TAURON Polska Energia : Group’s H1 2014 results top market expectations

• Sales revenue was PLN 22bn, while EBITDA reached PLN 1.99bn
• EBITDA margin was 21.6 percent, while EBIT margin reached approx. 11.7 percent
• Segments that made the largest contribution to the company's earnings: Distribution (EBITDA: PLN 1.17bn) and Supply (EBITDA: PLN 392m)
• Generation's EBITDA increased 4.5 times (from 28 to almost PLN 127m), while Renewable Energy Sources' segment improved its earnings by approx. 56 percent year-on-year (up to PLN 96.7m) as a consequence of Q4 2013 commissioning of 122 MW of capacity in Marszewo and Wicko wind farms
• CAPEX reached PLN 1.25bn. The largest CAPEX went into Distribution (PLN 841m)
• Efficiency improvement program underway has generated PLN 522m in savings which is already equivalent to 60 percent of the planned ultimate goal at the mid-point of its assumed time frame

         (all the data for H1 2014)

- TAURON Group's financial results should be viewed positively, especially if we take into account the challenging market environment for utilities. Better earnings year-on-year were posted by the Distribution, among others due to lower operating expenses. Generation reported strong growth of EBITDA but also the Renewable Energy Sources segment did very well having commissioned, at end of last year, two wind farms, Marszewo and Wicko, with the total capacity of 122 MW -   says Dariusz Lubera, CEO of TAURON Polska Energia.

- There were no significant one-off events in the first half of 2014 that would have a material impact on the Group's earnings.It is noteworthy that in spite of a drop in sales revenue in the first half of 2014 by approx. 5 percent, we still managed to slightly increase the EBITDA margin, up to approx. 22 percent, as a result of cost flexibility and the efficiency improvement program underway. As a consequence the decline of EBITDA versus last year was less than 3 percent - says Krzysztof Zawadzki, CFO of TAURON Polska Energia.

Operating data

Commercial coal production in H1 2014 was lower than a year ago, reaching 2.55m tons. It is primarily the consequence of reducing hard coal-fired generation of electricity which led to the oversupply of this commodity on the domestic market.

In the first half of 2014 the Group's hard coal-fired power plants' electricity generation was reduced which was the result of the lower demand for electricity, increased generation by wind farms and the negative balance of trade. During the period under review there was also a drop in electricity supply to the Group's customers which was the effect of declining average consumption of electricity by small companies and households as well as the growing competition on the business customers market.

Distributed electricity volume in H1 2014 was flat as compared to last year (approx. 24 TWh), while the number of customers connected to the Group's distribution grid increased by 46 thousand year-on-year.

 Financial results

Sales revenue

TAURON Group posted sales revenue of PLN 9.22bn in H1 2014, i.e. an approx. 5 percent drop versus the same period of last year. The main reasons for the decline of revenue were first of all lower electricity and heat supply volumes, lower electricity sales prices and lower volume of hard coal sold outside the Group.

Higher revenues were posted by the following segments: RES (up 56.7 percent), Customer Service (up 27.9 percent) and Distribution (up 1.3 percent). On the other hand the following segments reported declining sales revenues: Mining (due to the situation on the hard coal market) and Generation (due to lower prices and volumes of generated electricity sales). Heat segment posted revenue close to the H1 2013 level.

EBITDA and net profit

In spite of adverse market environment and unfavorable weather conditions TAURON generated EBITDA of PLN 1.99bn, which was, to a large degree, the consequence of the steadfast implementation of the operational efficiency improvement program. At the same time the Distribution and Supply segments continued to be the largest contributors to the Group's EBITDA. Net profit in the first half of 2014 reached PLN 733m, i.e. it was 17.7 percent lower than a year earlier.

Due to the acquisition of a 47.5 percent stake in Południowy Koncern Węglowy (currently TAURON Mining) from Kompania Węglowa the profit attributable to minority shareholders has dropped substantially. Currently almost the entire net profit generated by the Group is attributable to the shareholders of TAURON Polska Energia.

CAPEX and debt

TAURON Group's CAPEX reached PLN 1.25bn in the first half of 2014 and it was lower by approx. 7 percent than in H1 2013. More than 60 percent of that amount were investment outlays in the Distribution segment (upgrades of the existing distribution grid and the new connections).

- In the first half of 2014 we focused our CAPEX on upgrading and restoring the grid assets. Almost half of our total CAPEX was spent on these items. The remaining outlays were spent on upgrading generation units at Jaworzno III and Łaziska Power Plants, constructing the 800 m level at the Janina coal mine and works related to the heat infrastructure as well as upgrading hydroelectric power plants - sums up Stanisław Tokarski, Vice President of the Management Board responsible for strategy and development at TAURON Polska Energia.

TAURON Group's 2014 CAPEX plan assumes approx. PLN 4bn of capital outlays. The Group's strategy for 2014-2023 was updated in the first half of 2014. Over the next 10 years TAURON Group's capital expenditures will reach approx. PLN 37bn, out of which roughly PLN 29bn will be spent by 2020. Total planned investment outlays in the Distribution segment will reach approx. PLN 21bn. The second key area of investment will be Generation, where the goal of the planned investment projects is to commission generation capacity in the region of approx. 2 200 MW.

TAURON Group's debt as of the end of Q2 2014 was approx. PLN 6.4bn The net debt to EBITDA ratio is at a safe level of 1.68.

 The confirmation of the Group's sound financial position is reaffirming by Fitch rating agency of the company's long term ratings at the level of "BBB" with a stable outlook.