Results of EP Infrastructure Group for the year ended 31 December 2020
13. 4. 2021
We are pleased to confirm that in the year ended 31 December 2020, EP Infrastructure, a.s. (“EPIF”) and its subsidiaries (collectively the “Group“) continued to successfully operate their traditional energy infrastructure assets in Central Europe. 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, one of the largest corridors for supplies of Russian gas to Western, Central and Southern Europe;
• the distribution network of natural gas 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 acquired in 2018; and
• significant heat distribution networks and heat production plants in the Czech Republic.
A summary of the financial results is attached. The core operations of the Group reported strong results in 2020 despite the current challenging macroeconomic conditions given by the COVID-19 outbreak. EBITDA and Adjusted EBITDA reached EUR 1,622 million and EUR 1,526 million, respectively, for the year ended 31 December 2020, which represents a minor decrease in Adjusted EBITDA of EUR 80 million (-5%) compared to rather extraordinary results of 2019.
The pleasing results delivered in 2020 are driven by the fact that operating performance is primarily driven by long-term contracts and regulatory based payments. Revenue from these contracts represents majority of the Group’s operating profit. Following the delivery of exceptional results in 2019 driven by front-loading of volumes from 2020, the gas transmission segment reported strong performance also in 2020, transporting 57 billion cubic metres of natural gas over the course of the year.
The 2020 operational result of the gas and power distribution segment was in line with our forecast, providing clear evidence of its stability and extraordinary resilience. In 2020, SPP Distribúcia, the Slovak regulated natural monopoly, distributed almost 54 TWh of natural gas, which is a 3.5% increase year-on-year. Stredoslovenská Distribučná, the electricity distributor in central Slovakia, distributed almost 5.9 TWh of electric power in 2020, which is 4.8% below the last year’s volume. The reason for the decrease is a slowdown of economic activity of major industrial customers resulting from the pandemic. Nevertheless, financial performance of the electricity distributing company remained stable – we are exposed to volume risk almost only vis-à-vis household customers, whose consumption remains on average the same as in previous years.
The heat infra segment was affected by mild winter in the beginning of 2020. Despite lower heat offtakes coupled with pressure on electricity spreads, the performance of the heat infrastructure segment remained robust. In 2020, EPIF supplied more than 19 PJ of heat to residential, institutional, and commercial customers and produced more than 3.3 TWh of net electric power. In the last quarter of 2020, the EPIF Group disposed of two entities in the Heat Infra segment – Pražská teplárenská a.s., a major heat distributor in Prague, and Budapesti Erömü Zrt., a key producer of heat in Budapest. These entities together accounted for approximately 5% of total EPIF Group Adjusted EBITDA. As a result of the divestments, the overall carbon footprint of the EPIF Group declined substantially in line with the Group‘s long-term goals.
The companies operating in the gas storage segment significantly benefited from the rising storage price in the region. Price increase was mainly driven by the fact that gas storage facilities were unusually stocked after the warm winter in 2019/2020. We continue to keep leading position in Central Europe region with overall storage capacity of more than 62 TWh.
From the cash generation perspective, the Group generated Adjusted Free Cash Flow of EUR 1,046 million for the year ended 31 December 2020, a decrease of 5.5% compared to the result for fiscal year 2019 (EUR 1,107 million), when we achieved exceptional results. The decline is mainly driven by the aforementioned 5% decline in Adjusted EBITDA and time-shift of income tax payments from 2019 into 2020.
Alongside with delivering positive business results, the Group has continued to optimize its capital structure. In January 2020, the Group signed a new bank financing agreement for the total amount of EUR 800 million. The funds comprise a term loan of EUR 400 million and a committed revolving credit facility of up to EUR 400 million both with 5-year maturity. The Group used the funds to fully refinance the existing EPIF’s bank debt which was due in 2023 in full. In June 2020, eustream, a.s. issued 7-year senior unsecured bond in the total amount of EUR 500 million. Proceeds, combined with own cash sources, were used for a repayment of EUR 750 million SPP Infrastructure Financing B.V. bond due in July 2020. Subsequently, during July 2020 eustream reduced limits of its revolving credit facilities from EUR 590 million to EUR 275 million, as they were in place primarily to back up EUR 750 million bond refinancing. Recently, due to highly favourable conditions on the market, on 2 March 2021, the Group issued 10-year bond of EUR 500 million with proceeds intended to be used to repay the Group’s selected existing facilities.
The Group’s Proportionate Net Leverage Ratio of 4.1x as at 31 December 2020 confirmed the Group’s commitment to a stable and predictable capital structure and remained in line with and indeed below the net leverage target of the Group. Owing to this and other positive factors in 2020, the EPIF Group’s investment ratings previously awarded by renowned rating agencies Moody´s Investors Service, Fitch Ratings, and S&P Global Ratings were all affirmed, all of them with outlook stable. Further, in February 2021, S&P Global Ratings already affirmed the Group’s rating at BBB with outlook stable.
In conclusion, the Group re-confirmed its role of a major infrastructure player in the Central European region by delivering reliable, high quality service to its customers at attractive prices. Václav Paleček, EPIF’s Finance Director, stated that “EP Infrastructure Group again demonstrated resilience and stability during the past financial year despite the global economic downturn, primarily stemming from the COVID-19 pandemic. Pleasing results were achieved thanks to the diversification of the business operations across several industries, largely regulated or contracted revenues, superb cash conversion ability, and ample liquidity. Financial health of the Group remains strong due to its conservative capital structure and well-managed funding strategy proved by, among other things, successful issuance of a 10-year bond of EUR 500 million in early March 2021.”
For more details on the results, as well as the financial indicators used, please refer to https://www.epinfrastructure.cz/en/investors/results-centre/.