H1 2023 Results of EP Infrastructure Group

6. 9. 2023

The Board of Directors of EP Infrastructure, a.s. (“EPIF” and together with its subsidiaries, the “Group”) approved the Unaudited Condensed Consolidated Interim Financial Statements as of and for the six-month period ended 30 June 2023. The Interim Financial Statements and related results presentation are available on EPIF’s website. For more information, please visit https://www.epinfrastructure.cz/en/investors/results-centre/.

The Group’s core activities remain the transmission, distribution and storage of natural gas, the distribution of electricity and district heating. The Group owns and operates:

  • the gas transmission pipeline through Slovakia;
  • the natural gas distribution network in Slovakia;
  • the electricity distribution network in Slovakia as one of the country’s three main
    distributors of electricity;
  • the largest gas storage capacities in Central Europe and gas storage operations in
    Bavaria, Germany;
  • significant heat distribution networks and heat production plants in the Czech

The Group reported EBITDA and Adjusted EBITDA of EUR 592 million (both) in the six months ended 30 June 2023 in comparison to EBITDA and Adjusted EBITDA of EUR 644 million and EUR 672 million, respectively, in the six months ended 30 June 2022, which represents a decrease in Adjusted EBITDA of EUR 80 million (-12%). In the twelve months ended 30 June 2023, EBITDA and Adjusted EBITDA reached EUR 1,385 million and EUR 1,375 million, respectively, which represents a decrease in Adjusted EBITDA of EUR 80 million (-5%) compared to the 2022 full year results. For further details see the attached summary of the financial results. The decrease in Adjusted EBITDA in the six months ended 30 June 2023 compared to the same period of the previous year was mostly driven by the following:

  • The Gas Transmission segment experienced a decrease in Adjusted EBITDA of
    EUR 163 million. The decline was mainly a result of the significant reduction or
    termination of almost all direct Russian piped gas flows to Europe following the
    military invasion of Ukraine by the Russian Federation and subsequently imposed
    sanctions against the Russian Federation. These events led to a 54% decline in
    transported gas through Eustream‘s network, which in turn negatively affected the
    volume of gas in-kind sold and its associated hedges. Moreover, the Adjusted
    EBITDA was further negatively impacted by an impairment charge to the gas
    inventory, driven by a decline in gas prices.
  • The Gas and Power Distribution segment reached better Adjusted EBITDA by EUR
    56 million mainly thanks to improved performance of the supply business, partly
    attributable to improved overall market conditions and partly to the fact that the
    performance of the Slovak supply business under SSE was adversely impacted by
    effects associated with the supplier of the last resort obligations in 2022. The
    distribution entities managed to mildly enhance their performance primarily thanks to
    certain time-shifts and cost optimisation measures, while their underlying business
    remained fundamentally stable and resilient with a significant portion of distribution
    tariffs fixed also under the new regulatory period that commenced in January 2023.
  • The Gas Storage segment achieved strong results again, improving its Adjusted
    EBITDA by EUR 71 million. Since approximately the summer of 2022, the market
    has experienced a surge in demand for gas storage, coupled with a higher summerwinter
    spread. This shift is reflected in storage prices and has significantly contributed
    to the robust performance of the Gas storage segment. The strong financial
    performance underscores the option value of the available short-term storage capacity,
    a value that became evident during a period marked by overall market instability and
    concerns surrounding gas supply security.
  • The Heat infra segment recorded a decline in Adjusted EBITDA of EUR 41 million
    primarily due to rising fuel cost and elevated EUA prices accompanied by the
    expected normalization of power prices. Additionally, higher input costs also weighed
    on the heat generation margin which was further exacerbated by lower heat offtake
    (-3%) driven by consumer savings and weather-related factors.

From the cash generation perspective, the Group generated Adjusted Free Cash Flow of EUR 1,098 million in the twelve months ended 30 June 2023, a significant improvement of 49% compared to the fiscal year 2022 result of EUR 736 million. The increase was to a large extent influenced by margining movements (a return of EUR 196 million in the six months ended 30 June 2023 compared to an outflow of EUR 276 million in the same period of the previous year). A solid performance in the six months ended 30 June 2023 confirmed the Group’s resilience despite the continuing deterioration of the Gas Transmission segment. The business resilience primarily stems from:

  • Diversification across the gas and power value chains, with the Gas Storage segment
    playing the most essential role during periods of gas supply insecurity and market
    instability, which has been evidenced by another strong performance by the Gas
  • A major portion of the Group’s revenue being regulated and contracted on a longterm
    basis. The substantial revenue stream is derived from pre-booked capacities,
    such as ship-or-pay contracts in the Gas Transmission business, store-or-pay contracts
    in the Gas Storage business, fixed tariff components in the Gas and Power
    Distribution business or fixed heat price components in the Heat Infra business.

EPIF and its subsidiaries keep monitoring and analysing the current market situation on a regular basis, including the current geopolitical risks beyond their control. EPIF’s management continued to actively manage the Group’s risk profile, indebtedness and liquidity position, which materially improved compared to 2022, focusing on meeting the targeted provisional level of Proportionate Net Leverage Ratio of the EPIF Group below 3.5x which is to apply until the financial risks and market uncertainties subside. As of 30 June 2023, the Group reported a substantial liquidity position with EUR 1,619 million of Cash and cash equivalents which together with the solid performance in terms of Adjusted EBITDA resulted in the Group’s Proportionate Net Leverage Ratio of 2.57x (31 December 2022: 2.90x), significantly below the updated target of the Group.

With regards to the Group’s results Václav Paleček, EPIF’s Finance Director, commented as follows: “The overall market development in the first half of 2023 exhibited less volatility when compared to the dynamic developments in the previous year. Energy commodity prices
experienced a decline, reaching more sustainable levels, primarily attributed to the relatively mild winter weather and sufficient gas supplies across the entire EU. However, prices remain significantly higher compared to the historical levels before the military invasion of Ukraine
by the Russian Federation. We proactively addressed the challenges and risks inherent in the current market environment, resulting in solid performance in the six months ended 30 June 2023. In particular, the Gas Storage segment reaffirmed its heightened significance within the Group and continued to play a substantial role in mitigating the declining performance of the Gas Transmission segment. Ensuring the security of supply, underscored by the pivotal role of European gas storage facilities, has evolved into a cornerstone of the EU energy policies. Concurrently, we continued to deleverage the Group to mitigate temporarily elevated business risks. Our efforts resulted in a reduction in indebtedness while maintaining a strong cash position of EUR 1,619 million (approximately 13% of the Group’s total assets). This has led to the Proportionate Net Leverage Ratio of 2.57x, representing the historically lowest level.”

For more details on the results, as well as the financial indicators used, please refer to https://www.epinfrastructure.cz/en/investors/results-centre/.