ZSE Group Investor presentation September 2018
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Content 1. Slovakia country overview 2. ZSE at a glance 3. Distribution business 4. Sales business 5. Key highlights A Apendix 3
Slovakia country overview
Slovakia: solid and growing economy Real GDP Growth (%)* Credit Rating Agency Rating Outlook S&P A+ Stable Moody s A2 Positive Fitch A+ Stable PO ZA TN BB KE BA TT NR Bratislava 5 *Source: Actuals Eurostat; Forecast 2018 - European Commission Spring & Summer forecasts
Slovakia: national debt Public debt over GDP (%)* Capital: Type of government: Membership in: Currency: Area: Population: Time zone: Bratislava Parliamentary system EU, Schengen Area, OECD, WTO, NATO EURO 49,035 km2 5.4 million GMT + 1 hour Proven positive trend in public debt over GDP since 2014, while future decline also forecast for following years 6 *Source: Actuals Eurostat; Forecast 2018 - European Commission Spring 2018 forecast
Slovakia: power market overview Power Market Overview Power Distribution (2017) Regulatory Authority RONI (Independent authority) Generation Partly regulated SE (33% Enel, 33 % EPH, 34% State), Others Transmission Regulated SEPS (100% State owned) 28% of connection points 26% of connection points Distribution Regulated ZSE, SSE, VSE, other local DSOs with marginal impact. 46% of connection points Supply Partly regulated ZSE SSE VSE ZSE, VSE, SSE, others ZSE is the largest electricity Distribution System Operator (DSO) in Slovakia ZSE is a natural monopoly in its respective territory with over 95 years of history 7
Slovakia: growth in electricity consumption Development of electricity consumption (in TWh)* Electricity consumption growth* & GDP growth** Electricity consumption growth rate GDP growth rate Economic growth driving the increase in electricity consumption in Slovakia *Source: Ministry of Economy **Source: Actuals Eurostat; Forecast 2018 - European Commission Spring 2018 forecast 8
ZSE at a glance
ZSE shareholder structure Slovak Republic E.ON Legend: Ownership % 51% Holding 49% Západoslovenská energetika, a.s. 100% 100% various DSO Západoslovenská distribučná, a.s. 2017 EBITDA: 175m (88% of total) Supply business ZSE Energia, a.s. 2017 EBITDA: 14m (7% of total) Other companies (100%) ZSE Business Services, ZSE Development, ZSE Elektrárne, ZSE Energy Solutions, ZSE MVE Minority Interests: Energotel, SPX Strong shareholder structure Majority-owned by the Slovak government Strong shareholder structure 10 DSO Distribution System Operator
Corporate Governance at ZSE Group General Meeting (GM) Appointment and recall of 6 members of the Supervisory Board and all members of the Board of Directors in accordance with shareholders agreement and Articles of Association Representatives 51% Ministry of Economy of Slovak Republic 49% E.ON Supervisory Board Approves Strategy and Investment Plan as well as any Other Material Items 9 members 6 appointed by GM including Chair 3 representatives of employees Board of Directors Decides on all operational businesses 5 members All appointed by GM Including Chair 11
Stable earnings secured by regulated cashflows Distribution Business ZSE 2017 EBITDA 200m Large and stable customer base of 1.1 million connection points Monopolistic market position is regulated All entities connected to distribution network are subject to regulation Regulatory mechanism - price CAP regulation Supply Business Supply of power and gas to households is fully regulated Supply to small SMEs (power < 30MWh p.a. & gas < 100 MWh p.a. ) subject to regulation Key take-away Almost fully regulated earnings 94% of EBITDA regulated 12
Distribution business
Largest electricity distribution system operator Key Company Drivers Supportive & Successful Regulation Management Predictable, transparent and consistent regulation, with active dialogue and cooperation with the Regulator Stable development of distribution margin over years 1 2 Strong Asset Base Strong position of asset management contributing to the favorable results in quality standards CAPEX at depreciation level Future CAPEX reflecting natural growth of new business and expansion of the grid 3 Stable EBITDA and Predictable Cash Flow Stable EBITDA development driven by regulation Favorable Geography Western part of Slovakia is highly developed Lowest impact from RES support due to lower RES generation volumes 7 Strong Operations Management Quality Standards ZSE quality standards results proving grid sustainability 4 Continual effort in reduction of cost basis 6 Lowest Distribution Prices Lowest distribution prices in Slovakia Prices are comparable with regional distribution businesses in neighbouring countries Positive development over years 5 14
Distribution regulatory mechanism Key Features Adequate Profit Calculation 5-year term Current 5-year regulation period started in 2017 stable & predictable regulation RAB Regulation Assets Base WACC Profit price CAP mechanism Allowed Revenue Calculation Regulatory Period Profit D&A Opex 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Depreciation & Amortization Previous regulatory period Current regulatory period Expected next regulatory period Allowed revenue 15
Distribution business Growth Orientation Organic growth, positive economic development of distribution region and growth in distributed volume Distributed Volume (TWh) Increasing distributed volume and stability in regulation both contribute to growing business Increase in distributed volume over 10% in last 4 years EBITDA Development (m ) Operates in most-developed Western part of Slovakia with customer bases over 1.1m delivery points Stable and growing EBITDA driven by regulation 16
Distribution business Asset Driven Business Renewal of distribution network in line with stable grid needs to ensure distribution service at required level Investments strategy constantly reduces network losses and increases the quality and reliability of the grid Focus on development and maintenance of the grid to ensure fulfillment of the quality standards required by Regulator CAPEX in line with D&A, while projected CAPEX for following years reflecting significant growth driven mainly by new connections Network Length Development (000 km) Stable annual development of the network Assets Age Development (years) Constant investment cycle with renewal of grid assets 17
Sales business
Supply business Key Topics Key Figures Power & Gas Business Supply Volumes (TWh) Power Supply Volume Gas Supply Volume Total Supply Volume 1/3 regulated EBITDA Largest electricity supplier ( 1/3 of market share) Low power churn rate in mass segment (2-3%) ZSE has become 3 rd biggest gas supplier to households in Slovakia, with market share over 8% Market Position in Power Supply 2017* 7.7 8.2 8.3 Power volume decrease compensated by gas supply increase EBITDA Development (m ) 9.0 #1 Average EBITDA of 15m in last four years 19 *Based on volume supplied derived from Annual report 2017 of Regulatory Office for Network Industries
ZSE group key highlights
ZSE key highlights Overview 1 State owned company with investment grade-rated shareholders 2 94% of earnings regulated and low-risk 3 Strong and stable financials with solid earnings 4 Growing business with positive outlook 5 Refinanced 315 m bond in Q1 / 2018 21 *Stand-Alone Credit Profile S&P rating metric
Appendix
IFRS figures Consolidated figures from Financial Statments Balanc Sheet items m 2016 2017 Current Assets 193 214 Non-Current Assets 771 808 Total Assets 964 1 022 Equity 3 50 Current Liabilities 208 519 Non-current Liabilities 753 452 Total Liabilities 961 972 Total Equities and Liabilities 964 1 022 Profit & Loss items m 2016 2017 Revenue 1 001 1 065 EBITDA 194 200 EBIT 146 151 Income 1 027 1 090 Expenses (905) (960) EBT 122 130 Income tax expense (23) (32) Net profit 99 98 23
Contact For more information, please contact: Juraj Bayer, Head of Finance Západoslovenská energetika, a. s. Čulenova 6 SK-816 47 Bratislava T +421-(0)2-50 61 21 56 juraj.bayer@zse.sk Or refer to website: http://www.skupinazse.sk/en/investors/overview 24