Good Q1 for TAURON Group

• Sales revenue reached PLN 4,590m (up 0.5 percent year on year) – revenue increases reported in the following segments: Mining, Distribution, Supply
• EBITDA reached PLN 1,185m (up 35.6 percent year on year) – EBITDA margin was 25.8 percent
• Net profit reached PLN 641m (up 97.8 percent year on year)
• EBITDA was impacted by the dissolving of the PLN 190m provision related to the CCGT unit construction project in Stalowa Wola. The gross and net results were positively impacted by PLN 75m worth of positive exchange rate differences
• Segments that made the largest contribution to the company’s earnings: Distribution (EBITDA of PLN 607m), Generation (EBITDA of PLN 191m) and Supply (EBITDA of PLN 380m)
• Significant volume increases in the Distribution and Supply segments
• Total capital expenditures reached PLN 636m. The largest CAPEX went into Generation (PLN 335m), Distribution (PLN 262m) and Mining (PLN 29m)
• Net debt/EBITDA ratio as of the end of Q1 2017: 2.31x (drop by 0.01x versus the ratio's value as of December 31, 2016)
  
  (all data for 1Q2017, consolidated data)

– Effective alignment of the company’s strategy to the favorable electricity and heat consumption market trends allowed TAURON Group to post solid operating and financial results. I am particularly happy with a high, 9 percent increase of electricity supplied to our customers which is a significant achievement on the competitive retail electricity supply market. This is due to the high quality of our services and an attractive product offering. It is important to note that the volume surge was not achieved at the expense of the segment’s earnings’ deterioration – says Filip Grzegorczyk, CEO of  TAURON Polska Energia.

– TAURON Group’s Q1 earnings should be viewed as satisfactory. It should however be noted that the reported earnings were positively impacted by the dissolving of the PLN 190m provision related to the CCGT unit construction project in Stalowa Wola, as well as the inclusion of the PLN 75m financial revenue due to positive exchange rate differences. My preliminary assumption is that one cannot expect such significant one-off events in the subsequent quarters which should lead to a greater stability of earnings year on year. Talking about the future we have to take note of the significant challenges faced by the entire power industry: growing requirements with respect to  quality based regulation in the distribution segment (SAIDI, SAIFI, connection time) and the continuously rising burdens related to CO2 costs as well as noticeable pressure on coal prices which may have a negative impact on the generation segment’s earnings – says Marek Wadowski, CFO of TAURON Polska Energia.

Operating data

Commercial coal production was 25 percent higher in Q1 2017 than in the same period of 2016, reaching 1.51m tons. Hard coal sales volume reached 1.79m tons which was also the result of selling 276 tons of coal inventory. The rising production output of Brzeszcze Coal Mine (ZG Brzeszcze), operating as part of TAURON Group since January 2016, better mining and geological conditions than last year and a more favorable condition of coal faces resulting in the higher production output in each of TAURON Group’s coal mines had the biggest impact on the higher coal extraction volume than in 2016.

The Generation segment produced 4.89 TWh of electricity in Q1 2017, i.e. 13.5 percent more than last year (4.31 TWh). The higher electricity production was the consequence of the commercial strategy adopted by TAURON Group in the electricity generation line of business. Electricity generation from renewable energy sources reached 0.33 TWh, i.e. 19.5 percent less than last year due to the reduction of the biomass firing (the consequence of very low green certificates' market prices).

Heat supply reached 7.5 PJ in Q1 2017, i.e. 9 percent more than in Q1 last year which was due to lower outdoor temperatures and higher customers’ demand.

TAURON Group's Distribution segment posted a strong, 4.5 percent volume increase, delivering 13.3 TWh of electricity to customers. It was the consequence of good economic conditions and the higher electricity consumption, especially by small and medium enterprises.

The Supply segment reported a 9 percent increase of electricity retail supply volume which was due to the adopted commercial strategy, an attractive product offering and rising customers’ demand.

Financial results

Sales revenue

TAURON Group posted sales revenue of PLN 4.6bn in Q1 2017, i.e. close to the figure achieved in the same period of 2016. The Group generated higher revenue from the sales of distribution services, hard coal and heat as well as industrial services. The Group generated lower revenue from the electricity sales and the property rights’ valuation (Generation segment).

EBITDA and net profit

TAURON Group posted EBITDA of PLN 1,185m, i.e. up 36 percent versus last year. This result  was positively impacted by the dissolving of the PLN 190m provision related to the CCGT project in Stalowa Wola. Traditionally, the largest contribution to EBITDA was made by Distribution (51.2 percent), followed by Supply (32.1 percent) and Generation (16.1 percent). The Group improved EBITDA in the following segments: Distribution, Supply and Mining.

Distribution posted improved earnings primarily due to the higher volume of the distribution service sold.

The significant increase of the Supply segment’s EBITDA was materially impacted by the dissolving of the provision related to the CCGT unit project in Stalowa Wola and the favorable market conditions that led to the big drop of the cost of redeeming green certificates.

The Mining segment’s improved earnings were due to a 25 percent surge of the commercial coal production volume.

The Generation segment’s EBITDA was maintained on a stable level year on year.

TAURON Group’s net profit reached PLN 641m in Q1 2017, i.e. it was 98 percent higher than in the same period of last year. The net profit was significantly impacted by the inclusion of the PLN 75m financial revenue related to the positive exchange rate differences (the consequence of the EUR denominated debt) in Q1 2017.

Capital expenditures

TAURON Group's CAPEX reached PLN 636m in Q1 2017, i.e. down 2.7 percent versus the same period of 2016. The largest portion of the outlays was spent on upgrading the distribution grid and connecting new customers to the grid (PLN 231m) and the construction of the 910 MW generation unit at Jaworzno III Power Plant (PLN 282m). Planned total CAPEX related to the construction of this unit amounts to approx. PLN 6.2bn and the unit will be commissioned in November 2019.

Efficiency Improvement Program

Efficiency Improvement Program generated PLN 145m in total savings in Q1 2017. Savings achieved since the beginning of 2016 (under the third efficiency improvement program) represent already 48 percent of the total savings planned for 2016-2018. The largest contribution to the savings achieved came from the following segments: Generation, Distribution and Mining.

Debt and financing

As of the end of March 2017 TAURON Group’s net financial obligations reached PLN 8.4bn, while the net debt to EBITDA ratio was 2.31x.