PGE Polska Grupa Energetyczna : Group with good financial and operating results in H1 2017

The company's EBITDA in the first half of 2017 reached over PLN 3.4 billion (PLN 3.445 billion) and was 10% higher than in the previous year. EBITDA adjusted for one-off items, which mainly took place last year, was PLN 3.366 billion, i.e. 17% higher than in the preceding year, a figure that shows the scale of the improvement in results. This is the effect of a higher availability of key generation units, higher production volumes and a more cost-competitive structure for lignite-based production.

The conventional energy segment made the largest contribution to PGE Group's EBITDA, bringing in close to PLN 1.612 billion. The distribution segment closed the reporting period with over PLN 1.222 billion in EBITDA. The retail segment generated PLN 422 million and the renewables segment generated PLN 169 million.

'We are continuing to ramp up electricity production just as we did in the first quarter. A 20% increase in production at Bełchatów power plants shows that the modernisation was successful and it emphasises the role that lignite plays in the Polish power system. Keeping with the theme of production efficiency, we are also modernising units 1-3 in Turów. Our thinking is that modern conventional energy minimises its impact on natural environment and at the same time features high production efficiency and availability. PGE wants to be the leader of conventional energy that is perceived this way, and the good financial and operating results in the first half prove that we have taken the right direction and that we are consistently getting closer to our objectives,' said Henryk Baranowski, CEO of PGE Polska Grupa Energetyczna.

Electricity production in the first half of 2017 reached 27.88 TWh, of which 19.98 TWh was lignite-based. This is the effect of a repair schedule that was 8000 hours lighter thanks to the re-start of units at Elektrownia Bełchatów that were being modernised last year. Hard coal-based electricity production reached 5.22 TWh, down 10% y/y due to a repair schedule higher by 3800 hours, largely at Dolna Odra power plant. Wind-based electricity production went up by 19% y/y to 0.62 TWh, which is the result of favourable weather conditions. Gas-fired production also went up in the reporting period, by 11%, to 1.46 TWh. This result was driven by the start-up in January 2017 of a new gas-and-steam unit at Elektrociepłownia Gorzów. Electricity distribution volume reached 17.5 TWh, up by 3.5% from the base period.

For PGE Group, 2017 is a year of consistent development and pursuit of its updated business strategy. On 19 May 2017, PGE signed a conditional agreement to purchase French EDF's assets in Poland for PLN 4.5 billion. The agreement will be finalised once conditions precedent are met. The Group is currently waiting for decisions from the Office of Competition and Consumer Protection (UOKiK) and the Minister of Energy. With the acquisition of eight CHP plants in the largest agglomerations such as the Tri-City area, Wrocław and Kraków, located across five voivodeships, together with the Rybnik power plant in Silesia and close to 400km of district heating network in four cities, PGE Group will reinforce its top position on the power generation market in Poland and will become the largest supplier of district heating.

Searching for new sources of revenue and EBITDA, PGE Group intends to expand its district heating network management business as well as cooperation with local authorities and businesses in carrying out essential modernisations of heating sources up to 50 MW. So far, the Group has identified nearly 200 towns where such cooperation would have strong potential, and has commenced working with the first two municipalities by signing letters of intent.

PGE is also opening up to a more extensive collaboration with startups. Equity investments in startups, in line with a comprehensive strategy for this area, are carried out by specialist fund PGE Ventures, while earliest-stage project incubation and acceleration are the domain of PGE Nowa Energia. PGE will commit at least PLN 25 million per year to support startups, and approximately PLN 400 million to the research, development and innovation area over the next four years (until 2020) - half of which is own funds, while the other half is external financing. Aside from financing startups, these funds will also be invested in, among other things, the development of new technologies, construction of an electromobility ecosystem, development of products, business lines and modern customer services channels as well as the integration of dispersed renewable energy sources.

'We are treating investment in innovative projects very seriously because we are aware of their fundamental meaning for the development of both the energy sector and the entire Polish economy. We are the leader of the power market and soon the heating market as well, therefore it is obvious to us that we should also be the leader in innovations. This way we want to prove that the largest Polish businesses can successfully and effectively operate in this area. We are launching a scouting programme in September and by the end of this year we will sign agreements with startups that will receive funding from PGE Venture's budget for this year,' said Henryk Baranowski.

In the first half of 2017, PGE Group continued to implement its key growth projects. Investment expenditures in this period totalled PLN 2.6 billion, 30% lower than in the previous year, largely due to a decreasing scope of works. Work progress on the construction of two new blocks at Opole power plant, with total capacity of 1800 MW, has surpassed 80%. Work on the assembly of a turboset at unit 5 is being finalised, while unit 6 is being prepared for a leak test for the boiler's pressure system. Technological startup of equipment for the largest task accompanying the investment, a water treatment station, was completed. The station is expected to be commissioned at the end of August.

The construction of a 490-MW unit at Turów is also consistently progressing. The first elements of a turboset were delivered to the site, and overall progress has exceeded 30%. The Group is also continuing work at Rzeszów CHP, where a Thermal Processing with Energy Recovery Installation is being constructed. The project is worth PLN 293 million and will make it possible to produce electricity and heat simultaneously. Currently, work is underway on merging the boiler's pressure section and preparing the boiler for assembly.

The Group is also executing several modernisation projects that will contribute to lowering its units' emissions and extending generation asset lifecycles. Investments in distribution infrastructure also continue. The pilot programme for an intelligent metering system in Łódź and Augustów has entered its final phase, and its positive effects, including the ability to monitor actual energy consumption at home, are already being appreciated by clients.

Commentary on the published results from Henryk Baranowski, CEO of PGE Polska Grupa Energetyczna: https://www.youtube.com/watch?v=VNcy7wm1Lq4