Consolidated financial statements 2015

If we look at cumulative data for the year, we can see a growing impact of the price collapse especially in the case of oil prices. EBITDA fell 4% year on year, by over PLN 260m.

In a tough business environment affecting all upstream companies, our results were supported by increased output of crude oil and condensate in our Norwegian subsidiary, reaching almost 0.7 million tonnes, that is 250 thousand tonnes more than in 2014.

Revenue and expenses grew mainly as a result of fulfilment of the exchange sale requirement and growing volumes of gas traded through the Polish Power Exchange (TGE). To achieve pro-forma data comparability, an amount of approximately PLN 5.1bn should be subtracted from these items, in which case we would see revenue fall faster (9%) than expenses (8%) as a result of lower tariff prices.

One-off items also had a material impact on the Group’s performance. In 2015, the net effect of impairment losses, write-downs, provisions and dry wells/seismic surveys written off was PLN -1,062m, compared with PLN -1,513m in 2014, which means a positive change of over PLN 450m.

A factor with a negative impact on net profit was income tax in the P&L increasing 9%, to almost PLN 880m, despite profit before tax being lower by over PLN 600m. The reason is the high tax rate in Norway. However, it should be remembered that no income tax is paid in Norway due to an accumulated tax asset of 1.1bn Norwegian krone.

For the past few quarters, we have seen shifts in the contributions of individual segments to consolidated EBITDA. Last year, our Exploration and Production business accounted for almost 50% of the Group’s total, while the share of Distribution was around 31%. In 2015, these figures stood at 40% and 39%, respectively.

The strong result in the Distribution segment was driven by a 2% rise in the volume of distributed gas, a 3% increase in the distribution tariff, and a positive effect of system balancing amounting to PLN +64m (compared with PLN -49m the year before). The segment’s EBITDA increased by over PLN 336m.

The Generation business also contributed to the Group’s strong performance. Although heat and power output fell slightly compared with 2014, the segment’s EBITDA rose by more than PLN 217m, driven by lower fuel prices (with the largest drops reported in the first quarter), higher heat tariff price, and a 6% rise in the price of electricity sold. It is important to note that almost all of the planned electricity output is sold before the start of a year, which has an impact on the selling prices.

The PGNiG Group’s financial standing remains strong. At the end of December, the Group reported close to PLN 6bn in cash, with the net debt to EBITDA ratio close to 0. Net debt at the end of 2015 was PLN 142m.

2016 will be another challenging year for the PGNiG Group.

Oil and gas oversupply, further impairment of production assets and declining oil production volumes, coupled with low prices of hydrocarbons, are likely to exert a negative impact on performance in the Exploration and Production segment.

The discount policy pursued in the Trade and Storage segment should help retain and recoup the lost volumes of sales to business customers.

Stable performance in the Distribution area will be supported by rising volumes of distributed gas, driven by completed expansion projects and new connections, and by further cost efficiency improvements.

Lower prices of fuels for heat and power generation should boost profitability of the Generation business.

The consistent implementation of the Efficiency Improvement Programme is expected to have a positive impact on operating expenses across the Group.

Consolidated financial statements for the financial year ended 31 December 2015 is available on website www.en.pgnig.pl/investor-relations/reports/periodic-reports.