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Edited Transcript of ENG.WA earnings conference call or presentation 14-Mar-19 9:00am GMT

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Update time : 2019-07-18 14:17:51

Full Year 2018 Energa SA wage Presentation

Gdansk Mar 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Energa SA wage meeting summon or presentation Thursday, March 14, 2019 at 9:00:00am GMT

TEXT translation of Transcript

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Corporate Participants

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* Aleksander Korsak

Energa SA - head of IR

* Jacek Koscielniak

Energa SA - VP of economical Matters & Member of Management Board

* Marek Kasicki

Energa SA - VP, Management Board & economical Director

* Mariusz Wojciech Gajda

Energa SA - VP, Energa Wytwarzanie

* Piotr Dorawa

Energa SA - principal of the Board, Energa-Operator

* Roman Staskiewicz

Energa SA - principal of Energa Obrót

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Conference summon Participants

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* Pawel Puchalski

Santander Brokerage Poland, investigation piece - head of Equity investigation Team

* Robert Maj

IPOPEMA Securities S.A., investigation piece - Analyst

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Presentation

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Aleksander Korsak, Energa SA - head of IR [1]

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Good morning, ladies and gentlemen. Aleksander Korsak, Director during Investment Relations at Energa Group. I used to alike ought greet analysts, investors here at the exchange of -- Warsaw Stock Exchange also during our viewers online. Today, we used to alike ought gift Q4 results and results during 2018.

The presentation will be held by Vice principal during Financials at Energa, Jacek Koscielniak. principal will be also supported by Vice principal of Energa Wytwarzanie, Mariusz Gajda; principal of Energa-Operator, Piotr Dorawa; also during principal of Energa Obrot, Roman Staskiewicz. We will eat a Q&A assembly accurate backward the conference.

Those of you who receive isolate at the meeting online, you can send your questions throughout the conference. We will trial ought reply them afterward on.

President, the floor is yours.

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Jacek Koscielniak, Energa SA - VP of economical Matters & Member of Management Board [2]

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Thank you. Good morning, ladies and gentlemen. I'm extremely fortunate ought be capable ought satisfy you at person today here at this equal spot at the Warsaw Exchange. And ladies and gentlemen, we used to alike ought number up 2018, nevertheless during at the same time, we used to alike ought award you some announcements during 2019. And these will be, well, no often equal joyful topics. Still, we study that the year 2018 belongs ought the history. Our economical performance, we believe, is fairly firm and fairly robust.

We worked, during you can -- interest appear us the first slide. We worked at fairly difficult conditions out above the impartial although the prices of difficult coal also during of green certificates and emission allowances and place energy prices went up fairly abruptly. Moreover, cooperating with the auditor examining our economical statements which were published, I think, today at 7:00 at the morning, we eat been obliged together with MSR 37 ought depart up with a technical keep amounting ought PLN 136 million, including estimated impress of the deed of the 28th of December 2018 above amending the estimate of excise tax, also during energy price.

Hadn't it been during the reserve, our EBITDA used to be at row with our communication one estimated during PLN 2,013,000,000. However, including this technical keep that we had ought create, the contemporary EBITDA is PLN 1.887 billion. Hopefully, at Q1 and Q2, we will be capable ought respond this tendency -- contrary this trend.

Apart from this accounting commerce of the reserve, another row of -- another impress was by -- Wytwarzanie by generation. We shout on here poorer results than at foregoing year due ought climate conditions at alike time at 2017. at that time, they were fairly conducive. Also, the Ostroleka electricity mill was no fully available due ought refurbishment, plus we shout on higher revenue of emission allowances. We received smaller amount of 3 allowances plus fuels where the prices of fuels went up, and it full affected the results during 2018.

Also, we shout on poorer results at Sales commerce row year-on-year. This is due ought high prices of energy above the impartial also during some one-off events. Moreover, ladies and gentlemen, we shout on a lessen of EBITDA distribution commerce row although of higher OpEx costs, including easement during transmission tax above authentic assets and employee benefits. The farther isolate of my presentation -- during you know, we are here represented by respective commerce line. We will state you more details about them, respectively, and at the Q&A session, we will be capable ought report and utilize with you above our performance.

Ladies and gentlemen, given these no conducive macroeconomic conditions and backward elimination of one-off events, the arise during 2018 is cottage satisfactory and alike ought foregoing years. during isolate of distribution, the border above sales of distribution services went up by PLN 109 million year-on-year, nevertheless during this arise was limited by increased OpEx, which I mentioned before.

The sales results were beneath the stress of reserves also during higher prices of purchasing energy. And this persist -- this latter condition, apart from signal rights revenue increase, affected above -- per results. The EBITDA of Wytwarzanie generation was also influenced by higher emission allowances. And at -- at the goal of 2017, it was EUR 7.50 per ton and at Q4 2018, about EUR 20 per ton. Also, we shout on lower volume of generation from renewable energy sources.

However, it is worthy noting that lower manufacture from RES stemmed from the ordinary consequence although we saw record manufacture at 2017. And a descend at revenues is due ought also new MSF procedures, MSF 15, international economical reporting standards, due ought netting with the revenue during the transition charge recognized at 2018. And so the revenues are lower by almost PLN 300 million. However, this does no shock EBITDA although the transition charge is no our cause revenue of sales.

In 2018, we connected 4,400 new renewable energy sources with a full energy of 500 -- 50 megawatts, which is a growth during compared ought foregoing year. also SAIDI and SAIFI indicators are successively improved, 151 minutes per consumer and 2.15 outage per consumer above full voltages. This method an significant descend during compared ought foregoing year even without including mass failures. during compared ought foregoing year, these indicators went up by 57% and 29%, respectively.

Also, we connected 56,000 new customers, 4,000 prosumers, which is above 100% more than at foregoing year. Also, we paid during innovation and innovative technologies. We reconstructed 912 kilometers of medium-voltage Cable lines also during Overhead lines with no fully insulated Cables above forestry areas, which is 12% more at yearly perspective. at 2018, the volume of electricity delivered was historically the highest at 22.542 (sic) [22,542] gigawatt-hours. And persist year, Energa saw cheap failure rates of generation sources, up ought 2% during water, 3% during wind and 3% during habitual sources.

As ought the availability estimate of our generation blocks, it was about 86%, lower than at foregoing year. 91% at 2017 was due ought higher amount of refurbishment and investment works, due ought unit 1 refurbishment at Ostroleka. This unit was out of deed during 1 region persist year. during the same reasons, the fever -- hydropower air -- generation at Siarzewo was less available at Q2 and Q3, also during biomass obstruct at Elblag was out of deed at the same period.

Ladies and gentlemen, we are cottage the company with the highest fraction of RES of our cause generation. at 2018, it was 31%. We own developing projects aimed at remaining the company with that high fraction of RES generation. We also eat no changed our spot during ought Siarzewo. This is an investment which has significant social implications concerning anti-flood and environmental. It will be about earth energy generation, which will eat importance during the full system.

Also, the new upgrade is significant with deem ought Wloclawek, where we eat our hydropower station. Energa keeps declaring that we are supporting this scheme technically, although we study it is critical during the full country and the full group. at February this year, Energa Invest submitted a notification above the commencement of plant of construction ought the commonplace contractor during construction of a new wind park with installed capacity of 30 megawatts at municipality of Przykona. And yearly manufacture will be 75 gigawatt-hours of energy.

Apart from that, we are preparing investments at new generation capacities: CHP mill Grudziadz where a gas and steam obstruct will be built with 800-gigawatt capacity; also, a new gas and steam station at Gdansk with capacity about 450 megawatts; also, gas and steam and CHP unit at Elblag, 115 power.

Last year, we signed 31 accommodate agreements, and the full era covered by new backward will receive spot this year. This method that at 2019 and partly at 2020, we will eat insure of the continuous revenue of energy fed ought the grid, about 90% -- constituting 90% of reference price, including inflation rate. at 2019, it is about PLN 503 per megawatt-hour during accommodate and PLN 457 per megawatt-hour during FIP, respectively. This method increased revenue of about 30% while the revenue includes indefinite energy and signal rights.

Ladies and gentlemen, we are talking now about generation, and therefore, I ought also mention finalized scheme of modernization of energy -- hydropower mill at Borowo. The creative unit of 1 megawatt-hour was now enriched by a new high-performance turbine -- water turbine. due ought the modernization, the deed estimate of the new obstruct will be 85% of the full unit. Old wealth was 64%. Planned plant of this mill will intend that manufacture estimate will proceed up by about 20%. at 2018, we will finalize modernization of the persist block, including desulfurization and dedusting tool at Ostroleka and optimization of biomass block, BB 20 at Elblag.

Ladies and gentlemen, next slide, please. New sources during -- of revenue during energy utilities. This is a slide showcasing the conclusions -- our conclusions during the future. due ought the impartial of capacity auctions that was implemented at Poland at 2018, energy utilities garnered new sources of revenues.

Units can insure revenue at even of PLN 1 billion, including Ostroleka where PLN 2.6 billion is envisioned. at 2018, our people took isolate at 3 auctions. Companies concluded agreements -- yearly capacity work during the years 2021, 2022 also during 2023; the full obligation, 311 megawatts. The full revenues provided maybe at even of PLN 280 million. There is another work during 15 years. during the years 2021, 2023, 550 obligation; the revenue envisioned amounting ought PLN 703 million plus Ostroleka's work 15 years, 853 million -- megawatts revenues predict at even of PLN 173 million beginning with 2023.

Operations, ladies and gentlemen. The amount of energy units surpass the even of 3 million. That is growth of 20,000. This is due ought control even of agreements at 2018 at that section. We contracted during the contemporary and the years ought depart 7% and 27% more units than at 2017. while it comes ought our network of representatives, this is enlarged, and this is ought cater during the needs of our customers. so they can also groan agreements beyond the point of sale.

Now the door-to-door system is -- counts 3,000 points. We've got 50 agreements more compared ought persist year. due ought this, our customers can receive favour of abundant contracts that supply them with farther benefits that is helped above the isolate of specialists, experts, cars available ought us, economical services. There's also a broad spectrum of products that are available online.

Furthermore, we broadened alive chat. 3,000 customers benefit from it monthly, and the index is at the even of 70%. 50 -- 15 robots eat been also implemented, and they -- it was conducive ought shortening guest service time by 70%. Plus there is decreasing complaints by above 30%.

Furthermore, there's been the enlarge at sales of indexed offers ought commerce clients. Speaking more specifically, there is -- more than 50% of the volume of commerce offers are indexed. That is ought state this is a scenario at which a passenger obtains energy during a focused (sic) [future] price. And then against recalibrating that copy of cooperation with the clients, we eat become a commerce partner.

Aside from selling energy, gas, fuel, we are hugely supportive of how our clients pertain ought the issues regarding contemporary energy efficiency.

From the point of progposal of commerce clients, we eat prepared a broad repertoire during energy efficiency products. That is ought state audits, enterprises, advisory while it comes ought exterior sources of financing, compensation of passive capacity or PV sets. We are equal contented with how our processes are optimized at condition of guest experience, and it results at shortening time of service, of complaints, plus shortening by 50% the index, which is called NPE (sic) [NPS]. Plus we are creating new contacts -- passenger and channel contacts. That is alive chat, which is recommended by 95% of our clients.

As during Ostroleka C, you know that commonplace assembly of shareholders agreed ought begin plant -- house plant while it comes ought a new energy unit. Energa also are Enea are at talks with PGE concerning latent future mutual endeavors. I need ought state you that this is full going at accordance with the rgeister envisioned.

Now speaking of innovation within the Energa group. Scarce data above this mystery eat been provided. so far, there are some things, I think, that's worthy ought obtain letter of it now. We've continued projects that were started at the foregoing years. The fund during innovation obtained PLN 31 million. PLN 2 million was sent into the channel of R&D.

Furthermore, we adopted strategic agenda during 2019-2028. Strategic R&D agenda is ought be considered a route map. It narrows down the channels of our investigation and innovation ought be taken up at the future. during since other projects, we're at mutual cooperation with abundant investigation institutions, during example, energy association at Gdansk, institute of Warsaw, [Marine University] at Gdansk, institute of technique Warsaw, institute of technique -- and association of flow Machines (sic) [Fluid-Flow machine Institute] of Polish institute of Sciences, technological parks from different cities.

Here, you can shout on a plethora of projects ought depart within this spectrum of innovation that we are intending ought implement. Let's part some. bright grid is a scheme worthy PLN 230 million. It is ought translate into a boosted capacity at condition of steering electro and -- energy grid beneath the conditions of more areas fraction at the energy balance. It is the hugest scheme of this friendly at Poland. It is funded from the EU funds, PLN 166 million. That is 85% of full eligible costs. It is aiming ought modernizing the grid by goodness of installment of far devices, energy storage units and bright metering devices, which is supposed ought translate into shortening the failure times.

Beginning of 2017, Energa has been into the NEDO project, and it is go ought obtain knowledge pertaining ought the use of energy storage potential. This is with goal ought have our energy system at Poland more flexible. The persist scheme is supposed ought be the storage of energy at Bystra energy plant.

It is a component of a larger scheme orchestrated by the Japanese national body.

In 2018, we finished Energa alive Lab project. It was done jointly with Enspirion. It was put ought prove the effectiveness and dissemination of instruments of appeal management at the conditions of a alive lab. 300 households from [Gdynia] are involved. The overall arise was the savings of energy even from [100] ought 4 terawatts per hour and abatement of CO2 emissions by 124 tons.

The solar (sic) [SORAL] system, it is aimed ought supply knowledge and also boosting efficiency of medium-voltage energy plant. The system is ought send information, allowing us ought receive preventive measures, reducing failures, and it is also concept out ought streamline full the other components.

Energa Invest started the PYLON scheme at 2018. Its goal is ought streamline and standardize the process of designing energy lines. Grids. The company implements optimum put of supportive systems during the lines of 110 kV. plant are said ought be fully at keeping with the highest industry standards.

Last year, we concluded the UPGRID project. It was done and funded from the EU funds within Horizon 2020. We managed ought modernize selected grids, LV and MV alike. It was such ought examination out fiction functionalities concerning the overall management of said grids. These auctions are put ought minimize failures and lessen SAIFI also during SAIDI indices plus grid losses. We'll be more appropriate and handy at condition of reducing and eliminating failures and will elevate the overall deed of LV and MV.

LOB, the first scheme at Poland whereby we use the first energy storage at LV at a local balancing area. We wanted here ought heighten the assets of energy provision. The scheme showcased the possibilities at rendering stability at the grid plus maintaining the capacities at households, taking favour of other energy sources, be it, during instance, wind energy plants.

And Energa concluded the implementation of a new structure and making our financing more effective, which shortened the ways ought obtain corporate permissions -- permits by flattening the structure and recalibrating the inside regulations. Now we've gone ought 32 companies instead of 44. Therefore, we were capable ought lessen the operating costs.

The amount of members of the board is lower. There is no doubling of competences by making full the competences more central. We made -- we are making the systems more coherent. It is with the goal ought streamline commerce processes. Software is also beneath research and streamlining. buy processes are also being revisited.

It is full during me. Now depart me hand above ought my colleagues from the board. depart us now argue the key commerce row that is distribution. above ought Piotr Dorawa, principal of this group.

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Piotr Dorawa, Energa SA - principal of the Board, Energa-Operator [3]

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Hello, ladies and gentlemen. Distribution commerce row is characterized by high stability rate. We eat maintained the dominant spot within the chief people at house its result. EBITDA at 2018 was PLN 1.704 million (sic) [PLN 1,704 million] and 1 point -- and a small slice less 20 -- at the foregoing year. The net arise was PLN 674 million (sic) [PLN 647 million] and historically, the highest even of distribution of electricity amounting ought 22.5 terawatt-hours, which impacted EBITDA.

Now let's eat a appear at the components of EBITDA result, and this is presented above this equal slide. You can shout on here higher border above distribution of electric energy, which is due ought higher volume. Also, we observed increased other areas of operating activity, which impress the result, also including OpEx costs, increasing the remuneration of employees, a higher amount of FTEs especially during electricians, fitters and engineers.

There, we decided that we need ought dismiss the capability gap and rejuvenate our fitters. so we summon this program employing new generations who, at the end, will replace those senior cling members who maybe will retire at a sure point. We desire these ought be complemented. Long-term perspective, we used to alike ought own up the program. There are also other elements that impacted the cost, considerable enlarge of revenue of the easement also during the write-offs according ought [MFS 9].

Now reliability indices, SAIDI and SAIFI. I don't desire ought obtain preoccupied with these orange columns showing mass failures although this is something that we can't truly influence. What matters, however, are green bars. And here, you can clearly shout on an improvement both during SAIDI and SAIFI. These results from the tactic that we adopted also during initiatives chiefly aimed at automation of the grid.

Smart grid scheme is one of the elements driving automation. We also own replacing Cables. We convert new -- we replace transformers with new ones. We found new grid parts, which, at the end, translates into the improved results. Also, we are exchanging Overhead lines within other types of lines; during example, above plantation areas. We also tried ought concentrate work at concrete areas so that we don't eat ought eat that many outages and failures or interruptions during that matter. We are also highly specialized while it comes ought plant beneath voltage. This method that these results are no sole evocative of the fact that we eat realized our mission, nevertheless during actually, we did much more than we initially had planned during 2018.

That's it. Thank you.

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Jacek Koscielniak, Energa SA - VP of economical Matters & Member of Management Board [4]

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Thank you, President. depart us affect above ought discussing economical results or the sales.

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Roman Staskiewicz, Energa SA - principal of Energa Obrót [5]

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Thank you, President. Hello, ladies and gentlemen. during you can shout on above the slide, the economical results during sales beneath the proviso that there was high stress of one-off events, which I'm going ought elaborate above at fair a moment, also high prices of purchasing energy.

Now this dotted green row presents results that we used to eat presented hadn't it been during this necessity ought form a reserve, a specific provision, which Koscielniak mentioned before. This provision is treated during a technical reserve, technical, purely accounting exercise. This provision is sole temporary, so during need during we eat -- compensation system is up and running, which will occur at due course.

And recently, the Minister of energy of Poland announced that implementing deed during the deed from 28 December 2018 will be published during early during at March. We desire it will be passed really during directly during feasible although this will intend that we will be capable ought begin paying out compensation and thus, this provision will be released.

Therefore, you shout on this dotted row showing the values that we used to eat presented hadn't it been during the responsibility ought depart up with the provision. so interest wage attention ought the fact that we shout on the sales volume which is fairly stable. It's about 20 terawatt-hours, alike ought foregoing year.

Now ladies and gentlemen, the most significant indicators that drove sales during 2018 are during follows: such events during the provision -- the keep that I already mentioned also during its one-off events. We also perceive one-off events above conducive decisions that were taken by the arbitration gymnasium at cases during the so-called CPI disputes. We summon it scheme 22 although this is the amount of contracts that we eat applied during -- we sued during annulment of their validity.

We persist our legal endeavors that we started at the past, and we've received 3 persist and unappealable decisions by the arbitration court. This accident truly took spot at a alike point of time while the so-called contemporary deed was implemented. That is above 28 of December -- above 27th of December, 3 gymnasium decisions were taken. during a arise of which, Energa has ought wage PLN 26 million. We did that. We paid these fines.

Since these -- even though these are persist gymnasium decisions, we cottage can trial ought beg from them by submitting a request ought the commonplace court. We will trial ought use -- ought habit this option. We submitted our claims, and now we are awaiting the decisions.

As ought 22 project, you also ought know that isolate of these disputes were decided during a settlement, where we made the conditions of cooperation with our counterparties more market-oriented. so this truly has fair result during our business. And then the remaining cases, the trials are ongoing and no decisions eat been taken cottage apart from the one taken by the arbitration court. This is another one-off event.

The third one-off accident which impacted the arise is the liberate during write-off provisions during PLN 44 million. This is an accident from 2017 that resulted from implementation of MSF 9. These were one-off events which considerably influenced our results. There is one more, however, fairly crucial one that we mentioned before, which is increased revenue of energy revenue at place contract, send impartial also during balancing market. Unfortunately, this translated into higher revenue of closing our work positions. Therefore, the expected growth of border above electricity was impaired fairly considerably.

That's it. Thank you.

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Jacek Koscielniak, Energa SA - VP of economical Matters & Member of Management Board [6]

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