TAURON Groups Q1 2017 Financial Results May 11, 2017 Q1 2017 key - - PowerPoint PPT Presentation

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TAURON Groups Q1 2017 Financial Results May 11, 2017 Q1 2017 key - - PowerPoint PPT Presentation

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TAURON Groups Q1 2017 Financial Results May 11, 2017 Q1 2017 key data TAURON Groups Q1 2017 results Q1 2017 vs [PLN m] Q1 2016 4 590 1% Sales revenue 1 185 36% EBITDA 640 98% Net profit* CAPEX 636 (3)% down 0.19 down 0.01

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TAURON Group’s Q1 2017 Financial Results

May 11, 2017

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Q1 2017 key data

* attributable to the shareholders of the parent company

TAURON Group’s Q1 2017 results

[PLN m]

Q1 2017 vs Q1 2016

Sales revenue

4 590 1%

EBITDA

1 185 36%

Net profit*

640 98%

CAPEX

636 (3)%

Net debt/EBITDA

2.31x

down 0.01

(vs 31.12.2016)

Q1 2017 operating data

Q1 2017 vs Q1 2016

Commercial coal production [t m]

1.51 25%

Electricity generation [TWh]

4.89 14%

Heat generation [PJ]

5.30 9%

Electricity distribution [TWh]

13.31 4%

Electricity supply [TWh]

9.12 9%

2 down 0.19

(vs 31.03.2016)

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Highlights Summary

February 28 TAURON Sprzedaż (TAURON Supply) terminates long term green certificates purchase agreements March 1 Amendment is signed with RAFAKO-MOSTOSTAL WARSZAWA consortium to the agreement on the construction of the 910 MW generation unit at Jaworzno III Power Plant – the unit’s completion deadline is extended by 8 months, the agreement value increases by PLN 71m March 13 Decision of the Management Board of TAURON Polska Energia on submitting the motion to the Ordinary General Meeting of Shareholders on covering the company’s net loss in the financial year 2016 from the company’s spare capital and not recommending the use of spare capital to pay out dividend March 31 Agreement and amendments related to the conditions of continuing the ”Construction of the CCGT unit at Stalowa Wola” project come into force. Repayment of the PLN 581m debt to the institutions (EIB, EBRD, Pekao S.A.) financing ECSW (Stalowa Wola Combined Heat and Power Plant). April 6 TAURON Polska Energia is among the laureates of the 2016 Transparent Company of the Year ranking organized by ”Parkiet” stock market and investors daily and the Accounting and Taxes Institute. The company was distinguished for its business transparency and market communications quality. April 20 Letter of Intent is signed with Grupa Azoty S.A. defining the general principles of cooperation related to the coal gasification project. Project’s estimated value: EUR 400m to 600m (depending on the selected technology version)

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Macroeconomic and market situation

Source: * GUS ** Bankier.pl ***PSE

21,73 21,63 12,09 14,02 1,45 1,58 4,09 4,24 2,72 2,83 10 20 30 40 50

Q1 2016 Q1 2017 industrial power plants renewable energy sources gas-fired thermal power plants lignite-fired power plants hard coal-fired thermal power plants 44,29 42,06

51,6% 28,7% 3,4% 9,7% 6,5% 48,8% 31,7% 3,6% 9,6% 6,4%

  • 0,5%

+16% +8,8% +4% +3,7%

5,3%

Structure of electricity generation in Poland*** [TWh]

3,7% 2,2% 1,3% 0,0%0,0% 0,5% 1,8% 2,6% 3,3% 3,3% 3,3% 3,3% 3,6% 3,1% 3,4% 4,3% 3,0% 3,1% 2,5% 2,7% 3,8%

46 47 48 49 50 51 52 53 54 55 56 0% 1% 2% 3% 4% 5% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Poland’s GDP growth rate* and manufacturing PMI (quarterly average)**

GDP growth rate manufacturing industry PMI GDP growth rate forecast

Electricity prices under one year BASE contracts

Average electricity sales prices on the competitive market (acc. to ERO)::

  • 2012:

201.36 PLN/MWh

  • 2013:

181.55 PLN/MWh

  • 2014:

163.58 PLN/MWh

  • 2015:

169.99 PLN/MWh

  • 2016:

169.53 PLN/MWh (forecast)

Average price [PLN/MWh] Volume [GWh] Y-13 191.60 108 861 Y-14 160.40 142 841 Y-15 168.11 146 932 Y-16 166.47 147 923 Y-17 160.27 76 729 Y-18 159.74 14 778 Y-19 164.73 1 743 Y-20 170.22 97

4

4,7% 2,6%

  • 0,3%
  • 3,0%
  • 2,0%

1,2% 5,0% 4,5% 4,9% 3,7% 1,8% 3,1% 5,3% 3,9% 4,3% 6,0% 3,0% 5,7% 2,5%1,5% 7,3%

  • 4%
  • 2%

0% 2% 4% 6% 8% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Increase of industrial production sold* and electricity consumption (change yoy)***

production sold growth rate domestic electricity consumption change

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Q1 2017 key financial data

323 640

Q1 2016 Q1 2017 100 200 300 400 500 600 700

Net profit attributable to the parent company’s shareholders [PLN m] Q1 2017 vs Q1 2016 EBITDA [PLN m]

874 874 995 1 185

200 400 600 800 1 000 1 200 1 400

Q1 2016 reported Q1 2016 comparable Q1 2017 comparable ECSW provision dissolving Q1 2017 reported

EBITDA Increase Decrease

13,9

5

2 421 2 267 1 587 1 691 238 252 57 18 78 156 183 206 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500 5 000

Q1 2016 Q1 2017

Electricity Distribution and trading services Heat Property rights Hard coal Other revenue

4 565 4 590

PLN m

Sales revenue [PLN m]

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Q1 2017 key segments results

[PLN m] Mining Generation Distribution Supply

Other

and exclusions*

Segment’s revenue

384 1 219 1 733 3 617 (2 365)

EBITDA

(29) 191 607 380 37

EBIT

(60) 92 346 377 18

CAPEX

29 335 262 0,2 10

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* Items not included in the segments presented

  • 7%
  • 2%

22% 16% 62% 51% 19% 32% 4% 3%

874 1 185

  • 200

200 400 600 800 1 000 1 200 1 400 1 600 Q1 2016 Q1 2017 Other and exclusions Supply Distribution Generation Mining PLN m 36%

Individual segments’ contribution to EBITDA [%]

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Q1 2017 EBITDA

7

457 774 417 412

35 64 212 1 19,2%

  • 7,7%

15,6% 35,0% 10,5% 18,3% 25,8% 200 400 600 800 1 000 1 200 1 400 1 600 Q1 2016 EBITDA Mining Generation Distribution Supply Other and exclusions Q1 2017 EBITDA

EBIT Depreciation and write-downs Segment's increase Segment's decrease EBITDA margin

PLN 311m, 36%

* *Other segment’s EBITDA margin

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254 384

  • 65
  • 29
  • 104
  • 60

63 29

  • 200

200 400 Q1 2016 Q1 2017 Sales revenue EBITDA EBIT CAPEX

Mining segment – Q1 2017

Financial data [PLN m] EBITDA change [PLN m]

  • 65
  • 29
  • 27

2 130

  • 69
  • 80
  • 40

40 80

Q1 2016 Sold coal volume Coal production cost Inventory level change Other Q1 2017

1,51 1,21 1

0,19 0,11 0,09 0,06 1,24 0,92 0,21 0,05 0,06

1,79 1,22

0,0 0,2 0,4 0,6 0,8 1,0 1,2 1,4 1,6 1,8 2,0 Q1 2017 Q1 2016

Commercial coal production volume vs sales per product [Mg m]

Commercial coal production Large size lump coal sales Medium size lump coal sales Intra-Group coal dust sales Coal dust sales outside the Group Coal sludge sales

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  • 24.8% production volume increase

√

  • 46.5% sales volume increase

√

  • 15.5% mining cash cost decrease

√

  • Lower headcount (down 279 FTEs on average)

√

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191 191

9 26

  • 23
  • 12

50 100 150 200 250

Q1 2016 Electricity margin Heat margin CO2 costs Other Q1 2017

Generation segment – Q1 2017

Financial data [PLN m]

1 272 1 219

191 191

89 92 256 335

200 400 600 800 1 000 1 200 1 400 Q1 2016 Q1 2017 Sales revenue EBITDA EBIT CAPEX

0,20 0,10 0,09 0,10 0,13 0,13 0,51 0,60

0,0 0,1 0,2 0,3 0,4 0,5 0,6 0,7

Q1 2016 Q1 2017

biomass water wind cogeneration

0,41

RES and cogeneration production

0,33

EBITDA change [PLN m]

3,90 4,56 0,41 0,33 4,84 5,30

1 2 3 4 5 6 Q1 2016 Q1 2017 electricity electricity - RES heat

4,31 4,89 Gross production of electricity [TWh] and heat [PJ]

  • Electricity and heat sales volumes increase

√

  • CO2 prices decrease

√

  • Electricity prices decrease

−

  • RES property rights prices decrease

−

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Distribution segment – Q1 2017

10

3,38 3,46 4,45 4,21 2,03 1,96 2,70 2,64

0,74 0,46

Q1 2017 Q1 2016 5 10 15 Group A Group B Group C2+C1+R+D Group G Other*

EBITDA change [PLN m]

EBIT depreciation and impairment charges

Electricity distribution [TWh]

13,31 12,73

*neighboring DSO and export

  • Increase of approved tariff by 7.2 PLN/MWh (6%)

√

  • Higher electricity distribution services sales volume by 572

GWh (4.5%), mainly in correlation to the GDP growth rate

−

  • 67% increase of the transition fee rate included in the cost of

purchasing the transmission services and the RES fee (none in Q1 2016)

√

  • 0.72 pp decrease of the balancing difference indicator, 10

PLN/MWh decline of the Group’s electricity balancing price

√

292 346 252 262

102 41 22 8 3

  • 107
  • 5

543 607

100 200 300 400 500 600 700 800

Q1 2016 Distribution service sales price Sales volume TSO services' purchase Grid losses cost Other distribution services Tax on grid assets Other Q1 2017

Financial data [PLN m]

1 616 1 733 543 607 292 346

328 262 1 000 2 000 Q1 2016 Q1 2017 Sales revenue EBITDA EBIT CAPEX

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Distribution segment – key parameters

14,9 15,6 16,3 2 4 6 8 10 12 14 16 18 2015 2016 2017

Regulatory Asset Base [PLN bn]

RAB 150 150 160 20 40 60 80 100 120 140 160 180 200 2015 2016 Q1 2017

Customer connection time [in days]

Customer connection time 276,8 177,1 177,1 204,0 188,0 110,0 50 100 150 200 250 300 2015* 2016 Q1 2017 2020

SAIDI [min.]

SAIDI SAIDI target 3,54 2,82 2,93 3,16 3,00 1,67 1 2 3 4 2015* 2016 Q1 2017 2020

SAIFI [number]

SAIFI SAIFI target

* Method used to calculate the indicators in 2015 was different than the method used under the quality based regulation – the calculation in 2015 took into account the low voltage distribution grid outages

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161 377

7 3 1 60 190

  • 23
  • 5
  • 11

50 100 150 200 250 300 350 400 Q1 2016 Electricity - volume and price Property rights

  • price

Property rights

  • obligation

Income on gas ECSW provision Other Q1 2017

380 168

Supply segment – Q1 2017

Financial data [PLN m] EBITDA change [PLN m]

*includes sales to cover the balancing difference and to the intra-Group end users

EBIT depreciation and impairment charges

Retail electricity supply [TWh]

3 509 3 617 168 380 161 377

1 000 2 000 3 000 4 000 Q1 2016 Q1 2017 Sales revenue EBITDA EBIT

1,65 1,42 2,34 1,94 1,49 1,24 2,62 2,56 1,02 1,21

Q1 2017 Q1 2016 2 4 6 8 10 Group A Group B Group C2+C1+R+D Group G Other*

8,36 9,12

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  • Increase of the supply volume as a result of rising electricity

consumption by the largest customers

√

  • Increased obligation to redeem property rights: in case of PM

OZE from 15% to 15.4% and other PMs and introduction of PM OZE-BIO 0.6%

−

  • Further decline of market prices of property rights purchased to

be redeemed prices (mainly PM OZE)

√

  • Positive impact in Q1 2017 due to dissolving the provision

related to ECSW CCGT unit construction agreement

√

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Debt and financing

  • debt (nominal value of debt due to investment loans, loans, leases

and bonds) as of 31.03.2017 is PLN 9 342m

  • weighted average maturity of debt as of 31.03.2017 is 73 months
  • EUR denominated debt (NSV and EIB bond issue) represents

16.2% of the total debt Debt structure based on interest rate [PLN m]:

TAURON Group’s debt maturity as of 31.03.2017 [PLN m]

13

439 187 2020 3190 340 288 281 261 200 200 185 170 779 802 500 1000 1500 2000 2500 3000 3500 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 … 2034 bonds credits, loans and leases 325 40 74 37 40 37 73 50 100 150 200 250 300 350

2Q 2017 3Q 2017 4Q 2017 1Q 2018 2Q 2018 3Q 2018 4Q 2018

bonds credits, loans and leases

collateral interest rate debt amount

9 342 floating 6 668 IRS 2 100 none 4 568 fixed 2 674

8 111 87% 1 164 13% 42 0,4% 25 0,3%

TAURON Group’s debt structure as

  • f 31.03.2017

[PLN m]

bonds EIB loans NFOŚiGW / WFOŚiGW loans leases

300 9% 3120 91%

Financing available to TAURON Group as of 31.03.2017 [PLN m]

cash pool bond issue programs

9 342 3 420 Net debt/EBITDA = 2.31x

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CAPEX – key projects’ work progress

* Completion date will be estimated following the inventory taking and acceptance of the comprehensive project completion concept

Investment project Capacity (MWe) Capacity (MWt) Work progress (percentage) Planned completion date Construction of the hard coal-fired unit at Jaworzno III Power Plant 910

  • 33

2019 Construction of the CCGT unit at Stalowa Wola Combined Heat and Power Plant* 450 240 85 2019 Construction of the 800m level at Janina coal mine

  • 51

2020 Construction of Grzegorz shaft at Sobieski coal mine

  • 20

2023 CAPEX program at Brzeszcze coal mine

  • 21

2025 14

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CAPEX – per segment

63 29 256 335 328 262 Q1 2016 Q1 2017

Mining Generation Distribution Supply and Other

(-2,5)%

Capital expenditures per segment [PLN m]

(excluding equity investments)

636 653

Key investment projects underway in Q1 2017: Mining:

  • construction of the 800 m level at Janina coal mine (PLN

11m)

  • construction of the Grzegorz shaft at Sobieski coal mine

(PLN 2m)

  • Brzeszcze coal mine CAPEX program (PLN 5m)

Generation:

  • construction of new 910 MW capacity at Jaworzno Power

Plant (PLN 282m)

  • maintenance and expansion of district heating networks

(PLN 4m)

  • connections of new facilities (PLN 2m)
  • hydroelectric power plants upgrade (PLN 3m)

Distribution:

  • construction of new connections (PLN 102m)
  • grid asset upgrades and replacement (PLN 129m)

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Efficiency improvement program

Segment Savings realized in 2016 – Q1 2017 Savings planned in 2016-2018 Progress % Main initiatives

Mining

PLN 109m PLN 255m

43%

  • Employment restructuring, reduction of labor costs and increasing their flexibility,
  • rganizational measures
  • Use of electronic auctions in the purchasing process
  • CAPEX plan optimization

Generation (including RES and Heat)

PLN 260m PLN 367m

71%

  • Optimization of upgrades and of other asset maintenance costs
  • Employment restructuring
  • Purchasing efficiency improvement
  • Optimization of the carburizing and de-ashing systems’ operation services
  • Maintenance services costs control
  • CAPEX plan optimization

Distribution

PLN 184m PLN 390m

47%

  • Reorganization and employment restructuring
  • Asset maintenance costs control
  • Purchasing efficiency improvement
  • Outsourcing of the storage services
  • Sale of redundant real estate

Other

PLN 73m PLN 291m

25%

  • Employment restructuring,
  • Reduction of the scope of IT services
  • Customer service costs and overhead (administration) costs control
  • Optimization of the costs of promotional and sponsoring activities

Total PLN 626m PLN 1,303m 48%

  • In 2016 and Q1 2017 under the Voluntary Redundancy Program, being part of the Efficiency Improvement Program, TAURON

Group’s headcount was reduced by 591 FTEs. Savings resulting from redundancies, decreased by the costs incurred to generate these savings, are included in the amounts presented per segment

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Investor Relations Team

Marcin Lauer marcin.lauer@tauron.pl

  • tel. + 48 32 774 27 06

Paweł Gaworzyński pawel.gaworzynski@tauron.pl

  • tel. + 48 32 774 25 34

Katarzyna Heinz katarzyna.heinz@tauron.pl

  • tel. + 48 32 774 25 38

Thank you – Q & A

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Legal disclaimer

This presentation serves for information purposes only and should not be treated as investment-related advice. This presentation has been prepared by TAURON Polska Energia S.A. (“the Company”). Neither the Company nor any of its subsidiaries shall be held accountable for any damage resulting from the use of this presentation or a part thereof,

  • r its contents or in any other manner in connection with this presentation.

The recipients of this presentation shall bear exclusive responsibility for their own analyses and market assessment as well as evaluation of the Company’s market position and its potential results in the future based on information contained in herein. To the extent this presentation contains forward-looking statements related to the future, in particular such terms as ”designed”, ”planned”, ”anticipated”, or other similar expressions (including their negation), they shall be connected with the known and unknown risks, uncertainty and other factors which might result in actual results, financial situation, actions and achievements being materially different from any future results, actions or achievements expressed in such forward-looking statements.

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Electricity market price trends

* Sources: Point Carbon, BNEF, Consus, GDF SUEZ Trading, HSE, Mkonline, Societe Generale, TAURON ** Average price in January - April 2017 + TPE analysts’ adjustment Electricity Platforms: TGE, TFS, GFI, GPW-POEE 2016 2017 (until April 18 + estimate) 2017/2016 Price (PLN/MWh) Volume (GWh) Price (PLN/MWh) Volume (GWh) Price % Volume % Forward BASE (Y+Q+M) 165.88 191 342 159.52 115 157

  • 3.8%
  • 39.8%

Forward PEAK (Y+Q+M) 210.27 23 414 208.64 17 615

  • 0.8%
  • 24.8%

Forward (weighted average) 170.72 214 756 164.03 132 772

  • 3.9%
  • 38.2%

SPOT (TGE) 160.64 27 590 158.21 28 000

  • 1.5%

1.5% Total weighted average 169.58 242 346 163.02 160 777

  • 3.9%
  • 33.7%

Property rights (PLN/MWh) Certificate type Market prices

(average between 1.01.2017 and 18.04.2017)

Substitution fee and obligation for: 2016 2017 RES (PMOZE_A) 33.40 303.03 (14.35%) 300.03 (15.40%) RES from biogas plants (PMOZE_BIO) 335.03 300.03 (0.65%) 300.03 (0.60%) Coal cogeneration (PMEC-2016) 10.72 11.00 (23.2%) 10.00 (23.2%) Gas cogeneration (PMGM-2016) 123.41 125.00 (6.0%) 120.00 (7.0%) Methane cogeneration (PMMET-2016) 62.27 63.00 (1.5%) 56.00 (1.8%) CO2 emission allowances(EUA/t) CO2 market analysts survey*

(updated in April 2017)

Price (EUR/t) 2016 average 5.36 EUR/t 2017 average 5.15 EUR/t 2018 average 6.60 EUR/t 2017 average price forecast by TAURON

(**updated in April 2017)

4.80 – 5.80 EUR/t

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2017 BASE contracts

Average price [PLN/MWh] Volume [GWh]

Total 160.27 76 729

Including

TGE 159.77 51 535 non TGE 161.29 25 194 Average electricity price that takes into account 2017 one year BASE and PEAK contracts: 164.83 PLN/MWh, total 2017 BASE and PEAK volume: 84 473 GWh

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2018 BASE contracts

Average price [PLN/MWh] Volume [GWh]

Total 159.76 21 138

Including

TGE 159.76 14 419 non TGE 159.75 6 719 Average electricity price that takes into account 2018 one year BASE and PEAK contracts: 163.80 PLN/MWh, total 2018 BASE and PEAK volume: 22 941 GWh

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2019 BASE contracts

Average price [PLN/MWh] Volume [GWh]

Total 164.79 2 260

Including

TGE 164.91 2 111 non TGE 163.09 149 Average electricity price that takes into account 2019 one year BASE and PEAK contracts: 166.90 PLN/MWh, total 2019 BASE and PEAK volume: 2 350 GWh

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Analysts covering TAURON

Institution Analyst

DB Securities Tomasz Krukowski Dom Maklerski mBanku Kamil Kliszcz Societe Generale Bartłomiej Kubicki Dom Maklerski BZ WBK Paweł Puchalski Dom Maklerski PKO BP Stanisław Ozga Dom Maklerski Banku Handlowego Piotr Dzięciołowski Ipopema Robert Maj Erste Group Tomasz Duda Pekao Investment Banking Łukasz Jakubowski

Institution Analyst

Raiffeisen Centrobank Teresa Schinwald Trigon Krzysztof Kubiszewski UBS Investment Research Michał Potyra Patrick Hummel Tomasz Walkowicz WOOD & Company Bram Buring Dom Maklerski BOŚ Jakub Viscardi 23

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Thank you for your attention

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