q4 & 2018 financial and operating results - raport pge 2018 · • systematic increase of the...

Q4 & 2018 Financial and Operating Results

March 12, 2019

Agenda

2

Ryszard Wasiłek – Vice-President of the Board, COO

• Summary

• PGE in transition

• Investment pipeline

Emil Wojtowicz – Vice-President of the Board, CFO

• Situation on the electricity market

• Financial results

• Operational results

• Outlook for 2019

Ryszard Wasiłek

Key takeaways

Vice-president of the Board for Operations

3

• EBITDA: PLN 6.4bn (-17%)

• Recurring EBITDA: PLN 6.7bn (+3%)

• Net profit: PLN 1.5bn (-42%)

2018 in a nutshell 4

• Net generation: 65.9 TWh (+16%)

• Distribution: 36.4 TWh (+3%)

• Sales to end-users: 42.57 TWh (+5%)

• Sales of heat: 49.7 PJ (+100%)

Operations Financial results

• Record production of electricity, which strengthens the position of the leader in the electricity generation market

• Systematic increase of the distributed volume of electricity

• Maintaining leader position in the retail market

• Creation of the district heating segment - a ramp-up in the production and sale of heat

PGE as the leader of the Polish power sector

0.88 0.85 0.78

Energy transformation leader

PGE in transition 5

Windfarms ~100 MW

(0.0)

Bełchatów PP 370 MW

(1.2)

Rybnik PP 450 MW

(1.0

Czechnica CHPP CCGT

~170 MW (0.2)

Dolna Odra PP 454 MW

(1.0)

Dolna Odra PP CCGTs

~1400 MW (0.3)

End of capacity market support for existing coal – portfolio review

Opole PP 1800 MW

(0.7) Turów PP ~500 MW

(0.9)

PVs ~100 MW

(0.0)

Offshore Wind Farm ~1000 MW

(0.0)

PGE net emission

rate

Key

commissionings*

Key

decommisionings*

Offshore Wind Farms ~1500 MW

(0.0)

*Generation unit Electric capacity

(Net emission rate tCO2/MWh)

Rybnik PP CCGT

~700 MW (0.3)

6 Strategic projects of the Group – Opole Project

Developments:

Unit 5

• in November 2018 beginning of hot start-up run • first synchronisation with the national power system in January 2019 – generation of first electricity volumes • beginning of the regulatory movement - tests at various loads of the unit

• in February 2019 unit for the first time worked with the capacity of 931 MW (above installed capacity)

Unit 6

• final assembly works are under-way and the commissioning of block devices have begun • electrical systems are bein gprepared to apply voltage from KSE to power output transformers from the unit

Achievable capacity: 2 x 900 MWe

Efficiency: 45.5%

Fuel: hard coal

Emissions: 0.742 tonnes CO2/MWh

CAPEX: PLN 9.2 bn out of PLN 11 bn

Work progress: ca. 96%

Expected date of completion:

Unit 5 - June 15, 2019

Unit 6 - September 30, 2019 Opole II project – construction of units totaling 1 800 MW

7 Strategic projects of the Group – Turów Project

Developments:

• Successful boiler pressure test

• Positive result of pressure test allows to move from assembly work phase to the phase of start-up run

• Start-up run in the area of accompanying tasks

Achievable capacity: 490 MWe

Efficiency: 43.1%

Fuel: lignite

Emissions: 0.914 tonnes CO2/MWh

CAPEX: PLN 2.6 bn out of PLN 4 bn

Progress of works on construction site:

ca. 84%

Expected date of completion:

HI 2020 Turów project – constructio0n of unit of 490 MW

PGE aspiration

Offshore wind farms 8

• Baltica 3 area – connection agreement of 1 045 MW

• Baltica 2 area – technical conditions for connection of 1 498 MW

• Potential participation of partners in project

• Baltica 1 area

• Potential other projects 1 – 2 GW

2.5 GW <2030

>2030

First offshore wind farm schedule

Q3 2019 Environmental decision for wind farm

Q3 2019 Closing of the sale of the 50% stake

Q3 2022 Construction permit

Q3 2022 Process of choosing the suppliers to be launched

Q3 2023 Final Investment Decision

Q2 2025 Applying voltage

Q2 2026 Commercial Operation Date

Technical assumptions (Baltica 2 i Baltica 3)

• Total capacity: 2.5 GW

• Turbine type: 10 MW (base scenario), up to 13 MW

• Distance to shore: ca. 35 km

• Depth: 23-50 m

Regional impulse for development

CCGT units in Dolna Odra Power Plant 9

Project schedule*

Jan 2019 Units declared in general certification for capacity market 2024 delivery

Q2 2019 Process of choosing the General Contractor to be launched

Dec 2019 Capacity market auction

Dec 2019 Final Investment Decision

Q4 2019/ Q1 2020

Choice of the General Contractor

Q4 2023 Commissioning

Technical assumptions

• CCGT units of H/J class

• Total net capacity: 1 400 MW (2x 700 MW)

• Net efficiency: ca. 61%

• CO2 net emission: ca. 0.3 tCO2/MWh

• Gas fuel secured thanks to proximity of the LNG terminal and the Baltic Pipe route (scheduled commissioning in Q4 2022)

• Expected revenues from the capacity market (potentially 17 years) as a guarantee of return on investment

• Flexible system balancing – the only power plant in north-western Poland, the main area of wind farm development

1.4 GW

*Project schedule depends on the date of the gas connection

Waste-to-Energy CHPP

CZECHNICA

CHPP

KLASTER ONSHORE

WIND FARM

OFFSHORE WIND FARM

Summary of investments in 2018 10

50% 50%

Modernisation and maintenance New projects

Conventional Generation – new projects

Conventional Generation – modernisation, maintenance and oth.

Conventional Generation - acquired assets

Renewables Distribution Supply and oth

TOTAL CAPEX

PLN 6.9 bn (+2% y/y)

PLN 1 853 m

PLN 103 m

PLN 178 m

PLN 2 009 m

PLN 2 353 m

Investments in Distribution and generationg capacities of Conventional Generation and Renewables

PLN 533 m

• Conventional Generation – domination of Opole and Turów projects

• Renewables – majority of capital expenditures on modernisations in pumped-storage power plants and small hydro plants

• Distribution – ca. 70% of CAPEX on low and medium voltage grid and new off-takers connections

33%

29%

8%

1%

26%

3%

1 944

2 419

280

7 009

15-year 5-year 7-year 1-year

11 652 MW

100%

PGE contracts 1-year

6 850 MW

100%

1-year

7 397 MW

Guarantor of transformation and energy security

Results of the capacity auctions 11

-

500

1 000

1 500

2 000

2 500

3 000

2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Estimated PGE revenues (indexed**)

1-year

7-year

5-year

15-year

PLNm

*Net achievable capacity **Estimated revenues based on auction clearing price. Capacity obligation price for multiyear agreements will be adjusted annually with the annual average consumer price index (assumed 2.5% from year 2022).

2021 2022 2023

Clearing price (PLN/kW/year)

240.32 198.00 202.99

Volume contracted (MW) 22 427 10 580 10 631

Multiyear contracts (MW) 12 459 125 853

ELO-5 ~850 MW* ELO-6 ~850 MW* ELT-7 ~450 MW*

Availability ratio

91.54%

X

2023 auction

2022 auction

2021 auction

Emil Wojtowicz

Detailed financial and operating results

Vice-President of the Board, CFO

12

150

170

190

210

230

250

270

290

Jan

-17

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-1

7

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar

-19

12 000

12 500

13 000

13 500

14 000

14 500

15 000

15 500

16 000

16 500

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Total generation

Domesticelectricityconsumption

• Consumption growth y/y +1.7% (FY)

• Generation fall y/y -0.4% (FY)

• Significant growth of import surplus: -5.72 TWh (2018) vs. -2.29 (2017) (physical flows)

• Rise of prices continues in Q4 – quarterly averages: • Q1 PLN 186/MWh • Q2 PLN 206/MWh • Q3 PLN 258/MWh • Q4 PLN 281/MWh

• Downward trend in 2019 – price of 2020 delivery ~PLN 264/MWh

• Average realised price of the PGE Conventional Generation in 2018: PLN 176/MWh

Price stabilisation

Electricity market 13

GWh

BASE Forward next year

Domestic consumption and generation

PLN/MWh

264

Source: TGE

Source: PSE

243

168

TWh

Generation volume by type of fuel – FY 2018 y/y 14

44% -11% -21% -17% -3%

16% 0% 67% 16%

Lignite: longer overhaul in Turów Power Plant, counterbalanced with increased load factors of both plants Hard coal: full consolidation of Rybnik Power Plant (full 2018 vs. 47 days in 2017) ∆ +4.55 TWh and full consolidation of acquired CHPs (Kraków, Gdańsk, Gdynia, Wrocław, Czechnica) ∆ +2.81 TWh

Natural gas: full consolidation of acquired CHPs (Toruń, Zielona Góra, Zawidawie) ∆ +1.46 TWh Wind: worsened weather condition Water: adverse hydrologic conditions Pumped-storage: lower demand from TSO

In 2018 first 0.01 TWh was generated from municipal wastes (not presented on the graph because of the scale)

65.91

38.98

20.66

6.27

56.79

39.05

12.35 5.39

TOTAL lignite hard coal other

2018

2017

4.12

0.39 0.37

1.06

0.32

2.87

0.44 0.47

1.28

0.33

natural gas pumped storage hydro wind biomass

TWh

Generation volume by type of fuel – Q4 2018 y/y 15

6% -33% -64% -26% 56%

10% 4% 30% -6%

Lignite: increased load factors of both plants

Hard coal: full consolidation of Rybnik Power Plant (∆ +0.64 TWh and full consolidation* of acquired CHPs (Kraków, Gdańsk, Gdynia, Wrocław, Czechnica) ∆ +0.43 TWh

Natural gas: full consolidation of acquired CHPs (Toruń, Zielona Góra, Zawidawie) ∆ +0.21 TWh

Wind: worsened weather condition

Biomass: increasing prices of green certificates and classification of biomass as non-emissive technology (in period of expensive CO2 allowances) – favorably impacted economics of this fuel.

* full consolidation – acquired assets are consolidated since November 14, 2017 – hence its impact was partially visible in basis period results – the above comment marked Δ is for incremental y/y addition.

In Q4 2018 first 0.01 TWh was generated from municipal wastes (not presented on the graph because of the scale)

1.25

0.12 0.05

0.32

0.14

1.18

0.18 0.14

0.43

0.09

natural gas pumped storage hydro wind biomass

16.82

9.60

5.33

1.89

15.33

9.22

4.09

2.02

TOTAL lignite hard coal other

Q4 2018

Q4 2017

Key financial data Consolidated [PLN m] Q4 2018 Q4 2017 y/y 2018 2017 y/y

EBITDA 1 223 1 542 -21% 6 364 7 650 -17%

Recurring EBITDA 1 461 1 651 -12% 6 701 6 479 3%

EBIT 108 -263 n/a 2 471 3 552 -30%

Recurring EBIT 546 816 -33% 3 210 3 430 -6%

Net profit to equity -199 -360 n/a 1 498 2 600 -42%

Net profit to equity – ex. Impairment -37 426 n/a 1 824 3 450 -47%

Earnings per share -0.11 -0.19 n/a 0.80 1.39 -42%

Earnings per share – ex. Impairment -0.02 0.23 n/a 0.98 1.85 -47%

16

[PLN m] 31.12.2018 30.09.2018 ∆ q/q 31.12.2018 31.12.2017 ∆ YTD

Net debt 9 600 9 622 -22 9 600 7 579 2 021

Reported EBITDA – full year: negative dynamics because of high base (LTC final settlement of PLN 1.2 bn reported in 2017). Reclamation provision higher by c. PLN 100m y/y.

Recurring EBITDA – full year: consolidation of acquired assets added ∆ PLN +629m, on the other hand, Supply segment results under pressure of spot markets (segment’s result even without creating provision guided by IAS 37 would worsen by ∆ PLN -287m y/y)

Recurring EBITDA – Q4: Supply segment under pressure of spot markets. Accounting method resulting in uneven allocation of margin between quarters – this effect was deeper y/y because of increased volatility of EUA.

Reported EBIT – Q4: fixed assets impairments lower y/y

Precise identification method for cost of CO2*

17 Accounting method and profitability

• Realized average sale price of electricity, based mainly on 1-Y forward, exhibits relative inertia (i.e. is stable between quarters of particular year)

• Realized cost of CO2 exhibited greater dynamics than realized price of electricity. This had adverse impact on generation margins reported in following quarters of 2018.

• In 2019 weighted average method will be used for cost of CO2

*More in appendix – pg. 25

164 164 165

167

172 173

179 181

159

168

22

18 18

23

19 18

27

37

10

15

20

25

30

35

40

45

50

55

60

140

145

150

155

160

165

170

175

180

185

190

Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

CO

2:

PLN

/t

Ele

ctri

city

pri

ce:

PLN

/MW

h

PGE realized energy price [PLN/MWh]

Average BASE Y+1 forward traded on previous year

realized CO2 cost per unit [PLN/t]

479 413 436 451

356 293

464

666

Q1'18 Q2'18 Q3'18 Q4'18

weighted average method reported increase of provision

Illustrative – how the choice of accounting method influenced EBITDA in 2018 [PLN m]

123 120 -28 -215

*precise identification of allowances purchased for sake of particular year, while within the year itself allowances were recognized in P&L in order of purchase

1 171

785

45

268

192

34

0

389

51

185

30

142

97

59

134

629

337

2017 EBITDA REPORTED

One-offs

2017 EBITDA RECURRING*

Wholesale price of electricity

Volume of electricity

Electricity trading

Hard coal with transport

Natural gas

Biomass

CO2 cost

Regulatory services

Margin on retail market

RES support**

Return on distribution***

Capitalised cost of lignite extraction

Personnel cost

Other

Acqired assets (incremental)****

2018 EBITDA RECURRING*

One-offs

2018 EBITDA REPORTED

Development of EBITDA by major value drivers 18

* Recurring = excluding significant one-off items ** Constitutes of green and blue certificates *** Including network losses

**** Incremental y/y. Assets acquired from 14.11.2017 and their impact was partially enclosed in base period result (PLN 193m).

Total acquired assets EBITDA in 2018: PLN 822m (recurring), PLN 692m (reported)

PLN m

7 650

6 479

6 701

6 364

• Better utilisation of lignite power plants despite higher overhaul burden

• Better utilisation of Opole and Rybnik power plants

• Reduced utilisation of CHP plants as an effect of relatively lower temperatures in the year

Higher utilisation of key assets

Generation assets - conventional 19

* Excluding units no. 1-2 in Dolna Odra (Interventional Cold Reserve) and unit no. 1 in Bełchatów and units no. 1-2 in Rybnik (working as a peak units)

2017 pro forma including availability and capacity factors of new generation assets acquired

86.9% 82.9% 81.0% 84.8% 80.6% 75.9% 75.3% 75.5%

47.4% 52.0%

45.1% 42.8%

2017 2018 2017 2018 2017 2018

Lignite* Hard coal CHP Plants

Availability Capacity Factor

85.6% 82.6% 87.1% 84.8% 84.8% 81.1% 70.7% 74.0%

45.9% 50.7% 54.0% 51.8%

Q4 2017 Q4 2018 Q4 2017 Q4 2018 Q4 2017 Q4 2018

Lignite* Hard coal CHP Plants

• Higher load factors of Bełchatów and Turów power plants

• Better utilisation of Opole power plant despite lower availability

• Reduced utilisation of CHP plants as an effect of warmer quarter

• Lower windiness in year

• Definitely weaker wind for the quarter (base October and December close to long-term peaks)

• Comparable levels of availability y/y

Lower windiness

Generation assets – wind farms 20

97.1% 97.1%

38.2% 29.1%

Q4 2017 Q4 2018

Wind Farms

97.4% 97.4%

29.0% 23.7%

2017 2018

Wind Farms

Availability Capacity Factor

5.77

5.37

5.15

5.00

5.20

5.40

5.60

5.80

6.00

Oct

-16

Dec

-16

Mar

-17

Jun

-17

Au

g-1

7

No

v-1

7

Jan

-18

Ap

r-1

8

Jul-

18

Sep

-18

Dec

-18

Network losses [%] (last twelve months)

31.78 32.54

33.38

34.32

35.34

36.41

2013 2014 2015 2016 2017 2018

Volume of electricity distribution (TWh)

85 79

404

174

2017 2018

0.45 0.44

4.83 3.31

2017 2018

• Consistent rise in volume distributed outperforming rise of the domestic demand for electricity

• Successive reduction of network losses

• Yearly SAIDI realisation below regulator’s limit

• Yearly SAIFI realisation exceeded regulator’s limit

• Further improvement in connection time

Efficiency, quality, growth

Distribution assets 21

215 211

2017 2018

-2% -29%

SAIDI* (min.) SAIFI* (pcs.) Connection time (days)

+3%

-11%

*SAIDI and SAIFI under the ERO methodology are excluding low-voltage

-48%

planned

unplanned unplanned

planned

Outlook 2019 vs 2018

Key factors

Conventional

Generation Growth

• Average wholesale realised price at PLN 240-244 /MWh

• Planned lower lignite-fired generation volumes mainly due to heavier overhaul schedule in Bełchatów – BAT/BREF retrofits

• Total cost of coal up by ca. 20%

• Increase in the total cost of emission allowances due to the dynamic growth of its prices. Allocation of free CO2 allowances at the level of ca. 9m tonnes vs ca. 12m tonnes in 2018

District Heating* Decline

• Increased prices of hard coal and emission allowances not fully transferred in heat tariffs due to tariffs’ characteristics and formula

• Lower level of support for existing cogeneration assets

Renewables Stable • Production volume dependent on weather conditions

• Higher average annual energy prices

Supply Decline • We expect full compensations resulting from so called electricity prices bill

• Market trends maintained

Distribution Decline

• Tariff for 2019 not approved yet. Expected Regulatory Assets Base (RAB) at ca. PLN 16.7 billion in tariff for 2019, additionally ca. PLN 132 million for advanced metering infrastructure (AMI)

• WACC for 2019 expected at the level comparable to 2018. WACC for 2018 at 6.015% (pre-tax)

Reported EBITDA: outlook for 2019 22

* As of Q1 2019 district heating will be reported in a separate business line

Additional information

23

160 163 165 175 186 206

258 281

Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

164 164 165 167

172 173

179 181

Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

182 169

190 204

224 253

298 289

Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

8.9 9.1 9.3 9.5 10.5 10.8 11.3 11.2

Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

5.2 4.8 5.9

7.4

9.8

14.5

18.9 19.8

Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

155 148 163 165

184 210

252 245

Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

24

3%

49% 61%

EUR/t PLN/GJ PLN/MWh

167% 8%

18%

42%

Power market driven by cost increase Hard coal (Polish Steam Coal Index PSCMI1)

Base_Y_18/19 (forward, next year)

PGE average wholesale price of electricity (Conventional Generation)

Base (spot)

Peak (spot)

Source: Bloomberg

Source: TGE, fixing

Source: ARP

Average quarterly TGE Electricity Prices 2017-2018 (in PLN/MWh)

EUR/t

Source: TGE, fixing Source: TGE

*average price based on sales volumes adjusted for wholesale market purchases. Assets acquired on November 14, 2017 are not included in statistics

CO2 allowance (EUA_DEC18)

Case for switching to weighted average cost of CO2 in 2019

Market data vs. realized price 25

164 164 165 167 172 173

179 181

22 18 18 23 19 18 27

37

159 168

243

25 25 20 24 22 20 25 31

41

62

81 85

Q1'17Q2'17Q3'17Q4'17Q1'18Q2'18Q3'18Q4'18Q1'19Q2'19Q3'19Q4'19

PGE average realized energy sales price, adjusted for repurchases[PLN/MWh]

realized CO2 cost per unit [PLN/t] - dilluted with free allowances

Annual average price of BASE Y+1 forward traded a year before(estimator of revenues)

averge EUA allowance price traded at ICE [converted to PLN/t withquarterly averge Fx.] - moved right by 4Q

2017-2018: chronologic method 2019: weighted avg.

BASE Y+1 forward contracts (red line) is rational estimator of realized price (grey bars). Volatility of CO2 prices on ICE (orange line) is sound estimator of realized CO2 cost reported in the following year (navy bars). Orange line on the graph is shifted right by 4Q (relative to date it was traded). Red line is shifted by 1 year (presented according to delivery date). Record high prices of CO2 seen in 2018 are yet to enter P&L statement of 2019. The unprecedented increase of EUA prices seen in 2018 is an argument for replacing current method of precise identification with an average costs method, effective 2019, to stabilize margins among quarters (white bars – without impact of free allocation or spot markets) *Above estimators are not perfect because of spot market distortions and free allowances. Graph is illustrative only.

Consolidated [IFRS, PLN m] Q4 2018 Q4 2017 y/y 2018 2017 y/y

Sales 6 984 6 407 9% 25 946 23 100 12%

including LTC compensations* -38 4 n/a -120 1 215 a

Recurring Sales 7 022 6 403 10% 26 066 21 885 19%

EBITDA 1 223 1 542 -21% 6 364 7 650 -17%

Recurring EBITDA** 1 461 1 651 -12% 6 701 6 479 3%

EBIT 108 -263 -141% 2 471 3 552 -30%

Recurring EBIT** 546 816 -33% 3 210 3 430 -6%

Net profit (loss) to equity -199 -360 n/a 1 498 2 600 -42%

Net profit (to equity) – ex. impairments** -37 426 -109% 1 824 3 450 -47%

CAPEX (including adjustments) 3 097 2 558 21% 6 856 6 751 2%

Net cash from operating activities 2 434 2 689 -9% 5 102 7 934 -36%

Net cash from investing activities -2 126 -5 805 n/a -6 465 -7 775 n/a

EBITDA margin 18% 24% -6 p.p. 25% 33% -8 p.p.

Recurring EBITDA margin 21% 26% -5 p.p. 26% 30% -4 p.p.

Net Working Capital (core ”NWC”)*** 4 343 3 399

Net Debt/LTM EBITDA 1.51 0.99

Key financial data 26

*without court verdicts, **one-off items are summarised at the next page, ***Core NWC = inventory + trading receivables – trading payables (distinguish from NWC stated as Current assets minus short term liabilities)

One-off items 27

TFA and IA – tangible fixed assets and intangible fixed assets

Computation of recurring EBITDA and recurring EBIT

[PLN m] Q4 2018 Q4 2017 2018 2017

LTC adjustment (including court verdicts) -38 4 -120 1 284

Change of reclamation privision -129 -42 -146 -42

Change of actuarial provision -71 -71 -71 -71

One-off items – EBITDA level -238 -109 -337 1 171

Impairments of TFA and IA* (pre-tax) -200 -970 -402 -1 049

One-off items – EBIT level -438 -1 079 -739 122

Computation of net profit ex. impairments:

Impairments of TFA and IA* (after-tax) -162 -786 -326 -850

Recurring* Q4 2018 EBITDA – composition and development 28

Conventional Generation

Renewables Supply Distribution Other EBITDA

Q4 2018 764 109 71 611 -94 1 461

Share in Q4 2018 EBITDA (%) 52% 7% 5% 42% -6%

Q4 2017 772 125 198 559 -3 1 651

Change (PLN m) -8 -16 -127 52 -91 -190

Change (%) -1% -13% -64% 9% - -12%

Fall as a result of higher CO2 cost burdening the last quarter (CO2 in FIFO method while average price in year for contracted electricity). Meanwhile, relativelty lower contribution of the assets acquired – consolidated in half Q4 2017.

Decrease resulting from higher base (higher revenues from accrued penalties and damages) and lower revenues from ancillary services. Effect of higher prices of electricity and green certificates overbalancing the effect of lower generation volumes in wind and water.

Higher cost of property rights due to higher prices of green certificates and rising obligation. Effect deepened by increased balancing cost related to delivery to final off-takers.

Effect of rise in volume of electricity distribution.

* Recurring = excluding significant one-off items (for details see page 27)

764

1 461

109 71

611

-94

Recurring* 2018 EBITDA – composition and development 29

Conventional Generation

Renewables Supply Distribution Other EBITDA

2018 3 229 463 530 2 503 -24 6 701

Share in 2018 EBITDA (%) 48% 7% 8% 37% 0%

2017 2 893 364 812 2 366 44 6 479

Change (PLN m) 336 99 -282 137 -68 222

Change (%) 12% 27% -35% 6% - 3%

Rise as a result of the additional EBITDA from acquired assets and higher price of electricity. Higher utilisation of hard coal power plants implying higher fuel cost

Rise in EBITDA triggered mainly by higher prices of electricity and green certificates overbalancing the effect of lower generation volumes in wind and water. Simultaneously, lower costs – property tax.

Rapid rise of electricity prices on spot market increased balancing cost related to delivery to final off-takers negatively affecting the margin. Simultaneously, higher cost of green certificates in Q4.

Effect of rise in volume of electricity distribution.

* Recurring = excluding significant one-off items (for details see page 27)

3 229

6 701

463 530

2 503

-24

Capital expenditures 30

*PGE Energia Ciepła S.A., PGE Toruń S.A., PGE Gaz Toruń sp. z o.o., EC Zielona Góra S.A., Kogeneracja S.A.

Segment (PLN m) Q4 2018 Q4 2017 y/y 2018 2017 y/y

Conventional Generation 2 280 1 858 23% 4 895 4 899 0%

Acquired assets* 283 168 68% 533 168 217%

Distribution, incl.: 784 656 20% 1 853 1 716 8%

New clients connection 194 145 34% 564 504 12%

Distribution grid 326 298 9% 812 691 18%

Renewables, incl.: 39 32 22% 103 81 27%

Modernisation and replacement 31 24 29% 78 53 47%

Supply and operations 55 46 20% 178 140 27%

TOTAL 3 158 2 592 22% 7 029 6 836 3%

TOTAL (incl. adjustments) 3 097 2 558 21% 6 856 6 751 2%

Net electricity generation by sources, sales and distribution

[TWh] Q4 2018 Q4 2017 y/y 2018 2017 y/y

Lignite-fired power plants 9.58 9.19 4% 38.90 38.95 0%

Hard coal-fired power plants 4.09 3.28 25% 16.61 11.11 50%

Coal-fired CHPs 1.34 0.87 54% 4.29 1.47 192%

Gas-fired CHPs 1.25 1.18 6% 4.12 2.87 44%

Biomass-fired CHPs 0.06 0.06 0% 0.16 0.20 -20%

Waste-to-energy CHPs 0.01 0.00 n/a 0.01 0.00 n/a

Pumped-storage 0.12 0.18 -33% 0.39 0.44 -11%

Hydro 0.05 0.14 -64% 0.37 0.47 -21%

Wind 0.32 0.43 -26% 1.06 1.28 -17%

TOTAL 16.82 15.33 10% 65.91 56.79 16%

Renewable generation 0.51 0.66 -23% 1.75 2.08 -16%

incl. biomass co-combustion 0.08 0.03 167% 0.16 0.13 23%

Sales to final off-takers 11.06 10.70 3% 42.57 40.43 5%

Distribution 9.33 9.14 2% 36.41 35.34 3%

Sales of heat [PJ] 17.27 12.91 34% 49.66 24.85 100%

Key operating data 31

Conventional Generation (including Acquired Assets*)

[PLN m] Q4 2018 Q4 2017 y/y 2018 2017 y/y

Sales, including 4 582 3 677 25% 16 644 13 075 27%

Sale of electricity 3 648 2 825 29% 13 638 9 955 37%

LTC compensations -38 5 n/a -120 1216 n/a

Sale of heat 653 481 36% 2 010 975 106%

Sale of certificates of origin 170 179 -5% 439 343 28%

Cost by kind, including 4 204 4 013 5% 14 628 11 361 29%

D&A 733 1 198 -39% 2 463 2 454 0%

Materials 1 359 1 028 32% 4 626 2 856 62%

Energy 1 4 -75% 11 12 -8%

External services 476 398 20% 1 628 1 189 37%

Taxes and charges 863 558 55% 2 676 1 919 39%

Personnel expenses 722 759 -5% 3 043 2 763 10%

Other cost 49 66 -26% 181 167 8%

Cost of products sold 3 537 3 407 4% 12 258 9 468 29%

Cost of goods sold 4 339 3 818 14% 14 746 10 439 41%

EBIT -145 -479 n/a 564 1 754 -68%

EBITDA 572 698 -18% 2 938 4 099 -28%

Segmental revenues and costs 32

*FY 2018 segmental results include companies: PGE Energia Ciepła S.A., PGE Toruń S.A., PGE Gaz Toruń sp. z o.o., EC Zielona Góra S.A., Kogeneracja S.A.

Renewables

[PLN m] Q4 2018 Q4 2017 y/y 2018 2017 y/y

Sales, including 221 194 14% 839 724 16%

Sale of electricity 135 138 -2% 452 410 10%

Sale of certificates of origin 36 -6 n/a 134 63 113%

Regulatory System Services 48 60 -20% 246 244 1%

Cost by kind, including 185 326 -43% 669 817 -18%

D&A 67 201 -67% 258 399 -35%

Materials 2 2 0% 6 5 20%

Energy 43 43 0% 148 116 28%

External services 28 31 -10% 95 111 -14%

Taxes and charges 18 25 -28% 65 97 -33%

Personnel expenses 23 21 10% 84 76 11%

Other cost 3 3 0% 12 12 0%

Cost of products sold 162 301 -46% 593 734 -19%

Cost of goods sold 168 302 -44% 602 738 -18%

EBIT 42 -76 n/a 205 -36 n/a

EBITDA 109 125 -13% 463 364 27%


Distribution

[PLN m] Q4 2018 Q4 2017 y/y 2018 2017 y/y

Sales, including 1 526 1 665 -8% 5 878 6 392 -8%

Revenues from distribution services* 1 449 1 586 -9% 5 590 6 100 -8%

Other revenues from core activities 50 52 -6% 183 188 -3%

Cost by kind, including 1 298 1 468 -12% 4 703 5 328 -12%

D&A 311 300 4% 1189 1170 2%

Materials 18 19 -5% 64 67 -4%

Energy 151 162 -7% 426 450 -5%

External services* 380 549 -31% 1444 2103 -31%

Taxes and charges 106 100 6% 431 404 7%

Personnel expenses 327 333 -2% 1133 1117 1%

Other cost 4 4 0% 15 16 -6%

Cost of products sold 1 235 1 363 -9% 4 411 4 974 -11%

Cost of goods sold 1 235 1 363 -9% 4 411 4 974 -11%

EBIT 261 227 15% 1 277 1 166 10%

EBITDA 570 526 9% 2 463 2 333 6%


*Revenues from distribution services decreased due to changes of IFRS: transition fee which is collected by Distribution System Operator and subsequently passed to Transmission System Operator has been excluded from revenues. According to IFRS 15 the fee should not be treated as revenue. The cost of external services has been adjusted for the same amount.

Supply (incl. PGE Paliwa) [PLN m] Q4 2018 Q4 2017 y/y 2018 2017 y/y

Sales, including 4 163 4 422 -6% 14 377 15 662 -8%

Sale of electricity 2 680 2 576 4% 10 146 9 654 5%

Revenues from distribution services* 13 1 056 -99% 48 4 102 -99%

Sale of CO2 allowances 858 23 3630% 1 217 284 329%

Sale of natural gas 106 223 -52% 533 634 -16%

Sale of other fuels** 334 379 -12% 1 795 379 374%

Cost by kind, including 471 378 25% 1 598 1 377 16%

D&A 6 7 -14% 25 27 -7%

Materials 1 2 -50% 5 5 0%

Energy 1 1 0% 3 3 0%

External services 85 74 15% 326 223 46%

Taxes and charges 251 185 36% 818 753 9%

Personnel expenses 95 80 16% 321 286 12%

Other cost 32 29 10% 100 81 23%

Cost of products sold 39 35 11% 180 129 40%

Cost of goods sold*** 3 645 3 863 -6% 12 415 13 582 -9%

EBIT -202 190 n/a 238 784 -70%

EBITDA -196 197 n/a 263 811 -68%


*Revenues from sale of distribution services decreased due to changes of IFRS. According to IFRS 15 revenues and cost of goods sold (COGS) were reduced by the fees charged by Supply segment and passed to Distribution System Operator. ** In FY 2018 includes PGE Paliwa Sp. z.o.o. *** COGS includes changes resulting from IFRS 15 and the acquisition of PGE Paliwa sp. z o.o.

Conventional Generation – EBITDA in Q4 2018 36

*EBITDA of companies: PGE Energia Ciepła S.A., PGE Toruń S.A., PGE Gaz Toruń sp. z o.o., EC Zielona Góra S.A., Kogeneracja S.A.

400

500

600

700

800

900

1 000

1 100

1 200

EBITDA Q4 2017

Electricity production difference in volume

Electricity production difference

in price

Result on the optimization

of the electricity

trade

Revenues from agreement with TSO

Costs of fuel

CO2 costs

Cost of materials and repair

services

Other Capitalized

costs EBITDA

Acquired assets* EBITDA Q4 2018

Change 77 244 -121 -19 -88 -234 14 43 26 49

EBITDA reported Q4 2017

698

One-offs Q4 2017 -74

Recurring EBITDA Q4 2017

772 2 096 59 77 563 327 205 280 181

Recurring EBITDA Q4 2018

2 417 -62 58 651 561 191 306 230 763

One-offs Q4 2018 -191

EBITDA reported Q4 2018

572

Conventional Generation – EBITDA in 2018 37

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

EBITDA 2017

Electricity production

difference in volume

Electricity production

difference in price

Result on the optimization

of the electricity

trade

Revenues from agreement with TSO

Costs of fuel

CO2 costs

Cost of materials and repair

services

Other Capitalized

costs EBITDA

Acquired assets* EBITDA

2018

Change 730 106 -268 -53 -230 -389 -66 -183 100 589

EBITDA reported 2017

4 099

One-offs 2017 1 206

Recurring EBITDA 2017

2 893 8 514 243 289 1 950 1 171 600 896 181


9 350 -25 236 2 180 1 560 666 996 770 3 229

One-offs 2018 -291


2 938

*EBITDA of companies: PGE Energia Ciepła S.A., PGE Toruń S.A., PGE Gaz Toruń sp. z o.o., EC Zielona Góra S.A., Kogeneracja S.A.

Renewables – EBITDA in Q4 2018 38

* Excluding revenues and costs relating to balancing market not affecting EBITDA result

80

100

120

140

160

180

EBITDA

Q4 2017

Revenues from electricity

- wind

Revenues from property rights

- wind

Revenues from

electricity - water


- water

Revenues from agreement with

TSO* Costs Other

EBITDA Q4 2018

Change -1 43 -10 1 -12 2 -39

EBITDA Q4 2017

125 72 -9 24 2 60 83

EBITDA Q4 2018

71 34 14 3 48 81 109

Renewables – EBITDA in 2018 39

* Excluding revenues and costs relating to balancing market not affecting EBITDA result

EBITDA

2017

Revenues from electricity

- wind


- wind

Revenues from

electricity - water


- water

Revenues from agreement with

TSO* Costs Other

EBITDA 2018

Change -8 67 2 5 2 35 -4

EBITDA 2017 364 214 58 83 4 244 305

EBITDA 2018 206 125 85 9 246 270 463

300

320

340

360

380

400

420

440

460

480

500

Distribution – EBITDA in Q4 2018 40

400

450

500

550

600

EBITDA

Q4 2017

Volume of distributed

energy

Change of distribution

tariff*

Other revenues of distribution

tariff**

Network losses***

Property tax

Personnel costs

Other EBITDA

Q4 2018

Change 22 3 2 11 -4 6 5

EBITDA Q4 2017

526 1 087 47 155 91 333

EBITDA Q4 2018

1 112 49 144 95 327 571

* Except costs of transmission by PSE S.A. ** Reactive power, excess capacity, additional services *** Adjusted for revenues from the Balancing Market

Distribution – EBITDA in 2018 41

2 000

2 100

2 200

2 300

2 400

2 500

EBITDA

2017 Volume of

distributed energy

Change of distribution

tariff*

Other revenues of distribution tariff**

Network losses***

Property tax

Personnel costs

Other EBITDA

2018

Change 125 -8 16 25 -17 -16 5

EBITDA 2017 2 333 4 137 179 428 366 1 117

EBITDA 2018 4 254 195 403 383 1 133 2 463

* Except costs of transmission by PSE S.A. ** Reactive power, excess capacity, additional services *** Adjusted for revenues from the Balancing Market

Supply – EBITDA in Q4 2018 42

EBITDA

Q4 2017 Result on

electricity margin Result on electricity

volume Property right

redemption costs Result on

gas

Services for other segments

in GK PGE Other

EBITDA Q2 2018

Change -16 -14 -65 -7 22 -52

EBITDA Q2 2017

197 385 183 2 143

Recurring EBITDA Q4’18

355 248 -5 165 65

One-offs Q4 2018

-261

EBITDA Q2 2018

-196

-250

-200

-150

-100

-50

0

50

100

150

200

250

Supply – EBITDA in 2018 43

EBITDA

2017 Result on electricity

margin Result on electricity

volume Property right

redemption costs

Result on gas

tradeing

Services for other segments

in GK PGE Other

EBITDA 2018

Change -183 -2 -64 -21 36 -53


811 1 479 744 16 554


1 294 808 -5 590 524

One-offs 2018 -261


263

0

100

200

300

400

500

600

700

800

900

Debt development and structure (as at Dec. 31, 2018) 44

Fixed vs floating rates (drawn debt)

Currency profile of drawn debt

(including hedging transactions)

EUR PLN USD

Gross debt and net debt (in PLN million)

10 708

9 600

-4 000

-2 000

0

2 000

4 000

6 000

8 000

10 000

12 000

Gross debt Net debt

Debt maturity and available financing 45

Debt maturity profile (PLN m) as at December 31, 2018

Drawn debt and availability of external financing (in PLN m) as at December 31, 2018.

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

Environmental funds& BOŚ

NIB EBRD EIB Current accountcredit

Domestic bonds'program

EMTN program Syndicated loan New syndicated loan BGK

Drawn Undrawn

PGE cash position provides… 46

Financial strength has been confirmed by rating agencies

… plenty

of headroom

in the balance sheet

2018 Q3 2018

Gross Debt (PLN m) 10 708 10 902

Net debt (PLN m) 9 600 9 628

Net Debt/LTM EBITDA 1.51x 1.44x

Net Debt/Equity 0.20x 0.20x

MOODY’S FITCH

Long-term company rating (IDR) Baa1 BBB+

Rating outlook Stable Stable

Date of rating assignment September 2, 2009 September 2, 2009

Date of the latest rating confirmation November 7, 2018 February 15, 2019

Senior unsecured rating BBB+

Date of the latest rating change August 4, 2011

Date of the latest rating confirmation October 24, 2017

Long-term national rating AA (pol)

Date of rating assignment August 10, 2012

Date of latest rating change August 3, 2016

Illustrative

Q4 2018 Output and sales of electricity 47

Households**

Business customers***

16.33 TWh

14.58 TWh (Q4 2017)

7.00 TWh

4.95 TWh (Q4 2017) 24%

76%

* Sales of PGE Group after intragroup exemptions ** Concerns Tariff Group G *** Concerns Tariff Group A, B, C+R

Source: PGE; some business flows incl. Balancing market, international trade, purchases from power exchange and own consumption are not shown

2.60 TWh

2.40 TWh (Q4 2017)

8.46 TWh

8.30 TWh (Q4 2017)

Volume to cover network losses

Renewables segment

Conventional Generation segment

Power Exchange

0.49 TWh

0.76 TWh (Q4 2017)

Supply

11.06 TWh*

10.70 TWh (Q4 2017)

Distribution

Illustrative

2018 Output and sales of electricity 48

Households**

Business customers***

64.09 TWh

54.60 TWh (2018)

26.61 TWh

14.66 TWh (2018) 23%

77%

* Sales of PGE Group after intragroup exemptions ** Concerns Tariff Group G *** Concerns Tariff Group A, B, C+R

Source: PGE; some business flows incl. Balancing market, international trade, purchases from power exchange and own consumption are not shown

9.77 TWh

9.28 TWh (2018)

32.80 TWh

31.15 TWh (2018)

Volume to cover network losses

Renewables segment

Conventional Generation segment

Power Exchange

1.82 TWh

2.20 TWh (2018)

Supply

42.57 TWh*

40.43 TWh (2018)

Distribution

49

Consolidated Cash Flows [PLN m] Q4 2018 Q4 2017 2018 2017 Operating CF 2 434 2 689 5 102 7 934 Investing CF -2 126 -5 805 -6 465 -7 775 Financial CF -354 66 91 -274 Change of cash and equivalents -46 -3 050 -1 272 -115

Consolidated Balance Sheet

[PLN m] Q4 2018

EOP Q4 2018

BOP ∆ Q4 2018

2018 EOP

2018 BOP

∆ 2018

Cash and equivalents 1 281 1 326 -45 1 281 2 552 -1 271

Short term deposits 7 8 -1 7 6 1

Restricted cash (adjustment) -180 -54 -126 -180 -92 -88

Disposable cash of PGE Group 1 108 1 280 -172 1 108 2 466 -1 358

Short term financial debt -4 461 -4 569 108 -4 461 -1 623 -2 838

Long term financial debt -6 247 -6 333 86 -6 247 -8 422 2 175

Total financial debt (gross) -10 708 -10 902 194 -10 708 -10 045 -663

Net debt* -9 600 -9 622 22 -9 600 -7 579 -2 021

Cash from operations, investments and net debt

*Liabilities above are presented as negative figures for sake of arithmetic link to cash flows

CO2 allowances – regulations and settlement Regulations in the III Settlement Period As of 2013 only carbon allowances for heat production are received free of charge. Carbon allowances for electricity production are granted free of charge conditionally on investments realized that were included in the National Investment Plan.

Accounting standard All allowances received free of charge are recognized at its nominal value – zero. Provision for allowances required for redemption is raised respectively to its actual short age in a given period. Cost incurred is visible in taxes and charges P&L line.

2018 allowances settlement In Q4’18 (FY 2018) PGE’s installations emitted 17.80m tonnes of CO2 (70.19m tonnes CO2). Consequently cost related to CO2 emissions in Q4’18 (FY 2018) amounted to ca. PLN 666m (PLN 1,779m).

In April 2018, entities of PGE Capital Group received free of charge emission allowances amounting to ca. 15m tonnes regarding electricity generated in FY17. In addition ca. 2m tonnes regarding heat generation of FY18 was granted in February of the current year.

In April 2018, PGE completed the settlement of FY17 period (i.e. PGE redeemed EUA equal to FY17 emission).

Free EUA recognized at a zero value (Cons. FS, note 15)

EUA Quantity

(m) Value

(PLN m) As at Jan. 1, 2017 85 2 349

Acquisition of subsidiary - 2 Purchased* 12 247 Free allocation 21 - Redeemed -56 -1 156 As at Dec 31, 2017 62 1 442 Purchased* 39 1714 Free allocation 17 -

Redeemed -70 -1 311 Sold -11 -234 As at December 31, 2018 37 1 611

50

Provision for purchase of CO2 (Cons. FS, note 20) , PLN m

As at Jan. 1, 2018 1 453

Redeemed -1 311

Provisions released in FY 2018 -29

Provided in FY 2018 1 808

As at December 31, 2018 1 921

Impact on P&L (PLN m) – illustrative only

FY 2018

Costs by kind 20 608

Taxes and charges 4 001

*Spot market purchase only. PGE Group hedges CO2 costs also with forward contracts that are not included at the above balance.

Sell-side analysts covering PGE 51

Institution Analysts

BOŚ Jakub Viscardi

Citigroup Piotr Dzięciołowski

Erste Group Tomasz Duda

Exane BNP Paribas Michael Harleaux

IPOPEMA Robert Maj

JP Morgan Michał Kuzawiński

mBank Kamil Kliszcz

Pekao Maksymilian Piotrowski

PKO BP Stanisław Ozga

Raiffeisen Centrobank Teresa Schinwald

Santander Brokerage Poland Paweł Puchalski

Societe Generale Bartłomiej Kubicki

Wood & Company Ondrej Slama

Disclaimer 52

This presentation has been prepared by the management of PGE Polska Grupa Energetyczna S.A. (the “Company” or “PGE”) and other entities. This presentation does not constitute or form part of and should not be constructed as, an offer to sell, or the solicitation or invitation of any offer to buy or subscribe for, securities of Company, any of its subsidiaries in any jurisdiction. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investments decision whatsoever. We operate in an industry for which it is difficult to obtain precise industry and market information. Market data and certain economics and industry data and forecasts used, and statements made herein regarding our position in the industry were estimated or derived based upon assumptions we deem reasonable and from our own research, surveys or studies conducted at our request for us by third parties or derived from publicly available sources, industry or general publications such as newspapers. This presentation and any materials distributed in connection with this presentation are not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction. This presentation includes “forward-looking statements”. These statements contain the words “anticipate”, “believe”, “intend”, “estimate”, “expect” and words of similar meaning. All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding the Company’s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Company’s products and services) are forward-looking statements.

Investor Relations contacts

53

Jakub Frejlich Tel: (+48 22) 340 10 32

[email protected] Mob: +48 695 883 902

Krzysztof Dragan Tel: (+48 22) 340 15 13


Filip Osadczuk Tel: (+48 22) 340 12 24


Małgorzata Babska Tel: (+48 22) 340 13 36

[email protected] Mob: + 48 661 778 955

Bernard Gaworczyk Tel: (+48 22) 340 12 69


mailto:[email protected]




























q4 & 2018 financial and operating results - raport pge 2018 · • systematic increase of the...

Documents