Hizmete ÖzelJuly 2018
Company Presentation
2Hizmete Özel
Disclaimer
Important Information
This presentation contains information relating to Enerjisa Enerji A.Ş. (“Enerjisa”) that must not be relied upon for any purpose and may not be redistributed, reproduced, published, or passed on to any other person or used in whole or in part for any other purpose. By accessing this document you agree to abide by the limitations set out in this document as well as any limitations set out on the webpage of Enerjisa on which this presentation has been made available.
This document is being presented solely for informational purposes. It should not be treated as giving investment advice, nor is it intended to provide the basis for any evaluation or any securities and should not be considered as a recommendation that any person should purchase, hold or dispose of any shares or other securities.
This presentation may contain forward-looking statements based on current assumptions and forecasts made by Enerjisamanagement and other information currently available to Enerjisa. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. Enerjisa does not intend, and does not assume any liability whatsoever, to update these forward-looking statements or to conform them to future events or developments.
Neither Enerjisa nor any respective agents of Enerjisa undertake any obligation to provide the recipient with access to any additional information or to update this presentation or any information or to correct any inaccuracies in any such information.
Certain numerical data, financial information and market data (including percentages) in this presentation have been rounded according to established commercial standards. As a result, the aggregate amounts (sum totals or interim totals or differences or if numbers are put in relation) in this presentation may not correspond in all cases to the amounts contained in the underlying (unrounded) figures appearing in the consolidated financial statements. Furthermore, in tables and charts, these rounded figuresmay not add up exactly to the totals contained in the respective tables and charts.
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Executive Summary
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Successful track-record of expansion and improvement of legacy regional companies
1996
20062009
2013
2017
Establishment of Enerjisa by
Start of 1st
Regulatory Period
Acquisition of Başkent Region
E.ON Becomes 50% Partner
Unbundling Process Initiated
Acquisition ofAyedaş andToroslar Regions
Generation and Wholesale Spin-off from Distribution and Retail
Turkey’s No.1 Electricity
Distribution and Retail Company
2016
Start of Current (3rd) Regulatory Period
2018
IPO & listing at IstanbulStock Exchange –included to BIST 30 & FTSE All-World Index
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Enerjisa at a glance
10.9m2017 Connection
Points
c. 220,000 km2017
Network Length
35.2 TWh2017 Sales
Volume
9.2m2017 Customers
TL5.3bn2017 RAB
Overview
Turkey’s leading electricity distribution and retail company with consolidated revenues of over TL12bn for the year ended 31 December 2017
Successful partnership between E.ON and Sabancı, through a 50/50 joint venture since 20131
Fundamental growth from incumbent regions (Başkent, Ayedaş and Toroslar)
Successfully completed operational and financial improvement post privatizations
Total RAB of TL5.3bn as of 2017
Large retail customer base of over 9 million (representing 22% market share) with high proportion of regulated sales
Reta
ilD
istr
ibu
tion
1 1 1
1 1
No.1 Electricity Distribution and Retail
Player in Turkey
1 Post IPO E.ON and Sabancı own 40% each.
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Enerjisa24%
Other Players76%
Enerjisa26%
Other Players74%
Enerjisa14%
Other Players86%
Presence in highly attractive regions in Turkey
Key Statistics on Regions (2017)
Source: Company, TUIK.1 Based on EMRA disclosure.
Rank Region Population
İstanbul European Side 9.7m
İstanbul Asian Side 5.3m
Ankara 5.4m
İzmir 4.3m
Bursa 2.9m
Antalya 2.4m
Adana 2.2m
Konya 2.2m
Gaziantep 2.0m
Şanlıurfa 2.0m
Kocaeli 1.9m
2
Population
20.9m
AreaNet
Distribution Volume1
Ayedaş 5.3m 1,926 km2 11.6 TWh
Başkent 7.3m 61,141 km2 15.0 TWh
Toroslar 8.3m 46,596 km2 15.2 TWh
109,663 km2 41.8 TWh
3
4
5
6
7
8
9
10
11
Presence in Turkey’s Top 10 Provinces by Population
Ayedaş
Başkent
Toroslar
Ankara(Capital)
Istanbul (Asian Side)
Adana
79
Gaziantep
3
2
Operations in some of the most influential and
industrialised regions of Turkey
More than a quarter of population covered
Total: 15.0m
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Turkey’s no.1 electricity distribution and retail company
Leader in an Attractive Market
26%1
10.9m Distribution Connections
9.2m Retail Customers
22%2
Supportive and Transparent Regulatory Framework
TL2.6bn Operational Earnings3
(2017)
Premium Sponsors and Superior Governance
40% 40%
Free Float
Strong Historical Growth and Untapped Potential
Regulated Asset Base(TLbn)
> 2x RAB 2016
2020E
No.1
Retail9%
Distribution91%
Regulated
20%
+55%
2016
5,3
1,4
2,7
20172015
3,9
2014
1 Market share by number of connections as of 2017.2 Market share by number of Retail customers as of 2017.3 EBITDA + Capex Reimbursements.
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Significant operational earnings and cash growth
Consolidated Underlying Net Income (TLm)
Consolidated Operational Earnings(TLm)
Consolidated Free Cash Flow before Interest and Tax (TLm)
1 Source: S&P and company research.
Net Debt/Operational Earnings
Global Peers1
779
+49% 2.565
2017
1.938
20162014 2015
1.100
522377
70
-277
2014 2015 2016 2017
2017
176
2016
2
2014
-379
2015
444
Operating Cash Flow (before interest & tax)
Capex
2014 2015 2016 2017
2,9x
3,4x
5,5x
7,0x
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Mid-term targets
Operational Earnings(TLm)
Dividend policy 60-70% payout of Underlying Net Income
Leverage <3.5x Net Debt/Operational earnings
+32%
20202017
2,565
1,938
2016
+20%CAGR
2016-20522
377
20202017
+38%
2016
Significantly>20% CAGR
2016-20
68%
2017
70%
60%
2020
0.30TL
Dividend per share1
1 Dividend per 100 shares; total number of outstanding shares is 118,106,896,712.
20202017
2.9x
2016
3.4x
3.5x
Underlying Net Income(TLm)
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Electricity distribution leadership provides economies of scale
No.1No.1
10,9
8,0
5,0
3,1 3,02,2 2,0 1,8 1,7 1,7
1,0 0,7 0,7 0,7
CK
Bere
ket
Lim
ak
Calik-K
iler
Aksa
Ala
rko-C
engiz
Dic
le E
daş
Zorl
u
Akcez
Içta
ş
Kceta
s
Akedas
Türk
erler
2017 Number of Distribution Connections by Competitors (millions)
Share of National Regulatory Asset Base1
(2017)
Share of 2016–2020 National Capex Allowance of Total ~TL18bn(October 2015, real)
24%
Enerjisa Distributes Electricity to 1 Out of Every 4 Persons in Turkey
Enerjisa Reads c. 120 Million Meters Every Year
Centralised Management Enables Sustainable Top Performance
23%
= 26% Market Share
29%
Source: Company and EMRA.1 National Regulatory Asset Base according to initial Capex allowance, Enerjisa RAB accounts for actual Capex.
Other players
Other players
10.2 = 24% Market Share
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35
31
23
1311 9 8 8
29 30
CK
Bere
ket
Lim
ak
Akenerj
i
İçta
ş
Zorl
u
Aksa
Oth
er
Incum
bents
Non-
Incum
bents
1
22%2
No.1 electricity retailer with nationwide reach No.1No.1
2017 Sales Volume by Competitors(TWh)
Market Share by Customers(2017)
Market Share of Residential and SME Volume(2017)
Enerjisa Operates Nearly 200 Customer Service Points
Call Centres Handle 1.3 Million Calls a Year
Retailer with Nationwide Reach and Brand Awareness
= 18% Market Share
9.2m
22 TWh
c.2
00 P
layers
Source: Company and EMRA.1 Including Cengiz Toptan.2 Includes inactive customers.
Other players
Other players
18%
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RAB-based regulation similar to Western Europe with stronger fundamentals
Key Features of Distribution
Infrastructure
Regulation Approach
TurkeyWestern Europe vs.
Connections Growth
Demand Growth
Level of Interruptions
Dispersion in Performance by Concessionaires
Low
Low
Low
Low
High
High
High
High
Source: Regulatory Bodies, Moody’s’ “Regulated Electric and Gas Networks – EMEA” reports dated November 2016 and June 2017.
Regulatory Period Length
RAB-Based
Capex Reimbursement Accounting
Capex ReimbursementPeriod
Outperformance Incentives
4-8 years
P
In EBITDA
30-45 years
5 years
Regulatory: in EBITDAIFRS: in Cash Flow
Statement
10 years
P
P P
RAB Growth Low High
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Distribution regulation incentivises investment and outperformance
Regulated WACC(real Oct 2015, pre-tax)
EnerjisaCapex Allowance(TLbn, real Oct 2015)
Theft and Loss Allowance
Fixed by Regulator
Variable with Actual
Historical Rates
Financial Income and
Capex
Reimbursement
Efficiency &
Quality
Other
Distribution Operational Earnings Breakdown1
(2017)
9,97%
11.91%
2.8
4.3
+194bps
+53%
TL2.3 bn
Regulated WACC (real)
2nd Reg. Period2011 – 2015
3rd Reg. Period2016 – 2020
Source: Company, Bloomberg and EMRA.1 For the explanation please see “Operational Earnings bridge “in the Appendix.
69%
26%
5%
EnerjisaOpex Allowance1
(TLbn, real Oct 2015)
4.0
4.8
+21%
2016-2017 ->
2018-2020 -> 13.61%
11,91%
9,97%
2011-2015 2018-2020
13,61%
2016-20172006-2010
9,35%
2nd reg. period 3rd reg. period
1st reg. period
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Majority of retail customers still regulated –liberalisation as potential upside for profitability
By Consumption Limits in Eligibility Limit Development*(MWh p.a.)
Illustrative Profitability Structure
Market Openness by Volume
30,0
5,0 4,5 4,0 3,62,4 2,0
~ 94%
2015 2016
~ 47%
20142012
100.0
2010 2013
25.0
2011
Market Openness by No. of Customers
2.38%
Regulated
Sales Price
Liberalised
Sales Price
Discount Gross Margin
Retail Service Revenue Sourcing Cost
2.38%
-Potential for
ReducedSourcing Cost
+Potential for
HigherMargins
2017
Source: Company, EMRA.
In December 2017, the regulator has lowered the eligibility threshold from 2.4MWh to 2.0MWh, effective starting from 2018
2018
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High quality partners and experienced management team
40%
World class utility – operating in networks, customer solutions, and renewables
RAB of ~€19bn
>22m retail customers across Europe
>400k customers purchasing value added units
Operates 754,000 km of network grid length
Current Ownership Structure
Turkey’s leading conglomerate company
Strong retail experience/brand awareness
Listed holding with listed subsidiaries including Akbank, Avivasa, Brisa and Carrefoursa
Track record of working with international partners (e.g. Aviva, Ageas, Bridgestone, Heidelberg and Carrefour)
Experienced Management Team
Independent Board Members
Transparent and Arm’s Length Related Party Transactions
40%
Source: E.ON & Sabancı websites.Note: Operational and financial data as of 2016.
Free Float
20%
>75% international institutions at IPO
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Turkish electricity sector investment needs to continue to grow significantly
• Population growth of 1.4% p.a. since 2000, expected 0.6% p.a. until 2042
• Young population with median age of 31 years• Economic growth driven by increasing population and
prosperity, with GDP expected to grow 4.7% p.a. until 2042
Strong macro with favourable dynamics
• Electricity demand growth ~5% p.a. since 2000 and projected
to continue going forward in line with government guidance
• Electricity consumption per capita of 3.2 MWh in 2016 is significantly behind European countries
5% CAGR electricity demand since 2000
• Frequency and duration of outages as well as level of theft and loss rates vs. other EU countries shows need for significant additional investments into network quality improvements
Quality improvements required
• Exceptional wind and solar generation capacity increase from virtually nothing in 2000 to 6.5 GW in 2017 has driven network requirements
• Renewables and decentralised energy will play a significant role for security of supply purposes in the future (12.3 GW wind and solar installed capacity expected in 2020)
Impact from renewables / decentralised energy
Source: EIU, World Bank, TEİAŞ, EMRA.
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One of the Fastest Growing European Countries(real GDP CAGR in %)
Turkey’s macro growth story remains strong, supported by positive demographic dynamics
5,7
%
3,7
%
3,6
%
2,7
%
1,7
%
1,3
%
1,1
%
1,1
%
1,1
%
0,1
%
(0,1
%)
Turk
ey
Pola
nd
Rom
ania
Czech R
ep.
UK
Spain
Germ
any
Neth
erlands
Fra
nce
Port
ugal
Italy
4.6% 3.3% 4.1% 1.6%2.8% 2.3% 1.6% 1.6% 1.0%2.2% 1.7%
CAG
R (
2001 –
2016)
CAG
R
(2016-
2022E)
One of the Largest and Still Growing Population in Europe(2016 population in millions, CAGR 2016-2022E in %)
Favorable Demographics with Increasing Urbanisation(% of Total Population)
CAG
R
(2016-
2022E)
82,6
79,5
65,1
64,7
59,4
46,4
38,4
19,8
17,0
10,6
10,3
Germ
any
Turk
ey
UK
Fra
nce
Italy
Spain
Pola
nd
Rom
ania
Neth
erlands
Czech R
ep.
Port
ugal
0.1% 1.1% 0.6% 0.4% (0.1%) 0.0% 0.0% (0.5%) 0.5% 0.0% (0.3%)
71.0%
25%
18% 18% 17% 15% 15% 15% 15% 14% 14% 13%Turk
ey
Fra
nce
UK
Neth
erlands
Rom
ania
Czech R
ep.
Pola
nd
Spain
Port
ugal
Italy
Germ
any
31 41 42 41 42 40 43 44 46 4640
% o
f 0-1
4 A
ge
in 2
016 p
opula
tion
Media
n
Age
A Young Population(Percent of 0-14 Age in Total 2016 Population, Median Age in 2016)
73,9%
91,0%
82,8%80,5% 79,8% 79,8%
Turkey Netherlands UK OECD France Spain
2010
Popula
tion
(in m
)
2016
Turkey
Source: EIU, World Bank.
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Electricity consumption growing steadily, with room for further increase
Netherlands
UKGermany
France
Italy
Spain
PortugalCzech Republic
Poland
Turkey
Romania
-
10
20
30
40
50
2.000 3.000 4.000 5.000 6.000 7.000 8.000
GD
P p
er c
ap
ita
20
16
(U
SD
k)
Electricity consumption per capita 2016 (kWh)
581
461
338 307257 251
153 11669 49 54
Germ
any
Fra
nce
UK
Italy
Spain
Turk
ey
Pola
nd
Neth
erlands
Czech R
ep.
Port
ugal
Rom
ania
5.1%0.7% 0.7% 0.9% 1.1% 0.9% 1.4% 2.5% 1.2% 2.8%1.7%
Electricity Consumption Growth Expected to Outpace European Countries(TWh 2016, CAGR 2016-2021 in %)
Electricity per Capita Consumption Significantly Below European Countries
Source: EIU.
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14,3% 15,4% 14,3% 14,0% 13,4%
2012 2013 2014 2015 2016
Network investments to bridge the efficiency/ quality gap with other European markets
Turkish SAIDI (minutes per year)
SAIDI Benchmarking vs. European Counterparts(minutes per year, 2014)1
694
320 277153 99 92 67 67 25
Romania Poland Czech Rep. Italy Portugal UK France Spain Germany
1.764
1.567
2015 2016
Duration of outages and theft & loss rates show need for significant further investments into network quality improvements
Significant Transmission and Distribution Losses in Turkey vs. European Counterparts(% of output, 2015)
Turkey Electricity Transmission and Distribution Losses Evolution(% of output)
Source: Company, EMRA, Eurostat.1 Sourced from: 6th CEER benchmarking report on the quality of electricity and gas supply.2 Turkey 2015 data sourced from EMRA.
14,0%
10,3%8,8% 7,9%
7,0% 6,7% 6,4%4,7%
Turk
ey
Spain
UK
Fra
nce
Euro
pe
Czech R
ep.
Italy
Germ
any
2
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Attractive home regions enhance growth potential
Enerjisa Geographic Footprint Başkent
• First Enerjisa region acquired in 2009
• Largest electricity distribution region in Turkey by grid size and geographic area
• Key urban centers: Ankara (Capital)
• Network length: 110 thousand km
• License Expiry Date: Sep 2036
• Population: 7.3 million
Ayedaş
• Acquired in a privatisation tender in 2013
• Fastest growing Enerjisa regions by electricity consumption
• Exposure to the Asian side of İstanbul (Turkey’s largest city)
• Network length: 24 thousand km
• License Expiry Date: Dec 2042
• Population: 5.3 million
Toroslar
• Acquired in a privatisation tender in 2013
• 3 large metropolitan areas: Mersin, Adana and Gaziantep
• Network length: 86 thousand km
• License Expiry Date: Dec 2042
• Population: 8.3 million (most populous of Enerjisa’s regions)
Ayedaş
Başkent
Toroslar
Ankara(Capital)
Istanbul (Asian Side)
Mersin
Gaziantep
Adana
Consumption Growth1
Population Growth2
Household Size
Turkey 3.6%
Turkey 0.6%
3.8
3.5
3.0
Western Europe 3
2.0 - 2.5
Başkent
Ayedaş
Toroslar
4.0%
4.7%
3.9%
1.0%
1.5%
0.8%
Source: Company, EMRA, Turkstat and Eurostat.1 Ayedaş and Toroslar annual growth rate 2016–2042, Başkent annual growth rate 2016-2036; Source: Mercados.2 Ayedaş and Toroslar annual growth rate 2016–2042, Başkent annual growth rate 2016-2036; Source: Population
growth study by Prof. Dr. Ahmet Sinan Türkyılmaz.3. Based on average household sizes in Germany (2.0), UK (2.3), France (2.2) and Spain (2.5). 4. Ayedaş considers Istanbul household size (including European side) as per Turkstat.
4
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Leverage Customer Base into New Services and Customer Solutions
Clear priorities to harvest growth potential
Benefit from Retail Liberalisation
Ensure Competitive Financing Cost and Leverage
Drive Operational Excellence, Digitalise all Processes
Capitalise on Distribution Investment Opportunities
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Enerjisa is a forward thinking utility
Future Focus Areas / R&D
Actionable medium term opportunities including rooftop solar, smart meters and battery storage
Energy efficiency
Distributed generation
Internet of things
Platform / network activities
Digital customer
experience
Cross-sells
Network Operations Growth Areas
B2B & B2C Growth Areas
Smart appliances
Distributed generation
Smart cities
E-battery
Connected home
Back-office and other shared
services
Network Monitoring
Drones
Electric Bus
Lines
Solar PV
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Key Investment Highlights
Significant growth realized & expected
Highly regulated and guaranteed income
Reliable framework, positive regulatory trend
Solid balance sheet, declining leverage
Attractive dividend pay-out
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Key Financials
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Background and definition of key financial KPIs
In Turkey, Distribution companies operate under a transfer of operating rights (TOR) agreement, which meansno legal ownership of assets; legal and asset ownership remains with TEDAŞ (i.e. the state)
As a consequence, accounting for all Turkish distribution companies falls under IFRIC 12 “service concession arrangements: government or other body grants contracts for supply of public services”
Therefore, networks are accounted as financial asset instead of fixed assets in IFRS which need to be recognized at fair value under IFRIC 12
This has two important implications for the presentation of top financial KPIs:
1. IFRS P&L does not show any asset depreciation and accordingly no income from amortisation allowance (reimbursement of capital) Enerjisa uses EBITDA + Capex reimbursement as its main operational
financial KPI to capture the full regulatory, cash-effective RAB return and to increase comparability with international peers who generally do not have to apply IFRIC12
2. Changes in long-term assumptions (e.g. Regulatory parameters) lead to changes in the fair value of thenetworks-related financial asset. These changes are IFRS P&L-effective, can be material because theyrelate to the remaining concession period and are fully non cash-effective. As a result they are treatedas exceptional items and adjusted from top financial KPIs in order to avoid time series distortions
As a result, Enerjisa defines the top financial, P&L-related KPIs as follows:
EBITDA
+ Capex reimbursements
- Exceptional items
= Operational Earnings
Reported Net Income
- Exceptional items
= Underlying Net Income
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Operational earnings and cash development in2014 – 2017
Consolidated Operational Earnings(TLm)
Consolidated Free Cash Flow before Interest and Tax (TLm)
Distribution
Higher financial income driven by higher Capex related RAB and higher WACC in 3rd regulatory period
Higher outperformance on Capex, Opex and T&L driven by efficiency gains as well as more favorable regulatory parameters starting in 2016 (theft accrual & collection)
Retail
Focus on profitable volumes and flexible optimization of customer segments depending on market conditions
Distribution
Generally increasing, even though significant discretionaryCapex weigh on FCF
Retail
Generally positive and closely linked with EBITDA due toinavailability of Capex
Significant working capital-related shift between 2014 and 2015 due to change in sourcing driven by increased liberalised sales
Key Drivers
Key Drivers
Source: Company
290635
807
145 280
2017
2.344
20152014
1.650
2016
247
7791.100
1.938
2.565+49%
RetailDistribution Other
299420
323
-432 -423
121
48
2014 2015 2016
-379
-59
2
2017
444
176
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Significant deleverage helps to capitalise on investment opportunities
Avg. nominal effective cost of financing
Net Debt Development(TLbn)
9.8% 11.6% 13.3%
Net debt increase largely driven by Distribution Capex
Privatisation Administration debt fully repaid by end of 2016
Cost of debt has increased with market interest rates mainly driven by rising inflation
Net Debt/Operational Earnings
Global Peers1
Significant deleveraging despite increasing absolute net debt
Leverage target: Below 3.5x Net Debt / Operational Earnings2
Source: Company.1 Source: S&P and company research.2 See disclaimer regarding forward-looking statements on “Disclaimer”.
2,41,2
3,2 5,1 6,6 7,5
(0,1) (0,2) (0,1) (0,2)
5,56,1 6,5
7,3
2014 2015 2016 2017
Privatisation Administration Debt Debt Cash
7,0x
4,2x
3,4x 2,9x
2014 2015 2016 2017
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Source: Company.1 Gross debt excluding ~60-70m€ TEDAŞ payable2 Long-term national rating.
Reduced leverage supported by improvingfinancing mix
Increasing Tenor
Increasing alignment with capex reimbursement period within constraints of Turkish financing environment
Average remaining tenor 2-3 years
Diversifying Debt Instruments1
Biggest corporate real sector issuer in 2017, including biggest and longest bond issuances
Bank loans are based on “name lending”, with minimal covenants
Alignment with Revenue Streams
No material FX exposure other than TEDAŞ payable of ~60-70m€ payable before hedges
Bonds are CPI-linked and therefore match inflation exposure of business
Rating
Highest rating among Turkish electricity companies
Key positives in its rating report are: regulated nature of Enerjisa, favorable market reforms, predictable operating cash flows and experienced shareholders of Enerjisa
National
Rating2
Rating
Agency
Enerjisa AA
Başkent AA
Limak Yatırım AA-
Aksa Enerji A+
IC IÇTAŞ Enerji A
Çalık Enerji A-
Odaş Elektrik BBB-
Zorlu Enerji BBB-
Turkish Electricity Companies
93% 82%
7% 18%
2014 2017
Banks Loans Bonds
37%27%
45%
28%
9%
30%
6% 10%
2014 2017
<1 year 1–2 year2–3 year 3–4 year>4 year
5%3%
*
29Hizmete Özel
Bottom-line development in 2014 - 2017
Consolidated Underlying Net Income1
(TLm)
2014 2015 2016 2017
377
-277
70
Consolidated Free Cash Flow after Interest and Tax (TLm)
2014 2015 2016 2017
-1,023
-446-303
Substantial increase compared to EBITDA growth due to parallel deleveraging
Increase in financial expenses (net) due to Capex-related higher loan volume as well as higher interest rate
Effective tax expense rate of ~30% driven by non-tax deductible financial expenses at holding level
2014 burdened by high PPI-linked privatization agency interest payments, which positively contributed in 2015 and 2016 (at end of 2016, those have been fully repaid)
Positive operational development from 2015 to 2016 partially offset by higher interest payments as a result of higher net debt
2017 burdened by discretionary front-loaded CAPEX profile in the years 2016 and 2017 resulting in higher interestpayments without a corresponding increase in OCF
Key Drivers
Key Drivers
1 Excludes fair value change of financial assets (see “TOR concessions”).
522
-775
30Hizmete Özel
Distribution Business
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No. 1 Distribution Company in Turkey1 Distribution Operational Earnings (TLbn)
Enerjisa distribution operations at a glance
23% 29%
+55%
EBITDA excluding exceptional items
Capex Reimbursements
Other Players
TL 5.3bn2
2017 RAB1 10.9m
2017 Connection Points
1c.220,000 kmNetwork Length
1
Access to aPopulation of
over 20m
c. 8,500 employees4
c.110,000 km2
Coverage area1
Turkey Market Share
Source: Company, EMRA.1 As of 2017. In terms of RAB; number of connection points, total network length and coverage area.2 National Regulatory Asset Base according to initial Capex allowance, Enerjisa RAB accounts for actual Capex.3 Capex allowance for the 3rd regulatory 2016-2020 period.4 As of 2017.
Other Players
CAGR 2014-2017:
3rd Regulatory period Capex allowance3 2017 RAB2
2,3
0,40,6
1,2
1,8
0,2
0,2
0,4
0,6
2014 2015 2016 2017
1,6
0,8
0,6
32Hizmete Özel
Başkent experience: driving operational excellence
Transition
Up to Q4 2014
“One Distribution”
Q4 2014 to Q4 2015
Excellence in Distribution
From 2016 onwards
Definition of processes & interaction
Establishment of organisational structure
Clear definition of roles & responsibilities
Setting of strong IT infrastructure
Cultural integration
Business excellence
Sharing & transferring best practices & implementation
Strong IT infrastructure, implementing SAP ISU, WFM and SAP PS systems
Warehouse and fleet management optimisation
Research & Development activities (R&D)
Safety Improvement Plan
Material Quality control
Geographical Information System (GIS)
Automated Meter Reading (AMR)
Efficient Structural Organisation (Central Function)
Financial management (FCF, CPI Linked Bonds)
Process Efficiency in Field & Customer Operations
Digitalization
P
Başkent was acquired during the 1st round of privatisations in January 2009. Many challenges were experienced, from which valuable lessons were extracted for the takeover of Ayedaş and Toroslar regions
PHuman resources, technological infrastructure, IT systems and processes were integrated to newly acquired regions successfully
Source: Company.
33Hizmete Özel
Historical track record and expected continued growth
● Enerjisa is the market leader in Turkey by number of connection points and network length
– Başkent and Toroslar are the largest and 2nd largest power distribution companies in Turkey by network length respectively
● Demand growth results from favourable Turkish demographics (i.e. young and growing population in large metropolitan areas), favourable macroeconomic parameters (GDP per capita, increasing disposable incomes) and urbanization
– Enerjisa’s concessions are in privileged locations given exposure to large Turkish urban centres: Istanbul (Asian side), Ankara, Adana, Mersin and Gaziantep
Ayedaş Başkent Toroslar
Number of Connection Points(# Million)
Distributed Energy (Net)(TWh)
c.3% CAGR2016-2020E
Turkey’s 5% Demand CAGR
2016-2020E
1
Source: EMRA.1 As per 5 year master plan application to EMRA.
9,9 10,2 10,5 10,9
36,4 38,4 39,7 41,8
2,6 2,7 2,8 2,8
3,8 4,0 4,1 4,2
3,4 3,5 3,7 3,8
2014 2015 2016 2017 2020E
10,3 10,8 11,1 11,5
13,2 13,9 14,3 15,0
12,9 13,8 14,3 15,2
2014 2015 2016 2017 2020E
34Hizmete Özel
Scope of the distribution business
Business Activity
Investments Planning
Investments Execution
Supply Chain Management
Technical Customer Operations
Network Operations
Capex plan execution
Construction works
5-year master plans
Yearly investment
plans
Quarterly revisions
Procurement
Warehouse, stock and
fleet management
Other
Associated Regulatory Item
Regulatory Remuneration
New connections
Meter reading
Connection / disconnection
Meter operations
Theft & Loss
SCADA system
Quality enhancements
Rental and advertisement Theft accruals
Lighting
Customer satisfaction
Opex allowance
T&L Allowance
Quality parameters
Financial Income
Capex Outperformance
Capex Reimbursement
Opex Outperformance
T&L Outperformance
Other Revenues
Capex Unit Prices
Capex Allowance
In
vestm
en
tsO
perati
on
s
Quality Bonus
Source: Company.
Theft accrual
35Hizmete Özel
TOR concessions
Legal
Accounting
TOR Period
Acquisition of license to operate as transfer of operating rights (TOR) agreement
No transfer of legal ownership of assets; legal and asset ownership remains with TEDAŞ
Accounting for all Turkish distribution companies falls under IFRIC 12 “service concession arrangements: government or other body grants contracts for supply of public services”
Networks are accounted as financial asset instead of fixed assets in IFRS which need to be recognized at fair value under IFRIC 12; subsequently changes in fair value are recognized through the P&L and are driven by changes in long-term assumptions impacting financial income
Therefore, IFRS P&L does not show any asset depreciation and accordingly no income from amortisation allowance (reimbursement of capital) Enerjisa uses EBITDA and Capex
reimbursement as its main KPI to capture the full regulatory RAB return and to increase comparability with international peers
In contrast, local GAAP accounts for a fixed asset and therefore P&L shows both a depreciation expense as well as reimbursement of capital expenditure as income which is naturally captured in local GAAP EBITDA
Local GAAP depreciation expense is calculated until end of concession, while Capex reimbursement period is 10 years. Thus, there is a tax correction in place.
Başkent: 01.09.2036
Toroslar & Ayedaş: 31.12.2042
Expiration Assets are handed back to TEDAŞ in exchange of reimbursement of unamortised RAB
A new re-tender of the asset may follow
“Liberalised” retail license is not in the scope of TOR
36Hizmete Özel
Well-established incentive-based regulatory framework
First Regulatory Period(2006–2011)
Second Regulatory Period(2011–2015)
Third Regulatory Period(2016–2020)
Approach Uniform regulation for all Distribution System Operators in Turkey
Method RAB-based framework with incentives given to outperformance
WACC(real, pre-tax) 9.35% 9.97% 11.91% - 13.61%
Evolution
• WACC revised up
• Unbundling between distribution and retail operations
• WACC revised up (2016-2017
11.91%, 2018-2020 13.61%)
• T&L methodology revised
• Significant increases in Opex and Capex allowances
• Enhancement of Quality and Efficiency Incentives
• “Transition” period designed to provide smooth shift to a cost-based tariff structure post-2010
• RAB-based tariff calculation methodology introduced with RAB set to 0 in 2006
• Private operator model (TOR) established for privatisations
Revenue components
and incentives
Regulated Revenue cap
• WACC return: RAB x WACC
• Capex reimbursement
• Opex allowance
• Tax difference adjustment
• No volume and inflation risk
Incentives
• Capex outperformance
• Opex outperformance
• Theft & Loss ratio improvement
• Service quality
• Other revenue (Advertisement, rent, lighting margin)
Capex reimbursement 10 years5 years
Continuous incentives for
efficiency, quality and
outperformance across regulatory
periods
Stable regulatory environment
with long-standing track
record
Similar building blocks to various
Western European countries
Source: Company, EMRA.
37Hizmete Özel
Outperformance on allowed controllable expenses
Distribution-specific cost inflation linked to CPI
Illustrative Operational Earnings breakdown
Financial Income
Capex reimbursement
Capex outperformance
Opex outperformance
T&L outperformance
Other
Illustrative OperationalEarnings Breakdown
RAB Development
IFRS WACC return largely driven by regulated WACC (pre-tax real: 2016-2017 11.91%, 2018-2020 13.61%) and inflation
New investments included in RAB as soon as approved by EMRA
RAB set to zero in 2006
Capex reimbursement period: 10 years
Reimbursement amounts indexed by CPI
Capex unit prices updated by the regulator to reflect prevailing prices
Target rates set by regulator for each region separately
e.g. theft accruals and quality bonus
Gu
aran
teed
by R
eg
ula
tor
Ou
tperfo
rm
an
ce
& O
ther
Incentive for Investment
Incentive forOutperformance
38Hizmete Özel
Earnings and cash generation in IFRS
Financial income
Capex outperformance
Opexoutperformance
Theft & Loss outperformance
Other
Stated IFRS EBITDA
Capex Reimburse-
ments
OperationalEarnings
+/-
CashInflows
• Adjustment for fair value change of Financial Assets
Adjustment for Statutory Financial Income not yet cash-effective
Capex outperformance
Net VAT (18%) collection/payment
Capex
Free Cash Flow
(before Interest &
Tax)
-
Actual allowed Capex net of Capex outperformance
Including VAT (18%) payments net of VAT incentive
+/-
-
+
Theft accruals & quality bonus
39Hizmete Özel
Earnings and cash generation in IFRS (cont’d)
2017 OperationalEarnings1 Actual 2017Drivers
Targets2 vs. 2016 base
CapexOutperformance
Opex Outperformance
Theft & Loss Outperformance
Theft Accruals & Quality Bonus
Financial Income& Capex
Reimbursements
Other
69%
6%
2%
6%
12%
5%
• Capex (initial allowed & actual)• RAB development• Regulated WACC• Inflation
• Capex (actual)• Capex unit prices• Procurement performance
• Opex allowance• Actual Opex• Operational efficiency
• T&L target rates• T&L performance• Consumption growth• Procurement prices
• Theft accrual collection• Quality bonus
• Tax correction• Other income (e.g. rent & advertisement)
More than double RAB 2016 by 20203
Maintain
Continue to outperform
Continue to outperform
Growing contribution
57% overspending
9% outperformance
5% outperformance
1.8pts average
outperformance
TL 277m
1 EBITDA + Capex reimbursements excluding exceptional items2 See disclaimer regarding forward-looking statements on “Disclaimer”.3 Key assumptions include (i) EMRA’s approval for the reimbursement of Capex overspending (over the initial Capex allowance) per annum and (ii) Enerjisa’s estimates for inflation. See
“Financial Income: regulatory RAB development” and “Financial income: RAB development” for the development of RAB until end of 2020.
40Hizmete Özel
Ability of increasing Capex allowances contribute to further RAB growth
Process to increase initial Capex
allowance:
Additional allowance is permitted by
EMRA regulations if investments are
needed in order to meet service
requirements as per legislation
Similar procedure as initial
5-year plan approval process
After acquisition of Toroslar in 2013,
need for additional allowance was
approved – additional investments were
mainly realised in 2015
Starting with 3rd regulatory period,
application for additional investments
has to be made when actual spending
reaches 80% of cumulative initial
allowance for 2016–2020
2017 shows overspending vs. full year
allowance
If rate of overspending continues, this
80% threshold will be reached in 2018
Capex allowance post-2020:
Fundamentals and need for investment
remain intact post-2020 driven by
network upgrades, smart grid and
expansion
Initial vs. Actual Allowed Capex(October 2015 prices, TLbn)
Initial vs. Actual Allowed Capex(TLbn)
0.90.7
0.6
1.3
0.6
2017
1.5
+0.6(77%)
0.9
+0.7(122%)
+0.1(18%)
20152014 2016
Initial allowed Capex Actual allowed Capex
1.0
2016
+0.7(77%)
+0.1(18%)
1.6
2015
0.9
+0.7(122%)
1.3
0.6
2014
0.60.5
2017
Actual allowed CapexInitial allowed Capex
Source: EMRA, Company.
For illustrative purposes and not to scale.
1.4
+0.5(57%)
+0.6(57%)
1.6
Financial Income& Capex
Reimbursements
41Hizmete Özel
1.1
0.7
RAB2016
RAB2013
0.9
OpeningRAB2021
0.9
0.6
RAB2019
2.6
RAB2015
1.5
0.90.4
4.0
0.7
RAB2020
3.1
RAB2018
0.6
0.2
3.7
3.4
0.1
0.2
0.5
0.6
3.9
0.9
RAB2014
0.8
RAB2017
0.9
RAB
Additional Capex allowance
2nd Regulatory period 3rd Regulatory period
Initial allowed Capex
Capex reimbursement
Recognition of Overspent Capex1
Regulatory RAB development
Regulatory RAB Development(October 2015 prices, TLbn)
Regulatory RAB development depends on announced initial Capex allowance and Capex reimbursement and is therefore fixed until end of the 3rd regulatory period – indexed to October 2015 prices (CPI index 267.2)
Any deviation in actual Capex vs. initial Capex allowance will be adjusted in the opening balance of 2021 (start of 4th
regulatory period). This is also when any additional Capex starts to be reimbursed
To compensate for this timing difference, the regulator grants a lump sum payment at the beginning of the next regulatory period including the foregone financial income inflated to the start of the next regulatory period
Source: EMRA, Company.Note: See disclaimer regarding forward-looking statements on “Disclaimer”.1 Assumes reimbursement of Capex overspending will be approved by EMRA.
For illustrative purposes and not to scale.
Financial Income& Capex
Reimbursements
42Hizmete Özel
Financial income: RAB development
RAB Development(Nominal, TLbn)
RAB depends on actual allowed Capex and requires an inflation adjustment for the opening balance each year
Capex reimbursement is again based on initial allowed Capex and is only adjusted for the overspending in the next regulatory period (same as in statutory financials)
Source: EMRA, Company.Note: See disclaimer regarding forward-looking statements on “Disclaimer”.1 Key assumptions include (i) EMRA’s approval for the reimbursement of Capex overspending (over the initial Capex allowance) per annum and (ii) Enerjisa’s estimates for inflation.
Inflation on Capex Reimbursements
RAB 2015
0.4
0.1
RAB 2014
1.6
3.9
0.2
0.2
RAB 2017
2.0
1.6
1.3
2.7
1.4
2.6
5.30.6
0.4
RAB 2016
RAB20201
2nd Regulatory period 3rd Regulatory period
Initial allowed Capex 2018–2020 (Real)
Overspending & inflation on Capex2018–2020
>2xRAB2016
Capex Reimbursements 2018–2020 (real)
RAB
Actual allowed Capex
Capex reimbursement
Inflation effect on opening balance
Financial Income& Capex
Reimbursements
43Hizmete Özel
Financial income
AverageRAB (nominal)
Regulated WACC (real)X + Inflation rate ≈
IFRS Financial Income(Nominal, TLm)
Simplified & illustrative calculation logic of IFRS Financial Income
Illustration of Difference in Cash-effective Financial Income in IFRS vs. Statutory
Source: EMRA, Company.
Cash-effective within the 10 years Capex reimbursement period
Statutory Financial Income
Financial Income on Overspending
Revaluation component on RAB basis
IFRS Financial Income
Cash-effective at beginning of next regulatory period
Directly cash-effective
Average Regulatory RAB
(real)
Regulated WACC (real)X X
Cumulative Inflation Index
The calculations and models in this slide are simplified illustrative representations of the relevant figures. The corresponding line items in Enerjisa financial statements or our reported results may deviate significantly as such line item would contain other components.
205 305
610
1.014
2014 2015 2016 2017
Financial Income& Capex
Reimbursements
44Hizmete Özel
Economies of scale enable efficiencies in Capex…
Capex Outperformance(TLbn) EMRA announced new, more favorable Capex unit prices
for the 3rd regulatory period starting in 2016
Subsequently, those new unit prices will form the basis for
outperformance until 2020
Outperformance is included in EBITDA and reduces Capex
Capex allowance of
~TL864m p.a. (real) until 2020
Capex outper-
formance (%)
X ≈Capex outper-
formance (abs)
Inflation
Overspending
Actual allowed Capex (nominal)
In spite of increased and accelerated Capex, majority of
investments continue to be spent for mandatory network
expansion rather than quality improvements
As a consequence network quality trails network growth
and leaves substantial investment needs in the years to
come
The calculations and models in this slide are simplified illustrative representations of the relevant figures. The corresponding line items in Enerjisa financial statements or our reported results may deviate significantly as such line item would contain other components.
619
1.269
1.599 1.573
577
1.246
1.434 1.431
2014 2015 2016 2017Actual Allowed CAPEX Actual CAPEX spent
-10%
-2%
-7%
-9%
CapexOutperformance
45Hizmete Özel
…and Opex
Opex Outperformance(TLbn)
Opex outper-formance
(%)X ≈
Opex outper-formance
(abs)Opex allowance of ~TL880m p.a. (real) until 2020
Inflation
Opex allowance (nominal)
0.8
-16%
0.9
0.70.7
-10%
0.60.7
-12%
20152014 2016
Opex allowance (controllable) Actual controllable Opex
Opex Breakdown by Type (ex-Depreciation)(2017, %)
Personnel
50%
Material
15%
Subcontracting
/ Outsourcing
12%
Utilities & Rent
12%
Other
11%
Majority of Opex is related to Personnel expenditure:
payroll, employee benefit expenses and social security
premiums
Material expenses mainly for conducting maintenance
operations and equipment for health & safety
TL1.1bn
Source: Company.
The calculations and models in this slide are simplified illustrative representations of the relevant figures. The corresponding line items in Enerjisa financial statements or our reported results may deviate significantly as such line item would contain other components.
2017
1.0
-5%
1.1
Opex Outperformance
46Hizmete Özel
Theft & Loss outperformance
T&L target rates have
increased for all regions
as of the 3rd regulatory
period starting 2016
In the 3rd regulatory, T&L
target rates are a result of
past 3 year average
actual rates
EMRA has taken into
consideration a 8%
overall reference for
setting target T&L rates
Regional profiles vary due
to differences in
population density,
network length
and industrial vs.
agricultural activity
Distributed energy growth
in line with average
consumption growth
T&L outperformance
(TLm) is the product of
T&L outperformance (%),
distributed energy and
energy sourcing costs
over all regions
X
X
-0.2
20142014 2015
+1.9
20162014 2015
-1.5
+0.6
2016
+0.4
2015
+0.8
-1.5-0.9
2016
-1.0
Actual T&L rate
Target T&L rate
Başkent Ayedaş Toroslar
Theft & Loss outperformance(% of Energy Sold)
Gross distributed energy(TWh)
CAGR 3.8% CAGR 3.5%CAGR 4.9%
Başkent Ayedaş Toroslar
Energy sourcing costs(TL/MWh)
≈
Theft & Loss outperformance(TLm)
% Spread % (Actual – Target)
Source: EMRA, Company.1 Initial T&L target rate before EMRA revision for Toroslar.
The calculations and models in this slide are simplified illustrative representations of the relevant figures. The corresponding line items in Enerjisa financial statements or our reported results may deviate significantly as such line item would contain other components.
7,9% 7,9% 8,0% 7,8%7,7% 7,0% 7,0%6,0%
2017
-1.7
6,6% 6,6%7,6% 7,6%7,2% 7,0% 6,8% 6,1%
-0.8
2017
12,2%
11,7%
13,6%
12,1%
13,2%
12,5%
12,1%
11,4%
2017
1.21% 10.7%1
-2.0
11,111,6
11,912,3
20162014 2015 2017
14,315,0
15,316,0
20162014 2015 2017
14,9
15,716,3
17,2
20162014 2015 2017
193199
187
170
20162014 2015 2017-60
26
84
135
20162014 2015 2017
Theft & Loss Outperformance
47Hizmete Özel
Theft accrual collection
Regulation in the 3rd tariff period explicitly incentivizes distribution companies to detect and invoice theft energy usage as well as to seek legal proceedings
20% (40% effective starting from 2018) of every theft usage invoice is granted to the distribution company regardless of collection
75% of every collection after legal proceeding can be kept by distribution companies
Distributed Energy(GWh) X ≈
Detected & invoiced
theft rate (%)
Theft accrual(TLm)X
Avg. price of energy (TL/kWh)
Theft accrual(TLm) X ≈
40% granted by regulator
Guaranteed income (TLm)
2017: 2% 2017: 0.50-0.60
2017: TL206m
2017: 45,449 GWh
Theft accrual(TLm) X ≈
Percentage of legal proceedings
executed
Additional collection (TLm)
2017: TL71m
X75% collection kept after legal
proceeding
2017: 18%
Company performance
Regulatory parameters
Source: Company.
The calculations and models in this slide are simplified illustrative representations of the relevant figures. The corresponding line items in Enerjisa financial statements or our reported results may deviate significantly as such line item would contain other components.
Theft Accruals & Quality Bonus
48Hizmete Özel
Tax correction
Capex-related tax correction result from difference between statutory depreciation period (based on remaining concession time) and Capex reimbursement (based on 10 year amortisation period)
Difference expected to significantly grow over the next years, reversing towards the end of concession
Simplified Tax Correction Mechanism
2014 2015 2016 2020
Capex reimbursement (nominal)
Statutory depreciation(related to Capex)
Additions are a function of initial allowed Capex (nominal) divided by average remaining time until concession end (Başkent: 2036, Ayedaş & Toroslar: 2042)
TL592m
TL269m
Average difference 2014–2017~TL186m
~TL47m p.a. 2014–2017
25%Tax Rate
Source: Company.
The calculations and models in this slide are simplified illustrative representations of the relevant figures. The corresponding line items in Enerjisa financial statements or our reported results may deviate significantly as such line item would contain other components.
2017
Tax correction rate until 2017:20% / (1-20%) = 25%
Tax correction rate starting 2018:22% / (1-22%) = 28%
Other
49Hizmete Özel
43%
25%
6%
2%
12%
4%
2% 6%
Rapid growth in earnings driven by constructive regulation and increasing RAB
Comments Distribution Operational Earnings1
(TLbn) 55% Operational Earnings CAGR between 2014-2017
Financial income has increased by
70% between 2014–2017 supported by the increase in
WACC rate and RAB growth
Capex reimbursements have increased with a CAGR of 41%
supported by past investments
Significant improvement of Efficiency & Quality by 108% as
Başkent experience is leveraged in other regions
2017 earnings continued to be driven by significant RAB
growth
+55%
Distribution Operational Earnings(2017A)
Financial Income
Capex Reimbursement
Opex Outperformance
Capex Outperformance
T&L
Tax Correction
Other
Theft Accrual & Collection
2,3
0,4 0,6 1,2
1,7
0,2 0,2
0,4
0,6
2014 2015 2016 2017EBITDA Capex reimbursements
1,6
0,80,6
1 EBITDA + Capex Reimbursements excluding exceptional items.
In TLm 2014 2015 2016 2017
Financial Income 205 305 610 1.014
Capex reimbursements 210 200 443 592
Efficiency & Quality 67 137 449 605
Capex outperformance 42 23 165 142
Opex outperformance 78 70 146 51
T&L outperformance -60 26 84 135
Theft accrual & collection 7 17 54 277
Tax correction 32 39 44 86
Other 121 126 104 47
Operational Earnings 635 807 1.650 2.344
50Hizmete Özel
Improving cash flow
Comments
Operating cash flow grows significantly
IFRS financial income is partially not yet cash-effective due to overspending and inflation revaluation recognition, which are compensated at a later point in time
Capex outperformance is not a contribution to operating cash flow, but reclassified as a reduction of Capex
Capex frontloading creates higher Capex which decreases FCF while significantly growing EBITDA
Free Cash Flow Before Interest and Tax(TLm)
-432 -423
121
-59
2014 2015 2016 2017
In TLm 2014 2015 2016 2017
Operational Earnings 635 807 1.650 2.344
Financial income not yet cash effective -71 -125 -265 -577
Capex outperformance -42 -23 -165 -142
Other (non-cash, NWC, VAT) -476 -35 -146 21
Operating Cash Flow before interest and tax
47 624 1.633 1.646
Actual allowed Capex (nominal) -619 -1.269 -1.599 -1.573
Actual allowed Capex (incl. Capex outperf.)
-577 -1.246 -1.434 -1.431
Unpaid Capex and VAT 98 198 -78 -274
Cash-effective Capex -479 -1.048 -1.512 -1.705
Free Cash Flow before interest and tax -432 -423 121 -59
51Hizmete Özel
Retail Business
52Hizmete Özel
Source: Company, EMRA.1 As of 2017. In terms of number of customers.2 Includes inactive customers. 3 Full-time employees as of 2017.4 EBITDA includes TradeCo related EBITDA adjustments in the amount of TL16M, TL-60m and TL-16m in 2014,2015 and 2016. Starting from 2017, there is no TradeCo related
EBITDA adjustments.
Enerjisa retail operations at a glance
35.2 TWh2017 Sales
Volume
9.2m2017
Customers2
22%29.2m
18%
# of Customers (2017)
No.1 Retail Company in Turkey1 Operational Earnings4
(TLm)
c. 1,100employees3
1
Turkey Market Share
145
280290
247
2014 2015 2016 2017
1
18%
Sales Volume (2017)
35.2 TWh
53Hizmete Özel
Ayedaş and Toroslar take-over
Legal and financial unbundling
Centralization/ standardization
of critical processes
Renovation of all CCOs1
Setting up of sales and
marketing departments
Fixed and variable products for
mass segment
Customer-centric process design
incl. customer journeys
NPS reporting
SAP ISU roll-out
Single ISU & CRM systems in
incumbent regions
Take-over & Reorganization
System unbundling
SAP Full CRM roll-out
Commodity risk management
D2D: 200k sales
Telesales: 118k renewals
Dealer: 8.8m collections
Call Center: 1.3m calls answered
Customer service qualityimprovements (sample):
CCO avg. Waiting Time: 1 hr2 > 12 minutes
Call Center Reach Rate: 10% 2 > 90%
Invoice Errors:188k3 > 49k
Customer satisfaction: 613 > 73
Mobile app launch
«Save Your Energy» campaign
Behavioral, demographic, geographic segmentation models
D2D route optimization backed by analytics
Prevailing as a Retail Company
D2D / Telesales / Dealer
channels launched
Rebranding –new Enerjisa brand
launched nation-wide
First cross-sector marketing
campaigns with Telecoms and
Insurance
Customer Experience
Committee
Customer immersion sessions
SAS platform for analytics –
value based segmentation
2016–2020 tariff negotiations
Transformation from Utility to Retail
Collection performance increased
from 98% in 2014 to >99.5%
100k liberalized contracts signed
in a month
Digitalized archiving
90k mobile app / 400k online
portal users
Closing of D2D channel due to
slowdown in sales (flexible
response to market conditions)
Brand awareness:
47%3 > 78%
Trustworthy brand:
48%3 > 62%
Flexibility in Adaptation to Market Conditions
Evolution of Enerjisa’s retail platform
2013 20152014 2016 2017
1- Customer Care Office 2- Before take-over 3- As of 2015
54Hizmete Özel
Liberalisation has led to various customer and retailer types
In
elig
ible
Elig
ible
Reg
ula
ted
Lib
eralised
Reg
ula
ted
Ineligible customers regulated in nature
Exclusive supply by the incumbent retailer at regulated tariffs
Largely composed of residential customers
Constitutes c.10% of volume and c.75% of customers in 2017 in Turkey
Eligible customers who opt to remain regulated
Exclusive supply by the incumbent retailer atregulated tariffs
Largely composed of industrials, commercials and high consumption residentials
Eligible customers who opt to be liberalised
Flexibility to choose retailer
Free market prices
Consist of industrials and commercial customers as well as high consumption residentials
In
cu
mb
en
t R
eta
ilers
Oth
er R
eta
ilers
Total of 21 incumbent retailers
Division of 21 electricity distribution regions also represents the separation for “incumbent” retailer operations
Exclusive rights of electricity sale to regulated customers in their regions at regulated tariffs
Further flexibility of sales to liberalised customers in other regions at free market prices
Dominant players in the sector with strong reach to the end customers
Supplied c. 80% of total sales volume in Turkey in 2017
Currently c.200 other non-incumbent retailers
Sales to liberalised customers throughout Turkey at free market prices
Largely serves industrials and commercials currently
Customer Types Retailer Types
Source: Company, EMRA.
55Hizmete Özel
Company
Incumbent
Region
# of Subscribers
(m)
Sales Volume
(TWh)
In
cu
mb
en
tR
eta
ilers
EnerjiSA Toroslar Başkent Ayedaş
Cengiz-Kolin1
Bogazici Akdeniz Camlibel
Aksa Coruh Firat
Bereket Enerji Gediz Menderes
IC-Ictas Trakya
Limak Uludag
AKCEZ Sakarya
Alarko-Cengiz Meram
Zorlu Enerji Osmangazi
Iskaya-Dogu Dicle
Calik Yesilirmak
Kipas Holding Goksu
Kayseri Municipality + Private Players Kayseri
Kiler-Calik Aras
Turkerler Van Golu
Non-incumbent
players• c.200 players
Source: Company, EMRA.1 Including Cengiz Toptan.
Electricity retail market is still dominated by incumbents
9,0
7,8
2,2
4,8
1,0
3,0
1,7
2,0
1,7
1,7
1,9
0,6
0,7
0,9
0,6
32,9
28,9
16,7
13,6
13,2
11,1
8,9
7,2
7,1
5,6
4,2
2,3
1,6
1,2
1,1
30,7
7
9
14
1710
6
4
5
11
19
13
12
15
8
16
1
21
20
18
3
2
n.a.
Retail Companies (2016)
Dominant presence of local ownership with the exception of two groups, one being Enerjisa
Top 5 companies supply 57% of the total market in terms of sales volume
Incumbent Retailers Overlap with Distribution Regions
KIRLARELI
EDIRNE
TEKIRDAĞ
CANAKKALE
BALIKESIR
MANISA
IZMIR
BURSA
DÜZCE
SAKARYAYALOVA
BOLU
AYDIN
MUGLA
UŞAK
ANTALYA
BURDUR
ISPARTADENIZLI
KÜTAHYA
AFYON
ESKİŞEHIR
BILECIK
ANKARA
KIRIKKALE
KASTAMONU
ÇANKIRI
SINOP
SAMSUN
AMASYA
ÇORUM
ORDU
KARAMAN
YOZGAT SIVAS
KAYSERI
KIRSEHIR
NEVSEHIR
AKSARAY
NIGDEKONYA
TOKAT
GAZIANTEP
ISKENDERUN
ADANA
OSMANiYE
MERSIN
ADIYAMAN
MARAŞ
URFAKILIS
VAN
HAKKARI
ŞIRNAK
SIIRT
BITLIS
MUŞ
DIYARBAKIR
MARDIN
BATMAN
TUNCELIBINGÕL
MALATYA
ELAZIĞ
ARDAHAN
KARSIĜDIR
AĜRIERZURUM
BAYBURT
ERZINCAN
GIRESUN
TRABZON
RIZE
ARTVIN
GÛMUŞH-ANE
13
14
12
11
19
10
16
15 9
8
7
20
18
6
21
5
1
2
3
417
ISTANBUL
KOCAELIKARABÜK
BARTIN
ZONGULDAK
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Sales Volume by Region(TWh)
Volume Breakdown by Customer Type(TWh)
29,0
12,3 11,5 8,3
15,19,4 16,0
8,3 12,212,0
10,9
2014 2015 2016 2017
32.939.6
35.2
Enerjisa’s Incumbent Regions Other Regions
Regulated customers represent 69% of total sales volumes in 2017
37.235.2
Removal of unprofitablecorporates
Regulated
(eligible + ineligible)Source: Company.1. Includes inactive customers.
Number of Customers by Type1
(m)98% 96% 93% 88%
78% 69% 63% 69%
LiberalisedIneligible Regulated Eligible Regulated % Regulated%
LiberalisedIneligible Regulated Eligible Regulated % Regulated%
1.2
34.0
8,2 8,1 8,06,7
0,40,5
0,4 1,40,1
0,4 0,6 1,1
2014 2015 2016 2017
8.8 8.9 9.0 9.2
Reaction tounfavorable
liberal market conditions
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Residential & SME (<400 MWh p.a.) Corporates
Key Features
Largely regulated customers (either ineligible or eligible regulated)
Efficiency, innovation and direct customer accessallow for strong retention of customer base
Scope to realise transition volumes from eligible regulated to liberalised, at higher margins
Scope to acquire liberalised customers in other regions
All eligible
Material volume still remain under regulated tariffs
Focus on profitable customers only
Liberalised customers provide volume, yet price sensitive with low margins
# of Customers(% of Total Enerjisa)
Volumes(% of Total Enerjisa)
Volume Breakdown by Customer Type(Liberalised vs.
Regulated)
Well-defined strategy by customer segment
Source: Company.Note: All data as of 20171. Includes inactive customers.
99.9%
21.9TWh
13.2TWh
0.10%
62.3% 37.6%
Other regions
Incumbent regions
Other regionsIncumbent regions
Other regions
Incumbent regions
0.1 TWh 1.1
TWh
9.2
21.95
21.96
Regulated%65.4
Liberalised%34.6
Liberalised%25.0
Regulated%75.0
12.1
13.2
9.2k9.6k
0.3k
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Product Product Description Sourcing Strategy
Reg
ula
ted
Regulated
Regulated sales with regulated margin
Pass through of electricity cost by regulation
Regulated sourcing from TETAŞ and EPİAŞ
Lib
erali
sed
Floating
Automatic inflation increase
Contractual flexibility for above-inflation increase with a 30-day notice
Dominant share in residential & SME volume (63% in 2016)
Flagship profitability product in a market with minimal churn
Dynamic sourcing from EPİAŞ and wholesale
Fixed
Fixed price for contract duration
Dominant share in corporates volume (72% in 2016)
Flagship corporate product in a market where price increases are shunned by customers Back-to-back bilateral agreements
with private wholesale at a fixed and tariff indexed prices
Tariff Index
Discount to national tariff
Mainly offered to lower-consumption corporates with lower tailor-made requirements
14% of overall liberalised corporate sales
DAP1 Index
DAP1
Customer price is determined by the actual EPİAŞ exchange price
Preferred by sophisticated and high consuming customers (e.g. cement producers)
Usually preferred seasonally, especially in off-peak months
Cost pass-through sourcing from EPİAŞ
Res. & SME
Corporates
Res. & SME
Res. & SME
Corporates
Corporates
Corporates
Corporates
Customer-tailored products with aligned hedging in sourcing
Source: Company.1 Refers to Day Ahead Price (EPİAŞ, Spot market).
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Source: Company.1 Enerjisa TradeCo is an entity owned by Enerjisa Üretim Santralleri A.Ş. (generation company) and not part of IPO perimeter.
Electricity Sourcing Channels
TETAŞ(State-owned electricity wholesale company )
EPİAŞ(Spot market)
Private Wholesale
Regulated price fixed quarterly
All regulated volumes need be sourced from TETAŞ (unless TETAŞ is not able to satisfy demand)
Historically, TETAŞ has not been able to provide 100% of the volumes
Markets include day-ahead and intra-day balancing
Buy or sell electricity through derivatives in BIST
Bilateral agreements with EnerjisaTradeCo1
Contracts with other wholesalers possible in the future
Contract terms are mostly ≤1 year
1 2 3
Proportion of TETAŞ in the Electricity Sourcing Electricity Purchase by Source(2017, TWh)
TETAŞ EPİAŞ (free) Enerjisa TradeCo EPİAŞ (regulated)
Regulated
Liberalised
TETAŞ
EPİAŞ
EPİAŞ
Enerjisa TradeCo1
Three electricity sources driven by customer type
56% 15%29%
Sourcing of Liberalised vs. Regulated Sales
Regulated
Liberalised
Decreasing dominance of TETAŞ as the eligibility limit decreases
Removal of unprofitable liberalised
corporates
Customers switch to regulated due to pricing
conditions
4,6
5,3
5,6
19,7
1
10,9
24,3
Sales (GWh)Sales Sourcing
35.235.2
67,7%
42,8% 47,1%56,0%
2014 2015 2016 2017
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Strong credit management with improving collection rates
Initiatives on Collections Supported by Favorable Regulation Improving Collection Rates2
Customer Credit Scoring
Payment Behavior Analysis
Automated Dunning
Regulation
Incentives on high collection
Deterrent factors including
– Immediate disconnect of regulated customers
– Regulated monthly interest of 1.4% on late payment
– Deposits / Letter of Guarantees received
Collection Channels1
Source: Company.1 Collection channels as of 30.09.2017.2 Enerjisa monitors its collection capacity as the rate of collection over sales of electricity for the relevant period. Due to operational requirements, Enerjisa defines an unpaid invoice
“mature” after six month period following the invoicing. Enerjisa measures its collection rate on the basis of its capacity to collect mature invoices within 12 months of their maturity. Reference to “collection rate” are to the collected portion of the mature invoices to the total mature invoice amounts.
105 Authorised Payment
Points
4,244 PTT Branches
16 BanksWebsite and Mobile App
98,0%
98,9%99,1%
99,5%
2014 2015 2016 2017
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Operational improvements arising from successful restructuring
Source: Company.1 As at end of Q3 2013.2 As at end of Q3 2017.3 Also includes the impact of increasing market opennes as a result of the decrease of eligibility threshold from 5.0MWh p.a. to 2.4 MWh p.a. in respective periods.
Selected Operational Metrics
Reach rate to Call Center
Waiting time in CCO
Wrong # of Invoice
Free Market Contracts3
Daily Contract Sales/Agent3
10% 98%
238k 29k
16 min
1 hr
168 69
50 k 1.1m
1 6.3
Now2
Customer Care Offices(CCO)
Before1
Significant Improvement in Customer Interface in our Retail Shops
Before Now
Paym
en
t P
oin
tsC
usto
mer C
are
Off
ices (
CC
O)
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D2D
Channel
Retail
Channel
Call Center
Dealer
Corporate
Mobile/ Apps
Website
D2D Own
CCO
Call CenterDigital
Channel
Telesales
D2D Outsourced
Channel Management Organized Around the End-Customer
Key Account
Manager
Sales Representative
Physical Office
Overview
Residential & SME
RetailChannel
SME and residential customers can sign up and get information
200 customers service points
D2D(Door to
Door)
Assign sales representatives for corporate customers
Win new customers
Use of outsourced personnel
Call Center
Acquire customers through outbound calls and mobile applications
1.3m outbound calls and 335k inbound calls a year
Digital
Send e-mails and SMS for customer services/ marketing
A favourable environment for digital switching
CorporatesKey
Account Manager
Dedicated account managers for each corporate client
Customized services
Corporate
Strong end-customer reach via multiple channels
Source: Company.
Customer
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Enerjisa’s large scale and incumbent position helps achieve competitive advantages
Extensive database of9.0m retail customers
Incumbent Advantage Leveraged by Strong CRM Capabilities
Customer Service
Single CRM
Automated Call Handling
Field Force Route Optimisation
Customer Analytics
Value Based Segmentation
Behavioural Segmentation
Demographic and Geographic Segmentation
Reporting Infrastructure
Automated Sales Reporting
Profitability Reporting
Automated Dashboards
Source: Company.
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Enerjisa benefits from strong brand recognition
Highest Brand Awareness
Most Customer-Oriented
Most Prestigious and Trustworthy
Social Impact Award
Source: Company.1 Market Deep Dive Market Research dated August 2014.2 According to image and perception study conducted by Future Bright Research Agency in January 2017.
Won 2 Crystal Apple awards for:
First digital commercial to encourage energy saving
“Save Your Energy” campaign short movie
Worlds’ first digital commercial to encourage energy saving from MixxAwards Europe 2017
Innovation & Marketing Awards
Most Well-known Brand2
Won 2 “Smarties” awards from the Mobile Marketing Association in the “Social Impact Turkey” and “Social Impact EMEA” categories with “Save Your Energy” campaign
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Resilient customer base in a liberalising environment
Improving Customer Satisfaction1
Low Churn Rate2
(Eligible Residential and SME Segments)
High cost of acquiring customers by non-incumbents
0,9%
3,0% 2,9%
1,2%
2014 2015 2016 2017
Source: Company.1 Customer satisfaction surveys conducted by IPSOS in 2014 and Future Bright in 2016.2 Number of churned customers to the yearly average of eligible residential and SME customers (including regulated customers that did not switch to free market portfolio). The
yearly average is calculated as the relevant number as of January 1 plus the relevant number as of December 31 which is then divided by two.
65% 66%
54%
72% 74%69%
Ayedas Baskent Toroslar
2014 2017 2014 2017 2014 2017
Ayedaş Başkent
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Unit Price (TL/kWh)
Total (TL)
0.245 48.93
0.127 25.32
3.91
78.16
18% on sub-total
14.07
92.23
Regulated electricity tariff components
National Monthly Residential End-User Energy Bill(based on illustrative volume assumptions of 200 kWh, representing eligibility limit)
Unit Price (TL/kWh)
Total (TL)
Including energy procurement costs, gross profit margin and retail service revenues
0.231 46.19
Including costs of operating and maintaining of facilities, investment cap for distribution investments, reimbursement of Capex, cost of supplying energy for T&L and general lighting, transmission costs, fixed meter reading fees differentiated according to voltage level
0.130 26.09
Reactive Energy Fee: For consumers subject to Reactive Energy Application (excl. household, illumination subscriptions and mono phase premises)
Overload Charges: For Two Phase Industrial Consumers (Connected to high voltage level)
Energy Fund Surcharge (1% of retail energy) TRT Surcharge (2% of retail energy) Electricity consumption tax (1% for Industry, 5% for the Rest)
3.69
Total 75.97
18% on sub-total
13.67
89.64
Retail Energy Sales Tariff
Distribution Tariff
Reactive Energy Fee, Capacity and Overload Charges
Energy Fund and TRT Surcharge, Electricity Consumption Tax
VAT
Source: Eurostat, Regulatory review of Turkish electricity market.
2018 Q1 2018 Q2
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Electricity costs represent a relatively small share of disposable income
Share of Electricity Costs over Disposable Income
5,6%
5,1%
4,8%
4,3% 4,2%4,0%
3,7% 3,6%
2,7% 2,6%
Port
ugal
Spain
Czech R
ep.
Germ
any
Pola
nd
Belg
ium
Fra
nce
Italy
Turk
ey
UK
Electricity Costs 1,2 (€/MWh, 2016)
Disposable Income Growth(rebased to 100)
100
110
120
130
140
150
160
2012 2013 2014 2015 2016
Disposable Income Retail Energy Bill
CAGR 2012-2016
11.7%
5.2%
230 228 142 298 135 275 171 234 121 183
Source: Turkstat, Eurostat electricity retail prices second half of year.1 Retail prices after taxes, levies etc.2 Annual consumption: 2 500 kWh < consumption < 5 000 kWh.3 Based on 413 TL / MWh for the second half of year for Turkey and exchange rate TL/ € of 3.43, source: Eurostat.
3
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Regulated
Pass through for the retailer
Electricity Procurement
Cost=
TETAŞ+ EPİAŞ
DistributionSystem Usage Fee
Theft & Loss
Transmission Fee
Taxes and Other
RegulatedEnd-user price
Retail Service Revenue Invoicing and collecting for
regulated sales Tariffs set for every three
month period
Electricity Procurement Cost
TETAŞ as primary source
EPİAŞ as secondary source
Regulated Gross Margin1
Set at 2.38% on reference procurement price (including FiT
cost effective starting from 2018)
for the 2016-2020 period
-Potential
for Reduced Sourcing
Cost
+Potential for HigherMargins
Liberalised
Free sourcing at free market prices
Higher Gross Margin
Pass through for the retailer
Electricity Procurement
Cost=
EPİAŞ + Private
Wholesale
DistributionSystem Usage Fee
Theft & Loss
Transmission Fee
Taxes and Other
LiberalisedEnd-user price
Components of regulated and liberalised end-user prices
Discount
1 As stated in the regulation. Regulator gross margin and sales services combined compensate for the operational expenses.
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Price equalisation mechanism
• EMRA determines the revenue and price caps for distribution and retail companies in each region
• Price equalisation mechanism was introduced to balance the inequalities and differences between the 21 distribution regions
- Mechanism was determined for inequalities in regional characteristics like distribution of customer segments, theft & loss occurrences and performances
- Mechanism was implemented as a result of application of a single tariff throughout Turkey
• Price equalisation mechanism makes sure that the distribution companies and the incumbent retail companies obtain their regulated returns, although they charge the same end tariff.
• EMRA sets the regulated margin and revenue requirements for regulated sales based on demand and consumption forecasts. However, the actual demand of customers shows some variance from forecasts which leads to imbalances in our electricity purchases.
• EMRA compensates for such variances via the price equalisation mechanism two quarters after the occurrence of such variances and guarantees that the incumbent retail company generates a gross margin of 2.38%, independent of its sourcing costs for its regulated customers.
• Reconciliation of over or under collections is made by EMRA through TETAŞ on a monthly basis.
Energy cost Revenue Cap Region A Revenue Region B Revenue
TETAŞ
Day Ahead Market
ProcurementCost
2,38% Gross Margin
Other Market Costs
(EMRA)
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Turkish electricity pricing dynamics impacted by renewable feed-in-tariffs in 2017
Comments
FiT ($73/MWh2) applicable to renewables
Renewable players can opt yearly to sell power at FiT or at spot market
With depreciation of TL, renewable companies have been consistently opting for FiT
Renewable capacity increased from 4.1 GW in 2014 to 8 GW in 2017
Electricity Prices(TL/MWh)
Additional costs from FiT have put an increasing pressure on the total cost of sourcing from EPİAŞ (spot market) in 2017
Regulated national tariff has remained largely stable since 2014
Liberalised margins contracted in 2017, as national tariff, which acts as a natural cap to liberalised market price, has not yet increased to reflect increasing sourcing costs
Source: TEDAŞ, EPİAŞ
0
50
100
150
200
250
300
EPİAŞ (Spot Market) FIT Regulated Electricity Price
Average differencefor 2014-2016:58 TL/MWh
Average differencefor 4Q2017:17 TL/MWh
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Earnings and cash generation
Liberalised
Volume x Margin
GrossProfit
OPEX
EBITDA
+/-
Free Cash Flow (before Interest
& Tax)
• Changes in Working Capital
• Price Equalisation
Regulated
Volume x 2.38% of regulated procurement price
+
Retail Service Revenue including Doubtful Component
+/-
+/-
+/-
Other:• Doubtful Provision
Expenses• Bonus Collection• Late Payment
Income
-
+
+
Source: Company.
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Regulated gross profit
XRegulated
Margin(2.38%)
Retail Service Revenue(TLm)
Volume(TWh)
Regulatedprocurement price (including
FiT cost*)
(TL/MWh)
Regulated Gross Profit
(TLm)X + =
Effective total regulated margin
* Regulated margin of 2.38% will be applied to a higher procurement cost basis (pure sourcing costs + Feed-in-Tariff cost), which increases the regulated gross profit margin (2018 onwards)
/ =
Regulated Gross Profit(TLm)
Regulated Volume(TWh)
Effective Total Regulated Margin(TL/MWh and %1)
115157
239 255
184155
7380
201720152014 2016
299 312 312335
Regulated Margin
Retail Service Revenue
29,0 27,3
20,924,3
2014 20162015 2017
10,311,4
15,013,8
2014 2015 2016 2017
4.9% 5.3% 6.8%
Source: Company.1 % margin calculated vs. average residential household tariff.
RegulatedGrossProfit
The calculations and models in this slide are simplified illustrative representations of the relevant figures. The corresponding line items in Enerjisa financial statements or our reported results may deviate significantly as such line item would contain other components.
6.4%
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Optimization of liberalized segments depending on market conditions
X =
X =
Corporate Segment
Residential & SME Segment
Source: Company.
LiberalisedGrossProfit
The calculations and models in this slide are simplified illustrative representations of the relevant figures. The corresponding line items in Enerjisa financial statements or our reported results may deviate significantly as such line item would contain other components.
3,3
4,8
7,6
2015 2016 2017
Volume(TWh)
8,9
7,2
3,3
2015 2016 2017
Volume(TWh)
Gross Margin(TL/MWh and %)
Gross Margin(TL/MWh and %)
37,131,9
8,7
2015 2016 2017
122
154
66
2015 2016 2017
17.5% 15.3% 4.1%
-5,6
-1,3
3,0
2015 2016 2017-50
-9
10
2015 2016 2017
-2.7% -0.7% 1.5%
Gross Profit(TLm)
Gross Profit(TLm)
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Opex and others
Key Drivers
Inflation
Efficiency gains
Segment mix
Business expansion
Comments
Includes
– Doubtful provision expense and late payment income
– Bonus collections (collection of previously written-off receivables; partially related to state-owned times) with significant contributions in 2015-2017 that are expected to decline in the mid-term
Opex1
(TLm)
Source: Company.1 Adjusted for TradeCo related Opex (TL7m, TL12m, TL8m in 2014, 2015 and 2016 respectively) excluding depreciation as well as doubtful provision expense in the year 2015.
Focus on operational excellence after acquisition of regions until 2015
Increase in Opex after 2015 due to higher spending on marketing and sales efforts in the liberalised segment as well as general business expansion and inflation
42%
10%7%
10%
5%
9%
17%
Personnel
Marketing and Sales
Consulting & Outsourcing
Payment Channel and
Collection ExpensesStamp Taxes
Rent and Utility
Other
Breakdown of 2017 Opex
Comments
Bad debt related income and expense(TLm)
174
224 231246
2014 2015 2016 2017
2014
Doubtful prov.Expense
82
-3
2015 2016 2017
Bonuscollection
Late paymentincome
119
64
75Hizmete Özel
Retail growth and profitability
Retail Operational Earnings1
Breakdown (TLm)
Source: Company.1 Operational Earnings refers to EBITDA plus TradeCo related EBITDA adjustments in the amount of TL16m, TL-60m and TL-16m in 2014, 2015 and 2016. Starting from 2017, there
is no TradeCo related EBITDA adjustments.
2014 2015
290
2016 2017
145
280 247
Bad debt related income/expense
Liberalised Gross Profit
Regulated Gross Profit
Opex
(TLm) 2014 2015 2016 2017
Regulated gross profit 299 312 312 335
Liberalised gross profit 23 72 145 76
OPEX -174 -224 -231 -246
Bad debt related income and expense
-3 119 64 82
Operational Earnings 145 280 290 247
∆ in NWC -51 186 68 82
Operating Cash Flowbefore Interest and Tax
94 466 358 329
Capex -46 -46 -35 -30
Free Cash Flow beforeInterest and Tax
48 420 323 299
Cash flow driven by operational earnings
Cash flow conversion is on average above 100% (of Operational Earnings)
Capex limited to IT-related expenditures
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Investor Relations contacts
Ilkay DemirdağHead of Investor Relations
T +90 (0) 212 385 [email protected]
Sibel TurhanInvestor Relations
T +90 (0) 212 385 [email protected]
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Appendix
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Key Financials
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Summary Financial StatementsConsolidated Income Statement
FY FY FY FY 1Q 1Q
(TLm) 2014 2015 2016 2017 2017 2018
Sales Revenue 8,064 9,154 9,103 12,345 2,726 4,070
Cost of Sales -6,754 -7,108 -6,501 -8,412 -1,971 -3,045
Gross Profit 1,311 2,045 2,602 3,932 755 1,025
OPEX -967 -1,080 -1,228 -1,519 -340 -415
Other Income/(Expense) -36 73 -102 -173 -58 -14
Operating profit before finance income/(expense) 308 1,038 1,272 2,241 357 596
Financial Income/(Expense) -571 -575 -758 -957 -240 -264
Profit before tax -264 463 514 1,284 117 332
Taxation -13 -127 -137 -296 -39 -89
Net Income -277 336 377 988 78 243
FY FY FY FY 1Q 1Q
(TLm) 2014 2015 2016 2017 2017 2018
Operating profit before finance income/(expense) 308 1,038 1,272 2,241 357 596
Adjustment of depreciation and amortization 209 219 218 235 56 61
TradeCo-related pro-forma EBITDA adjustments 16 -60 -16 0 0 0
Adjustments related to fair value difference arising from deposits 43 36 40 79 30 26
Interest income related to revenue cap regulation -5 -2 -19 0 0 -8
EBITDA 569 1,232 1,495 2,555 443 676
CAPEX Reimbursements 210 200 443 592 144 191
EBITDA+CAPEX Reimbursements 779 1,432 1,938 3,147 587 867
Fair value changes of financial assets 0 -332 0 -467 0 0
Non-recurring income related to fiscal year 0 0 0 -115 -70 0
Operational earnings 779 1,100 1,938 2,565 517 867
Net Income -277 336 377 988 78 243
Fair value changes of financial assets 0 -266 0 -374 0 0
Non-recurring income related to fiscal year 0 0 0 -92 -56 0
Underlying Net Income -277 70 377 522 22 243
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Summary Financial StatementsConsolidated Balance Sheet
YE YE YE YE 1Q
(TLm) 2014 2015 2016 2017 2018
Cash and Cash Equivalents 113 152 75 173 79
Financial Assets 313 456 654 692 767
Trade Receivables 1,471 1,545 1,721 2,382 2,852
Other Current Assets 345 379 490 855 923
Current Assets 2,242 2,532 2,940 4,102 4,621
Financial Assets 1,469 2,565 3,640 5,747 5,758
Tangible and Intangible Assets 8,281 8,103 7,949 7,841 7,790
Other Non-Current Assets 771 820 603 896 799
Non-Current Assets 10,521 11,489 12,192 14,484 14,347
TOTAL ASSETS 12,763 14,021 15,133 18,586 18,968
Short-Term Financial Liabilities 805 1,916 3,098 1,939 1,766
Other Financial Liabilities 17 21 25 30 35
Trade Payables 816 827 1,118 1,512 951
Payables to PA 1,238 1,188 0 0 0
Other Current Liabilities 417 629 710 1,374 1,416
Current Liabilities 3,294 4,581 4,951 4,855 4,168
Long-Term Financial Liabilities 2,098 2,878 3,200 5,269 6,269
Other Financial Liabilities 240 232 245 280 284
Payables to PA 1,176 0 0 0 0
Other Non-current Liabilities 1,915 1,964 1,989 2,302 2,474
Long-Term Liabilities 5,429 5,074 5,434 7,851 9,027
Total Share Capital 4,390 4,390 3,965 4,017 3,966
Other Equity Items 58 47 136 184 220
Retained Earnings -407 -71 646 1,679 1,587
Equity 4,040 4,366 4,747 5,880 5,773
TOTAL LIABILITIES AND EQUITY 12,763 14,021 15,133 18,586 18,968
Note: Consolidated numbers include the Business Units Distribution and Retail as well as the legal holding entity.
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Summary Financial StatementsConsolidated Cash Flow Statement
FY FY FY FY 1Q 1Q
(TLm) 2014 2015 2016 2017 2017 2018
Profit for the period -277 336 377 988 78 243
Adjustments to reconcile net profit for the period 777 830 801 960 287 233
Changes in operating assets and liabilities -665 -463 -7 -979 -231 -886
Other inflows (incl. Capex reimbursements) 311 391 833 954 232 313
Cash Flows from Operating Activities (before interest and tax) 146 1,095 2,004 1,923 366 -97
Tax payments -48 -73 -145 -65 -22 -7
Cash Flows from Operating Activities (before interest, after tax) 98 1,021 1,859 1,858 344 -104
CAPEX -525 -1,093 -1,560 -1,747 -398 -501
Payment to Privatization Administration -1,176 -1,225 -1,188 0 0 0
Interest received 59 31 40 65 7 32
Cash Flows from Investing Activities -1,643 -2,286 -2,709 -1,682 -391 -469
Cash in-flows and out-flows from borrowings 1,072 1,710 1,414 873 938 790
Capital increase 900 0 0 0 0 0
Interest paid -655 -406 -642 -951 -242 -311
Cash Flows from Financing Activities 1,317 1,305 772 -78 696 479
Increase in cash and cash equivalents -228 39 -78 98 649 -94
Cash and cash equivalents at the beginning of the period 341 113 152 75 75 173
Cash and cash equivalents at the end of the period 113 152 75 173 724 79
FY FY FY FY 1Q 1Q
(TLm) 2014 2015 2016 2017 2017 2018
Cash Flows from Operating Activities (before interest and tax) 146 1,095 2,004 1,923 366 -97
CAPEX -525 -1,093 -1,560 -1,747 -398 -501
Free cash flow (before interest and tax) -379 2 444 176 -32 -598
Tax payments -48 -73 -145 -65 -22 -7
Interest received 59 31 40 65 7 32
Interest paid -655 -406 -642 -951 -242 -311
Free cash flow (after interest and tax) -1,023 -445 -303 -775 -289 -884
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Electricity Market Regulation in Turkey
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Turkish electricity market structure is in line with proven models seen in other European markets
Turkish Electricity Market Framework Replicates the Tested Electricity Market Structures
Note: EÜAŞ: State-owned generation company; EPIAS: Market operation company; TEİAŞ: State-owned transmission company; BIST: Istanbul stock exchange: TETAŞ: State-owned wholesale Company; BOO: Build, Operate, Own, BOT: Build, Operate, Transfer, TOR: Transfer of Operating Rights, IPP: Independent Power Producers.
Transmission Distribution: 21 Regions
Physical flow of electricity
Generation
Generation Activities Wholesale Activities Supplier Activities
State-owned Bilateral(Forward /
OTC)
Wholesale Market (TETAŞ / Private)
Suppliers
• IPPs/Producers
• Incumbent Retailers
• Non-Incumbent Retailers
Customers
• Non-eligible Customer (from incumbent retailers only)
• Eligible customers (free to choose their supplier)
BOO – BOT – TOR
IPP
Organised Spot
Market
Enerjisa is the Leading Player in the Turkish Electricity Distribution and Retail Sector
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Distribution revenue build-up
EMRA Determines Revenue Caps for Distribution Companies, which are Taken as a Basis for the Determination of the Distribution Tariff
Capex Allowance
Opex Allowance
Return on RAB
Capex Reimbursement
Fixed costs
Variable costs
Uncontrollable cots
Tax Adjustment Component Revenue and Investment Difference
Adjustment
R&D Difference Adjustment
Other Revenues
Return on RAB: Average RAB x WACC
Reimbursement of Capex
Lighting Revenues
Advertising and rent
Theft & Loss Margin
Additional Revenues
The cost of operating and maintaining the distribution network
Transmission costs (pass through to TEDAŞ)
Fixed meter reading fees
Meter replacement costs
Other costs (e.g., distribution fee, capacity fee, overcapacity fee, available capacity fee, and customer care services costs)
Distribution companies are entitled to buy the energy required for general illumination
Cost of energy for target theft and loss and general lighting
Advertising, rent and lighting
Maintenance income, punishment warrant and compensation income, advertisement and renting, etc.
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Distribution revenue build-upTotal Capex allowance
Note: 1 RAB derived from average of RAB at the start and at the end of the tariff year plus new investments minus depreciation escalated by Energy Price Index (EPE) equal to CPI.
Total Capex Allowance
● Capex is reimbursed within 10 years as fixed by EMRA
● 5 categories in Capex eligible for the Capex allowance system
● Calculated by Regulatory Period based on average RAB and regulatory real WACC of 11,91% before-tax, real for the period 2016-2020
194 bp increase in WACC rate compared to 2011-2015, meaning greater financial income from RAB
● Current framework allows outperformance for certain components determined on the basis of centralized unit prices through betterprocurement and supply chain management
Capex Reimbursement
● Reimbursement duration is 10 years vs. 5 years in the previous regulatory period
● By the end of a tariff year, if the distribution company realises its mandated investments at a cost less than the allowed Capex value, then it will still have collected the revenues through its tariffs that were calculated on the basis of initially allowed Capex
Capex Outperformance
Return on RAB1 11.91% – 13.61%
● RAB1 was set to “0 TL” by the regulator in 2006
● Allowed capex is included in the RAB as soon as they are realized
● Additional capex included in RAB after EMRA approval
● Yearly indexation of RAB by Consumer Price Index (CPI)
● Increase in RAB due to greater Capex allowance results in greater RAB leading to additional income
Tax adj. from Depreciation
● Compensation item for the additional tax burden arising from the difference between the depreciation periods in Tax Law and Electricity Market Regulation
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Distribution revenue build-upOpex allowance
Total Opex Allowance
● 2016-2020 based on actualisations of years 2013-2014
● Key growth drivers of Opex allowance: number of customers, distributed energy volume, number of transformers, line length
● Opex allowance is set on the basis of region requirements
● Increase in Opex allowance in the Regulatory Period of 2016-2020 which provides potential for income from Opex efficiency
● Current framework allows outperformance through employee efficiency, better workforce management and IT systems
Fixed Opex
● Component not affected by factors like demand, # of customers, network length
Variable Opex
● Component affected by demand level, # of customers, network length
Non-controllable CostsTransmission (pass thr.)
incl.
● Transmission expenses
● Utilisation of forestry areas
● Taxes except for VAT, corporate tax, and licensing and transmission fees
R&D Opex1% of fixed / variable
Opex
● R & D Expenses reimbursed through Revenue Ceiling
● The over and under-realisation of Opex is not taken into account in the revenue and tariff calculations
● By the end of a tariff year if a distribution company realises its mandated Opex at a cost less than the allowed Opex value calculated by EMRA, then the distribution company will keep the difference between what is allowed and what is spent
Opex Outperformance
Other
● 75% advertisement income kept by companies (25% deducted from revenue ceiling)
● Theft accrual (c. 7% of EBITDA)
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Distribution revenue build-upOther revenues
Additional revenues
● Maintenance income
● Punishment warrant and compensation income
● Advertisement and renting
● Provisions no longer required
● AMR incomes, theft usage accrual
Lightning revenues
● Distribution companies are entitled to buy the energy required for general illumination
● As per the current regulation, distribution companies must supply electricity from TETAŞ and to sell energy to municipalities and provincial administrations within the scope of general illumination responsibilities
● If a new omnibus bill is enacted, distribution companies will no longer be required to supply electricity within the scope of general illumination activities, following October 1, 2018, and will replace TETAŞ with TEDAŞ
Theft & Loss margin
● All eligible and ineligible customers, pay the theft and lost tariff as distribution companies are obligated to buy energy to compensate for energy theft and loss based on the theft and loss target
● The theft and loss tariff is determined at the national level and the revenue imbalances between the distribution regions are corrected via the price equalisation mechanism meaning the cost burden calculated according to the theft and loss target, does not fall on the consumers in a specific region alone, but distributed across all consumers in the country
● If actual performance of distribution companies is below the target it is bonus, if it is above, it is a penalty
● T&L target is determined using 3 different clusters: <8%, 8<T&L<Turkey Avg, Others
● New EMRA approach for 2016-2020 is a dynamic T&L target based on previous 3 years (Y-2, Y-3, Y-4) performance with 100% performance sharing with customers
Other revenues ● Other revenue items are fully included in the calculation of the revenue cap
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3rd regulatory period
Regulatory period 5 Years between 2016 and 2020
Opex allowance
Base years 2013-2014
50% Fixed and 50% Variable allocation, growth (# of customers, distributed energy volume, # of transformers & line length) & efficiency
Adjustment for variable and uncontrollable expenses
X-efficiency
2013-2014 are base years
DEA (line length, # of customers, # of transformers, distributed energy volume, environmental variables)
5 year convergence duration
Capex allowance 5 categories in Capex
Unit price application. Capex outperformance in scope
WACC 2016 – 2017 11.91%, 2018 – 2020 13.61% (Before Tax, Mid-Year) WACC is applicable to all distribution companies
Reimbursement duration 10 Year reimbursement, which is shorter than most international examples
Demand forecast
Reports and analysis submitted to EMRA every year until end of June
Includes: # of customers, distributed energy volume, peak energy volume
TEİAŞ merges its own demand forecast with distribution companies and submits final forecast report to EMRA
Theft & Loss
Dynamic T&L target determination methodology
3 different clusters (<8%, 8<T&L<Turkey Avg, Others)
Targets based on performance of y-4, y-3, y-2
100% performance sharing with customers
Quality
Incentive mechanism for supply quality & commercial quality
Non- fatal accident determined as general quality indicator. 0,05 % extra system operation revenue based on non- fatal accident rate
%1 extra system operation revenue based on call centre performance quality parameter
Starting year of application: 2017
EMI EMI = Consumer Price Index
Other revenues Maintenance income, punishment warrant and compensation income, rentals and advertisements, consultancy,
provisions no longer required, AMR incomes, electricity theft accrual
Introduction of new quality incentives: The new regulation (announced in December 2017) allows for an additional upto 5% (of the revenue requirement) revenue, if all quality parameters are satisfied (previously, it was 1% of the yearly revenue requirement). The impact to Enerjisa is not yet clear as the specific implementation of this new regulation is not yet defined (e.g. which quality parameters and what are the targets)
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Glossary Glossary of terms
AMR Automated Meter Reading EÜAŞElektrik Üretim Anonim Şirketi(Electricity Generation Co)
R&D Research and Development
BIST Borsa Istanbul FCF Free Cash Flow RAB Regulated Asset Base
BOO Build, Operate, Own FiT Feed-in Tariffs RES Renewables
BOT Build, Operate, Transfer FPO Financial Promotion SAIDI System Average Interruption Duration Indices
CAGR Compound Annual Growth Rate FX Foreign Exchange SAIFI System Average Interruption Frequency Indices
Capex Capital Expenditure GAAP Generally Accepted Accounting Principles SCADA Supervisory Control and Data Acquisition System
CCO Customer Care Offices GDP Gross Domestic Product SME Small Medium Sized Entities
CMB Capital Markets Board GIS Geographical Information System T & L Theft and Loss
Cont'd Continued GSM Global System for Mobile Communications TEAŞTürkiye Elektrik Üretim İletim A.Ş. (Turkey Electricity Generation Co.)
CPI Consumer Price Index GW Gigawatt TEDAŞTürkiye Elektrik Dağıtım A.Ş. (Turkey Electricity Distribution Co.)
CRM Customer Relations Management HSE Health and Safety Executive TEİAŞTürkiye Elektrik İletim A.Ş. (Turkey Electricity Transmission Co.)
D2D Door to Door IFRICInternational Financial Reporting Interpretations Committee
TETAŞTürkiye Elektrik Ticaret ve Taahhüt A.Ş. (Turkey Electricity Trading and Contracting Co.)
DSO Distribution System Operator IFRS International Financial Reporting Standards TFRS Turkish Financial Reporting Standards
EBIT Earnings Before Interest and Tax IPP Independent Power Producers TLbn Turkish Lira billion
EBITDAEarnings Before Interest, Tax, Depreciation and Amortisation
IR Investor Relations TLm Turkish Lira million
EC European Commission IT Information Technology TOR Transfer of Operating Rights
EEA European Economic Area KPI Key Performance Indicators TradeCo Trading Company
EEDAŞ Enerjisa Elektrik Dağıtım A.Ş. LTM Last Twelve Months TSO Transmission System Operator
EFET European Federation of Energy Traders m Millions TWh Terawatt Hour
EIA Energy Information Administration MWh Megawatt Hour WACC Weighted Average Cost of Capital
EML Electricity Market Law NWC Net Working Capital
EMRA Electricity Market Regulatory Authority OHSAS Occupational Health and Safety Assessment
EPİAŞEnerji Piyasaları İşletme A.Ş. (Energy Exchange Istanbul)
Opex Operating Expenditure
EU European Union OTC Over the Counter