TAURON Group’s Q1-Q3 2014 results stable

• Sales revenue was PLN 13.6bn, while EBITDA reached PLN 2.9bn
• EBITDA margin was 21.4 percent, while EBIT margin reached approx. 11.4 percent
• Segments that made the largest contribution to the company’s earnings: Distribution (EBITDA: PLN 1.78bn) and Supply (EBITDA: PLN 501m)
• Generation’s EBITDA increased nearly two-fold (from PLN 117m to more than PLN 200m), while Renewable Energy Sources’ segment improved its EBITDA by almost 70 percent year-on-year (up to PLN 142.4m)
• CAPEX reached PLN 2bn. The largest CAPEX went into Distribution (PLN 1.29bn)
• Efficiency improvement program underway has generated PLN 639m in savings which constitutes 74 percent of total PLN 860m planned under the program by 2015

(all the data for Q1-Q3 2014)

– TAURON Group’s financial results have remained stable in spite of the challenging market environment. They have also topped analysts’ forecasts. This is worth emphasizing in the context of the situation in the utilities’ sector that has been negatively affected by the lowest for a few years electricity prices and the growing competition on the retail electricity market – says Dariusz Lubera, CEO of TAURON Polska Energia. – After three quarters improved EBITDA was posted, among others, by Distribution and Generation. Much better EBITDA was reported by Renewable Energy Sources where we benefitted from higher green energy production volumes due to the operation of Marszewo and Wicko wind farms that had been commissioned last year.

– We posted much higher than last year revenue from distribution services and sales of electricity from renewable sources that allowed us, among others, to offset declining electricity and hard coal prices and volumes. Improved earnings of the Generation (Q1-Q3 2014 EBITDA: PLN 200m, Q1-Q3 2013 EBITDA: PLN 117m) were also due to such factors as the right market strategy adopted this year in this line of business, revenue from the operational reserve, and also the lack of the obligation to set up CO₂ emission allowances provision – says Krzysztof Zawadzki, CFO of TAURON Polska Energia.

Operating data

Commercial coal production in the first three quarters of 2014 was lower than a year ago, reaching approx. 4m tons. Lower hard coal output and sales were primarily the consequence of the declining hard coal-fired electricity generation, rising electricity production from renewable energy sources, and also continued hard coal imports to Poland. It is noteworthy that as a result of active marketing campaigns Mining reported a slight increase of hard coal sales volume in Q3 2014.

In the first nine months of 2014 the Group’s hard coal-fired power plants’ electricity generation was lower by approx. 21 percent than a year ago. Lower volume is the consequence of the current market situation and the Group’s market strategy adopted as a result. Furthermore, wind power generation increased by almost 45 percent which led to the drop of conventional power plants’ output by 5.5 percent, and additionally a deficit (imports are greater than exports) in cross-border electricity trade has continued. Electricity production volumes were also affected by significantly higher than in previous years average daily temperatures in the first months of this year which led to the reduction of demand by the National Power System (KSE).

Distributed electricity volume in the first three quarters of 2014 was flat as compared to last year (approx. 35.7 TWh), while the number of customers connected to the Group’s distribution grid during the year increased by 45 thousand. 

Financial results

Sales revenue

In the first three quarters of 2014 TAURON Group posted sales revenue of PLN 13.6bn, i.e. a 4.3 percent drop year-on-year. The declining revenue was first of all the consequence of dropping electricity and heat sales volumes, lower electricity sales prices and falling volumes of hard coal sold outside the Group.

Higher revenues were posted by the following segments: RES (up 67.6 percent), Heat (up 4.5 percent), Customer Service (up 21.6 percent) and Distribution (up 1.7 percent). On the other hand the following segments reported declining sales revenues: Mining (due to the situation on the hard coal market) and Generation (due to lower prices and falling volumes of generated electricity sales).

EBITDA and net profit

In spite of adverse market environment TAURON Group generated EBITDA of approx. PLN 2.92bn (only 2.8 percent lower than in 2013), which was, to a large degree, the consequence of the steadfast implementation of the operational efficiency improvement program. In the first nine months of 2014 TAURON Group’s operating expenses fell 3.5 percent. Distribution and Supply lines of business continued to be the largest contributors to the Group’s EBITDA.

Net profit in the first three quarters of 2014 reached PLN 1.05bn, i.e. it was 16.7 percent lower than a year earlier. Due to the acquisition of a 47.5 percent stake in Południowy Koncern Węglowy (currently TAURON Mining) from Kompania Węglowa the profit attributable to minority shareholders has dropped substantially. Currently almost the entire net profit generated by the Group is attributable to the shareholders of TAURON Polska Energia.

CAPEX and debt

In the first nine months of 2014 TAURON Group’s CAPEX reached PLN 2bn and it was lower by approx. 15 percent than during the same period of 2013. More than 60 percent of the CAPEX was invested in the Distribution segment (upgrades of the existing distribution grid and the new connections).

– Our CAPEX was focused on upgrading and restoring the grid assets. We spent approximately PLN 1.3bn, i.e. more than 60 percent of the total CAPEX, on such projects. The remaining outlays were spent on constructing and upgrading generation units and heating networks, as well as gaining access to new coal deposits – sums up Dariusz Lubera, CEO of TAURON Polska Energia.

TAURON Group is implementing an extensive CAPEX program. It encompasses electricity and heat generation, mining, as well as distribution. TAURON Group’s 2014 CAPEX plan assumes approx. PLN 3.7bn in investment outlays. The Group’s largest project is the construction of a 910 MW hard coal fired unit at Jaworzno III Power Plant. In September the first symbolic spade was dug into the ground at the construction site. Planned capital expenditures on the unit’s construction will reach approx. PLN 6.2bn. The unit will be commissioned in 2019 and it will be generating 6.4 TWh of electricity per annum.

Over the next 10 years TAURON Group’s capital expenditures will reach approx. PLN 37bn, out of which roughly PLN 29bn will be spent by 2020. Total planned investment outlays in the Distribution segment will reach approx. PLN 21bn. The second key area of investment will be the Generation, where the goal of the planned CAPEX projects is to commission generation capacity in the region of approx. 2 200 MW.

The confirmation of the Group’s sound financial position is reaffirming by Fitch rating agency in October 2014 of the company’s long term ratings at the level of ”BBB” with a stable outlook. The net debt to EBITDA ratio is at a safe level and as of September 30 it reached 1.73x.