epifannualreport

 
EP Infrastructure, a.s. 
 
Consolidated annual report for the year 
2020

CONTENT 
 
I.
 
Introduction
 
by
 
the
 
Cha
irman
 
of
 
the
 
Board
 
of
 
Directors
 
II.
 
Independent
 
Auditor´s
 
Report
 
to
 
the
 
Consolidated
 
Annual
 
Report
 
III.
 
Other
 
Information
 
IV.
 
Report
 
on
 
relations
 
V.
 
Consolidated
 
Financial
 
Statements
 
and
 
Notes
 
to
 
the
 
Consolidated
 
Financial Statements 
 
VI.
 
Independent
 
Auditor´s
 
Report
 
to
 
the
 
Statutory
 
Financial
 
Statements
 
VII.
 
Statutory
 
Financial
 
Statements
 
and
 
Notes
 
to
 
the
 
Statutory
 
Financial
 
Statements

I.
 
Introduction
 
by
 
the
 
Chairman
 
of
 
the
 
Board
 
of
 
Directors

INTRODUCTION BY THE CHAIRMAN OF THE BOARD OF DIRECTORS 
 
Dear shareholders, business partners, colleagues and friends, 
 
In
 
2020,
 
EP
 
Infrastructure,
 
a.s.
 
(“EPIF“)
 
continued
 
to
 
operate
 
its
 
traditional
 
energy
 
infrastructure
 
assets
 
in
 
Central
 
Europe.
 
EPIF’s
 
activities
 
remain
 
concentrated
 
on
 
the
 
transmission, distribution and storage of natural gas, the distribution 
of electricity and the heat 
industry. 
Supported 
by 
steady 
economic 
growth 
in 
countries 
where 
it 
operates, 
EPIF 
again 
confirmed
 
its
 
role
 
of
 
the
 
major
 
infrastructure
 
player
 
in
 
the
 
Central
 
European
 
region
 
by
 
delivering reliable and quality service to its customers at attractive prices. 
The 
EPIF 
Group 
subsidiaries 
operate 
a 
transit 
gas 
pipeline, 
the 
most 
robust 
corridor 
for 
gas 
supplies to Western, 
Central and Southern 
Europe, and act as 
the major distributors of 
natural 
gas and electricity in Slovakia. The EPIF 
Group also operates the largest gas storage capacities 
in
 
Central
 
Europe
 
with
 
additional
 
storage
 
facilities
 
in
 
Germany
 
and
 
is
 
significant
 
heat
 
distribution network operator and heat producer in the Czech Republic. 
We 
are proud 
to confirm 
that we 
continue to 
see 
a strong 
resilience of 
our 
businesses in 
the 
context of the current pandemic, which had a fairly limited impact on our performance. 
Following to 
delivering exceptional 
results in 
2019 driven 
by front-loading 
of volumes 
from 
2020,
 
the
 
Gas
 
transmission
 
segment
 
reported
 
strong
 
performance
 
also
 
in
 
2020.
 
W
hile
 
maintaining its 
full technical 
capacity and 
availability of 
services for its 
customers, Eustream 
transported 57 billion cubic 
metres of natural 
gas in 2020. 
Operational results were 
positively 
affected by the higher reverse gas flows primarily between July and September 2020 
driven by 
attractive 
price 
of 
available 
storage 
capacities 
in 
Ukraine. 
In 
2020, 
Eustream 
continued 
to 
benefit from its 
pivotal role as one 
of the largest and the 
most important piped gas 
transit routes 
into Europe. Within development projects focusing on the enhancement of energy security and 
the
 
creation
 
of
 
new
 
business
 
opportunities
 
we
 
substantially
 
increased
 
gas
 
transmission
 
capacities from 
the Czech 
Republic to 
Slovakia after 
the CS05 
compressor station 
was launched 
in 
January 
2020. 
Further, 
we 
are 
working 
on 
the 
expansion 
of 
our 
network 
and 
on 
the 
construction 
of 
an 
interconnection 
to 
Poland. 
The construction 
of this 
interconnection 
is 
a 
strategic project that has received financial support 
from EU funds under the CEF Programme 
and is scheduled to commence its operation in early 2022. 
Stability and 
extraordinary resilience 
of Gas 
and power 
distribution segment 
was proven 
also 
over 2020, when operational results were in line with our expectation despite the pandemic. In 
2020, SPP 
Distribúcia, the 
Slovak regulated 
natural monopoly, 
distributed almost 
54 TWh 
of 
natural gas, which was 
3.5% more year on year. At the same 
time, we continued to increase 
the 
efficiency 
of 
operating 
activities 
and 
overhaul 
distribution 
networks 
to 
further 
reduce 
the 
number of leaks in the distribution network and ensure a high level of security when operating 
our
 
facilities.
 
Stredoslovenska
 
Di
stribucna,
 
the
 
electricity
 
distributor
 
in
 
central
 
Slovakia,
 
distributed almost 5.9 TWh of 
electricity in 2020, which is 
4.8% below the last year’s 
volume 
reflecting lower overall economic activity of major industrial customers as consequence of the 
pandemic. Nevertheless, 
financial performance 
was stable 
as the 
volume risk 
connected with 
gas and power distribution tariffs 
applies primarily to households. We 
also kept on renovating 

and reconstructing our backbone 
electricity network to ensure 
the continuity of our 
traditional 
distribution 
services 
while 
reflecting 
modern 
trends 
in 
electricity 
distribution. 
Total 
capital 
expenditures in this segment were close to EUR 90 million. 
Similarly to 2019, 
the Heat Infra 
segment was affected by 
mild winter at 
the beginning of 
2020. 
Despite lower 
heat offtakes coupled 
with pressure on 
electricity spreads 
due to abovementioned 
economic slowdown, the performance of the Heat infrastructure 
segment remained robust with 
9% contribution 
to total 
EPIF Group 
Adjusted EBITDA. In 
2020, the 
Group supplied more 
than 
19 PJ of 
heat to residential, 
institutional and commercial 
customers and produced 
more than 3.3 
TWh of net electricity, confirming its position of a 
major heat supplier and power 
producer. As 
an
 
important
 
provider
 
of
 
ancillary
 
services,
 
EPIF
 
Group
 
significantly
 
contributed
 
to
 
the
 
transmissions 
network’s 
stability 
in 
the 
Czech Republic 
and 
Hungary. 
Heat 
Infra 
companies 
continued 
with 
major 
investment 
projects 
leading 
to 
higher 
production 
efficiency, 
reduced 
environmental impact 
of its operations 
and enhanced reliability 
of supplies. The 
key investment 
projects included a replacement of the major cogeneration steam turbine in the heating plant in 
Opatovice and 
Labem and 
a reconstruction 
of the 
main heat 
feeding line 
to Litvínov. Our 
energy 
mix 
in 
the 
following 
years 
will 
be 
shaped 
by 
our 
current 
investments 
in 
refurbishments 
of 
existing boilers to enable partial 
or full biomass combustion, 
specifically in our heating plants 
in 
Plzeň 
and 
Komořany 
where 
the 
projects 
already 
commenced. 
This 
will 
complement 
the 
already existing 
biomass unit 
and a 
waste incinerator 
plant operated 
by Plzeňská 
teplárenská. 
By 
gradual transition 
towards 
fuels 
with 
lower carbon 
footprint 
such 
as 
biomass, 
communal 
waste 
or 
natural 
gas, 
we 
aim 
to 
actively 
contribute 
to 
the 
ongoing 
energy 
transition 
and 
decarbonization in Europe. 
The 
group 
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. 
In 
general, 
we 
keep 
holding 
our 
position 
as 
the 
major 
player 
in 
the 
Central 
European 
region, 
making 
every 
endeavour to further 
strengthen our role. The 
overall storage capacity 
is more than 62 
TWh and 
includes 
assets 
in 
strategic 
regions 
connected 
to 
key 
gas 
routes. 
In addition 
to 
its 
traditional 
assets in Slovakia, 
EPIF operated 
storage facilities in 
South-Eastern Bavaria 
acquired at the 
end 
of 2018 with capacity of almost 20 TWh. These 
are currently contracted to a major extent until 
2027 on a 
store-or-pay basis. 
In 2020, we 
also continued 
to invest 
in the operational 
security, 
storage
 
technology
 
modernisation,
 
automation
 
enhancement
 
and
 
utilisation
 
of
 
collected
 
information to further optimise processes. 
Stable performance in 
2020 despite the 
pandemic proved the 
quality of assets 
being operated, 
most 
of which 
are regulated 
and contracted 
on a 
long-term basis. 
Majority of 
our revenue 
is 
dependent
 
on
 
already
 
pre
-
booked
 
capacities,
 
such
 
as
 
ship
-
or
-
pay
 
contrac
ts
 
for
 
the
 
Gas
 
Transmission
 
Business,
 
store
-
or
-
pay
 
contracts
 
for
 
the
 
Gas
 
Storage
 
Business,
 
fixed
 
tariff
 
components for 
the Gas 
and Power 
Distribution Business 
and fixed 
heat price 
component for 
the Heat 
Infra Business. 
Consolidated Adjusted 
EBITDA
1
 
for 2020 
was EUR 
1 526 
million, 
which is a 
5% decline as 
compared to last 
year, when 
we achieved exceptional 
results. At the 
same time, we recorded 
the similar decline in Adjusted 
Free Cash Flow
2
 
to EUR 1 046 million, 
which
 
confirms
 
that
 
t
hanks
 
to
 
the
 
high
-
quality
 
structure
 
of
 
assets
 
and
 
highly
 
efficient
 
operational management, 
EPIF shows 
the 
above-average 
rate of 
converting 
operating profits 
into 
free 
cash 
flows. 
Owing 
to 
this 
and 
other 
positive 
factors, 
in 
2020, 
the 
EPIF 
Group’s 
investment 
ratings 
previously 
awarded 
by 
renowned 
rating 
agencies 
Moody’s 
Deutschland 

GmbH, 
Fitch 
Ratings 
Ireland 
Limited 
and 
S&P 
Global 
Ratings 
Europe 
Limited 
were 
all 
affirmed. Further, on 22 February 2021, S&P Global Ratings Europe Limited already affirmed 
our rating at BBB with outlook stable. 
In the 
last quarter 
of 2020, 
the EPIF 
Group disposed 
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 our long-term goals, 
being accompanied by 
projects implemented at our existing heating plants as described earlier. 
Acknowledging the impact of its operations on communities and other stakeholders, EPIF also 
issued its 
second sustainability 
report during 
2020 enabling 
readers to 
get a 
better understanding 
of our approach to environmental, 
social and governance matters. For the 
first time, the report 
was fully aligned with 
UN’s Global 
Development Goals and 
the 2030 Agenda. In 
addition, in 
April 
2020 
EPIF 
obtained 
its 
debut 
ESG 
rating 
from 
S&P 
Global 
Ratings 
Europe 
Limited, 
where we scored 65 out of 100 points. 
To conclude, I would like to 
express my honest 
thanks to our employees, 
investors and partners 
who 
have 
been 
participating 
in 
the 
realisation 
of 
our 
strategy 
and 
cooperating 
with 
us, 
thus 
supporting 
us 
to 
fulfil 
our 
main 
business 
objective, 
which 
is 
to 
ensure 
a 
safe, 
reliable 
and 
profitable operation 
of the energy 
infrastructure for prices 
favourable to our 
customers. We owe 
our success to all of you. 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1
 
Adjusted EBITDA represents operating profit plus depreciation of property, 
plant and equipment and amortisation of intangible assets 
less 
negative goodwill 
(if applicable), 
adjusted by 
(a) excluding 
non-cash non-recurring 
impairment charge 
relating to 
property, plant and 
equipment 
and 
intangible assets 
(2020: EUR 
2 million; 
2019: EUR 
-45 million), 
(b) excluding 
other non-cash 
one-off gains 
(2020: EUR 
4 million; 
2019: EUR 0 million) and (c) 
adding back the difference between 
(i) compensation for the expenses for 
mandatory purchase and off-take of 
energy from renewable sources pursuant to the 
Slovak RES Promotion Act and the Decree recognised in 
revenues in the relevant period and 
(ii) net expenses 
accounted for the 
mandatory purchase of 
energy from renewable 
resources 
in accordance with 
the Slovak RES 
Promotion 
Act, in each case inclusive of accruals (2020: EUR 90 million; 
2019: EUR 50 million). 
 
Slovak RES Promotion 
Act means Slovak 
Act No. 
309/2009 Coll., 
on promotion 
of renewable energy 
sources and 
high-efficiency cogeneration 
and on 
amendments to 
certain acts 
(zákon o 
podpore obnoviteľných 
zdrojov energie 
a vysoko 
účinnej kombinovanej 
výroby a 
o zmene 
a 
doplnení niektorých zákonov). 
 
Decree means the Slovak Decree of the Regulator No. 18/2017 
Coll. (or any other applicable decree or law replacing it). 
 
 
Reconciliation is as follows: 
Key Metrics 
Gas 
Transmission 
Gas and 
Power 
Distribution 
Heat 
Infra 
Gas 
Storage 
Total 
segments 
Other 
Holding 
entities 
Intersegment-
eliminations 
Consolidated 
financial 
information 
(in EUR millions) 
2020 
Profit from operations 
548 
371 
64 
187 
1,170 
1 
(9) 
- 
1,162 
Depreciation and 
amortisation 
130 
220 
76 
31 
457 
3 
- 
- 
460 
EBITDA 
678 
591 
140 
218 
1,627 
4 
(9) 
- 
1,622 
Non-cash non-
recurring impairments 
of assets 
- 
- 
- 
(4) 
(4) 
2 
- 
- 
(2) 
Other non-cash non-
recurring items 
- 
- 
(4) 
- 
(4) 
- 
- 
- 
(4) 
System Operation 
Tariff (surplus) / deficit
- 
(90) 
- 
- 
(90) 
- 
- 
- 
(90) 
Adjusted EBITDA ...... 
678 
501 
136 
214 
1,529 
6 
(9) 
- 
1,526 
2019 
Profit from operations 
606 
368 
93 
146 
1,213 
1 
(6) 
- 
1,208 
Depreciation and 
amortisation 
130 
159 
82 
29 
400 
3 
- 
- 
403 
EBITDA 
736 
527 
175 
175 
1,613 
4 
(6) 
- 
1,611 
Non-cash non-
recurring impairments 
of assets 
1 
39 
- 
5 
45 
- 
- 
- 
45 
System Operation 
Tariff (surplus) / deficit
- 
(50) 
- 
- 
(50) 
- 
- 
- 
(50) 
Adjusted EBITDA ...... 
737 
516 
175 
180 
1,608 
4 
(6) 
- 
1,606 
 
2
 
Adjusted Free 
Cash Flow 
represents Cash 
generated from 
operations, disregarding 
Change in 
restricted cash, 
less Income 
tax paid, 
Acquisition 
of property, plant and equipment 
and intangible assets and 
Purchase of emission 
rights as presented 
in the consolidated statement 
of cash flows 
of the Group, excluding the cash 
impact of the purchases of energy from 
renewable energy sources and the subsequent 
compensation pursuant 
to the Slovak RES Promotion Act (so called “SOT”) (2020: EUR 
129 million; 2019: EUR 10 million). 
 
 

II.
 
Independent
 
Auditor´s
 
Report
 
to
 
the
 
Consolidated
 
Annual
 
Report