TAURON Group posts good Q1-3 2017 earnings: PLN 2.9 bln of EBITDA and PLN 1.2 bln in net profit

• Significant increase of net profit to PLN 1.2 bln (versus PLN 0.3 bln in Q1-3 2016)
• EBITDA and EBITDA margin rising to, respectively: PLN 2.88 bln (+17 percent yoy)
  and 22.4 percent (+3.5 pp yoy)
• Operating costs down 9.4 percent yoy
• Segments that made the largest contribution to the Group’s EBITDA: Distribution (PLN 1 795 mln of EBITDA), Supply (PLN 691 mln of EBITDA) and Generation (PLN 386 mln of EBITDA)
• Improved efficiency in the Mining segment – increases of commercial coal production and sales (by 11 and 22 percent yoy)
• Increases of electricity and heat production by 13 percent yoy
• Capital expenditures of PLN 2 217 mln. The largest capex in the following segments: Generation (PLN 1 123 mln), Distribution (PLN 973 mln) and Mining (PLN 89 mln)
• Safe net debt/EBITDA ratio level: 2.11x as of the end of Q3 2017 (a drop by 0.21x versus the ratio level as of the end of 2016)

(all data for Q1-3 2017, consolidated data)

- The first three quarters of 2017 were for TAURON Group a period of significant improvements of the basic operating and financial indicators. We reported marked increases of the production and sales of coal, electricity and heat which was reflected in the Group’s improved financial results. Significant increases of EBITDA and net profit indicate that a steadfast implementation of the strategy, streamlining of the processes within the Group and the operating costs – while taking advantage of very good economic conditions and the growing demand for electricity – are bringing the assumed results – says Filip Grzegorczyk, CEO of TAURON Polska Energia.

- In 2017 we have introduced a number of initiatives that are important for the implementation of TAURON Group’s financing strategy. In July we completed an issue of 10-year eurobonds worth EUR 500 mln and thus we extended the debt’s maturity and diversified the debt structure. In September we signed an agreement with Bank Gospodarstwa Krajowego that enables issuing hybrid bonds worth PLN 400 mln. The new hybrid financing program provides us additional comfort in maintaining the net debt to EBITDA ratio at a safe level. As of the end of Q3 2017 it reached 2.11x which represented a drop by 0.21x versus the end of 2016 – says Marek Wadowski, CFO of TAURON Polska Energia – The first three quarters of 2017 are also the period of implementing effective measures aimed at improving efficiency and streamlining costs that fell by more than 9 percent year on year – adds Marek Wadowski.

Operating data

Commercial coal production was 11 percent higher in Q1-3 2017 than in the same period of 2016, reaching 4.68 mln tons. Commercial coal sales went up by 22 percent to 5.01 mln tons. 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). During the period under review 53 percent of the Group’s demand for hard coal required to produce electricity and heat was satisfied with the coal coming from the company’s own coal mines.

The Generation segment produced 14.03 TWh of electricity in the first three quarters of 2017, i.e. 13 percent more than last year. Electricity generation from renewable energy sources reached 0.94 TWh and it was 6 percent lower than last year which was due to the reduction of the biomass firing.

Heat production reached 7.9 PJ, i.e. 13 percent more than last year, which was due to lower outdoor temperatures and higher consumer demand.

TAURON Group's Distribution segment reported a strong 4 percent volume growth rate, delivering 38.3 TWh of electricity to customers in total, including 36.5 TWh to the final consumers. The rising volume of distribution is primarily a consequence of very good economic conditions and higher electricity consumption by industrial consumers.

The retail electricity sales by the Supply segment reached 25.5 TWh in the first three quarters of 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 active sales campaigns resulting, among others, in higher electricity supply to business customers.

Financial results

Sales revenue

TAURON Group posted sales revenue of PLN 12.87 bln in the first three quarters of 2017, i.e. close to the figure achieved in the same period of 2016. Higher revenues were reported by the Mining segment (up 26 percent), the Distribution segment (up 7 percent) and the Generation segment (up 3 percent).

EBITDA and net profit

The Group’s EBITDA reached PLN 2.88 bln in the first three quarters of 2017, i.e. it was up 17 percent versus the result generated in the same period of 2016. The biggest contribution to TAURON Group’s total EBITDA was made by the Distribution segment (62 percent), followed by the Supply segment (24 percent).

The two above mentioned segments posted improved earnings in the first three quarters of this year – the Distribution’s EBITDA was up 5 percent, while the Supply’s EBITDA jumped 73 percent. The significant surge of the Supply segment’s EBITDA was materially impacted by the dissolving, in H1 2017, of the provision related to the CCGT unit in Stalowa Wola and the termination of the long term agreements to purchase green certificates.

TAURON Group’s net profit reached PLN 1 194 mln in the first three quarters of 2017 and it was significantly higher than last year (PLN 276 mln). The increase of the net profit was, to the largest extent, a consequence of 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

Efficiency Improvement Program, implemented by TAURON Group since the beginning of 2016, generated PLN 906 mln in total savings. Savings achieved since the beginning of 2016 represent already 70 percent of the aggregate savings planned for the 2016-2018 time frame. The largest share of the savings realized came from the following segments: Distribution and Generation.

Capital expenditures

TAURON Group's capital expenditures reached PLN 2 217 mln in the first three quarters of 2017 and they were 9.5 percent lower than last year. The largest portion of the capital expenditures (PLN 957 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.

In the Distribution segment the capex was primarily spent on upgrading (refurbishing) and replacing the distribution grid (PLN 463 mln) and connecting new consumers to the grid (PLN 397 mln), while in the Mining segment the capex was spent on the construction of the 800 m level at Janina coal mine (PLN 24 mln) and the investment program at Brzeszcze coal mine (PLN 14 mln).

Debt and financing

2017 was a period of intense activity with respect to obtaining sources of financing by TAURON Group. One of such actions was an issue of 10-year eurobonds worth EUR 500 mln completed in July as a result of which the sources of financing were diversified and the weighted average maturity of the Group’s debt was extended. Another example of effective implementation of the adopted financing strategy is the signing, at the beginning of September, of an agreement with Bank Gospodarstwa Krajowego that enables issuing hybrid bonds worth PLN 400 mln. Hybrid bond debt, due to its subordinate nature, will not be taken into account in the calculation of the net debt/EBITDA ratio.

As of the end of September 2017 TAURON Group’s net financial liabilities reached PLN 7.9 bln, while the net debt to EBITDA ratio was 2.11x which represented a drop by 0.21x versus the end of 2016.