TAURON Group reports net profit of more than PLN 1bn in Q1-Q3

• Sales revenue was PLN 13.6bn
• EBITDA reached PLN 2.8bn, while EBITDA margin was 20.8 percent
• Net profit rose to more than PLN 1bn, while net margin improved reaching 7.9 percent
• Significant volumes and profitability improvements in the Mining segment in Q3
• Segments that made the largest contribution to the company’s earnings: Distribution (EBITDA of PLN 1.84bn), Generation (EBITDA of PLN 564m) and Supply (EBITDA of PLN 452m)
• Capital expenditures reached PLN 2.78bn. The largest CAPEX went into Generation (PLN 1.41bn) and Distribution (PLN 1.13bn)

(all the data for Q1-Q3 of 2015)

– TAURON Group is coping well with the challenging market environment as confirmed by the earnings generated by the company in the first three quarters of this year. Steadfast implementation of the policy of reducing operating expenses while at the same time expanding the scale of operations in the company's key segments makes our financial position stable. This is extremely important in the context of challenges faced by the Polish power sector and TAURON Group. We are carrying out an ambitious CAPEX program and therefore maintaining a strong balance sheet and generating solid profits is of key importance. We will continue to focus on strengthening all of our lines of business while improving efficiency at the same time – says Jerzy Kurella, CEO of TAURON Polska Energia.

– The fact that we are conducting business operations in all segments of the value chain puts TAURON Group in a highly comfortable position. The situation in individual lines of business may change very dynamically from quarter to quarter but the Group continues to maintain solid financial results. This is the consequence of its conservative cost control policy and flexible responding to the changing market environment. Our goal is to make sure that each segment of our operations is profitable. It is worth emphasizing that we managed to restore profitability in the Mining line of business in Q3 – adds Anna Striżyk, CFO of TAURON Polska Energia.

Operating data

Over the first three quarters of 2015 TAURON Group has steadily expanded the scale of its operations as confirmed by the rising sales volumes in the two key lines of business: Generation and Distribution.

In response to the growing demand TAURON Group has generated almost 10 percent more electricity over the first three quarters of this year than during the same period last year, i.e. close to 12.4 TWh (in Q3 alone the growth rate topped 20 percent). This is a much better result than the overall growth rate of the national market where the production rose 3.5 percent during this period. Such good results achieved by TAURON are the consequence of the favorable market trends and the adopted trading strategy.

Also in the Distribution segment TAURON Group posted improvements, having delivered 36.7 TWh of electricity to its customers over the first three quarters of this year, i.e. 2.6 percent more than a year ago. This is the consequence of the improving economic conditions in Poland and the rising production output in the energy consuming sectors of the economy, including, among others, the steel and mining industries. At the same time TAURON Group increased the number of its customers in this line of business by approximately 35 thousand.

From the beginning of the year until the end of September 2015 TAURON Group produced nearly 3.5 million tons of commercial coal, while selling approximately 3.7 million tons of hard coal during that time. The higher hard coal sales volume versus the hard coal production volume was due to the sale of the company's hard coal inventory.

Financial results

EBITDA and net profit

As a consequence of the higher revenues and reduced operating expenses TAURON Group managed to improve the profitability of the following segments: Generation (increase of EBITDA by 5.6 percent to PLN 564m) and Distribution (increase of EBITDA by 3.5 percent to PLN 1.84bn), during the first three quarters of 2015. These increases were partly offset by the lower earnings posted by the Supply (decrease of EBITDA by 9.9 percent to PLN 451.9m) and Mining (decrease of EBITDA down to PLN -23.2m versus PLN 83.6m) lines of business. As a consequence the Group reported EBITDA of PLN 2.84bn for the first three quarters of 2015.

Generation segment’s EBITDA went up by almost 6 percent over the first three quarters of this year as a result of rising electricity sales volumes and higher electricity sales margins. At the same time the Group reduced fixed costs in this segment, primarily the depreciation, the costs of labor and overhauls. Distribution, which is the most significant segment for the Group's operations, generated approx. 65 percent of the Group's total EBITDA, reaching PLN 1.84bn in the first nine months of 2015 (increase by 3.5 percent).

- Our actions aimed at improving efficiency and controlling the costs are bringing the expected results which is reflected in the significant profitability improvement in the third quarter of this year. The increase of the net profit attributable to the shareholders of the parent company during this period by more than 12 percent was possible due to the reduction of the costs by 1.9 percent, and also as a result of our strategy aimed at increasing the share of such shareholders in the profit - says Anna Striżyk.

In the third quarter of this year TAURON Group's EBITDA rose 1.4 percent to PLN 933.2m, primarily due to more than twofold increase in the profitability of the Mining segment to PLN 134.7m and improved earnings in the Supply segment that reached PLN 116.8m.

Due to the significant profitability improvement in the third quarter of this year, and also due to the higher financial revenue and the lower tax, the Group's net profit attributable to the shareholders of the parent company rose 2.7 percent in Q1-Q3 of 2015 versus last year and topped PLN 1.07bn, while the net margin went up to 7.9 percent. In Q3 alone the net profit attributable to the shareholders of the parent company was 12.4 percent higher, reaching PLN 358.1m.

CAPEX and debt

In Q1-Q3 of 2015 TAURON Group continued the implementation of its strategic CAPEX projects, in particular the investments in generation assets and upgrading the distribution infrastructure. TAURON Group's capital expenditures reached PLN 2.78bn during that period, i.e. an increase by more than 38 percent versus Q1-Q3 of 2014.

– With the long term growth of TAURON Group and the security of electricity supply in mind we are steadfastly investing in new generation capacity and in the improvement of the quality of the distribution infrastructure. The upgrade projects at the Jaworzno III and Łagisza power plants are already close to completion, while the works on the construction of the 910 MW unit at Jaworzno III Power Plant are 11 percent complete – comments Jerzy Kurella.

Planned total CAPEX related to the construction of the 910 MW unit 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.

The third quarter was also the time of intense works on debt refinancing which should soon result in the signature of the new agreement with the banks on TAURON Group's financing. As of the end of September the net debt to EBITDA ratio remained at a safe level of 1.97.