TAURON Group’s profit increases in Q1 2013

• Net profit increased by almost 50% from nearly PLN 395m in Q1 2102 to close to PLN 580m this year. Net margin went up from 6.1 percent to 11.2 percent.
  
• EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) grew over      25% and reached more than PLN 1.2bn in Q1 2013 vs. PLN 975m in Q1 2012. At  the same time EBITDA margin went up from 15.1 percent last year to 23.7      percent in Q1 2013.
  
• TAURON  Group’s revenue totaled approx. PLN 5.2bn in Q1 2013, whereas last year it      was roughly PLN 6.5bn. Looking at comparable revenue figures (in Q1 2013      most of the revenue from sales of electricity excluded from the so-called „public      exchange obligation” was subject to the consolidation exemption, whereas      in Q1 2012 almost entire electricity generated sold via the Polish      Power Exchange (TGE) was subject to consolidation), the drop in revenue      year over year would be slightly more than 4 percent.
  
• Operating  margin and net margin increased as a result of a significant reduction of operating expenses.
  
• Strong growth of commercial coal production – in the first quarter of 2013 more than 25 percent, reaching 1.5m tons, as a result of a further mining productivity improvement and no geological disruptions.
  
• Increase of electricity generated in Q1 2013, up to 5.15 TWh, i.e. more than 3 percent higher volume than last year. Similar volume of electricity generated from renewable sources year over year (0.28 TWh).
  
• Approximately 12.42 TWh of electricity delivered by the Distribution segment in Q1 2013.  Last year it was 12.7 TWh. Electricity supplied: 10.93 TWh. Last year –  11.89 TWh.
  
• Increase in the number of customers (year over year by approx. 23 thousand up to more than 5.3m), among others as a result of TAURON Group’s active sales and marketing campaigns.
  
• Further increase of CAPEX in Q1 2013. CAPEX was roughly PLN 541m, i.e. 6 percent more than last year. Focus on strategic projects aimed at achieving further efficiency improvements.
  
• Net debt  to EBITDA ratio maintained at a safe level of 1.33x in Q1 2013.

– In the first quarter of this year we posted double digit growth of net profit and EBITDA, in spite of adverse macroeconomic conditions and continued low electricity prices. A significant decline of the Group’s operating expenses is mainly the result of lower costs in the Generation, Heat and Supply segments. Low fuel costs, as well as the implementation of the new efficiency improvement program which in Q1 2013 generated Group wide savings of PLN 87m, had a positive impact on the results of the Generation and Heat segments. The Supply segment became the growth leader, among others as a result of an opportunity to purchase electricity on the market at lower prices and lower costs of purchasing certificates –says Dariusz Lubera, CEO of TAURON Polska Energia.

Key operating data and financial results

*Under incomparable conditions. Under comparable conditions - 4 proc.

Sales revenue

TAURON Group generated over PLN 5.2bn in sales revenue in Q1 2013. Last year it was nearly PLN 6.5bn. This year’s revenue was significantly influenced by the change in the volume of mandatory sales of electricity generated via public energy exchanges from 100 to 15 percent. This reduction is related to the expiration of TAURON’s Generation subsidiary’s participation in the program that provides utilities with compensation to cover stranded costs (related to the Long Term Power Purchase Contracts). This resulted in an increase of the sales of electricity generated by TAURON Generation directly to TAURON Group in Q1 2013 and the need to exclude revenue from such sales at the Group level. Last year 100 percent of electricity was sold via the Polish Power Exchange (TGE) and such sales increased the revenue. Additionally, this year the company has not received proceeds from the Long Term Power Purchase Contracts’ compensation (in Q1 2012 it was approx. PLN 121m). Assuming that similar conditions (such as in Q1 2012) had occurred in Q1 2013 then the revenue would have reached roughly PLN 6.2bn.

EBITDA and net profit

TAURON Group’s EBITDA increased by more than 25%, up to over PLN 1.2bn, in the first quarter of 2013. Last year it was PLN 975m. TAURON posted strongest EBITDA growth in the following segments: Supply (approx. 244 percent.; up to PLN 347.9m), Mining (approx. 49 percent; up to PLN 72.9m) and Distribution (approx. 17 percent; up to PLN 525.1m).

TAURON Group’s net profit grew almost 50%, up to nearly PLN 580m, in Q1 2013, with more than 96 percent attributable to shareholders of the parent company.

- In the Supply segment we observed significant one-off effects in Q1 2013, resulting from the expiration of the obligation to redeem, starting from Q1 2013, electricity and heat cogeneration related certificates (so-called red and yellow certificates) and from the significant reduction of the provision to be set up in conjunction with the obligation to redeem certificates related to the generation of electricity from Renewable Energy Sources (so-called green certificates), which in turn was the effect of a significant decline of their market prices. The above factors led to an increase of the result by roughly PLN 169m in comparison to Q1 2012 – comments Krzysztof Zawadzki, CFO of TAURON Polska Energia.

The average OZEX_A index, related to the „green” certificates, declined 35 percent between January and December 2012, and the average KECX index, related to the „red” certificates dropped by 75 percent during the same period. Between December 2012 and February 2013 the average value of the OZEX_A index went down by another 30 percent, and the average value of the KECX index went up by 72 percent. During the entire period between January 2012 and February 2013 the average value of the OZEX_A declined 54 percent, and KECX – 56 percent.

CAPEX and debt

TAURON Group increased its capital expenditures in Q1 2013. Total CAPEX was PLN 541m. i.e. it was approximately 6 percent higher than last year. The main investment projects:

- in Generation: construction and upgrades of generation capacity and installation of the NO_x emission reduction systems

- in RES: construction of wind farms,

- in Distribution: construction of new customer connections and upgrades and restoration of the grid assets.

In spite of the CAPEX increasing year over year the Group continues to maintain a high cash balance, which was roughly PLN 815m at the end of Q1 2013. Besides gross profit this is, to a large degree, the result of greater depreciation due to an increase of the value of tangible fixed assets, primarily in the Generation and Distribution segments.

The Group’s net debt, that reached approx. PLN 5.1bn at the end of March, continues to be on a safe and stable level. The net debt went up by approx. PLN 580m in Q1 2013, in comparison to the balance at the end of 2012, among others as a result of drawing down successive tranches of the EIB loan in conjunction with the implementation of the investment projects. The net debt to EBITDA ratio was 1.33x at the end of Q1 2013.

***

TAURON Polska Energia SA is the capital group’s holding company that runs its operations in such lines of business as coal mining and generation, distribution and supply of power and heat. TAURON Group is operating on 18 percent of Poland’s territory and is one of the largest business entities in Poland. TAURON Group includes, among others, such subsidiaries as TAURON Wytwarzanie, TAURON Dystrybucja, TAURON Sprzedaż, TAURON Obsługa Klienta, Południowy Koncern Węglowy, TAURON Ekoenergia and TAURON Ciepło.