TAURON Group’s H1: EBITDA topping PLN 2 billion and net profit of PLN 1 billion

• EBITDA reached PLN 2.09 billion (up 26 percent year on year), while EBITDA margin was 23.9 percent

• Net profit topped PLN 1 billion

• Segments that made the largest contribution to the earnings posted: Distribution (EBITDA of PLN 1 203 mln), Supply (EBITDA of PLN 545 mln) and Generation (EBITDA of PLN 306 mln)

• Significant improvement of the Mining segment’s earnings – commercial coal production and sales going up, respectively, by 34 percent and 44.7 percent year on year

• Increases of production of electricity by 12 percent year on year and of heat by 10 percent year on year

• Solid 4 percent increase of distributed electricity volume and a 10 percent rise of the volume of retail electricity supply to the Group’s customers

• Capital expenditures of PLN 1 495 mln – the largest capex went into Generation (PLN 814 mln), Distribution (PLN 605 mln) and Mining (PLN 56 mln)

• Net debt/EBITDA ratio as of the end of H1 2017: 2.17x (a drop by 0.15x versus the ratio's value as of the end of 2016)

 (all data for H1 2017, consolidated data)

- TAURON Group posted solid financial and operating results in H1 2017. It would not have been possible without our consistent activities in various areas – we are streamlining management processes in place within the Group, we are watching our costs, while at the same time making sure that we support innovations and make our product offering more attractive for our existing and future customers. All of these elements constitute a strong base for the Group’s further expansion. In accordance with our strategy we are building the Group’s organizational culture in such a manner that the customer and his/her needs are at the center of our activities – says Filip Grzegorczyk, CEO of TAURON Polska Energia. – I am particularly happy to see improved operating data in all of our lines of business – we are producing and selling more and more hard coal, electricity and heat. These accomplishments, in combination with favorable economic conditions and the growing demand for electricity, translate into TAURON Group’s ever improving earnings – adds CEO Filip Grzegorczyk.

- This year we have continued activities assumed in our financing strategy – as a result of the issue of the 10-year eurobonds worth EUR 500 mln we diversified the debt structure, expanded our investor base and extended the debt’s maturity. Additionally, as a consequence of the hybrid bond issue completed in December last year, the net debt to EBITDA ratio is at a safe level of 2.17x, i.e. lower than last year in spite of the fact that the expenditures related to the construction of the power generation unit at the Jaworzno Power Plant are entering the key stage – says Marek Wadowski, CFO of TAURON Polska Energia. – H1 earnings were positively impacted by the dissolving of the PLN 203 mln provision related to the CCGT unit’s project in Stalowa Wola, while they were negatively impacted by the conclusion of the 3-year agreement on wages with the workforce that led to a charge to the costs of H1 in the amount of PLN 55 mln and the inclusion of the impairment charges related to the electricity and heat generation assets in the total net amount of PLN 32 mln – explains CFO Marek Wadowski.

Operating data

Commercial coal production was 34 percent higher in H1 2017 than in the same period of 2016, reaching 3.32 mln tons. Commercial coal sales’ growth rate was even stronger, i.e. 45 percent. The rising coal production volume was primarily due to the increased mining capacity of Brzeszcze coal mine (ZG Brzeszcze) and a more favorable layout of coal faces at Janina coal mine (ZG Janina). In the first half of this year 67 percent of the Group’s demand for coal required to generate electricity and heat was satisfied with the coal coming from the company’s own coal mines.

The Generation segment produced 9,46 TWh of electricity in H1 2017, i.e. 12 percent more than last year. The higher electricity production is the consequence of the trading strategy adopted by the company and the higher contract sales year on year in the Generation line of business. Electricity generation from renewable energy sources was 14 percent lower than last year which was due to the reduction of the biomass firing (the consequence of very low green certificates' market prices).

Heat generation reached 7.1 PJ in the first half of this year, i.e. 10 percent more than in the first half of last year which was due to lower outdoor temperatures and higher consumer demand.

TAURON Group's Distribution segment reported a 4 percent volume growth rate, delivering 25.7 TWh of electricity to customers. The rising volume of delivery to the final consumers is primarily the consequence of good economic conditions and higher electricity consumption by industrial consumers.

The retail electricity supply reached 17.2 TWh in H1 2017 which in comparison to the same period of last year represented a 10 percent increase. The segment’s improved result is a consequence of an attractive product offering and higher electricity supply to the business customers.

Financial results

Sales revenue

TAURON Group posted sales revenue of PLN 8.75 bln in H1 2017, i.e. close to the figure achieved in the same period of 2016. Higher revenue was reported by the Mining segment (up 53 percent) and the Distribution segment (up 7 percent). Slight revenue declines were reported by the following segments: Generation (down 2.6 percent) and Supply (down 3 percent).

EBITDA and net profit

The Group’s H1 2017 EBITDA reached PLN 2.09 bln, i.e. it was up 26 percent versus the result generated in the first six months of 2016. The biggest contribution to EBITDA was made by the Distribution segment (57 percent), followed by the Supply segment (26 percent).

The two above mentioned segments posted improved earnings in H1 2017 – the Distribution’s EBITDA was up 5 percent, while the Supply’s EBITDA jumped 88 percent. The significant surge of the Supply segment’s EBITDA was materially impacted by the dissolving, in Q1 2017, of the provision related to the CCGT project in Stalowa Wola.

TAURON Group’s net profit reached PLN 1 005 mln in H1 2017 and it was significantly higher than in the same period of last year. The increase of the net profit is due, to the largest extent, to the inclusion in H1 2016 of the big impairment charges related to the loss of the Generation segment’s assets’ carrying amount.

Efficiency Improvement Program and Strategic Initiatives

Efficiency Improvement Program generated PLN 274 mln in total savings in H1 2017. Savings achieved since the beginning of 2016 represent already 58 percent of the aggregate savings planned for the 2016-2018 time frame. The largest contribution to the savings realized came from the following segments: Distribution and Generation.

Apart from the Efficiency Improvement Program TAURON Group is taking optimization and pro-efficiency measures defined as strategic initiatives. In H1 2017 a positive financial effect of PLN 480 mln was generated which represented 14 percent of the aggregate amount planned for the 2017-2020 time frame.

Capital expenditures

TAURON Group's capital expenditures reached PLN 1 495 mln in the first half of 2017 and they were comparable to the amount spent in the first half of 2016. The largest, by far, portion of the capital expenditures (PLN 702 mln) was spent on the construction of the 910 MW power generation unit at Jaworzno III Power Plant (Elektrownia Jaworzno III). Planned total outlays related to the construction of this unit will reach approx. PLN 6.2 bln and the unit will be commissioned in November 2019.

Lower expenditures were allocated to the Distribution and Mining segments. In the Distribution segment the capex was primarily spent on upgrading (refurbishing) the distribution grid (PLN 296 mln) and connecting new consumers to the distribution grid (PLN 244 mln).

Debt and financing

The first half of 2017 was a period of intense activity with respect to obtaining sources of financing for the projects conducted by TAURON Group. One of such actions was the issue of the 10-year eurobonds worth EUR 500 mln that attracted a very strong interest from investors.

As a result of this issue the Group’s sources of financing were diversified, the investor base was broadened and the weighted average maturity of the Group’s debt was extended. The proceeds from the issue will primarily be used to refinance the costs of the construction and purchase of wind farms and to finance investments in the Distribution segment.

Since July this year the eurobonds have been listed on the regulated market of the London Stock Exchange.

As of the end of June 2017 TAURON Group’s net financial obligations reached PLN 8.2 bln, while the net debt to EBITDA ratio was 2.17x.