TAURON Group posts good results in challenging 2014

• Sales revenue was PLN 18.4bn, while EBITDA reached PLN 3.6bn
• EBITDA margin was 19.7 percent, while net margin reached approx. 6.4 percent
• Segments that made the largest contribution to the company’s earnings: Distribution (EBITDA: PLN 2.2bn) and Supply (EBITDA: PLN 608m)
• Generation’s EBITDA increased nearly nine-fold (up to PLN 252m), while Renewable Energy Sources’ segment improved its EBITDA by 33 percent (up to PLN 180m)
• Capital expenditures topped PLN 3bn. The largest CAPEX went into Distribution (PLN 1.9bn)
• Efficiency improvement program generated PLN 400m in savings which means cumulatively achieving 83 percent of total PLN 864m planned for 2013-2015

(all the data for 2014)

– In Q4 2014 and for the full year TAURON Group posted solid financial results in spite of adverse market environment. Declining electricity generation volumes and lower electricity prices achieved affected the level of our earnings. On the other hand the pro-active steps taken by the Group, such as cost optimization and effective commercial (trading) strategy on the electricity generation market, allowed for generating stable revenue and EBITDA – says Dariusz Lubera, CEO of TAURON Polska Energia. – In such volatile environment our presence in the entire energy value chain is very beneficial for us. In individual quarters better results in selected segments compensate for a worse financial position in others.

                                                                                                – In 2014, in spite of the provisions set up and assets related impairment charges made in Q4, EBITDA reached more than PLN 3.6bn which was a much better result than indicated by the market forecasts in the beginning of last year. It is worth emphasizing that thanks to the steadfastly implemented efficiency improvement program and our focus on generating margins we managed to increase the EBITDA margin to almost 20 percent. We see further potential for cost reductions – we expect the program’s total savings to top the originally assumed PLN 864m – says Krzysztof Zawadzki, CFO of TAURON Polska Energia.

Operating data

In 2014 TAURON Group produced 5.4m tons of commercial coal. The lower production output in the first three quarters of 2014 was compensated by an increase of production in Q4 amounting to approx. 18 percent (1.41m tons was produced during this period). The improvement in the Mining segment’s situation was primarily the consequence of pro-active commercial and marketing campaigns. This segment was negatively affected by the lower nationwide electricity generation output, increased electricity generation from renewable energy sources, coal imports and warm winter.

The reflection of the market environment, as well as of the adopted commercial (trading) strategy aimed at adjusting the production to the market situation, is the reduction of the volumes of electricity generated by TAURON Group’s power plants in 2014 by approximately 20 percent. However, rising volumes in the RES segment (by 22.6 percent), due mainly to the operation of new wind farms and biomass fired units, are noteworthy. Lower electricity generation volumes were also affected by high daily average temperatures in the first months of the year which led to the reduction of demand in the national power system.

Distributed electricity volume in 2014 was flat as compared to 2013 (approx. 48 TWh), while the number of customers connected to the Group’s distribution grid during the year increased by roughly 44 thousand.

Financial results

Sales revenue

In 2014 TAURON Group posted sales revenue of PLN 18.4bn, i.e. a 3.6 percent drop year on year. The declining revenue was first of all the consequence of dropping electricity sales volumes, lower electricity sales prices and falling volumes of hard coal sales outside the Group.

Higher revenues were posted by the following segments: RES (up 37 percent), Customer Service (up 24 percent), Distribution (up 1 percent) and Heat (up 1 percent). On the other hand the following segments reported declining sales revenues: Mining (due to the challenging situation on the hard coal market and lower hard coal prices), Generation (due to lower prices and falling volumes of generated electricity sales) and Supply (due to lower volumes and prices).

EBITDA and net profit

In the challenging market environment TAURON Group generated EBITDA of more than PLN 3.6bn (only 0.9 percent lower than in 2013). Extremely important for maintaining stable EBITDA was the effective commercial (trading) strategy and the steadfast implementation of the operational efficiency improvement program. Savings generated last year reached approx. PLN 400m, among others thanks to the implemented cost optimization programs. As a consequence the 2014 EBITDA margin rose to 19.7 percent from 19.1 percent a year ago. Invariably the Distribution and Supply lines of business continued to be the largest contributors to the Group’s EBITDA (76 percent in total).

Net profit attributable to the shareholders of the parent company reached almost PLN 1.2bn in 2014 and it was 9.7 percent lower than a year ago. The 2014 earnings were adversely affected by higher financial costs incurred in conjunction with the higher debt level related to the CAPEX projects underway, as well as the  provisions and impairment charges, with the largest component thereof being an increase of the provision for the employee benefits. Due to the  systematic process of buying out minority shareholders, including the acquisition of a 47.5 percent stake in Południowy Koncern Węglowy (currently TAURON Mining) from Kompania Węglowa, the profit attributable to the majority shareholders has risen. Currently almost the entire net profit generated by the Group is attributable to the shareholders of TAURON Polska Energia.

CAPEX and debt

In 2014 TAURON Group’s CAPEX topped PLN 3bn and it was lower by 18.3 percent than during the same period of 2013. The declining CAPEX was due to commissioning a number of projects in 2013 and the postponement of the construction of the 910 MW unit at the Jaworzno III Power Plant.

– Distribution is responsible for more than 60 percent of our investment outlays. CAPEX projects implemented were aimed at upgrading and restoring the grid assets. Substantial funds were also spent on expanding and upgrading the Heat and Generation segments’ assets. In the subsequent years the share of the Generation segment’s in the Group’s total CAPEX will be growing mainly due to the construction of the new coal fired unit at the Jaworzno III Power Plant – sums up Dariusz Lubera, CEO of TAURON Polska Energia.

TAURON Group is undertaking an extensive CAPEX program. It encompasses the Generation, Heat, Mining, as well as the Distribution segments. The Group’s largest project is the construction of a 910 MW hard coal fired unit at the Jaworzno III Power Plant. In March the earthworks related to the foundations of the main building of the boiler room, machine room and cooling tower were commenced. 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 approx. 6 TWh of electricity per annum.

During the 2014-2023 period TAURON Group’s capital expenditures will reach approx. PLN 37bn, including roughly PLN 29bn to be spent by 2020. Total estimated investment outlays in the Distribution segment will reach approx. PLN 21bn. The second key investment area will be the Generation segment where the generation capacity in the region of approx. 2 200 MW is planned to be commissioned.

In the context of the investment projects currently underway and the planned ones TAURON is successfully acquiring external financing. In October the Group acquired PLN 1.75bn from an issue of bonds bearing the interest rate of only 0.9 percent above the WIBOR rate. The bonds will be making their debut on the Catalyst market today (March 12, 2015).

The Group’s stable financial standing was confirmed by the Fitch rating agency in October 2014 when Fitch reaffirmed the company’s long term ratings at the level of ”BBB” with a stable outlook. The agency also granted the company’s bonds an A rating. The net debt to EBITDA ratio is at a safe level and as of the end of 2014 it reached 1.85x.