TAURON Polska Energia S.A. ($TPE)

Ladies and gentlemen, welcome to the press conference of the TAURON Group, where we will present the financial results for the first quarter of 2026. My name is [indiscernible] and I am the representative of TAURON. I will moderate the meeting. The first part will present the financial results and the second part will be your questions, answering your questions that you ask through our forum on our website. Now I will introduce our participants, Mr. Krzysztof Zawadzki, the Vice President of the Management Board for Trade; Mr. Krzysztof Surma, Vice President of the Management Board for Finance; and Mateusz Lewandowski, Executive Director for Investments in TAURON Polska Energia S.A. Please proceed with the presentation of the results.

Good morning. We are starting traditionally with the situation in the energy sector, several pieces of information in the current quarter. The increase of daily amplitudes increase. We can say that the highest price from January till today, 2,000 -- more than 2,000 and the lowest 1,300. We can see the discrepancy is increasing and it becomes the characteristic feature of our sector. We also noted increase of installed power in the photovoltaic, it is 25.7 gigawatts and the increase -- we don't yet have the information on the end of March, but we expect the increase. We noted a slight decrease of the hours, but we expect the yearly increase in hours. Last year, we had 362 negative hours. So this year, I think it will be more than 400. We also noted the decrease of the coal prices. And on the other hand, the increase of the power energy prices. In 2026, we could say that the generation on coal was more competitive compared to gas. We also noted the drop of average temperatures compared to last year, which increased the sale of heat, the negative phenomenon of worse conditions for wind generation. It was worse in a decade. Now it's 23%. Quarter-to-quarter, it's a drop, and it is 8.3% drop. Water generation by quarter -- quarter-by-quarter is slightly higher, 12% to 13% generation, but we're looking at the higher hydrologic conditions, we cannot expect good results. Increased production from hard coal and gas by 7.3% at the cost of the other sources. And in the same period, PKB grew by more than 33% compared to last period, but the growth increased by 0.2%. It is it is also not advantageous that we can expect increased power consumption in the nearest future. RES dropped about 1.1%. But bearing in mind that we have increased installed power in the system, it was dropped by about 30%. The hard coal and gas also dropped together with the brown coal and -- the balance between -- among the last and this year, the import balance was in February is PLN 414 million in March and in April, it was increased -- the export balance was increased. Redisposition was -- this is increasing in the energy system, unfortunately. The negative fact is that the compensations paid do not cover the lost revenue. As the settlement is at the prices of the balancing market. So it is slightly not related -- not closely related to the actual commercial conditions. The generation portfolio, what we observed in our case, the increase by -- in production generation by 18%, and this is with RES increase by the 13% -- in this period, we have 24% increase in the installed power. The productivity dropped a little. This is the characteristic feature of the whole energy sector and the RES units, increase of heat production due to the lower temperatures. CO2 emissions increased by 14%, mainly by the increased production from conventional sources. Similarly, in case of the consumption of coal, which is associated with increased generation from coal. RES share, 13% drop. It's lower compared to last year. Remitation of 40% increase of the reduction in the RES. This has changed -- this limitation of this production has changed, its structure changed. It dropped compared to last year in the economy. It means -- generally, it means that a big portion of energy is being lost. This is the energy that cannot be used effectively. What else? I assume this is the cost of transformation and the feature of the system. From the point of view of the group, it is -- the redisposition is more profitable than settling the production in negative prices. Water plants -- water electric plants slightly lower wind and heat, increased this availability. Coal units are decreasing average 81% availability, mainly due to plant and non-plant stoppages in Jaworzno in 2025. Selling portfolio, sales of -- electricity sales increased by 9.3%, which is households and small business. For households, we see increased number of collection points -- consumption points. In small and medium enterprises, it is increased by the volume. The green sales ratio, it is quotient of the purchased green energy divided by the total green energy sold. The decrease is caused by the fact that we have the increased total energy. Number of Nova Energia customers, as we can see, mostly it's households, 21% is the small businesses. Large business is below 1%. Energy for fed into the grid by the procurement. It's either -- the drop is caused by either the increase of self-consumption or lower production in that period. As we know, in generally, RES we just had to lower production. So these 2 can may be combined. Heat sales to the market is increased in the first quarter because of the lower temperatures, cold weather. Cheap hours customers, this is the tariff with differentiated varied rates. It is dedicated for educated clients for those who are aware how to adjust. We had 25,000 customers at the end of last year. So we have about 40% increase. And what we do with regard to educating our clients, we conduct educating campaign with regards to the knowledgeable use of energy. We propose products with dynamic prices. We propose our adviser. And we -- our attitude is to -- our approach is to educate customers to lower their bills. Now we can go to the second part. I give the floor to my colleague.

Ladies and gentlemen, the results of the group for the first quarter are good, of course, compared to the record results of the last year, they are slightly lower, but these are still very good results and effects. Revenues dropped slightly compared to last year. It's -- the drop caused by the slowly lower energy rates. But if we remove compensations, we would have an increased revenue, '25 was the last year of the compensation, more than PLN 300 million revenue was from that last year. EBITDA, it was 10% lower compared to last year. It reached PLN 2.4 billion in the first quarter of this year. When we compare it and deduct the one-off events in 2025, we -- it's a year-over-year comparison. In '25, we had one-off events. One was concerning the compensation in the Generation segment and the other event concerned the tariff. It's even 1 year before mid-'24, the tariff was set untypically for 1.5 years and the costs were unevenly distributed on our side. And the costs weren't transferred fully and they were recovered in '25. That's why we had abnormally good result, and that's why this quarter seems not to be so good. And the analytical consensus was exceeded by PLN 150 million. In the group, net profit was related to the operating results and it is connected with the increasing depreciation level. It's the derivative of the investments in the group. This result was corrected, adjusted in plus due to the lower interest and tax. Cost CapEx increased slightly by 7%. Mateusz will talk about it in more detail. But the net debt to EBITDA from the point of view of our financial institutions and from the estimate performed by them, it is the same as at the end of '25 and slightly better compared to the first quarter of '25. If we go to the segment slides, we have unchanged leader, the distribution, close to PLN 1.2 billion. And if we look at the further places, they are pretty equal. EBITDA of about PLN 200 million is the next 3 segments. It's -- it's Sales, Generation and heat more than PLN 200 million EBITDA for all of them. And the last one, the heat has been -- has had the best quarter in history. And since our publication for generation and heat are published, then heat is -- the first time when the heat is higher than RES. We will talk about it in more detail later. Another slide shows the differences year-over-year. So let's start from distribution. It's -- the difference is minus PLN 42 million. There were 2 positive and 2 negative factors. The negative factors were the regulation account settlement. Last year, we had the positive balance of the regulation account. This year, it's negative, and it's PLN 111 million difference more or less. Generally, as I said before, the regulation account is the difference between the actually executed volume and the volume allocated in the tariff. If the actually performed volume is higher than the volume located in the tariff, then it sets negatively on the regulation account and vice versa. Over the years, it's then settled. The balance of the regulation account will be slightly positive next year. The other negative factor of that segment is the WACC drop by -- more than 1.3 percentage points. It's right now 9.5%. The positive factors is the increase of the value of the regulated assets. It's PLN 2 billion increase year-over-year. And another positive influence is the increase of volume by 2 percent points year-by-year, and it mitigated the negative regulation account. When we look at the RES segment, I started to say that this is the weakest segment in this quarter. But of course, it's still with positive results. It was mostly affected by the lower market prices, both in the energy market and in the green certificates market. They were the dominant factor. But of course, we also accounted for a better result based on historical data. But these wind conditions were much lower right now. And if it wasn't for the new power, we would have a drop of 7% from the wind production. With Heat segment, we can say it's only good news. Here, we had significantly lower temperatures this year, this winter. So as Krzysztof said, the volumes of heat sales were higher, and it positively affected the results, including the -- added to the better tariff. So we had EUR 50 million increase of EBITDA year-by-year. And we also consume results from TAMEH Polska, which received means from the TAMEH Czech, which was a positive result effect on the whole segment sales segments. I've touched that a little. We had a very good first quarter in tariff G last year. This year, it will be the opposite phenomenon. We will have no margin, and it will determine our results. This result will certainly be strongly dependent on the cost of the profile that will affect the company in the quarters 2 and 3. And the results of the pricing differences will strongly determine the results of this segment in the latter part of the year. And then we also show that we -- we changed the reserve last year, we concluded a reserve for tariff G. We estimated it for PLN 150 million, and it will be released in individual quarters. It will positively affect the EBITDA of this year. As far as the Generation segments are, we have good results, a bit slightly more than PLN 40 million lower than last year. 2 key factors, the one-off event of the compensation payment. It concerns the previous year's compensations in the first -- paid in the first quarter of '25 and slightly lower margin caused by the lower level of sales, as Krzysztof also mentioned. But this year, we had the phenomenon of much higher production versus redemption repurchase from last year. Last -- in previous years, we had much more repurchase, which was at a much higher margin. And this year, the production, in fact, eliminated part of the repurchase due to the market situation because we always analyze whether repurchase of production is more beneficial. That's why the margin this year is slightly lower. If we move on to the Debt and Financing slide, as I mentioned before, the ratio is at quite a good level. I mean, 1.4, relatively low, especially when we look at the historical record of the group and what influenced that then? I believe mainly EBITDA, EBITDA for the last 12 months because it was a bit higher when we compare the quarters. And of course, I mean the 12 months back and especially the first quarter 2025 versus 2026. So you can see PLN 400 million on the right-hand side. And the second factor is a decrease in the debt. I believe the net debt that we report to the bank as well as the economic debt, which we can see here in this graph. In both cases, it's about PLN 100 million year-over-year. I would like to draw your attention to the graph and especially to those factors. I mentioned them in the previous conferences as well, but I believe that this increasing funds coming from KPO, I mean, national recovery plan are high. This is PLN 2.2 billion at the end of the first quarter 2026, PLN 1.354 billion was in kind of subsidy, which I mean is a kind of interperiod settlements after discounting the debt, which was granted with the 0.5% rate. It was discounted with the market rate, and it comes also from the result between the nominal value and the discounted value. And this is this inter-periodical settlement, and they are going to be depreciated just like the assets financed by this loan. The second factor is, as we promised, we paid back all the debt. At the end of the first quarter, we have no stocks, no bonds. It was the biggest part of our debt. So everything has been paid back in first deadlines according to the contracts on the bonds or the loans. The third point I would like to draw your attention to is leasing. It's increasing gradually, but I believe this is a natural derivative of the business growing, especially in the distribution sector, all of the mortgage or the property agreements are included here in this category -- in the leasing category as debt. So I would like to emphasize that the group has a very good position when we consider the cash flow, the liquidity. The company has PLN 6.3 billion of funds. So according to our policy, these resources are always guaranteed to cover investment in the next 12 months. So that's all what I would like to present. And now Mateusz is going to talk about our investment program.

So when it goes about investment, so we have realized the CapEx and PLN 1.64 billion. It's more than in previous year quarter-over-quarter. No surprises that you can say 70% in the distribution sector, then RES assets -- it's about 80% of our investment in the first quarter. And now talking about each segment, I would like to start with the biggest one, which is Distribution. So PLN 800 million in the CapEx. So this is 100% of our realization. We met the targets in this period of time. And then when talking about the investment directions about the connections that we built, about the modernization and replacement of grid assets. So I believe that was the majority of our CapEx. And thanks to that, we could connect about 400 megawatts of RES installations, 900 kilometers of new energy lines, and we keep this direction with all this direction right now. So our customers covered by intelligent smart ratios is about 47%. It's the coverage. Right now, in this segment, it's more than 95% of the CapEx, which means that we are pretty optimistic about our plan for this year. Then RES. So the CapEx was related to realization of 3 big wind farms, Nowa Brzeznica, Sieradz and Miejska Gorka. The 2 first were commissioned in the first quarter of this year, and they started working and generating EBITDA effectively. Miejska Gorka, our biggest project, -- we are really advanced into this project, into implementation of this project. So I hope that if there is nothing unexpected, then that the commissioning of the object will take place in this half of the year. But as far as the cash flows are concerned, this moment is crucial. What I would like to draw your attention to is also our program of batteries, energy storage facilities. I'm going to talk about it later on as well. And in this segment, there was also a modernization of hydro power plants and one of our crucial plants in Pilchowice in the first quarter of this year. There have been several investment decisions related by the capital funding. So we have started with the tendering procedure for big photovoltaic farms in [indiscernible]. Now let's talk about the Heat segment. So I'm going just to summarize it. So the CapEx in this segment mostly related to modernization and generation and connections. So we have some existing generating units, but those CapEx is now are related to the facilities where these assets are placed. What else you know decarbonization of these projects. There are a few of them, but I'm going to talk about them later on. When we talk about Supply and other segments, I would like to focus on the investment in the infrastructure, IT infrastructure, street lighting and fiber optic network. Now I would like to pay more attention to particular projects. So as I talked before about photovoltaic farms, you could see everything on the former slide. Now I would like to take one of our key projects -- key element in our investment portfolio. I mean, BESS projects. So as you can see, -- it's 558 megawatts under construction and 8 of them are already -- have already been commissioned. But this portfolio is full of projects besides those standard expositions, I mean, generating profits related to the volatility of the prices, whether this is the power market or the investment support market. So the cash flows related to these projects will have this kind of really stability and stable investment support. I've mentioned 2 projects that have already been commissioned. I mean, [indiscernible] and they were commissioned this year. So I would like to mention the really fast implementation project because it took about half a year only. And this year, we are going to add 16 more megawatts to this 1 from the project in Proszowek and Kuznia Raciborska. This should be finalized by the second quarter, I mean, second -- next month. And then the portfolio of projects of more than 500 megawatts, which are in the first preliminary phase of implementation, but still really advanced. I believe that we are going to gradually open the tendering procedures, the procurement procedures so that this year, we can sign the contracts and realize our targets. Moving on to the next project. So the projects in the heat generation segment. I mean the key information here is that in the first 2 auctions that took place this year, we managed to have the support -- operational support for 5 projects and the biggest one is the project in Lagisza, which is based on 2 cogeneration turbines, about 100 megawatts of energy, but it's worth underlining that the configuration of this project is much wider. And our model for the asset should include also some other constructions and more support -- and the realization of this project right now is also in the phase of contracting the turbines because as in the project in Jaworzno, we are going to use this investor model as far as the supplies are concerned. And then construction of gas engines at [indiscernible] and the Jaworzno warm heat unit. So right now, we are about 35% of the implementation of this project. And to the best of my knowledge and our assessments actually, as far as you know this timeline is concerned, there are no threats to it. In Jaworzno, there is some kind of hybrid project, which is supposed to combine 2 functions. The heat source for the city of Jaworzno is one of them. Right now, we are at the stage of contracting it, and we are trying to work on this procurement process. Of course, each year, such situations are included in our timelines, and we are ready for such obstacles. To finalize this investment section, I would like to talk about our biggest project in this Generation segment, this construction of a boiler house in Jaworzno, which works in the open cycle. And mid-April, we were unfortunately -- we had to stop this project. We had to cancel it due to a lack of bids. So -- but somehow we were ready. And it was nothing surprising for us because there was a kind of scenario which somehow predicted such a situation. So finally, we decided that the best model, especially when we talk about the supply -- supplement imbalance, we believe that a new single-source procurement procedure should be initiated. And it's, of course, possible due to this law. So we invited a company from Italy to participate in this project. It's based on 2 turbines that work in an open cycle and in the outdoor construction facility. Right now, we are negotiating. But somehow this is a kind of solution, which will enable our key parameters to be implemented. I mean the CapEx buying this technology and of course, the timeline of our implementation, which is like clue when we think about the contract. So we believe in the few next weeks, the project will be finalized. Thank you so much, gentlemen, for your presentation. Now it is the Q&A session.

The first question comes -- the first question is when we're talking about the power supply market, at which stage are the works right now? What can we expect?

So right now, we run a consultation with the European Commission. We don't know the effects and details of these conversations, this consultation, but we believe that the solutions will be very close to the current mechanism, maybe with some modifications. However, I will refer to the details after it will be published after the consultation with the European Commission.

What about the government commission related to tariffs? Where are we now at which stage?

So this topic is quite comprehensive. The special team that's been involved to cope with this issue coordinated by the Ministry of Energy. And we've got some assumptions and the work is now going towards the division of the costs between the customers, and we want to increase the safety of these systems, electricity systems. And of course, all the work also aim at the infrastructure and increasing it. [Audio Gap] I can say that right now, the market is volatile. Maybe the volatility is a little bit higher, and our hedging strategy is based on quite conservative assumptions. And on an ongoing basis, we try to follow the trends, especially the price trends. We include the volatility of the market. And I believe we try to adjust the strategy to minimize the risk and the chances on the market. We monitor the market, the regulatory aspects. So we try to adjust this strategy to the market.

So what about the contracting in Jaworzno and what kind of costs can we expect? What about other gas projects? Does this delay in this project will influence other units?

So OCGT project in Jaworzno has already been commented. So maybe I can refer it again. So currently, we are going to address a single contractor with a [ Assalto ] company from Italy, and we believe that it's going to take about several weeks. The level of costs that we can expect, we have like no doubt that it can -- probably it won't exceed the levels that we assumed, especially in the unit aspect. They are being prepared right now. Probably you know that 2 of these projects were really effective and ready to be commissioned. So now we are ready to commission them. Still, nothing changed. But I believe it's also important whether we get this mechanism of support or not. And talking about other projects, we don't assume any problems. This project is being contracted right now. And consequently, I don't believe this is a base scenario for us. If so, probably we'll need to carry on further discussions.

So can you comment, please, on CapEx on this year, talking about each particular segment?

So I'm not going to refer to values. However, talking about segments. So let me talk about Distribution first. So we can see that it's related to seasons. The CapEx is related to seasons. And usually, in the first quarter, it's lower than in next quarters. So somehow, as you can see, this implementation is multilinear. However, in the quarter 3, 4, it's higher than in quarter 1 and 2. Then talking about RES segment, I believe there should be some kind of impact of Miejska Gorka project. So let me talk about maybe CapEx of wind farms more. You cannot see that, but there are some advanced payments right now. So it's -- we've got funds for it and the values in the next part are going to be visible in CapEx, so we can expect some additional values. In further segments, as it goes about Generation. So I believe that our 2 huge projects, I mean, the heat system and OCGT block are going to influence our CapEx, especially as it goes about advanced money. I believe that there are going to be some values -- significant values seen. And other segments, I believe that Heat segment should be concerned as well, especially when we talk about CapEx and our decarbonization program. It's like speeding up. We are starting new procurement programs, new tenders procedures, new projects. So I guess those CapEx are going to relate to properties to sites and future construction works. And this development work.

How do you assess the consensus of EBITDA at PLN 6.5 billion? Is it ambitious or basic?

We -- now you know that we don't publish forecasts, but if we try to say anything, first of all, the quarters are unevenly distributed along the year. You know it from history. But if it's -- is it an ambitious or basic scenario? It's not a certain scenario. But if we -- to achieve this level of EBITDA, several factors, many factors would have to happen. The key indicators -- key factors. First of all, is the issue of cost of the profile. The second and third quarters will significantly tell us how the profile cost will be higher or similar to the previous one. The managing the cost profile cost will be a challenge to the group. And the second issue independent of us, the weather conditions. As we said, the wind conditions are low in the first quarter. We will see what it will look like later in the -- further in the year. Of course, we know that the wind is crucial here in addition to water and so on, but wind conditions are the most important. So depending on the situation in this segment, then the EBITDA will depend on that strongly. And the last item that is not fully controlled by the group is the issue of temperature. Right now we are talking mostly about the autumn and winter heating season. It will determine the heating conditions. It would also depend about...

[Audio Gap]

It seems that -- in reality, the group results were meant the possibility of regulating EBITDA. I answered this a little in my previous -- the previous question touched that problem. The factors of the possibilities of generating profits. What are the indications? We have stable segments like Distribution, the Tariff is known. The asset value is known. The issue of the balance differences, it is not fully controlled. And the other thing is the volumes of the distributed energy, but it seems to be quite a stable result -- predictable result. With regard to RES segment, we are -- as I said, the wind conditions, the Heat segment is the temperatures in the fourth quarter. The results should be better. We expect them to be better. The Generation segment, mainly concerns the market prices, the Middle East conflict may determine the spot market and the market prices in the spot market will in fact determine the value of production versus repurchase. And we will see what it will look like in the fourth quarter. About the gas availability, the prices, it will definitely determine the results in this segment. For Generation, we must say that the lower wind conditions in the whole country, then our generation assets will work and generate EBITDA because they are fulfilling completing the system in Poland. With the Sales segment, here, we have the profile issue. Second and third quarter, the cost -- profile cost will determine EBITDA with this regard.

Next question. How much has been left to spend the CapEx for Miejska Gorka?

From -- we have incurred about 80% of the planned expenditures on that project. As we already said, we can see these expenditures in the presentation of CapEx. But with regard to the cash flow, it's finance flow is 20% of the of the budget.

What about the safety of turbine supply to new units?

Let's split it into 2 parts. We contract turbines to the various units, and these are different cases. With regard to Jaworzno, a lot has been already said. I can add that it seems that we are close to the situation when we are finished with the high risk of the contractation, and it should be cleared in the next weeks. Other cases is the Lagisza and [indiscernible] with these procedures still open. These machines are different. These are medium power, medium capacity. They are serial production -- and it's several hundreds of machines per year. And definitely, the fluidity of the slots and the availability is much higher. We want to have the situation that at least 3 leading manufacturers can fit our needs. And then also the -- share of the CapEx in this project is not as strong as in the other cases. So it's not that risky. We, of course, are humble about the market situation, but I think we are moderately optimistic.

One more question. How can we include KPO in the investment budgets projects and so on?

As far as the information that we have is concerned, this team manages the -- with WACC. WACC is not concerned there because it's about the energy consuming issues. WACC is the discussion between the URE President and the other groups. We had a yearly annual model, and we hope for -- hope to be able to work out some long-term mechanism for the distribution. But also, of course, and one of the elements of it is the discussion on using KPO. But with regard to distribution, we have a negative cash flow. So using the resources from KPO will let us use the technological gap and consumers and provide basis for the energy transformation.

We have no further questions.

Thank you for your questions, for your attendance. See you at the next results making conference to sum up the first half of the year. Thank you very much. Goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]