TAURON Polska Energia : Group: Successful first half of 2015

• Sales revenue was approx. PLN 9.2bn
• EBITDA topped PLN 1.9bn, while net profit was more than PLN 720m
• EBITDA margin reached 20.8 percent, while net margin was 7.8 percent
• Segments that made the largest contribution to the company's good H1 earnings: Distribution (EBITDA: PLN 1.24bn), Generation (EBITDA: PLN 473m) and Supply (EBITDA: PLN 335m)
• Capital expenditures reached approx. PLN 1.8bn. The largest CAPEX went into Generation (PLN 886m) and Distribution (PLN 696m)

(all the data for H1 2015)

- In the first half of 2015 we generated EBITDA that was slightly higher than the average of analyst estimates. We are particularly happy with the good earnings posted by Generation, with the segment's EBITDA more than 20 percent higher, and by Distribution reporting a 6-percent growth. To a large degree it was possible thanks to the right commercial (trading) strategy of the Generation segment adopted this year and the rising revenue from the regulated operations, as well as the lower costs of purchasing distribution services by the Distribution segment. The lower operating expenses are also an important factor. This serves as a proof that TAURON Group is effectively taking advantage of the improving economic conditions and the growing demand for electricity, and that the company is also successfully implementing the adopted strategy - says Dariusz Lubera, CEO of TAURON Polska Energia.

- Apart from the favorable economic conditions and the effective electricity trading strategy also the continued initiatives aimed at reducing operating expenses are of major importance. The 2013-2015 efficiency improvement program has already generated approx. PLN 970m of savings versus PLN 864m planned for the entire program's duration. We are currently working intensely on the assumptions of the new, ambitious program for 2016-2018 that will allow TAURON Group to adjust to the challenging market environment and carry out the adopted CAPEX program
- says Krzysztof Zawadzki, CFO of TAURON Polska Energia.

Operating data

In the first half of 2015 TAURON Group produced 2 million tons of commercial coal. The lower volume versus last year's production is mainly the consequence of more challenging mining and geological conditions in the Group's coal mines.

The Group increased electricity production by 7.5 percent as a consequence of the favorable market environment due to the growing demand for electricity. Electricity generation from renewable energy sources rose thanks to favorable hydrological and wind conditions. Worth noting is the increase of the volume of generated electricity that was significantly higher than the national average growth rate of 2.9 percent.

Improving economic conditions in Poland and rising industrial output had a positive impact on the growing demand for electricity among TAURON Group's largest customers. Electricity distribution volume increased year-on-year by 3 percent - to 24.6 TWh, and the number of customers connected to the Group's distribution grid rose by approx. 33 thousand.

Financial results

Sales revenue

In the first half of 2015 TAURON Group posted sales revenue of almost PLN 9.2bn, i.e. roughly flat versus last year. The revenue decline related to the spin-off of Zakład Wytwórczy Nowa and Elektrownia Blachownia from TAURON Group's structure and the transfer of these assets to TAMEH Polska was compensated for by the higher revenue in the Generation (up 15.3 percent), Supply (up 6.8 percent) and Distribution (up 5.9 percent) segments.

EBITDA and net profit

The Group's EBITDA was slightly lower in the period under review, reaching PLN 1.9bn. Invariably Distribution made the largest contribution to the Group's EBITDA (65 percent), while the significance of Generation increased as the segment contributed 25 percent to the Group's total EBITDA. A distinct increase of electricity distributed to large industrial customers is noticeable which is a consequence of the growing industrial production.

Generation segment's EBITDA went up by almost 22 percent, mainly as a result of rising electricity sales volumes and the reduction of fixed costs. Distribution segment's EBITDA increased by 6.3 percent. The improvements of profitability in these two segments compensated, to a large extent, for the decline of EBITDA in the Mining segment as a consequence of the challenging situation in the mining sector, lower prices and volumes of hard coal sold and an unplanned increase of operating expenses.

Net profit attributable to the shareholders of the parent company reached PLN 718.5m in the first half of 2015 and it was 1.6 percent lower than a year ago. The net profit was adversely affected, among others, by the negative valuation of the financial instruments used to hedge a part of the Group's debt. The decrease of the difference between the net profit and the profit attributable to the shareholders of the parent company is worth noting. Currently almost the entire net profit generated by the Group is attributable to the shareholders of TAURON Polska Energia.

CAPEX and debt

In the first half of 2015 TAURON Group's CAPEX reached PLN 1.77bn, i.e. an increase by almost 42 percent versus the first half of last year.

- In line with our strategy we are continuing to invest in new generation capacity. Apart from the works on the construction of a 910 MW unit at Jaworzno III Power Plant that are underway, in March we signed an agreement with the Polish Investments for Development (PIR) comments Dariusz Lubera.

Planned total CAPEX related to the construction of the 910 MW unit will reach approx. PLN 6.2bn. The unit will be commissioned in 2019 and it will be generating approx. 6 TWh of electricity per annum. The CAPEX related to the construction of the 413 MW unit at Łagisza Power Plant will exceed PLN 1.5bn, while PIR's contribution will reach the maximum permitted level of PLN 750m.

The net debt to EBITDA ratio remains at a safe level and as of the end of June, 2015 it reached 1.93x. The Group's stable financial standing is confirmed by Fitch rating agency that in July 2015 reaffirmed the company's "BBB" long term rating with a stable outlook.