TAURON Group: Increased sales revenue and higher EBITDA in H1 2018

• Sales revenue up 5 percent year on year (to PLN 9.2bn)
• EBITDA up 2 percent (to PLN 2.2bn), with EBITDA margin of 23.8 percent
• Net profit attributable to the shareholders of the parent company of PLN 567m due to impairment charges (impact on the net result: PLN 303m)
• Electricity distribution and retail supply volumes maintained
• Capital expenditures of PLN 1.48bn. The largest capex in the following segments: Distribution (PLN 793m) and Generation (PLN 570m)
• Safe net debt to EBITDA ratio level (2.3x)

(all consolidated H1 2018 data)

- TAURON Group posted good financial results in the first half of 2018. We increased both, sales revenue as well as EBITDA. On the other hand, the net profit was significantly affected by a one-off event in the form of impairment charges booked – says Filip Grzegorczyk, CEO of TAURON Polska Energia. – We are continuing our investment and development projects that will guarantee additional revenue for the Group in the future. For example, electromobility, electric vehicle car sharing projects or launching of the corporate venture capital fund to develop innovations are worth mentioning – indicates Filip Grzegorczyk.

- Our activities in the first half of 2018 were focused on further optimizing the sources of financing and, as a result, we managed to keep the net debt to EBITDA ratio at a safe level of 2.3 – says Marek Wadowski, CFO of TAURON Polska Energia. – It is worth mentioning that in March we signed amendments to the agreements with the banks leading, as a result, to an extension of the availability of funds under the bond issue program until 2022. We are also getting closer to obtaining funds from the Polish Development Fund in the amount of PLN 880m for the construction of the 910 MW unit at Jaworzno – adds Marek Wadowski.

Operating data

Commercial coal production reached 2.53 million tons in H1 2018 and it was 24 percent lower year on year due to difficult geological conditions at Janina Coal Mine and the longwall retooling works conducted at Sobieski and Janina Coal Mines. Hard coal sales volume was close to the coal production volume, coming in at 2.5 million tons. Approximately 50 percent of TAURON Group’s demand for hard coal needed to produce electricity and heat was satisfied with the coal coming from the Group’s own coal mines in H1 2018. The balance of the demand was met from external sources.

TAURON Group produced 7.55 TWh of electricity in H1 2018, i.e. 20 percent less than in the same period of last year (9.46 TWh). The volume decline was a consequence of the adopted production and trading strategy. Electricity generation from renewable energy sources came in at 0.51 Twh, i.e. 23 percent less than last year (0.66 TWh), which was primarily due to a significant reduction of biomass burning and a decline of electricity generation by hydroelectric power plants and wind farms due to adverse weather conditions.

Heat production reached 6.73 PJ in H1 2018 and it was 5 percent lower year on year. Heat sales declined 9 percent (8.93 PJ) due to lower consumer demand as a result of high outdoor temperatures.

Distribution Segment delivered 26.01 TWh of electricity to customers, i.e. up 1 percent year on year. During the period under review the number of customers connected to TAURON Distribution’s grid went up by more than 60 thousand, reaching 5.56 million. Supply segment subsidiaries’ retail electricity supply came in at 17.2 TWh in H1 2018, i.e. it was flat versus last year.

Financial results

TAURON Group posted sales revenue of PLN 9.2bn in H1 2018 (up 5 percent year on year). During the period under review the Distribution segment reported higher revenue, while the Supply segment’s revenue was flat versus H1 2017 and the Mining segment posted a revenue decline (-13 percent) as a consequence of low coal production.

The Group’s H1 2018 earnings were significantly impacted by the booking of write-downs due to the impairment of assets and the goodwill impairment in the Mining segment in the amount of PLN 733m, and also by the reversing of the earlier booked write-downs in the Generation segment in the amount of PLN 345m. As a consequence, the surplus of the booked impairment charges over the reversed write-downs came in at PLN 388m, while the total impact on the decline of the consolidated net financial result stood at PLN 303m.

The Group generated EBITDA of PLN 2.2bn in H1 2018 and it was 2 percent higher than EBITDA posted in the same period of 2017. The biggest contribution to TAURON Group’s EBITDA was made by the Distribution segment (61 percent), followed by the Generation (27 percent) and the Supply (15 percent) segments. The Group’s EBITDA margin was 0.8 pp lower in H1 2018 year on year, coming in at 23.8 proc.

Generation segment’s EBITDA (PLN 592m) was 62 percent higher in H1 2018 than a year ago (PLN 365m), mainly due to the dissolving of the provisions related to employee benefits, worth PLN 230m, that had taken place in Q1 2018.

TAURON Group’s net profit attributable to the shareholders of the parent company reached PLN 567m in H1 2018 and it was 44 percent lower year on year.

Efficiency Improvement Program

Efficiency Improvement Program, implemented by TAURON Group, generated PLN 1,369m in total savings (in the 2016 – H1 2018 time frame). The cumulative results of the Program reached approximately PLN 300m in the first half of 2018, while the aggregate positive financial effect achieved so far is already higher than the originally assumed value. The largest share of the savings realized came from the following segments: Generation and Distribution.

Capital expenditures

TAURON Group's capital expenditures came in at PLN 1.48bn in H1 2018 and they were at a similar level as outlays incurred in the same period of last year (PLN 1.5bn). The largest capital expenditures were spent in the Distribution segment (PLN 793m), where the capex was allocated first of all to upgrading (refurbishing) the distribution grid (PLN 436m) and adding new connections to the grid (PLN 288m).

A significant portion of the Generation segment’s capital expenditures (PLN 437m) 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. The unit will be commissioned in November 2019.

Debt and financing

As of the end of June 2018 TAURON Group’s net financial liabilities reached PLN 8.4bn and they were 4.7 percent higher as compared to the level as of December 31, 2017. As a result of efforts aimed at optimizing the sources of financing TAURON Group has maintained the net debt to EBITDA ratio at a stable and safe level. At the end of June the ratio stood at 2.3.