TAURON Group's results in line with the market's expectations

• Sales revenue was more than PLN 4.6bn
• EBITDA reached PLN 873m, while EBITDA margin was 18.8 percent.
• Net profit reached PLN 324m
• Distributed electricity volume up approx. 2 percent
• Segments that made the largest contribution to the company’s earnings: Distribution (EBITDA of PLN 543m), Generation (EBITDA of PLN 191m) and Supply (EBITDA of PLN 167m)
• Total capital expenditures reached PLN 654m. The largest CAPEX went into Distribution (PLN 328m), Generation (PLN 256m) and Mining (PLN 63m)

(all data for Q1 2016, consolidated data)

– As expected the first quarter of 2016 was not easy for the electric utilities sector. The sales revenue generated was slightly lower than a year ago. Due to good economic conditions the Group posted an almost 2 percent increase of the distributed electricity volume, also hard coal production and sales volumes rose. Unfortunately the results of the Generation and Mining segments were under pressure due to unfavorable market conditions as well as low electricity and coal prices. The Management Board is currently working on the new strategy that will allow the Group to operate more efficiently in a volatile market and regulatory environment – says Remigiusz Nowakowski, CEO of TAURON Polska Energia.

– TAURON Group's Q1 2016 EBITDA is 14 percent lower than a year ago. This is primarily the consequence of the market conditions - lower realized electricity prices, higher CO₂ provision costs and competition on the retail sales market resulting in the lower electricity sales volume and prices. The unfavorable factors were partly offset by the good results posted by the Distribution segment, the revenue from the capacity reserve mechanisms and the effects of the efficiency improvement programs – says Marek Wadowski, CFO of TAURON Polska Energia.

Operating data

TAURON Group produced and sold more than 1.2 million tons of commercial coal in Q1 2016. The rise in production versus last year was mainly due to the acquisition of the Nowe Brzeszcze Grupa TAURON company.

Electricity production fell 2 percent which was primarily the consequence of the lack of biomass co-firing and the lower hydroelectric power plants' output as well as the continued unfavorable situation on the renewable energy sources market (lower volume of production from RES, lower price of the green certificates, lack of support for hydroelectric power plants with the capacity of more than 5 MW_e, 50 percent reduction of the support for co-firing).

On the other hand, a steady rise of demand for electricity, both among industrial consumers as well as households, led to the increase of the electricity distribution volume (up approx. 2 percent).

The declining retail electricity sales volume observed in Q1 is the result of the lower sales to the small and medium size enterprises segment caused by the aggressive pricing policies used by the competitors.

Financial results

Sales revenue

In Q1 2016 TAURON Group posted sales revenue of more than PLN 4.6bn, i.e. a 3 percent drop year on year. The main factors behind it were lower revenues from the sales of electricity, hard coal, distribution services and connection fees. These declines were partly offset by the revenues from the capacity reserve mechanisms (operational reserve and cold intervention reserve) as well as the rising gas sales revenue.

EBITDA and net profit

TAURON Group posted EBITDA of PLN 873m, i.e. a 14 percent drop versus last year. Invariably the largest contribution to EBITDA was made by Distribution (62 percent), followed by Generation (22 percent) and Supply (19 percent).

The Distribution segment's EBITDA was flat versus Q1 2015, while the other lines of business posted worse earnings. In case of the Generation segment this was primarily due to the higher costs of the CO₂ provision and lower electricity prices than a year ago.

The negative EBITDA of the Mining line of business is the consequence of the challenging market conditions, lower hard coal production and sales volumes as well as the consolidation, starting from January of 2016, of the results of the Nowe Brzeszcze Grupa TAURON company.

TAURON Group posted net profit of PLN 324m in Q1 2016.

CAPEX

TAURON Group's capital expenditures reached almost PLN 654m in Q1 2016, i.e. a 17 percent drop versus the same period of 2015. The largest part of the CAPEX was spent on the distribution grid upgrades and new customer connections (PLN 298m) as well as the construction of the 910 MW hard coal fired generation unit at Jaworzno III Power Plant (PLN 182m).

- Lower capital expenditures are applicable primarily to the Generation line of business. This segment's declining CAPEX is the consequence of the final stage of the 200 MW units' upgrade and the nearing completion of the Generation Plant Tychy co-generation unit's construction. The review of the corporate strategy and the analysis of all of the Group's investment projects are currently underway in order to bring the CAPEX program in line with the market conditions and the Group's financial standing – says Remigiusz Nowakowski, CEO of TAURON Polska Energia.

Debt and financing

As of the end of March 2016 TAURON Group's debt reached approx. PLN 8.7bn. – A safe financial position is the Management Board's priority, especially taking into account the magnitude of the capital expenditures incurred. We managed to extend the weighted average debt maturity from 51 months at the end of 2015 to 64 months at the end of Q1 this year – says Marek Wadowski, CFO of TAURON Polska Energia.

As of the end of March 2016 the net debt to EBITDA ratio reached 2.5x.

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TAURON Polska Energia SA is the capital group’s holding company that runs its operations in such lines of business as hard coal mining and generation, distribution and supply of electricity and heat. TAURON Group is operating on 18 percent of Poland’s territory and is one of the largest business entities in Poland, including being Poland’s largest electricity distributor as well as Poland's second largest electricity supplier and generator. TAURON Group includes, among others, such subsidiaries as TAURON Generation, TAURON Distribution, TAURON Supply, TAURON Customer Service, TAURON Mining, TAURON Eco-energy and TAURON Heat. The shares of TAURON Polska Energia SA have been listed on the Warsaw Stock Exchange since 2010 and they are included, among others, in the WIG20 and WIG30 indices. The company is included in the socially responsible companies' index - Respect Index.