Greece’s dominant power utility, the Public Power Corp. (PPC), returned to profitability in 2016 after reporting disappointing results in 2015. PPC, which is listed on the Athens Stock Exchange (ASE), posted profits of 67.5 million euros in 2016, up from losses of 102.5 million euros in the previous year.
Turnover reached 5.257 billion euros, down from 5.735 billion euros in 2015. EBITDA reached 1.063 billion euros, up from 828.4 million euros in 2015, with the EBITDA margin expanded by 20.2 percent.
Pre-tax profits reached 169.1 million euros, overturning damages of 106.6 million euros in the previous year.
A press release issued by the utility reads:
In 2016, ΕΒΙΤDΑ increased by € 235.3 m. compared to 2015, with the respective margin amounting to 20.2% compared to 14.4%, mainly due to lower provisions.
Group’s operating profitability for 2016 has been negatively impacted by the following items:
– € 63.5 m for the cover of the deficits created in the Day-Ahead Schedule (DAS) market during 2011 and 2012 by third party suppliers that exited the market. Following the final settlement by LAGIE, the total one-off expense amounted to € 111.8 m, out of which € 48.3 m had already negatively impacted 2014 results.
– € 28.4 m from the new charge of electricity suppliers, which started in the last quarter of 2016 in order to cover the deficit of the Special Account for Renewables, also following RAE’s Decisions 149 and 150 of 2017.
– € 22.6 m one-off expense due to the revision of the natural gas procurement cost of DEPA by BOTAS for the years 2012 – 2015, following the decision by the International Arbitration Court, with respect to the dispute between the two companies.
Excluding the impact of aforementioned items, EBITDA improved by € 257.4 m, an improvement which is actually attributed to lower provisions by € 512.2 m.
Pre-tax profits amounted to € 169.1 m in 2016 compared to losses of € 106.6 m in 2015.
Net profit amounted to € 67.5 m compared to losses of € 102.5 m, respectively.
Revenues
· Group turnover decreased by € 478.6m. (8.3%) to € 5,257.1 m in 2016 from € 5,735.7 m in 2015.
Said reduction is attributed to the decline of revenues from electricity sales by € 549.4 m due to:
– the reduction of PPC’s average market share (in GWh) in the retail electricity market and the consequent deterioration of sales mix, due to cherry picking by its competitors,
– the new tariff policy for commercial and industrial customers in Low and Medium Voltage and the reward of these customers who pay on time as well as of the residential customers who pay on time, by providing tariff discounts, as well as
– the impact of the increase in the percentage of losses owed to power thefts.
As a result of market share loss, revenues from Third Party Distribution- Transmission network fees and Public Service Obligations (PSOs) have increased by € 54.8 m compared to 2015 (from € 60.3 m in 2015 to € 115.1 m in 2016).
Finally, turnover includes an amount of € 60 m regarding network users’ participation for their connection to the network compared to € 56.3 m in 2015.
In detail:
· Total electricity demand increased by 0.7% in 2016 to 59,209 GWh compared to 58,772 GWh in 2015, while electricity demand excluding exports and pumping remained practically stable at 56,972 GWh.
Specifically, as far as 4Q2016 is concerned, the corresponding figure posted a 4.7% increase mainly due to bad weather conditions.
However, in 4Q2016, total electricity demand (including exports and pumping) increased by 8.8%, since bad weather conditions across Europe, combined with the capacity shortage stemming from the maintenance of nuclear units in France resulted to significant increase of electricity prices in Europe, which eventually led to increased exports from third parties through interconnections in northern Greece towards Central Europe electricity markets.
PPC’s sales declined by 5.8% in 2016, as a result of the average retail market share reduction of PPC. Specifically, PPC’s estimated average retail market share in the country, in terms of GWhs and not in terms of number of clients, declined to 91.9% in 2016 from 96.4% in 2015. Especially in the Interconnected System, the respective share declined to 91.1% in 2016 from 96% in 2015. According to LAGIE data, the respective market share was contained to 88.6% in February 2017 from 93.3% in February 2016. According also to the same data, PPC’s market share per Voltage was approximately 98.6% in High Voltage, 74.4% in Medium Voltage and 92.1% in Low Voltage, figures that confirm cherry-picking by third party electricity suppliers.
· PPC’s electricity generation and imports covered 54.5% of total demand in 2016 (51.3% in the Interconnected System), while the corresponding percentage in 2015 was 63.4% (61.2% in the Interconnected System). PPC’s market share in electricity generation, as a percentage of the total load in the Interconnected System was 47.6% in 2016 compared to 55.2% in 2015.
Said reduction is mainly attributed to the substitution of lignite fired generation from natural gas fired generation, mainly from third parties and to a lesser extent from PPC. Specifically, lignite fired generation decreased by 23.3% (4,520 GWh), while on the other hand, natural gas fired generation from third parties increased by 102.3% (4,057 GWh) and PPC’s natural gas fired generation increased by 26.7% (1,179 GWh). In addition, a reduction was recorded for both hydro generation and PPC’s imports by 10.2% (548 GWh) and 37.1% (1,184 GWh) respectively. On the contrary, third parties’ Renewables generation increased by 6.5% (610 GWh) and third parties imports by 9.6% (788 GWh).
Operating expenses
Operating expenses before depreciation, decreased by € 713.9 m. (14.5%) from € 4,907.3 m. in 2015 to € 4,193.4 m, primarily due to aforementioned lower provisions and secondarily due to the reduction of energy mix expenses.
More specifically:
Energy mix expenditure
· Expenditure for liquid fuel, natural gas, third parties fossil fuel, CO2 and energy purchases decreased by € 342.2 m., or by 13.7% compared to 2015.
In detail:
─ Liquid fuel expense decreased by € 101.6 m. (17.4%), from € 582.8 m. in 2015 to € 481.2 m. in 2016 and is attributed to the reduction of heavy fuel oil and diesel prices, expressed in Euros, by 21.4% and 13.4% respectively.
The expense for the Special Consumption Tax on liquid fuel, which is included in the total liquid fuel expense, remained practically stable at € 145.3 m from € 144.4 m in 2015 due to the fact that said expense is only driven by fuel quantities, which remained practically stable both for diesel and heavy fuel oil.
─ Natural gas expense decreased by € 60.8 m. (18,6%), from € 326.5 m in 2015 to € 265.7 m in 2016, despite the aforementioned increased natural gas generation by 1,179 GWh (26.7%) due to the reduction of natural gas prices by 35% and the abolition of the Special Consumption Tax for electricity generation, since 1.6.2016.
The corresponding expense for the Special Consumption Tax on natural gas, which is also only volume driven and is not affected by commodity price, amounted to € 20.5 m for the first five months of 2016 from € 54.1 m in 2015.
─ Third parties fossil fuel expense decreased by € 30.2 m. and settled at € 27.4 m.
─ Energy purchases expense from the System and the Network remained practically stable from € 1,142.3 m. in 2015 to € 1,145.2 m, despite increased energy purchases volume by 14.5%, following the aforementioned reduction of lignite and hydro generation, mainly due to the significant reduction of the average SMP to € 42.8/MWh from € 51.9/MWh. It should be noted however, that, since the beginning of the implementation of the new charge of suppliers for the cover of the RES deficit, which started in the last quarter of 2016, PPC was burdened with the amount of € 28.4 m.
Energy purchases expense includes an amount of € 48.5 m, which is the net impact from the Transitory Capacity Payment Mechanism, effective as of 1.5.2016.
─ Expenditure for PPC electricity imports, excluding expense for interconnection rights, settled at € 52.5 m. decreased by € 79.6 m (60.3%), as a result of both the reduction in the volume of imports by 1,184 GWh (37.1%) and of imports’ prices by 8.6%. Due to the lower volume of imports, the expense for interconnection rights decreased to € 5.6 m in 2016 from € 15.1 m in 2015.
─ Expenditure for CO2 emission rights settled at € 178.2 m., that is a reduction of € 72.9 m compared to 2015, due to the reduction of CO2 emissions in volume terms by 17.2% to € 28.4 m tonnes in 2016 from 34.3 m tonnes, as a result of lower lignite fired generation.
Payroll cost
· The total payroll cost, including capitalized payroll and payroll of seasonal personnel, remained practically stable at € 976.6 m in 2016 compared to € 970 m in 2015 (or € 741.3 m and € 741.6 m respectively, excluding employers’ contributions).
The number of permanent employees on payroll increased by 546 to 18,902 on 31.12.2016 from 18,356 on 31.12.2015, due to the fact that we have started the implementation of highly necessary hirings, which were pending for many years. The payroll of permanent employees amounted to € 931.3 m in 2016 compared to € 922.6 m in 2015 (or € 704.4 m and € 704.3 m respectively, excluding employers’ contributions).
Provisions
· In 4Q2016, there was a deceleration of the rate of increase of bad debt provisions for Low and Medium Voltage customers, which increased by € 15.6 m compared to an increase of € 91.1 m in 3Q2016 and an increase of € 156.9 m in 2Q2016.
The result of this declining trend was an increase in provisions for Low and Medium Voltage customers by € 403.3 m in 2016, which was lower than the corresponding one recorded in 2015, which was € 780.8 m.
For High Voltage customers, the corresponding provisions, excluding the provision for ALOUMINION and LARCO, settled at € 15 m in 2016 versus € 12.9 m in 2015. The provision for ALOUMINION, which was included in 2015 figures, was € 25.7 m, whereas for 2016, due to the contractual settlement for the pricing of electricity supply for the period 1.1.2014 – 30.6.2016 : a) a reversal of a total provision of € 47.2 m was recorded for the period 1.1.2014 – 31.12.2015 and b) a reversal of a € 12.5 m provision was recorded in the second half of 2016, which had been initially recorded in the first half of 2016, therefore resulting in a neutral overall effect in provisions in 2016. Regarding LARCO, the corresponding provisions included in 2015 figures, was € 51.6 m, whereas for 2016, the respective figure was € 36.3 m, as a result of the contractual agreement for the pricing of electricity supply for 2016. Therefore total provisions for High Voltage Customers stood at € 4.1 m in 2016 compared to € 90.2 m in 2015.
Adding provisions for litigation and slow moving materials, total provisions settled at € 438.2 m in 2016 compared to € 950.4 m in 2015. In any case, it should be noted that the abovementioned amount, although significantly reduced compared to 2015, still remains at an especially high level for the Company, especially if compared to the pre – economic crisis level, when it did not exceed € 100 m, on an annual basis.
In conclusion,
· In 2016, 40.4% of total revenues were expensed for fuel, CO2 and energy purchases compared to 42.5% in 2015. Regarding the evolution of provisions, these represent 8.3% of total revenues compared to 16.6% last year. The corresponding percentage for payroll increased to 16.8% compared to 15.3% last year, due to aforementioned turnover reduction.
Other Financial information
· Depreciation expense in 2016 marked a slight reduction settling at € 732.3 m. compared to € 737.7 m. in 2015.
· Net financial expenses, decreased by € 44.2 m, settling at € 154.2 m. compared to € 198.4 m in 2015.
Capex
· Capital expenditure in 2016 increased by € 114 m. or 15,1% and amounted to € 867.6 m. compared to € 753.6 m.in 2015, an increase which to a large extent is attributed to increased capex for Mining projects due to the compensation of the beneficiaries for the expropriation of the Pontokomi village.
Capital expenditure also includes network users’ participation for their connection to the network, which amounted to € 60 m. in 2016 versus € 56.3 m.
Net capex of PPC Group, that is capital expenditure excluding aforementioned participations, increased by € 110.3 m or 15.8% amounting to € 807.6 m. in 2016 compared to € 697.3 m. in 2015.
