Financial results forecasts
The Management Board of Enea SA did not publish any financial forecasts for 2015.
Principles of preparation of annual consolidated financial statements and basis for publication
This Report of the Management Board on the operations of Enea Capital Group for the financial year of 2015 was prepared in accordance with § 92 item 1(4) and § 92 item 3 in conjunction with § 91 item 5-6 of the Regulation of the Minister of Finance of 19 February 2009 on current and periodic information published by issuers of securities and conditions of recognising as equivalent information required by legal regulations of a state not being a member state (J. L. No. 33, item 259 as amended).
Consolidated financial statements of the Capital Group included in the consolidated report of Enea SA for the financial year of 2015 were prepared in accordance with International Accounting Standards and International Financial Reporting Standards (IAS/IFRS) approved by the European Union.
The consolidated financial statements of the Capital Group were prepared with an assumption of continuing business operations by the Capital Group in the foreseeable future. The Company's Board states, as at the execution of the consolidated report, that there are no facts or circumstances that could indicate any threats to the possibility of continuing the activity during the period of 12 months after the balance sheet date as a result of a wilful or mandatory negligence or substantial limitation of the so far activities.
Financial data presented in the statements, if not stated otherwise, was presented in thousands of PLN.
Used financial instruments
Enea SA has been realising the strategy of hedging the interest rate risk whose key purpose is hedging cash flows resulting from concluded financing agreements. The adopted strategy foresees the threats of impacting the financial result, changes in cash flows resulting from the risk of interest rate versatility on the market in a given time horizon. In 2015, within the concluded agreements on transactions on the financial market the interest rate risk was hedged for the total amount of PLN 2,995,000 thou. Interest rate risk hedging was made based on the Interest Rate Swap (IRS) instruments.
On 14 July 2015, within the adopted strategy Enea Centrum sp. z o.o., on behalf of Enea Wytwarzanie sp. z o.o, concluded interest rate risk hedging transactions, in order to hedge the payment in EUR for the needs of realising the obligations arising from the implemented investment of Baczyna Wind Farm. The volume of active contracts by this title as at 31 December 2015 amounted to EUR 960 thou.
In the reporting period Enea Trading sp. z o.o. Concluded transactions hedging currency risk (forward transactions of EUR acquisition) in order to hedge the payments resulting from the purchase of CO2 emission allowances within futures contracts. In December 2015 the forward contracts for currency risk hedging were settled in relation to futures contracts for CO2 with delivery in December 2015. The volume of active forward contracts for EUR acquisition as at 31 December 2015 amounted to 72,841 thou.
Financial resources management
In January 2014 Enea Capital Group Companies and PKO BP SA and Pekao SA concluded agreements for the comprehensive banking service, including Cash Pooling service. The objective of the aforementioned agreements was provision of an efficient cash management and improvement of the financial liquidity of particular Companies of the Group. A Cash Pooling agreement foresees the consolidation of bank accounts, as a result of which the account balances of Companies belonging to Enea Tax Capital Group are balanced by covering transitory financial deficits with surpluses of cash of other Companies incorporated under Enea TCG.
The current Companies' liquidity management is concentrated on planning the cash flows and monitoring the current concentration of cash resources on bank accounts. The occurring financial surpluses are allocated by Enea SA as the Pool Leader in current assets as fixed-term deposits or are transferred to the investment portfolio managed by Asset Management external entities. In order to standardise the liquidity and liquidity risk management process Enea TCG holds intragroup regulations in force which are biding for the Companies: policy and procedure of liquidity and liquidity risk management At the same time, in order to limit the risk resulting from lack of funds for the settlement of liabilities in a timely fashion Enea Capital Group Companies have an access to intraday limits as part of Cash Pooling services.
The entity authorised to audit financial statements
KPMG Audyt sp. z o.o. sp. k. was selected to perform the financial audit mentioned in the table below. The contract with the above mentioned entity was concluded on 6 May 2015. The information on the net remuneration due to the entity performing the financial revision for Enea SA in 2014-2015 is presented in the table below:
| Data in PLN ‘000 | 2014 1) | 2015 |
|---|---|---|
| The remuneration for auditing and reviewing the non‐consolidated and consolidated financial statements of Enea SA. | 183 | 139 |
| Remuneration for other services | - | 41 |
| TOTAL | 183 | 180 |
Detailed information on the selection of KPMG Audyt sp. z o.o. sp. k. and description of rendered services was published in the current report No. 38/2014 of 18 December 2014.
Rating
Maintaining on 29 October 2015 by Fitch Ratings agency of a long-term rating of Enea SA in national and foreign currency on the level of "BBB" and a long-term national rating on the level of "A(pol)" in relation to LW Bogdanka’s takeover is of a key importance as to the realisation of the investment intentions of the Group.
The outlook of the ratings is stable. Fitch Ratings has been assessing Enea’s credit risk since 2012. On 23 March 2015 EuroRating issued a credit rating on the level of”BBB” for the Company with a stable outlook. The rating mentioned above was awarded by EuroRating on its own initiative, in reply to the information needs of market participants, and the credit risk assessment process was based on the publicly known information. In relation to the takeover of the control over Lubelski Węgiel Bogdanka on 21 October EuroRating agency performed an extraordinary verification of Enea’s credit risk. Enea’s rating was maintained on the same BBB level with a stable outlook.
Court and administrative proceedings
As at the date of publication of this report, no proceedings is underway regarding liabilities or claims, the party to which would be Enea SA or its subsidiary, whose single or total value would amount to 10% or more of Enea SA's equity.
The detailed description of the proceedings is to be found in Note 50 of the consolidated financial statements of Enea CG for 2015.
Anticipated financial position
A large share of the regulated segment of Distribution in Enea CG's EBITDA (in 2015 Distribution accounted for 55% of Enea CG's EBITDA) affects the predictability of cash flows and stabilises them over time. However, two facts are of some importance for this segment: a drop in the average weighted average cost of capital (WACC) by 1.522 p.p. (from 7.197% in 2015 to 5.675% in 2016) and introduction by the Energy Regulatory Office of the so called “quality tariff” since 2016. The introduced mechanism of clearing accounts with distributors of electricity based on SAIDI and SAIFI indices realised in a given year, may significantly affect reduction of EBITDA in the segment of Distribution. Reduction of WACC may decrease EBITDA in the segment by ca. PLN 58 mln annually.
Segment of Generation remains under the influence of the demanding situation on the energy market. The production concentrated on bituminous coal involves the exposure to risk related to carbon dioxide emission costs.
In Q4 2015, as a result of LW Bogdanka’s acquisition, Enea CG’s chain of values was extended with the segment of Mining, whose results have been consolidated since 1 November 2015. In the whole 2015 LW Bogdanka generated the best results in the industry, however its operations are still under the pressure of an unstable situation on the coal market. In 2016 the full compensation of the forecast drop in coal prices with a higher volume of its sales will not be probably achieved. A priority will be maintaining the unit costs on an appropriate level and limitation of investment expenditures in order to maximise the generated results.
In the Area of Trade we have been increasing sales of electricity and gaseous fuel - due to an attractive product range new Customers are obtained, and the volume of sold energy increases. Higher costs relating to the entry into force, as of 30 April 2014, of cogeneration obligations and a significant reduction in market prices of proprietary interests negatively affects the financial results of this segment.
Despite difficult market and legal conditions, due to the realised cost restructuring and reducing operating costs Enea CG generates financial results on an anticipated level. In the face of a more and more demanding situation on the energy market the Management Board will undertake subsequent activities in order to optimise the functioning of each segment of the Group.
The Group's financial standing is safe, supported with a significant volume of cash, which as at the end of December 2015, including current financial assets kept to maturity and financial assets valued at fair value through result, amounted to PLN 2.1 billion. The amount included the cash on the Companies’ accounts, bank deposits, and also cash and cash equivalents managed by an external company. Due to a consistently maintained very good financial standing and building credibility on the financial market, the Group has a guaranteed access to attractive and flexible sources of financing for investments specified in the corporate strategy due to the concluded agreements:
- Agreement relating to the bond issue programme up to the amount of PLN 3 billion concluded with PKO BP, Bank Pekao, BZ WBK and Bank Handlowy w Warszawie
- Agreement relating to the bond issue programme up to the maximum amount of PLN 5 billion concluded with PKO BP, ING Bank Śląski, Pekao and mBank
- Two Programme Agreements relating to the issue of long-term bonds totalling to PLN 1.7 billion concluded with Bank Gospodarstwa Krajowego
- Three Loan agreements with the European Investment Bank for the total amount of PLN 2,371 billion
It is expected that in 2016 the ratio defined as net debt/EBITDA will not exceed the level of 2.6. A growth in the ratio stems from a vast CAPEX programme (capital expenditures) covering mainly the segment of generation and the distribution network, and also acquisitions constituting market opportunities (as the recent acquisition of LW Bogdanka).
The implementation of the investment programme and efficiency improvement programme will positively affect the financial results of Enea CG. Due to the planned optimisation activities in 2016 Enea Group plans a reduction in costs by PLN 352 mln.
Significant events occurring after the balance sheet date
On 7 January 2016, Enea SA drew another tranche of a loan granted on 29 May 2015 by the European Investment Bank in the amount of PLN 100 mln.
The interest rate of the tranche is floating based on WIBOR rate for 6-month deposits increased with a bank’s margin.
On 8 January 2016, Enea SA took up the second tranche of bonds issued by Enea Operator sp. z o.o. in the amount of PLN 100 mln within the Executive bond issue programme agreement for the amount of PLN 946 mln of 7 July 2015.
The interest rate of the tranche is floating based on WIBOR rate for 6-month deposits increased with a margin.