Improvement of TAURON Group’s financial results in Q3 and for the first three quarters of 2012

• TAURON Group’s revenue in the first three quarters of 2012 amounted to over PLN 18.2bn, i.e. approx. 20.1% more than in the same period last year when TAURON’s revenue was PLN 15.2bn.
  
• EBITDA  (Earnings Before Interest, Taxes, Depreciation and Amortization) grew in  Q1-Q3 2012 by almost 30% and reached nearly PLN 3.1bn vs. PLN 2.4bn a year ago. At the same time EBITDA margin for Q1-Q3 went up from 15.6% last year to 16.9% 2012.
  
• Net profit increased by more than 30% from PLN 1bn to PLN 1.3bn in Q1-Q3 2012
  
• Good situation in the Mining segment, uninterrupted by geological conditions, led to an increase of commercial coal production – as a result its volume in Q1-Q3 2012 went up to 4.09m tons, i.e. 8.2% more than during the same      period in 2011.
  
• In Q1-Q3 2012 TAURON Group generated 14.09 TWh of electricity. A strong growth of volume generated from renewable sources during this period by almost 20%  from 0.77 TWh to 0.92 TWh.
  
• Increased volume of electricity delivered by the Distribution segment. In Q1-Q3 2012 it was 35.72 TWh, i.e. 25.2% more than in the comparable period last year.     
  
• Strong growth - 24.3% - of retail electricity supply; up from 26.65 TWh to 33.14 TWh in Q1-Q3 2012.
  
• Strong volume increases in the Distribution and Supply segments as well as the rising number of customers (from more than 4.1m to 5.3m year over year) due to, among others, the acquisition of some of Vattenfall’s Polish assets at the end of 2011, TAURON Group’s intense activities aimed  at increasing electricity supply and distribution volumes, and also      acquiring new customers.
  
• Almost 40% growth in CAPEX to approx. PLN 2bn in Q1-Q3 2012 versus the same period of 2011 due to the implementation of the strategic projects aimed at further improving efficiency.
  
• Decline of the net debt to EBITDA ratio in Q3 2012 down to 1.21x (based on  EBITDA for the last four quarters) versus      1.28x at the end of Q2 this year.

– Similar as in previous quarters TAURON Group achieved two-digit growth rates of key financial results. I would like to draw your attention to the increases of EBITDA and net profit –said Dariusz Lubera, CEO of TAURON Polska Energia.– Effective integration of acquired Vattenfall’s assets, stable situation of TAURON Group, and also consistently implemented expansion strategy contribute to increasing efficiency of our operations, and also to strengthening the Group’s market position.

Key operating and financial results

Sales revenue

In Q1-Q3 2012 TAURON Group generated over PLN 18.2bn in sales revenue, i.e. approx. 20.1% more than in the comparable period a year ago when the Group generated almost PLN 15.2bn in revenue. Higher revenue is mainly the result of increased volume of supplied electricity (by almost 30%), as well as greater proceeds from its distribution, and also increased commercial coal production which was particularly visible in Q3 2012 (volume up by almost 30%). Compensation due to the termination of long-term contracts (LTC) in Q3 was approximately PLN 155m.

– Currently TAURON Group’s situation is good, both in terms of profitability, as well as liquidity, which is confirmed by the analysis of our latest results. EBITDA is growing practically in each line of business, and growth rates in the Mining, Distribution and Supply segments are strong – said Krzysztof Zawadzki, CFO of TAURON Polska Energia. – As a result we are able to implement our CAPEX program which has accelerated considerably, in particularly in view of challenges faced by the energy market in the coming quarters. We are working on increasing efficiency by further reducing operating expenses and replacing inefficient assets in the Generation and Distribution segments with new ones deployed as a result of completed investment processes.

EBITDA and net profit

TAURON Group achieved an almost 30% increase of EBITDA up to nearly PLN 3.1bn in the first three quarters of 2012 (a year ago during the comparable period it was PLN 2.37bn). EBITDA margin for Q1-Q3 went up from 15.6% (Q1-Q3 2011) to 16.9% this year. Similar as in the previous quarters the Group increased EBITDA in most of its lines of business. As in the previous quarters of this year the strongest growth rates were observed in Supply (approx. 77%; up to PLN 348.4m) and Distribution (52%.; up to more than PLN 1.5bn) – its contribution to the Group’s total EBITDA increased to 50%. Good performance in the Distribution and Supply segments is, among others, the consequence of the acquisition of GZE, and also of the increased operating efficiency, including almost 100 percent completed efficiency improvement program that assumed the reduction of operating expenses by PLN 1bn in 2010-2012.  

Currently advanced works are underway on another efficiency improvement program for 2013-2015. The details of the new program are planned to be announced in December this year. The biggest savings are planned to be achieved in the Group’s largest segments, i.e. in Distribution and Generation. TAURON Group’s Management Board assumes that these savings will be growing in the subsequent years with the peak savings occurring in 2015. This will be primarily due to the implementation of the Voluntary Redundancy Program.

Good results were also generated by the Mining segment due to the increased production of commercial coal. This segment’s EBITDA doubled during the first nine months of 2012. Good situation of this segment is a result of production uninterrupted by adverse geological conditions that occurred in the previous periods and improved quality of the excavated coal.

TAURON Group’s net profit grew in Q1-Q3 2012 by more than 30% up to over PLN 1.3bn, with more than 95 percent attributable to shareholders of the parent company.

CAPEX and debt

TAURON Group continued to increase its capital expenditures in Q1-Q3 2012. Total CAPEX was approx. PLN 2bn, i.e. it was 43% higher than during the comparable period in 2011. The main investment projects: construction of new generation capacity (capex: PLN 333m) and construction of NO_x emission reduction installations (capex: PLN 143m) in Generation, capacity restoration in Heat (capex: PLN 87m), construction of the Marszewo wind farm (capex: PLN 64m) in the RES segment, construction of new customer connections (capex: PLN 340m) and upgrades and restoration of the grid assets (capex: PLN 591m) in Distribution. The increased capital expenditures were also affected by including in the current period the investment outlays of subsidiaries acquired from Vattenfall.

The increase of the value of fixed assets as a result of growing capital expenditures is generating an additional cash surplus for TAURON Group which is a positive trend. At the end of September 2012 the Group had approximately PLN 1.1bn in cash, whereas three months earlier it was PLN 700m, and at the end of last year: PLN 506m. Currently operating cash flow surpasses capital expenditures, however a further increase of capital expenditures expected in subsequent periods will require acquiring additional external sources of financing. In July 2012 TAURON Group used the first tranche, worth PLN 450m, of the European Investment Bank’s loan (the second tranche worth PLN 450m can be used by the Group in subsequent periods).

The Group’s net debt, that reached approx. PLN 4.5bn at the end of September, continues to be on the safe and stable level. Due to the increase of cash the net debt to EBITDA ratio declined and at the end of September 2012 it was 1.21x (based on EBITDA for the last four quarters).