Increased profitability of TAURON Group in the first three quarters of 2013

• EBITDA reported for the first nine months of 2013 close to last year’s EBITDA - approx. PLN 3bn. Excluding significant one-off events (impairment charges) EBITDA reported would be PLN 3.3bn which means an increase versus comparable 2012 EBITDA (adjusted by the revenue due to the LTC compensations) of approx. 25 percent year-on-year
• Growing margins: EBITDA (up 4.2 p.p. to 21.1 percent), EBIT (up 2 p.p. to 12 percent) and net profit (up 1.6 p.p to 8.9 percent)
• Sales revenue of PLN 14 209.4m, i.e. 22 percent lower than in the comparable period last year (PLN 18 214m) due to a change of electricity sales structure involving increasing sales of electricity produced by Generation directly to TAURON Group’s subsidiaries (that are subject to the consolidation exclusion)
• PLN 214m of savings after the first nine months of 2013 as a result of the operational efficiency improvement program underway  
• CAPEX realized in the first three quarters of 2013: PLN 2 368m – increase of 18.4 percent year-on-year

After the first nine months of 2013 commercial coal production in the Group’s two coal mines went up by 4.2 percent year-on-year, reaching 4.26m tons. TAURON Group’s power plants and combined heat and power plants generated 1.3 percent more electricity in the first three quarters of 2013 than in the comparable period of 2012, whereas electricity distribution volume in the first three quarters of 2013 was at the same level year-on-year, i.e. 35.72 TWh (in Q3 alone it increased by 1.7 percent). The number of customers connected to the Group’s distribution grids went up by 30 thou. year-on-year (reaching more than 5.3m in total).

In the first three quarters of 2013 profits more than doubled in the Supply (118.8 percent) and Customer Service (117.3 percent) segments. At the same time the net financial debt to EBITDA ratio fell – to 1.19.

- In the first nine months of 2013 TAURON Group posted solid earnings. We have significantly improved our profitability rate. EBITDA margin increased by more than 4 p.p. reaching more than 21 percent. This is also the result of the steadfast implementation of the operational efficiency improvement program the direct consequence of which is the reduction of operating expenses. It should be emphasized that the savings resulting from the operational efficiency improvement program in the first three quarters of this year reached PLN 214m. We have also completed the construction of a heat generating unit in Bielsko-Biała and wind farms in Wicko and Marszewo which in total provide 172 MW_e of new, environmentally friendly generation capacity – says Dariusz Lubera, CEO of TAURON Polska Energia.

Key operating data and financial results

Sales revenue

In the first three quarters of 2013 TAURON Group generated sales revenue of PLN 14 209.4m, i.e. 22 percent less year-on-year. The reason for the decline of revenue reported is the change of the model of trading electricity generated by the Group, involving a substantial reduction of electricity sales outside the Group in favor of direct sales to the Group’s subsidiaries. Intra-Group electricity sales are subject to the consolidation exclusion.

In the period ending on September 30, 2013 the Supply, Heat and Customer Service segments generated higher sales revenues year-on-year. In spite of the lower commercial coal output in Q3, due to deterioration of geological conditions on one of the walls, also Mining posted slightly higher sales revenue year-on-year. On the other hand, lower revenues in the Generation, RES and Distribution lines of business are the consequence of a lack of revenue from the LTC compensations, lower prices of electricity and color certificates, and the economic slowdown.

EBITDA and net profit

EBITDA reported for the first three quarters of 2013 was PLN 2 996.4m and it was lower than the result for the comparable period of 2012 by 2.8 percent. Excluding significant one-off events (impairment charges) EBITDA reported would be PLN 3.3bn which means an increase versus comparable 2012 EBITDA (adjusted by the revenue due to the LTC compensations) of approx. 25 percent year-on-year.

TAURON Group’s reported net profit was PLN 1 260.7m and it was approx. 5 percent lower year-on-year. In comparable conditions, i.e. excluding revenue from LTC compensations in 2012 and asset impairment charges in 2013, the reported net profit would be approx. PLN 1 510m which means an approx. 53 percent growth year-on-year.

 - A bigger drop in operating expenses (of approx. 24 percent) versus lower sales revenue (by 22 percent) is worth noting. The cost reduction is, among others, the outcome of the operational efficiency improvement program, lower fuel prices and the lack of the obligation to redeem yellow and red certificates in 2013 – comments Krzysztof Zawadzki, CFO of TAURON Polska Energia. – Of all lines of business only Generation posted a loss for the first three quarters of this year which was the consequence of absorbing an unplanned generation assets’ impairment charge worth approx. PLN 240m. The other segments generated operating profit.

CAPEX and debt

In the first three quarters of this year investment outlays grew substantially, i.e. by 18.4 percent. CAPEX reached PLN 2 368m. More than half of this amount (50.2 percent) was spent in the Distribution.

In Q3 2013 TAURON Group was carrying out a number of generation capacity investment projects, including: construction of a 449 MW_e and 240 MW_t CCGT unit in Stalowa Wola, construction of a 50 MW_e and 106 MW_t heat co-generation unit in Bielsko-Biała, construction of two wind farms in Wicko and Marszewo, 40 MW_e and 82 MW_e respectively. The latter two projects were completed in October and the heat generation unit in Bielsko-Biała – in July 2013.

The Group’s net debt in Q3 dropped by 10 percent versus its level at the end of the first half of 2013, totaling PLN 4 550.9m. In Q3 TAURON signed agreements related to the bond issue program for the total amount of PLN 6bn and the maximum maturity date falling in 2028.

At the end of Q3 TAURON Group’s debt ratio (net debt/EBITDA: 1.19) and liquidity ratio (current liquidity ratio: 1.1) improved.

In conjunction with the publication of the Q3 2013 earnings report the company decided to take advantage of new tools to communicate with investors. The information on the date of broadcasting the earnings’ conference was published on the company’s Facebook page. Additionally, an excel file containing the current and historical operating data and earnings (spreadsheet) is prepared. The material containing the data is available on the “Investor relations” tab of the www.tauron-pe.pl website.