The Public Power Corporation (PPC) continues to face significant challenges and opportunities in the first half of 2024, as reflected in the company’s key financial figures. Despite various challenges, the company managed to improve some of its financial metrics, though it still faces issues, particularly regarding its rising debt.
During the first half of 2024, PPC’s revenue reached €4.0 billion, up from €3.6 billion in the corresponding period of 2023. This increase in revenue can be attributed to various factors, including improvements in operational activities and adjustments in pricing policies, which allowed PPC to boost its revenue despite difficult market conditions.
The company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) also improved, reaching €0.88 billion for the first half of 2024 compared to €0.58 billion for the same period in 2023. When adjusted, EBITDA amounts to €0.93 billion in 2024, showing a significant improvement in the company’s operational profitability. This increase in EBITDA suggests that PPC managed to enhance its operational efficiency, possibly through cost reductions or improvements in the efficiency of its energy units.
Regarding net profit, the first half of 2024 showed an increase compared to the corresponding period of 2023. Specifically, PPC’s net profit for the first half of 2024 amounted to €0.23 billion, up from €0.08 billion recorded in 2023. This increase in net profit is a positive sign for the company, indicating that despite the challenges, PPC managed to improve its profitability. However, when adjusting net profits to exclude minority interests, a more realistic figure of €0.19 billion for 2024 is obtained, which is close to the levels of 2023.
One of the most concerning indicators is the significant increase in PPC’s net debt, which rose from €3.2 billion in December 2023 to €3.8 billion in June 2024. This increase in debt is accompanied by a rise in the Net Debt to EBITDA ratio from 2.0x in 2023 to 2.3x in June 2024, indicating that the debt burden relative to the company’s operational profitability has increased. This situation highlights a company that, while showing some improvements in profitability, continues to be under pressure due to its high debt levels.
PPC’s high debt is one of the most significant risks to its sustainability. The company relies heavily on borrowing, as evidenced by its net debt being relatively high compared to its equity. Particularly, the net debt to equity ratio, which is at concerningly high levels, indicates that PPC faces significant challenges in managing its finances. This ratio, combined with the increase in the Net Debt to EBITDA ratio, suggests that PPC may struggle to service its debt obligations in the future unless it improves its financial position.
The increase in investments from €0.5 billion in the first half of 2023 to €1.1 billion in the first half of 2024 is a positive step, indicating that the company continues to invest in its growth. However, these investments come at a time when the company’s debt is rising, which could increase the risk if the return on these investments is not sufficient to cover the increased cost of debt.
Overall, PPC shows some signs of improvement in its revenue and profits during the first half of 2024. However, the rising debt remains a significant concern, which could undermine its long-term financial stability. The company will need to focus on reducing debt and improving efficiency to ensure sustainable growth in the future.
Borrowing
During the period from January 1, 2024, to June 30, 2024, PPC Group and the Parent Company made principal repayments totaling €507.2 million and €259.9 million, respectively. These repayments do not include funds that were reallocated and repurchased from existing revolving credit facilities (RCF) bonds as part of better cash management.
Sustainability-Linked Bonds: The Parent Company’s €500 million bonds issued in July 2021 include a CO2 emission reduction clause of 57% by the end of 2023. The company achieved a reduction of 57.81%, exceeding the target, and thus there will be no increase in the bond interest rate.
New Loan Agreements and Amendments:
- Parent Company Common Bond Loan: Signed on June 12, 2024, amounting to up to €200 million, in the form of revolving credit, with Piraeus Bank S.A., with a 5-year duration.
- Bond Loan with the Recovery Fund: On April 9, 2024, the VAT Tranche (Series C) amount of €70 million was canceled from the Common Bond Loan for financing digital transformation projects, totaling up to €396 million.
- Alexandroupolis Power Generation Bond Loan: The subsidiary company drew €68.093 million from a bond loan contract amounting to up to €436.1 million.
- Greek Windpower Bond Loan: Acquired by PPC Renewables. The loan amounting to up to €26.54 million had a remaining balance of €21.9 million as of June 30, 2024.
- Dixons South-East Europe Bond Loan (Kotsovolos): A bond loan was signed with Alpha Bank amounting to €12.2 million, with a drawn amount of €4.9 million by June 30, 2024.
- HEDNO Bond Loan with Eurobank: €130 million was drawn, increasing the total capital to €570 million.
Compliance with Financial Covenants: The Parent Company complied with the financial covenants of its loan contracts up to June 30, 2024. However, the Group was not in compliance with the “Debt Service Coverage Ratio” for certain companies due to temporary events, such as the shutdown of an RES project for connection, and banks subsequently granted their consent.
Short-Term Borrowing: As of June 30, 2024, the Group’s short-term loans included €147.2 million from subsidiaries’ current accounts in Romania.
Open Account Credit Agreement: A credit agreement was signed with Eurobank amounting to €65 million by Phoebe Energy S.A., which was increased to €80 million, and the maturity was extended. PPC Renewables increased the credit limit to €250 million for working capital.
Litigation PPC Group faces numerous lawsuits related to its activities, with the total amount claimed by third parties reaching €997 million as of June 30, 2024 (from €974 million as of December 31, 2023). The company has made a provision of €344 million for the Group and €384 million for the Parent Company (compared to €354 million and €392 million, respectively, as of December 31, 2023) for the expected losses from these cases.
Contractor/Supplier Claims and Other Claims: Contractors and suppliers are claiming a total of €425 million, with many of these cases pending in court or arbitration. Fire and Flood Incidents: A number of private individuals are claiming compensation amounting to €116 million for damages they allege were caused by fires and floods due to PPC’s fault. Employee Claims: Employees are claiming a total of €75 million for benefits and allowances they believe should have been paid to them. IPTO Lawsuits and Out-of-Court Demands Against PPC S.A.: IPTO has filed several lawsuits and out-of-court demands against PPC, claiming large sums for overdue payments and default interest related to PPC’s participation in the wholesale electricity market. The claims amount to hundreds of millions of euros, with significant court decisions pending. LAGIE (now DAPEEP) Litigation Against PPC S.A. Due to Deficits in the Day-Ahead Energy Planning (DAM): PPC is involved in litigation with DAPEEP over amounts related to deficits in DAM, with claims amounting to millions of euros. Appeals are pending against decisions that favored DAPEEP. Third-Party Claims on Real Estate: There are third-party claims on PPC’s real estate worth €13.2 million, for which the company has made adequate provision. HEDNO Lawsuits Against PPC: HEDNO has filed six lawsuits against PPC, claiming default interest for delays in the payment of invoices and other regulated charges. The claims amount to millions of euros, with many cases pending in court. PPC S.A.’s Appeal Against ETAA/Engineers and Public Works Contractors Sector (formerly TSAME): PPC faces claims from ETAA/TSAME for employer contributions amounting to millions of euros. The case is pending in court, with recent decisions awaiting higher courts. European Commission Competition Directorate-General Inspection: In February 2017, a dawn raid was conducted by the European Commission’s Directorate-General for Competition at PPC, under Article 102 of the Treaty on the Functioning of the European Union. This inspection was triggered by alleged abuse of PPC’s dominant position in the wholesale electricity generation market from 2010 onwards. In March 2021, the European Commission announced that it was launching an official investigation into PPC’s activities in the Greek wholesale electricity market. On February 7, 2024, the European Commission sent a statement of objections to PPC, accusing it of predatory pricing in the Greek wholesale electricity market. Specifically, the allegation concerns selling electricity below cost to hinder competition during the period from July 1, 2013, to December 31, 2019. On July 24, 2024, a hearing was held before the European Commission. The investigation is still ongoing, and the outcome, as well as the potential financial impact on PPC, cannot be estimated at this stage due to the uncertain nature of competition law investigations.
Risks PPC’s and its Group’s activities face various risks that could negatively impact their operations, financial results, and cash flows. These risks include:
Assumption and Hypothesis Risk: PPC’s goals are based on specific assumptions about financial performance, which may not materialize due to external factors such as economic conditions and other operational risks. Regulatory and Legislative Developments, Political and Tax Risk: PPC operates in a complex regulatory environment that may change, adversely affecting its operations. There is a risk that authorities may interpret or apply laws in a way that hinders the company’s operations, and potential conflicts with regulatory authorities could result in unforeseen consequences. Licensing Risk: PPC’s activities require various permits, which can be time-consuming and complex. Failure to obtain or renew these permits could lead to the cessation of activities and difficulties in financing, particularly for Renewable Energy Sources (RES) projects. Social Pressure Due to Increased Energy Prices: Increased energy prices may limit PPC’s ability to set tariffs, negatively impacting the collectability of bills and the company’s revenue. Regulated charges set by authorities may also affect the company’s financial position. Financial Risks: PPC’s financial performance depends on external factors beyond its control. Any debt refinancing may occur at higher interest rates, which could limit business activities and impact the company’s financial condition and prospects. Statements by Giorgos Stassis, Chairman and CEO of PPC, reflect an optimistic approach and confidence in the company’s strategy.
Mr. Stassis highlights the strengthening of PPC’s profitability, which has managed to move to higher levels despite past challenges. Furthermore, he emphasizes the company’s commitment to strategic investments, particularly in the field of Renewable Energy Sources (RES), as well as the digitization and modernization of its activities.
The increase in the power of mature RES projects to 3.3 GW, combined with the ambitious goal of a total installed capacity of 8.9 GW by 2026, demonstrates a firm commitment to promoting green energy.
Mr. Stassis’s confidence in achieving the target of adjusted EBITDA of €1.8 billion for 2024 confirms the resilience of PPC’s business model, which is based on a strong presence in both electricity generation and distribution.
In summary, PPC faces a period of significant challenges, despite positive signs of improvement in revenue and EBITDA. The increase in net debt, the decline in net profit, and the increased financial obligations are serious issues that could negatively impact the company’s future trajectory.
Additionally, PPC is underperforming on the Stock Exchange, reflecting investor concerns about its long-term prospects. Despite efforts for strategic investments and compliance with sustainability goals, PPC must effectively manage its increased debt and surrounding financial risks if it wishes to reverse the negative market trend and maintain its sustainability in an ever-changing energy and regulatory environment.
Konstantinos Gougakis
