TAURON Group posts good FY 2017 earnings: PLN 3.5 bln of EBITDA and PLN 1.4 bln in net profit

• Stable revenue of PLN 17.4 bln
• EBITDA rising to PLN 3.5 bln (+6.2 percent yoy) and EBITDA margin growing to 20.4 percent (+1,5 pp yoy)
• Net profit up 274 percent, to PLN 1.4 bln
• Improved key operating results – higher production of coal and electricity as well as increased electricity supply and distribution
• Capital expenditures of PLN 3.5 bln. The largest capex in the following segments: Distribution (PLN 1.7 bln) and Generation (PLN 1.5 bln)
• Safe net debt/EBITDA ratio level: 2.3x as of December 31, 2017

(all data for 2017, consolidated data)

- In 2017 TAURON Group took advantage of the opportunities presented by Poland’s fast growing economy. We posted very good financial results, in line with market expectations, that were achieved, to large degree, thanks to improved key operating indicators.
Rising electricity production, distribution and supply are particularly noteworthy – says Filip Grzegorczyk, CEO of TAURON Polska Energia. – In 2018 we are planning to steadfastly strengthen our leading position in electricity distribution, however we also not forgetting to refurbish generation capacity. Our flagship investment project, i.e. the construction of a 910 MW unit at Jaworzno III Power Plant, is implemented in accordance with the schedule, and the work progress reached 54 percent at the end of 2017 – CEO emphasizes.

Operating data

Last year commercial coal production and sales were higher by, respectively: 1.3 percent
and 11.7 percent in comparison to 2016. During the period under review 57 percent of the Group’s demand for hard coal was satisfied with the coal coming from the company’s own coal mines.

TAURON Group produced 18.4 TWh of electricity in 2017, i.e. 9.6 percent more than last year. Electricity generation from renewable energy sources was flat, reaching 1.3 Twh.

Heat production reached 12.2 PJ, i.e. 5.9 percent more than in 2016, which was a consequence of higher consumer demand  due to, among others, lower outdoor temperatures.

TAURON Group's Distribution segment reported a strong 3.4 percent volume growth rate, delivering 51.4 TWh of electricity to customers. This is a consequence of very good economic conditions resulting in higher electricity consumption by consumers.

The retail electricity supply by the Supply segment reached 34.9 TWh in 2017 which in comparison to the same period of last year represented a 9 percent increase. The significant volume increase is a consequence of active sales campaigns resulting, in particular, in higher electricity supply to business customers.

Financial results

- A significant success last year was a further diversification of the sources of financing and optimization of the debt’s maturity. We issued 10-year eurobonds worth EUR 500 mln listed on the London Stock Exchange and we guaranteed ourselves an option to issue hybrid bonds. These actions have a positive impact on the Group’s financial stability, while at the same time providing the funds required to implement the CAPEX program – says  Marek Wadowski, CFO of TAURON Polska Energia. TAURON Group’s good financial position was significantly impacted by the steadfastly implemented initiatives aimed at raising efficiency of the entire organization’s operations. The efficiency improvement program has generated almost PLN 1.1 bln in savings since beginning of 2016 and the introduced strategic initiatives produced a positive financial effect worth more than PLN 900 mln – CFO adds.

TAURON Group posted sales revenue of PLN 17.4 bln in 2017 versus PLN 17.6 bln in the year before. Higher revenues were reported by the Mining segment (up 17.6 percent), the Generation segment (up 4 percent) and the Distribution segment (up 6.5 percent) and). Supply segment posted slightly lower revenue.

The Group’s 2017 EBITDA reached more than PLN 3.5 bln, i.e. up 6.2 percent versus the result generated in 2016. Similar to the previous years the biggest contribution to TAURON Group’s total EBITDA was made by the Distribution segment (64 percent) and the Supply segment (24 percent).

The record breaking results of the Supply segment (PLN 841 mln EBITDA) were materially impacted by the dissolving, in H1 2017, of the provision related to the CCGT unit in Stalowa Wola (PLN 203 mln) and the termination of the long term agreements to purchase green certificates that were unfavorable for the group.

TAURON Group’s net profit was PLN 1.4 bln in 2017, almost four times higher than in 2016 when it reached PLN 370 mln. The increase of the net profit was - to the largest extent - a consequence of booking, in H1 2016, 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 generated PLN 1 091 mln in total savings (in 2016-2017). Savings achieved represent already 84 percent of the aggregate effects 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 3.5 bln in 2017 and they were 9 percent lower versus 2016.

The largest portion of the capital expenditures (PLN 1.3 bln) was spent on the construction of the 910 MW power generation unit at Jaworzno III Power Plant (Elektrownia Jaworzno III). The work progress, as of the end of December 2017, was 54 percent. 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 865 mln) and connecting new consumers to the grid (PLN 610 mln),

TAURON Group is also implementing three major investment projects at Sobieski, Janina and Brzeszcze coal mines. The total capex spent on the mining projects reached PLN 166 mln in 2017.

Debt and financing

2017 was a period of intense activity with respect to obtaining sources of financing by TAURON Group. In July the company issued 10-year eurobonds worth EUR 500 mln that are listed on the London Stock Exchange.

Another example of effective implementation of the financing strategy is the signing, at the beginning of September 2017, 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.

Actions taken in 2017 allowed for diversifying the sources of financing, extending the debt maturity date and secure funds needed to implement the Group’s key investment projects.

As of the end of December 2017 TAURON Group’s net financial liabilities reached PLN 8.0 bln (up 4.4 percent yoy), while the net debt to EBITDA ratio was stable at a safe level of 2.3x.