. The Group believes that the claim is completely unfounded. VISIBLE SYMPTOMS OF IMPROVEMENT IN THE REGULATORY ENVIRONMENT AND FURTHER DEVELOPMENT OF THE GROUP 2
Summary of key operational parameters 1 WF production (net) and LF % 2 Average cost per MW* [kpln] YTD 3 Wind power segment Average revenues per MWh at the Group level [PLN/MWh] 175 33% -4% 169 31% -1% 249 247 74 73 176 174 Electricity** -11% 158,4 140,2 Not taking into account the effect of revaluation of the inventory (PLN -3,6m) 28,6 Green certificates +82% 52,0 Not taking into account the effect of revaluation of the inventory (PLN +0,6m) YTD Load Produktywność factor (%) (%) YTD Production Produkcja (GWh) 2017 2018 PON RET costskoszty * Annualized costs for the period Sale of a significant part of the WF production volume for 2018 has been secured at prices: electricity (148 PLN/MWh), green certificates (48 PLN/MWh) **Net price including balancing and profile costs 4 Distribution segment sales [GWh] 5 Biomass segment production [thousand tons] 6 Conventional energy segment sales [GWh] and average prices [PLN/MWh] 38 +11% 42 73 +4% 76 4,2-10% 3,8 12,9-5% 12,2 197 +4% 205 167 +1% 169 47 +2% 48 159 +8% 171 39 +6% 41 119-6% 112 Sprzedaż energii Wolumen Electricity sales Electricity distribution elektrycznej (GWh) dystrybucji (GWh) volume EE (GWh) (GWh) North Północ plant East Wschód plant Sprzedaż Electricity energii sales elektycznej (GWh) (GWh) Heat Sprzedaż sales ciepła (TJ) (TJ) Cogeneration Certyfikaty certificates kogeneracyjne (GWh) (GWh) Śr. cena Average energii electricity (PLN/MWh) price (PLN/MWh) Average Śr. ciepła heat (PLN/GJ) price (PLN/GJ) Average Śr. cena price of cogeneration certyfikatów certificates kogen. INCREASE IN GREEN CERTIFICATES PRICES AND STABLE OPERATIONAL PERFORMANCE IN THE KEY SEGMENTS 3
1Q 2018 Financial Highlights Comments Revenues (excluding Trading segment) 137,3 +4% 142,7 Higher revenues by 5,3m due to higher revenues of the Conventional energy and Wind power segments. (normalized) 42,5-8% 38,9 lower by 3,6m mainly due to the lower margin on electricity trading in the Trading segment, partially offset by higher result in the Wind power segment -14% Net Profit (normalized) 2,9 2,5 Net profit lower by 0,4m mainly due to the lower operating result. Cash flow -33,9 36% -21,7 Improvement in cash flows results from higher operating cash flows (changes in working capital), partially offset by higher debt service cash flows (timing difference). HIGHER REVENUES AND LOWER MAINLY DUE TO NEGATIVE VALUATION OF ELECTRICITY TRADING CONTRACTS 4
by operating segments vs. Comments 42,5 2,7 (1,8) (0,6) (0,6) (1,9) (0,7) (0,6) 38,9 Wind power: effect of higher green certificates prices and lower operating costs, partially offset by lower production Conventional energy: impact of higher gas and EUA prices; lower forecasted amount of gas compensation Energetyka Energetyka Dystrybucja Biomasa Obrót Niealokowane Development Wind Convent. Distribution Biomass Trading Unallocated Development Wiatrowa Konwencjonalna power energy costs Distribution: impact of lower connection fees and a lower margin on distribution as a result of timing difference in the tariff update Biomass: impact of the lower volume and pellet sales prices; higher raw material prices Trading: impact of the negative valuation of contracts in the trading portfolio, which was partially offset by the higher result on the wind farm portfolio Unallocated costs: impact of settling the costs of the shared services center (lower share of costs subject to allocation) and additional settlements resulting from tax and other public liabilities Development: impact of the lower capitalization of costs related to projects at an early stage of development IMPROVEMEMENT IN WIND POWER SEGMENT OFFSET BY LOWER IN OTHER SEGMENTS MAINLY THE EFFECT OF CONTRACT VALUATION IN TRADING SEGMENT 5
Consolidated cash flow 1 Conversion of into Net cash flow 39 7 (6) Comments WC Credit prepayment CFI (45) (22) (66) CFF 4 (22) NCF WC: mainly changes in working capital in the Trading segment and Conventional energy segment. CFI: capital expenditures mainly in the Distribution segment (implementation of the development plan from 2016) and expenditure on the development of offshore wind farm projects. CFF: mainly debt service in the Wind power segment and Conventional energy segment. Includes loan prepayment in the amount of 22 mpln. 2 Cash flow 25 3 (20) 1 6 (22) Improvement in cash flows results from higher operating cash flow (positive change in working capital in the Trading segment), which were partially offset by higher debt service (timing difference in the Wind power segment). (34) (4) NCF WC CFI CFF CIT NCF IMPROVEMENT IN NET CASH FLOW AS A RESULT OF HIGHER OPERATING CASH FLOWS 6
Debt structure as of 31 March 2018 The structure of debt by segments The structure of debt by currency (EUR vs. PLN) 4% 1% 4% Energetyka Wind power Wiatrowa Biomasa Biomass 2,3% Debt in EUR Dystrybucja Distribution Energetyka Conventional Konwencjonalna energy 91% 97,7% Debt in PLN 969 mpln 969 mpln The structure of debt by collateral Net debt (4Q2017 vs. ) Dług Debt zabezpieczony secured with IRS IRS wyrażony w PLN 16,8% 6% (706) (681) 83,2% 969 mpln Dług Unsecured niezabezpieczony debt wyrażony w PLN 4Q2017 NO CURRENCY RISK. INTEREST RATE RISK SECURED IN ABOUT 20%. CONTINUATION OF NEGOTIATIONS ON DEBT REPROFILING IN WIND FARMS 7
Summary of segment results 8
Operating segments Wind power - production Production (net), YTD for and YTD Produktywność Load factor (%) (%) YTD Produckcja Production (GWh) 40,0 37,2 34,0 30,3 38,7 42,5 175,2-4% 168,5 11,1 8,9 23,0% 18,5% 20,1 27,0% 19,9 26,8% 13,2 25,1% 13,5 25,7% 37,9% 35,2% 18,1 32,6% 16,1 29,1% 35,5% 31,7% 37,0% 40,6% 32,6% 31,4% 2017 2018 2017 2018 2017 2018 2017 2018 2017 Dipol Amon Talia Gawłowice Rajgród Skurpie Mycielin Total Productivity of Polenergia wind farms above average* 36,8% 33,4% 26,1% 24,8% 23,3% 22,9% 40,7% 37,0% 35,0% 30,6% 22,2% 19,9% 19,2% 17,3% 2018 34,4% 2017 2018 2017 2018 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 2Q2017 3Q2017 4Q2017 38,9% 32,6% 29,3% 30,9% 27,0% 25,3% 21,7% 45,4% 39,1% 2017 2018 31,4% 27,4% Średnia Average produktywność load factor of farm wind wiatrowych farms in Poland w Polsce Średnia Average produktywność load factor of farm Polenergia wiatrowych wind Polenergii farms * Based on net productivity (after own consumption and losses) due to the availability of data APPLICATION OF MODERN TECHNOLOGIES, VERY GOOD LOCATIONS AND THE EXPERIENCED TECHNICAL TEAM ALLOW FOR ACHIEVING PRODUCTIVITY ABOVE MARKET AVERAGE 9
Operating segments Wind power 1 build-up Comments 27,8 Electricity Energia elektryczna 9,3 Zielone Green certificates certyfikaty (2,9) Balancing Koszt bilansowania costs (12,2) Operating Koszty operacyjne costs 1,1 23,2 Lower production volume by 6,7 GWh in as compared to. Higher average price of green certificates (in case of projects selling GC on market prices). Operating costs lower as compared to mainly as a result of lower technical service costs (replacing of gearbox in WF Puck in 2017) partially offset by higher RET in WF Rajgród (correction of tax declaration in December 2017). 2 bridge 20,5 (1,4) 3,7 (0,9) 1,2 0,2 23,2 +13% Volume Efekt wolumenowy effect Price Efekt cenowy effect Balancing Koszt bilansowania costs Operating Koszty operacyjne costs HIGHER GREEN CERTIFICATES PRICES AND LOWER OPERATING COSTS 10
Operating segments Conventional energy 1 build-up Comments 9,7 5,4 0,5 17,1 Lower on electricity results from the increase in gas and EUA prices. Lower gas compensation results from the lower projected value of Wg indicator (the price of domestic gas to the price of imported gas). The actual value of the indicator for 2018 will be announced by the Energy Regulatory Office in July 2019. 0,6 0,9 Electricity* Energia elektryczna* Ciepło Heat Kompensata Gas compensation gazowa Yellow Żółte certyfikaty certificates 2 bridge 18,9 (1,1) (0,2) (0,4) (0,2) 0,1 17,1-9% Electricity* Energia Heat Ciepło Kompensata Gas Yellow Żółte elektryczna* compensation gazowa certificates certyfikaty * Includes compensation for stranded costs and revenues from black-start services STABLE OPERATIONAL ACTIVITY. LOWER DUE TO INCREASE IN GAS AND EUA PRICES AND LOWER FORECASTED GAS COMPENSATION 11
Operating segments Distribution 1 build-up Comments (2,4) 4,5 0,1 0,2 3,7 Lower distribution margin mainly caused by lower level of connection fees and a timing difference in the tariff update. 1,3 Sprzedaż Sale of electricity energii Dystrybucja Distribution OPEX Polenergia Kogeneracja 2 bridge 4,3 0,0 (0,4) -15% (0,1) (0,1) 0,0 3,7 Sprzedaż Sale of electricity energii Distribution Dystrybucja OPEX Polenergia Kogeneracja STABLE OPERATIONAL ACTIVITY. LOWER LEVEL OF CONNECTION FEES AND TIMING DIFFERENCE IN THE TARIFF UPDATE 12
Operating segments Biomass 1 build-up Comments 5,1 (2,5) Lower revenues as a consequence of decrease in volumes and pellet sales prices. Higher raw material (straw) costs due to the higher price (invisible directly at the level of operating costs due to the lower volume of pellet production). (2,9) Sales Przychody revenues ze sprzedaży Cost of raw Koszt surowca material Operational and Koszty operacyjne other costs i pozostałe (0,3) 2 bridge 0,3-185% (0,3) (3,7) 2,1 1,0 Przychody ze Sales sprzedaży revenues Koszt Cost surowca of raw material Koszty Operational operacyjne and i other pozostałe costs LOWER VOLUMES AND PELLET SALE PRICES AND HIGHER RAW MATERIAL PRICES 13
Operating segments Trading 1 build-up Comments 1,2 (0,5) 0,8 (2,6) Lower trade margin caused by the negative valuation of contracts in the trading portfolio resulting from high price volatility in. An increase in the margin on the wind farms portfolio as a result of the increase in green certificates prices. Increased margin on other contracts due to ongoing optimization. Operating costs at a stable level. Margin Marża - portfel trading tradingowy portfolio Marża Margin portfel wind FW farm portfolio Marża Margin pozostałe other contracts kontrakty Koszty Operational operacyjne costs and i prowizje provisions (1,2) 2 bridge 0,7-263% (4,9) 0,8 (0,1) (1,2) 2,3 Marża Margin - portfel trading tradingowy portfolio Margin Marża wind farm portfel portfolio FW Margin Marża pozostałe other kontrakty contracts Operational Koszty operacyjne costs and provisions i prowizje IMPROVED MARGIN ON WIND FARM PORTFOLIO AND OTHER CONTRACTS OFFSET BY NEGATIVE VALUATION OF CONTRACTS IN TRADING PORTFOLIO 14
Development activity Onshore RTB (Dębsk, Szymankowo, Kostomłoty, Piekło): Preparation to participate in the auction in 2018 in progress; New decisions on admission to the auction have been obtained (projects: Szymankowo, Dębsk, Kostomłoty); Discussions on potential funding conditions have started. Offshore: Two suspensive conditions for the share purchase agreement have been fulfilled: the increase in the share capital of companies was registered and the Office of Competition and Consumer Protection consent for the transaction was obtained. Thus, all suspensive conditions of an external nature have been met; Wind measurement and acquiring of environmental decision for the connection cable is in progress. Wińsko: Preparation works to participate in auction with a project of a capacity of 31MW in progress; New connection conditions have been obtained, the connection agreement has been agreed and signed; An application for prequalification for the auction has been submitted; The procedure of obtaining an Integrated Permit is in progress; The offers for the delivery of the main components of the power plant are being updated. PV: Preparation works to participate in the auction with projects of a total capacity of 40MW in progress; Land rights and some of the required permits / documents were obtained; The first project will be ready to participate in the auction at the end of 2018. OBTAINING A STRATEGIC PARTNER FOR THE IMPLEMENTATION OF THE OFFSHORE WIND FARM PROJECT. PREPARATIONS FOR THE AUCTION FOR ONSHORE WIND FARMS (185 MW), PV (40 MW) AND BIOMASS (31MW) 15