Annual Report • Dec 31, 2017
Annual Report
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Annual report of Polska Energia S.A. for the year 2017 TAURON
Ladies and Gentlemen,
On behalf of the Management Board of TAURON Polska Energia S.A. I have the pleasure to introduce to you TAURON Polska Energia S.A.'s Annual Report that presents the financial results and highlights of last year.
TAURON was implementing its corporate strategy in a favorable economic environment In 2017. The past 12 months brought an improvement of key macroeconomic indicators. Particular attention should be paid to a marked acceleration of Poland's GDP growth rate that topped 4.5 percent. I am looking with optimism at experts' opinions according to which such a strong GDP growth may continue also in 2018.
As a result of the growing economy the domestic electricity consumption and production increased 2 percent in 2017. It is worth emphasizing that a strong growth of electricity generation was achieved based on the power plants using renewable sources and the gas-fired power plants.
To my satisfaction I may say that TAURON took advantage of the opportunities presented by the strong growth of the Polish economy. We generated sales revenue of PLN 7.8 bln in 2017. As a result of our effective actions EBITDA and net profit reached, respectively, PLN 268 mln and PLN 854 mln versus a loss posted in 2016.
TAURON, as a parent company of its Capital Group, stimulated actions resulting in the improvement of almost all operating and financial indicators in the individual lines of business. Higher hard coal production output and sales volume as well as rising electricity production, distribution and supply volumes should be noted.
Throughout TAURON Group we were steadfastly implementing the efficiency improvement program the effects of which, since its launch in 2016, topped one billion PLN. All efficiency improvement actions undertaken brought, in total, a positive financial effect of two billion PLN.
In 2017 TAURON also focused on implementing its CAPEX program worth PLN 3.5 bln during that period. The largest portion of capital expenditures was allocated to the construction of the 910 MW power generation unit at Jaworzno III Power Plant. The construction of this unit progressed in line with the schedule and assumed budget that exceeds PLN 6 bln.
It is worth emphasizing that TAURON, as Poland's largest electricity distributor, is systematically investing in expanding and upgrading its grid infrastructure. The main objective of such actions is to ensure security of electricity supply and such adaptation of the infrastructure so that it could become a platform for creating new services for TAURON Group's customers.
Particular attention should be paid to the fact that in 2017 the Management Board of TAURON Polska Energia S.A. implemented a number of initiatives as a result of which funds required for a further stable expansion of the Group were guaranteed. In July we conducted a 10-year eurobond issue worth EUR 500 mln, and in September we signed an agreement with Bank Gospodarstwa Krajowego that enables a hybrid bond issue worth PLN 400 mln. The diversified mechanism used to finance the operations helped maintain the Group's net debt to EBITDA ratio at a safe level that reached 2.3 at the end of 2017.
Last year we were effectively developing initiatives aimed at increasing TAURON's innovations. I am proud of implementing the Strategic Research Agenda which is the first document of this type in the Polish power sector. It precisely describes the directions of expanding innovations in an electric utility. Another important undertaking is carried out jointly with 26 startups and it is to develop solutions aimed at improving the functioning of the existing infrastructure and building new businesses. Furthermore, having the quality of air in mind we began implementing a comprehensive anti-smog program with its main goal being to encourage owners of obsolete heating devices to replace them with ecological heat sources.
It is worth mentioning that in 2017 TAURON shares were, for the fifth time already, included in the prestigious RESPECT index grouping entities listed on the Warsaw Stock Exchange that apply sustainable growth criteria and operate in accordance with the highest corporate governance and investor relations management standards.
Also, the quality of our communications with the capital market was appreciated again – in last year's edition of "The Best Annual Report" competition TAURON was included in the elite Best of the Best category and our integrated report was awarded the top prize.
Furthermore, the company was awarded a special prize in the competition for the best investor relations among WIG30 index companies, organized by the Stock Market and Investors Paper "Parkiet" and the Chamber of Brokerage Houses, as well as the Hero of the capital market 2017 title in the Individual Investors Association's competition.
Last year confirmed TAURON's strong position on the energy market which constitutes a solid foundation for further expansion. I believe that, despite many challenges facing us, we will accomplish the set operational and financial goals in 2018, and also that we will be effectively implementing the adopted growth strategy so that TAURON could be the leader setting the expansion directions for the entire industry.
I am convinced that the business projects and the social dialogue initiatives implemented in 2017 will be contributing to developing TAURON's long term relationships with all stakeholder groups. On behalf of the Management Board of TAURON Polska Energia S.A. I would like to cordially thank our stakeholders, especially the personnel and members of the Supervisory Board, for their commitment to the process of developing and building TAURON Group's value.
Yours respectfully,
Filip Grzegorczyk
President of the Management Board TAURON Polska Energia S.A.
Katowice, March 2018
| in thousands PLN | in thousands EUR | |||
|---|---|---|---|---|
| SELECTED FINANCIAL DATA | 2017 period from 01.01.2017 to 31.12.2017 |
2016 period from 01.01.2016 to 31.12.2016 |
2017 period from 01.01.2017 to 31.12.2017 |
2016 period from 01.01.2016 to 31.12.2016 |
| Selected stand-alone financial data of TAURON Polska Energia S.A. | ||||
| Revenues on sales | 7 792 025 | 7 995 328 | 1 835 707 | 1 827 211 |
| Operating profit (loss) | 262 788 | (34 603) | 61 910 | (7 908) |
| Profit (loss) before tax | 919 565 | (149 134) | 216 638 | (34 082) |
| Net profit (loss) | 854 351 | (166 253) | 201 275 | (37 995) |
| Other total income | (6 713) | 104 024 | (1 582) | 23 773 |
| Total aggregate income | 847 638 | (62 229) | 199 693 | (14 222) |
| Profit (loss) per share (in PLN/EUR) (basic and diluted) |
0.49 | (0.09) | 0.12 | (0.02) |
| Weighted average number of shares (in pcs) (basic and diluted) |
1 752 549 394 | 1 752 549 394 | 1 752 549 394 | 1 752 549 394 |
| Net cash flows from operating activity | 246 027 | (232 887) | 57 961 | (53 223) |
| Net cash flows from investment activity | (1 353 288) | (619 543) | (318 818) | (141 587) |
| Net cash flows from financial activity | 593 470 | 486 164 | 139 814 | 111 105 |
| Increase/(decrease) in net cash and equivalents |
(513 791) | (366 266) | (121 043) | (83 705) |
| Status as at 31.12.2017 |
Status as at 31.12.2016 |
Status as at 31.12.2017 |
Status as at 31.12.2016 |
|
| Fixed assets | 27 371 425 | 25 855 329 | 6 562 475 | 5 844 333 |
| Current assets | 2 901 667 | 1 817 047 | 695 693 | 410 725 |
| Total Assets | 30 273 092 | 27 672 376 | 7 258 168 | 6 255 058 |
| Share capital | 8 762 747 | 8 762 747 | 2 100 925 | 1 980 729 |
| Equity | 17 377 906 | 16 530 268 | 4 166 464 | 3 736 498 |
| Long-term liabilities | 9 530 528 | 8 969 976 | 2 285 005 | 2 027 572 |
| Short-term liabilities | 3 364 658 | 2 172 132 | 806 698 | 490 988 |
| Total liabilities | 12 895 186 | 11 142 108 | 3 091 703 | 2 518 560 |
The above financial data were converted into EUR, cumulatively for the four quarters of 2017 and 2016, according to the following principles: –
INDEPENDENT AUDITOR'S OPINION AND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS OF TAURON POLSKA ENERGIA S.A. FOR THE YEAR 2017
| opis rodzaju ryzyka istotnego zniekształcenia |
procedury biegłego rewidenta w odpowiedzi na |
|---|---|
| (kluczowe sprawy badania) | zidentyfikowane ryzyko |
| 1. Analiza utraty wartości aktywów |
Podejście do badania |
| Dlaczego zagadnienie jest kluczową sprawą badania |
Nasze procedury, w odniesieniu do opisanej kluczowej sprawy badania obejmowały, między innymi: |
| Na dzień 31 grudnia 2017 roku Spółka w ramach istotnych pozycji aktywów wykazywała: należności z tytułu pożyczek i objętych obligacji (o wartości bilansowej ok. 7 476 mln zł), jak również udziały i akcje (o wartości bilansowej ok. 20 913 mln zł) stanowiące ok. 94% sumy bilansowej Spółki. |
omówienie procesu oraz identyfikację mechanizmów kontrolnych funkcjonujących w Spółce i związanych z testami na utratę wartości aktywów, jak również zrozumienie stosowanych polityk rachunkowości oraz procedur, w tym środowiska kontroli wewnętrznej, odnoszących się do procesu oceny przesłanek utraty wartości, identyfikacji obiektywnych zdarzeń wskazujących na utrate wartości oraz testów na utratę |
| Zgodnie z MSSF w wyniku zidentyfikowania przesłanek utraty wartości aktywów udziałów i akcji oraz zidentyfikowania obiektywnych zdarzeń wskazujących na możliwą utratę wartości udzielonych pożyczek i objętych obligacji, co zostało opisane w nocie 11 sprawozdania finansowego, przeprowadziła test na utratę wartości wskazanych wyżej aktywów. |
wartości aktywów; ocenę przyjętych przez Spółkę osądów odnośnie grupowania składników aktywów w ośrodki wypracowujące środki pieniężne; ocenę, przy wsparciu specjalistów z zakresu wyceny, przyjętych przez Spółkę założeń i szacunków służących określeniu wartości odzyskiwalnej aktywów, w tym: - przyjętych przez Spółkę kluczowych założeń makroekonomicznych na kolejne lata (w tym: stopy dyskonta, |
| Zagadnienie zostało określone jako kluczowe dla badania sprawozdania finansowego Spółki z uwagi na |
prognozowana stopa wzrostu) poprzez porównanie ich do danych rynkowych oraz dostępnych zewnętrznych danych; |
| wartość wykazanych powyżej aktywów, która jest istotna dla sprawozdania finansowego, jak również z uwagi na element |
- poprawności arytmetycznej modelu zdyskontowanych przepływów pieniężnych, oraz |
| profesjonalnego osądu Zarządu oraz złożoność testów na utratę wartości. |
- założeń przyjętych do ustalenia przepływów pieniężnych oraz wartości |
| 2. Roszczenia, sprawy sądowe i zobowiązania warunkowe |
Podejście do badania |
|---|---|
| Dlaczego zagadnienie jest kluczową sprawą badania Spółka występuje jako strona wielu |
Nasze procedury, w odniesieniu do opisanej kluczowej sprawy badania obejmowały, między innymi: monitorowanie zewnętrznych źródeł informacji w celu identyfikacji naruszenia lub potencjalnego naruszenia |
| istotnych roszczeń i spraw sądowych. Najbardziej istotne wartościowo zidentyfikowane przez Spółkę potencjalne i zgłoszone roszczenia dotyczą rozwiązania umów długoterminowych przez jednostkę zależną na zakup energii elektrycznej i praw majątkowych wynikających ze świadectw pochodzenia energii wytwarzanej w odnawialnych źródłach |
przez Spółkę przepisów prawa i regulacji; przegląd przedstawionej do badania dokumentacji dotyczącej spraw sądowych oraz omówienie z Zespołem Prawnej Obsługi Projektów Spółki istotnych spraw sądowych; analiza kosztów usług prawnych poniesionych w ciągu roku, w celu potwierdzenia kompletności podmiotów świadczących usługi prawne na rzecz |
| energii. Konieczność utworzenia odpowiednich rezerw oraz ich wysokość, jak również szacunek wartości zobowiązań warunkowych są przedmiotem istotnego osądu Zarządu. |
Spółki; uzyskanie pisemnych wyjaśnień od ۰ prawników obsługujących Spółkę w zakresie prowadzonych przez nich spraw sądowych i spornych oraz analiza przedstawionych wyjaśnień; omówienie wybranych spraw sądowych ٠ ze specjalistami z zakresu prawa; analiza i ocena zobowiązań warunkowych oraz zmian wartości |
| Odniesienie do ujawnienia w sprawozdaniu finansowym |
rezerw na roszczenia i sprawy sądowe; przegląd protokołów posiedzeń organów Spółki oraz protokołów z kontroli |
| Spółka zawarła ujawnienia dotyczące roszczeń i spraw sądowych w nocie nr 44 informacji dodatkowych do sprawozdania finansowego za rok zakończony 31 grudnia 2017 roku. |
organów nadzoru oraz korespondencji z tymi organami, ocenę kompletności ujawnień w zakresie toczących się istotnych postepowań sądowych i pozasądowych oraz związanych z nimi zobowiązań warunkowych w sprawozdaniu finansowym. |
| 3. Zmiana biegłego rewidenta oraz badanie bilansu otwarcia |
Podejście do badania |
|---|---|
| Dlaczego zagadnienie jest kluczową sprawą badania |
Nasze procedury, w odniesieniu do opisanej kluczowej sprawy badania obejmowały, między innymi: przeprowadzenie spotkania inicjującego |
| Sprawozdanie finansowe Spółki za rok obrotowy zakończony dnia 31 grudnia 2017 roku było pierwszym sprawozdaniem będącym przedmiotem naszego badania. Zgodnie z zapisami Krajowego Standardu Rewizji Finansowej 510 w brzmieniu Międzynarodowego Standardu Badania 510 "Zlecenie badania po raz pierwszy – stany początkowe", pierwszoroczne badanie sprawozdań finansowych wymaga wykonania wielu dodatkowych czynności audytowych, które w przypadku badania wykonywanego po raz kolejny mają ograniczony zakres. Celem tych dodatkowych procedur audytowych jest zebranie wystarczających i odpowiednich dowodów badania dotyczących tego czy: stany początkowe zawierają zniekształcenia, które istotnie wpływają na sprawozdania finansowe za bieżący okres oraz prawidłowe zasady (polityka) rachunkowości zastosowane do stanów początkowych były stosowane w sposób ciągły przy sporządzaniu sprawozdań finansowych za bieżący okres, lub czy zmiany, których w nich |
z kluczowym personelem odpowiedzialnym za sprawozdawczość finansową Spółki, jak również spotkań z członkami zespołu audytowego, w tym ze specjalistami planowanymi do zaangażowania w ramach procedur audytowych, zrozumienie działalności Spółki, jej ٠ otoczenia biznesowego oraz kluczowych obszarów ryzyka związanych z prowadzoną działalnością, zapoznanie się ze środowiskiem kontroli wewnętrznej Spółki obejmujące również przeprowadzenie testów zidentyfikowanych kontroli, zapoznanie się ze środowiskiem IT, zrozumienie polityki rachunkowości Spółki ٠ oraz ocenę ciągłości jej stosowania, zrozumienie kluczowych obszarów ٠ wymagających szacunku oraz profesjonalnego osądu kierownictwa Spółki, komunikacja z kluczowym biegłym $\bullet$ rewidentem działającym w imieniu poprzedniej firmy audytorskiej obejmująca dyskusję na temat kluczowych zagadnień audytowych oraz przegląd dokumentacji z badania poprzedniego okresu sprawozdawczego, ocenę głównych zagadnień audytowych z poprzedniego okresu sprawozdawczego oraz ich wpływu na sprawozdanie finansowe za bieżący rok obrotowy, uzyskanie wystarczającej pewności odnośnie bilansu otwarcia poprzez niezależne przeprowadzenie wybranych procedur audytowych w odniesieniu do tego okresu, |
| dokonano, zostały prawidłowo | Nasza strategia badania została omówiona | |
|---|---|---|
| rozliczone i odpowiednio | i uzgodniona z Zarządem Spółki oraz Komitetem | |
| zaprezentowane zgodnie z mającymi | Audytu celem zapoznania się z ich oczekiwaniami | |
| zastosowanie ramowymi założeniami | i dyskusji na temat kluczowych zagadnień | |
| sprawozdawczości finansowej. | sprawozdawczych i audytowych. | |
| W związku z powyższym zagadnienie to zostało określone jako kluczowe dla badania sprawozdania finansowego Spółki. |
We have audited the accompanying annual financial statements for the year ended 31 December 2017 of TAURON Polska Energia S.A. ('the Company')located in Katowice, at Ściegiennego street 3, containing statement of financial position as at 31 December 2017, the income statement, the statement of comprehensive income, the statement of changes in equity, the statement of cash flow for the period from 1 January 2017 to 31 December 2017 and the summary of significant accounting policies and other explanatory notes ('the accompanying financial statements').
The Company's Management is responsible for the preparation, based on properly maintained accounting records, and fair presentation of the financial statements in accordance with International Accounting Standards, International Financial Reporting Standards and related interpretations announced in the form of European Commission decrees and other applicable laws, as well as the Company's Articles of Association. The Company's Management is also responsible for such internal control as determined is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In accordance with the Accounting Act of 29 September 1994 (the 'Accounting Act'), the Company's Management and the members of the Company's Supervisory Board are required to ensure that the accompanying financial statements meet the requirements of the Accounting Act.
Our objective was to express an opinion on whether the accompanying financial statements give a true and fair view1 of the financial position and results of the operations of the Company in accordance with International Accounting Standards, International Financial Reporting Standards and related interpretations announced in the form of European Commission regulations and adopted accounting policies.
We conducted our audit of the accompanying financial statements in accordance with:
1 Translation of the following expression in Polish is 'rzetelny i jasny obraz'.
Those regulations require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
The purpose of the audit is to obtain reasonable assurance as to whether the financial statements as a whole were prepared based on properly maintained accounting records and are free from material misstatement due to fraud or error, and to issue an independent auditor's report containing our opinion. Reasonable assurance is a high level of assurance, but it is not guarantee that an audit conducted in accordance with the above mentioned standards will always detect material misstatements. Misstatements may arise as a result of fraud or error and are considered material if it can reasonably be expected that individually or in aggregate, they could influence economic decisions of the users taken on the basis of these financial statements. The risk of not detecting a material misstatement due to fraud is higher than the risk of not recognizing a material misstatement due to an error, as fraud may involve collusion, falsification, deliberate omissions, misleading or circumventing internal control and may affect every area of law and regulation, not just this directly affecting the financial statements.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the financial statements.
The scope of the audit does not include assurance on the future profitability of the audited Company nor effectiveness of conducting business matters now and in the future by the Company's Management Board.
In accordance with International Auditing Standard 320 section 5 the concept of materiality is applied by the auditor both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor's report. Hence all auditor's assertions and statements contained in the auditor's report, including those on other information or regulatory requirements, are made with the contemplation of the qualitative and quantitative materiality levels established in accordance with auditing standards and auditor's professional judgement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. The opinion is consistent with the additional report to the audit committee issued on the date of this report.
While conducting our audit, the key certified auditor and the audit firm remained independent of the Company in accordance with the regulations of Act on Statutory Auditors, Regulation 537/2014 and principles of professional ethics adopted by resolutions of the National Council of Statutory Auditors.
Based on our best knowledge and belief, we declare that we have not provided non-audit services, that are prohibited based on article 136 of the Act on Statutory Auditors and article 5, point 1 of Regulation 537/2014, to the Company.
We were appointed to audit the Company's financial statements based on the Company's Supervisory Board resolution dated March 15, 2017. We have been auditing the financial statements of the Company consecutively since the beginning of the financial year ended 31 December 2017.
In the course of our audit we have identified the below described most significant assessed risks of material misstatement (key audit matters), including due to fraud and we designed appropriate audit procedures in response to those risks. Where we considered to be relevant in order to understand the nature of the identified risk and audit procedures performed we have also included key observations arising with respect to those risks.
These matters were addressed in the context of our audit of the accompanying financial statements as a whole, and in forming our opinion thereon. Therefore we do not provide a separate opinion on these matters.
| description of the nature of the risk of material misstatement (key audit matters) |
audit procedures in response to the identified risk |
|---|---|
| 1. Impairment of assets analysis |
Audit approach |
| Why the issue is a key audit matter As at December 31, 2017, the |
Our procedures, in relation to the key audit matter described, included, among others: Overview of the process and identification • |
| Company presented loans receivable and bought bonds (with a carrying amount of approximately PLN 7 476 mln), as well as shares (with a carrying amount of approximately PLN 20 913 mln) constituting in total approximately 94% of the Company's balance sheet total. |
of control mechanisms operating in the Company related to impairment tests of assets, as well as an understanding of the applied accounting policies and procedures, including internal control environment related to the process of assessing impairment indicators and performing of impairment tests, |
| According to IFRS, based on the analysis of the indicators for impairment of assets (shares), as well as based on identifying objective events indicating a possible loss of value of loans receivable and bought bonds, as described in note 11 to the financial statements, the Company has |
Assessment of the assumptions made with • regard to the grouping of assets into cash generating units (CGU), Assessment (with the assistance of • valuation specialists) of estimates and assumptions made by the Company in order to determine the assets recoverable amount, including: |
| performed an impairment test for the above-mentioned assets. The issue was identified as key audit matter in the audit of the financial statements due to the value of the assets listed above, which is significant for the financial statements, as well as |
- the key macroeconomic assumptions adopted by the Company for future years (including: discount rates, projected growth rate) by comparing them to market data and available external data; |
| due to the element of professional judgment of the management and the complexity of the impairment tests. |
- arithmetical correctness of the discounted cash flows model, and |
| Tests of impairment require the Management Board to adopt a number of assumptions regarding future market and economic conditions, such as the strategy of TAURON Polska |
- assumptions made to determine cash flows and residual values after the period covered by a detailed strategy; |
| Energia SA, future changes in the prices of raw materials, electricity, property rights arising from certificates of origin of energy, CO2 emission rights and future revenues, costs and |
Inquiries to employees of the financial • department and the Management Board of the parent entity referring to the status of implementation of the adopted |
| cash flows, weighted average cost of capital ("WACC"), as well as the |
assumptions, including the validity of key estimates, |
|---|---|
| impact of potential and already | Analysis of external sources of • |
| approved Polish and European | information such as industry press and |
| regulatory changes, including | evaluation of potential risk related to the |
| environmental protection and the | implementation of the assumptions with |
| expected shape of the power market, | the support of valuation specialists; |
| and the anticipated macroeconomic | Reconciliation of source data used in • |
| situation. | impairment test models and assessment of |
| impairment triggers for financial forecasts approved by the Management Board of |
|
| The results of impairment tests could | the parent company; |
| differ materially if the model used | Assessment of completeness of • |
| different assumptions. | disclosures in the financial statements of |
| the Company in terms of impairment in |
|
| A reference to disclosure in the | accordance with the International |
| financial statements | Accounting Standard 36 Impairment of |
| assets and International Accounting |
|
| The Company disclosed information |
Standard 39 Financial Instruments. |
| regarding impairment indicators, | |
| adopted estimates for the purpose of | |
| the impairment test, as well as | |
| impairment losses on the assets in note | |
| 11 of the notes to the financial statements for the year ended |
|
| December 31, 2017. | |
| 2. Claims, lawsuits and |
Audit approach |
| contingent liabilities | |
| Why the issue is a key audit matter | Our procedures, in relation to the key audit matter |
| described, included, among others: | |
| The Company is a party to many |
Monitoring of external sources of |
| significant claims and court cases. The | • information to identify breaches or |
| most significant are potential and |
potential violations of law and |
| submitted claims identified by the |
regulations by the Company; |
| Company related to the termination of |
Review of the documentation regarding • |
| long-term contracts for the purchase of | court cases presented for the audit |
| electricity and property rights arising | purposes and discussion of significant |
| from certificates of origin of energy | court cases with the Legal Project |
| generated in renewable energy sources. | Management Team of the Company; |
| Analysis of the costs of legal services • incurred during the year in order to |
|
| The obligation to create adequate |
confirm the completeness of entities |
| providing legal services to the Company; | |
| provision and its amount, as well as the |
| estimate of the value of contingent liabilities are the subject of the Management Board's judgment. A reference to disclosure in the financial statements The Company disclosed information regarding claims and court cases in note 44 of the notes to the financial statements for the year ended December 31, 2017. |
Obtaining written explanations from • lawyers serving the Company with regard to the court and disputable cases conducted by them, and analysis of the provided explanations; Discussion of the selected court cases • with internal specialists in the field of law; Analysis and assessment of contingent • liabilities and changes in the value of provisions for claims and court cases; Review of minutes of meetings of the • legal bodies of the Company as well as control reports of supervisory authorities and correspondence with these authorities. |
|---|---|
| Assessment of the completeness of disclosures regarding pending major court and out-of-court proceedings and related contingent liabilities in the financial statements. |
|
| 3. Change of the statutory auditor and audit of the opening balances |
Audit approach Our procedures, in relation to the key audit matter described, included, among others: |
| Why the issue is a key audit matter The financial statements of the Company for the financial year ended on December 31, 2017 was the first one being subject to our audit. |
the initiating meeting with key personnel responsible for financial reporting of the Company as well as meetings with members of the audit team, including specialists planned to be involved in the audit procedures, understanding of the Company's operations, its business environment and key risk areas |
| In accordance with the provisions of the National Auditing Standard 510, in the wording of International Auditing Standard 510 "Initial Engagements - opening balances", the first-year audit of financial statements requires performing of a number of additional audit procedures that are limited in the |
related to its operations, understanding of the Company's internal control environment, including also tests of identified controls, understanding of the Company's IT environment, understanding of the accounting policy of the Company and assessing the continuity of its application, |
| case of the audit performed for a consecutive year. |
understanding of key areas of estimation and professional judgement of the Company's management, |
|---|---|
| The purpose of these additional audit procedures is to collect sufficient and relevant audit evidence about whether: • opening balances contain misstatements that materially affect the financial statements for the current period and • appropriate accounting policy applied to the opening balances was used continuously in the preparation of financial statements for the current period, or whether the changes made were correctly accounted for and properly presented in accordance with the applicable financial reporting framework. |
communication with a key certified auditor acting on behalf of the previous audit firm including a discussion of key audit issues and a review of audit documentation from the previous reporting period, assessment of the main audit issues from the previous reporting period and their impact on the financial statements for the current financial year, obtaining a reasonable assurance of the opening balances by independently carrying out selected audit procedures in relation to this period. Our audit strategy has been discussed and agreed with the Management Board and the Audit Committee in order to know their expectations and discuss key reporting and auditing issues. |
| Accordingly, this issue was identified as key audit matter for the audit of the financial statements of the Company. |
In our opinion, accompanying financial statements:
The financial statements for the prior financial year ended December 31, 2016 were subject to an audit by a key certified auditor acting on behalf of another authorised audit firm, who issued an unqualified opinion on these financial statements, dated March 13, 2017.
Our opinion on the financial statements does not include the Directors' Report.
The Company's Management is responsible for preparation of the Directors' Report in accordance with the Accounting Act and other applicable laws. In addition, the Company's Management and members of the Company's Supervisory Board are required to ensure that the Directors' Report meets the requirements of the Accounting Act.
Our responsibility in accordance with the Act on Statutory Auditors was to issue an opinion on whether the Director's Report, except for the chapter 'Statement on non-financial information', was prepared in accordance with relevant laws and that it is consistent with the information contained in the accompanying financial statements.
Our responsibility was also to make a statement, on whether based on our knowledge about the Company and its environment obtained during the audit of the financial statements we have identified in the Director's Report any material misstatements and to indicate the nature of each of material misstatement.
In our opinion the Directors' Report was prepared in accordance with the relevant regulations and reconciles with the information derived from the accompanying financial statements. Moreover, based on our knowledge of the Company and its environment obtained during the audit of the financial statements, we have not identified material misstatements in the Directors' Report.
The Company's Management and members of the Company's Supervisory Board are responsible for preparation of the representation on application of corporate governance in accordance with the applicable laws.
In connection with the conducted audit of the financial statements, our responsibility in accordance with the Act on Statutory Auditors was to issue an opinion on whether the issuer, obliged to present a representation on application of corporate governance, constituting a separate part of the Director's Report, included in the representation information required by applicable laws and whether the related information is in accordance with applicable regulations and with the information included in the accompanying financial statements.
In our opinion, in the representation on application of corporate governance, the Company has included information stipulated in paragraph 91, section 5, point 4, letter a, b, g, j, k and l of the Regulation of the Minister of Finance of 19 February 2009 on current and periodic information provided by issuers of securities and conditions of deeming information required by the regulations of a non-member country equal ('Regulation'). Information stipulated in paragraph 91, section 5, point 4 letter c-f, h and i of the Regulation included in the representation on application of corporate governance is in accordance with applicable laws and information included in the accompanying financial statements.
In accordance with the Act on Statutory Auditors, we inform, that the Company has prepared a statement on non-financial information mentioned in article 49b, section 1 of the Accounting Act as a separate element of the Director's Report.
We have not performed any attestation services in respect to the statement on non-financial information and do not express any assurance in its respect.
Warsaw, 12 March 2018
Key certified auditor
Leszek Lerch Certified auditor no 9886
on behalf of: Ernst & Young Audyt Polska spółka z ograniczoną odpowiedzialnością sp. k.
Rondo ONZ 1 00-124 Warsaw Reg. No 130
FINANCIAL STATEMENTS PREPARED ACCORDING TO THE INTERNATIONAL FINANCIAL REPORTING STANDARDS, AS ENDORSED BY THE EUROPEAN UNION FOR THE YEAR ENDED 31 DECEMBER 2017
| STATEMENT OF COMPREHENSIVE INCOME 5 | |||||
|---|---|---|---|---|---|
| STATEMENT OF FINANCIAL POSITION 6 | |||||
| STATEMENT OF FINANCIAL POSITION – CONTINUED . 7 |
|||||
| STATEMENT OF CHANGES IN EQUITY . 8 |
|||||
| STATEMENT OF CASH FLOWS . 9 |
|||||
| INFORMATION ABOUT TAURON POLSKA ENERGIA S.A. AND BASIS OF PREPARATION OF | |||||
| THE FINANCIAL STATEMENTS 10 | |||||
| 1. | General information about TAURON Polska Energia S.A. . 10 |
||||
| 2. | Shares in related parties 10 | ||||
| 3. | Statement of compliance . 12 |
||||
| 4. | Going concern 12 | ||||
| 5. | Functional and presentation currency . 12 |
||||
| 6. | Material figures based on professional judgement and estimates 12 | ||||
| 7. | New standards and interpretations which have been published but are not yet effective . 13 |
||||
| 8. | Changes in the accounting policies 19 | ||||
| 9. | Significant accounting policies . 20 |
||||
| 9.1. | Property, plant and equipment . 20 |
||||
| 9.2. | Investment property 20 | ||||
| 9.3. | Intangible assets 20 | ||||
| 9.4. | Shares in subsidiaries 21 | ||||
| 9.5. | Shares in jointly-controlled entities 21 | ||||
| 9.6. | Bonds . 21 |
||||
| 9.7. | Loans granted 21 | ||||
| 9.8. | Impairment of financial assets . 21 |
||||
| 9.9. | Derivative financial instruments 22 | ||||
| 9.10. | Hedge accounting 22 | ||||
| 9.11. | Other non-financial assets . 22 |
||||
| 9.12. | Inventories 23 | ||||
| 9.13. | Receivables from buyers . 23 |
||||
| 9.14. | Other financial assets . 23 |
||||
| 9.15. | Cash and cash equivalents 23 | ||||
| 9.16. | Issued capital . 23 |
||||
| 9.17. | Debt . 24 |
||||
| 9.18. | Provisions for employee benefits 24 | ||||
| 9.19. | Other provisions 24 | ||||
| 9.20. | Liabilities to suppliers and other financial liabilities . 24 |
||||
| 9.21. | Receivables / Liabilities arising from taxes and charges 25 | ||||
| 9.22. | Current and deferred income tax 25 | ||||
| 9.23. | Sales revenue . 26 |
||||
| 9.24. | Operating expenses 26 | ||||
| 9.25. | Finance income and costs . 27 |
||||
| 9.26. | Translation of items denominated in foreign currencies 27 | ||||
| 9.27. | Business combinations . 28 |
||||
| 9.28. | Statement of cash flows 28 | ||||
| 9.29. | Earnings (loss) per share . 28 |
||||
| OPERATING SEGMENTS 29 |
|||||
| 10. | Information on operating segments 29 | ||||
| 10.1. 10.2. |
Operating segments 29 Geographic areas of operations . 31 |
||||
| IMPAIRMENT OF FINANCIAL ASSETS 32 | |||||
| 11. | Impairment of financial assets 32 | ||||
| TAURON Polska Energia S.A. | |
|---|---|
| ---------------------------- | -- |
| EXPLANATORY NOTES TO THE STATEMENT OF COMPREHENSIVE INCOME 35 |
|
|---|---|
| 12. | Sales revenue . 35 |
| 13. | Expenses by type . 35 |
| 14. | Employee benefits expenses . 36 |
| 15. | Finance income and costs 36 |
| 16. | Income tax . 37 |
| 16.1. Tax expense in the statement of comprehensive income . 37 |
|
| 16.2. Reconciliation of the effective tax rate . 37 |
|
| 16.3. Deferred income tax 38 |
|
| 16.4. Tax Capital Group 38 |
|
| 17. | Earnings (loss) per share . 39 |
| EXPLANATORY NOTES TO THE STATEMENT OF FINANCIAL POSITION 40 |
|
| 18. | Property, plant and equipment . 40 |
| 19. | Investment property . 40 |
| 20. | Non-current intangible assets 41 |
| 21. | Shares . 41 |
| 22. | Bonds . 43 |
| 23. | Derivative instruments 44 |
| 24. | Other financial assets . 45 |
| 25. | Loans granted . 45 |
| 26. | Inventories . 48 |
| 27. | Receivables from buyers . 48 |
| 28. | Receivables arising from taxes and charges . 49 |
| 29. | Other non-financial assets 49 |
| 30. | Cash and cash equivalents . 49 |
| 31. | Equity 50 |
| 31.1. Issued capital . 50 |
|
| 31.2. Major shareholders . 50 |
|
| 31.3. Reserve capital . 50 |
|
| 31.4. Revaluation reserve from valuation of hedging instruments 50 |
|
| 31.5. Retained earnings and dividend limitation . 51 |
|
| 32. | Dividends paid 51 |
| 33. | Debt . 52 |
| 33.1. Bonds issued . 52 |
|
| 33.2. Loans from the European Investment Bank . 55 33.3. Loans from a subsidiary 55 |
|
| 33.4. Cash pool service 55 |
|
| 33.5. Overdraft facilities 56 |
|
| 33.6. Finance lease liabilities . 56 |
|
| 33.7. Operating lease liabilities . 56 |
|
| 34. | Provisions for employee benefits . 57 |
| 35. | Other provisions 58 |
| 36. | Accruals, deferred income and government grants . 60 |
| 37. | Liabilities to suppliers . 60 |
| 38. | Other financial liabilities . 60 |
| 39. | Liabilities arising from taxes and charges 61 |
| EXPLANATORY NOTES TO THE STATEMENT OF CASH FLOWS 62 |
|
| 40. | Significant items of the statement of cash flows . 62 |
| 40.1. Cash flows from operating activities . 62 |
|
| 40.2. Cash flows from investing activities 62 |
|
| 40.3. Cash flows from financing activities . 63 |
|
| TAURON Polska Energia S.A. |
|---|
| Financial statements for the year ended 31 December 2017 prepared in accordance with IFRS, as endorsed by the EU |
| (in PLN '000) |
| FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT 64 |
||||
|---|---|---|---|---|
| 41. | Financial instruments | . 64 | ||
| 41.1. | Carrying amount and fair value of financial instrument classes and categories . 64 |
|||
| 41.2. | Revenue, expenses, gain and loss items included in the statement of comprehensive income | |||
| by category of financial instruments . 65 |
||||
| 42. | Finance and financial risk management . 66 |
|||
| 42.1. Credit risk . 67 |
||||
| 42.1.1. | Credit risk related to receivables from buyers 67 | |||
| 42.1.2. | Credit risk related to other financial assets . 67 |
|||
| 42.2. | Liquidity risk 68 | |||
| 42.3. | Market risk 69 | |||
| 42.3.1. | Interest rate risk 69 | |||
| 42.3.2. | Currency risk . 70 |
|||
| 42.3.3. | Raw material and commodity price risk related to commodity derivative instruments | |||
| and price risk related to units held by the Company . 71 |
||||
| 42.3.4. | Market risk – sensitivity analysis . 71 |
|||
| 43. | Operational risk | . 75 | ||
| OTHER INFORMATION 76 | ||||
| 44. | Contingent liabilities 76 | |||
| 45. | Security for liabilities 81 | |||
| 46. | Capital commitments . 81 |
|||
| 47. | Related-party disclosures . 82 |
|||
| 47.1. | Transactions with related parties and State Treasury companies 82 | |||
| 47.2. | Executive compensation . 83 |
|||
| 48. | Finance and capital management 83 | |||
| 49. | Employment structure 84 | |||
| 50. | Fee of the certified auditor or the entity authorized to audit financial statements 84 | |||
| 51. | Structure of financial statements broken down by business activity type in line with Article 44 | |||
| of the Energy Law | . 84 | |||
| 52. | Events after the end of the reporting period . 87 |
| Note | Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|---|
| Sales revenue | 12 | 7 792 025 | 7 995 328 |
| Cost of sales | 13 | (7 414 707) | (7 837 567) |
| Profit on sale | 377 318 | 157 761 | |
| Selling and distribution expenses | 13 | (23 309) | (19 326) |
| Administrative expenses | 13 | (88 751) | (81 368) |
| Other operating income and expenses | (2 470) | (91 670) | |
| Operating profit (loss) | 262 788 | (34 603) | |
| Dividend income | 15 | 560 832 | 1 485 152 |
| Interest income on bonds and loans | 15 | 456 426 | 503 897 |
| Interest expense on debt | 15 | (334 638) | (356 947) |
| Revaluation of shares and loans | 15 | (134 372) | (1 610 396) |
| Other finance income and costs | 15 | 108 529 | (136 237) |
| Profit (loss) before tax | 919 565 | (149 134) | |
| Income tax expense | 16.1 | (65 214) | (17 119) |
| Net profit (loss) | 854 351 | (166 253) | |
| Measurement of hedging instruments | 31.4 | (8 159) | 127 252 |
| Income tax expense | 16.1 | 1 550 | (24 178) |
| Other comprehensive income subject to reclassification to profit or loss |
(6 609) | 103 074 | |
| Actuarial gains/(losses) | (128) | 1 173 | |
| Income tax expense | 16.1 | 24 | (223) |
| Other comprehensive income not subject to reclassification to profit or loss |
(104) | 950 | |
| Other comprehensive income, net of tax | (6 713) | 104 024 | |
| Total comprehensive income | 847 638 | (62 229) | |
| Earnings (loss) per share (in PLN): | |||
| – basic and diluted, for net profit | 17 | 0.49 | (0.09) |
| Note | As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 18 | 449 | 1 276 |
| Investment property | 19 | 21 701 | 25 318 |
| Intangible assets | 20 | 1 263 | 2 191 |
| Shares | 21 | 20 912 679 | 14 874 418 |
| Bonds | 22 | 6 009 920 | 9 615 917 |
| Loans granted | 25 | 382 989 | 1 292 800 |
| Derivative instruments | 23 | 26 445 | 35 814 |
| Other financial assets | 24 | 2 724 | 1 524 |
| Other non-financial assets | 29 | 13 255 | 6 071 |
| 27 371 425 | 25 855 329 | ||
| Current assets | |||
| Inventories | 26 | 198 428 | 284 799 |
| Receivables from buyers | 27 | 719 133 | 840 656 |
| Receivables arising from taxes and charges | 28 | 36 094 | 120 586 |
| Bonds | 22 | 562 776 | 242 465 |
| Loans granted | 25 | 520 191 | 30 966 |
| Derivative instruments | 23 | 6 971 | 20 603 |
| Other financial assets | 24 | 131 640 | 55 354 |
| Other non-financial assets | 29 | 4 857 | 23 528 |
| Cash and cash equivalents | 30 | 721 577 | 198 090 |
| 2 901 667 | 1 817 047 | ||
| TOTAL ASSETS | 30 273 092 | 27 672 376 |
(in PLN '000)
| Note | As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|---|
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Issued capital | 31.1 | 8 762 747 | 8 762 747 |
| Reserve capital | 31.3 | 7 657 086 | 7 823 339 |
| Revaluation reserve from valuation of hedging instruments | 31.4 | 23 051 | 29 660 |
| Retained earnings / (Accumulated losses) | 31.5 | 935 022 | (85 478) |
| 17 377 906 | 16 530 268 | ||
| Non-current liabilities | |||
| Debt | 33 | 9 472 454 | 8 754 047 |
| Other financial liabilities | 38 | 20 126 | 27 918 |
| Derivative instruments | 23 | 4 958 | – |
| Deferred income tax liabilities | 16.3 | 29 843 | 32 364 |
| Provisions for employee benefits | 34 | 3 147 | 2 534 |
| Other provisions | 35 | – | 152 943 |
| Accruals, deferred income and government grants | 36 | – | 170 |
| 9 530 528 | 8 969 976 | ||
| Current liabilities | |||
| Debt | 33 | 2 725 763 | 1 433 929 |
| Liabilities to suppliers | 37 | 413 265 | 473 637 |
| Other financial liabilities | 38 | 62 590 | 111 759 |
| Derivative instruments | 23 | 9 226 | 560 |
| Liabilities arising from taxes and charges | 39 | 70 119 | 20 209 |
| Provisions for employee benefits | 34 | 330 | 299 |
| Other provisions | 35 | 68 771 | 110 406 |
| Accruals, deferred income and government grants | 36 | 14 594 | 21 333 |
| 3 364 658 | 2 172 132 | ||
| Total liabilities | 12 895 186 | 11 142 108 | |
| TOTAL EQUITY AND LIABILITIES | 30 273 092 | 27 672 376 |
| Note | Issued capital |
Reserve capital |
Revaluation reserve from valuation of hedging instruments |
Retained earnings/ (Accumulated losses) |
Total equity | |
|---|---|---|---|---|---|---|
| As at 1 January 2016 | 8 762 747 | 11 277 247 | (73 414) | (3 374 083) | 16 592 497 | |
| Coverage of prior years loss | – | (3 453 908) | – | 3 453 908 | – | |
| Transactions with shareholders | – | (3 453 908) | – | 3 453 908 | – | |
| Net profit (loss) | – | – | – | (166 253) | (166 253) | |
| Other comprehensive income | – | – | 103 074 | 950 | 104 024 | |
| Total comprehensive income | – | – | 103 074 | (165 303) | (62 229) | |
| As at 31 December 2016 | 8 762 747 | 7 823 339 | 29 660 | (85 478) | 16 530 268 | |
| Coverage of prior years loss | 31.3 | – | (166 253) | – | 166 253 | – |
| Transactions with shareholders | – | (166 253) | – | 166 253 | – | |
| Net profit (loss) | – | – | – | 854 351 | 854 351 | |
| Other comprehensive income | – | – | (6 609) | (104) | (6 713) | |
| Total comprehensive income | – | – | (6 609) | 854 247 | 847 638 | |
| As at 31 December 2017 | 8 762 747 | 7 657 086 | 23 051 | 935 022 | 17 377 906 |
| Note | Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|---|
| Cash flows from operating activities | |||
| Profit before taxation (loss) | 919 565 | (149 134) | |
| Depreciation and amortization | 5 532 | 7 722 | |
| Interest and dividends, net | (685 709) | (1 625 894) | |
| Impairment losses on shares and loans | 134 372 | 1 610 396 | |
| Foreign exchange difference | (130 351) | 23 367 | |
| Other adjustments of profit before tax | 31 218 | 61 988 | |
| Change in working capital | 40.1 | (57 218) | (130 749) |
| Income tax paid | 28 618 | (30 583) | |
| Net cash from (used in) operating activities | 246 027 | (232 887) | |
| Cash flows from investing activities | |||
| Purchase of property, plant and equipment and intangible assets | (524) | (1 344) | |
| Purchase of bonds | 40.2 | (350 000) | (2 770 000) |
| Purchase of shares | 40.2 | (6 169 590) | (543 603) |
| Loans granted | 40.2 | (307 132) | (23 575) |
| Purchase of investment fund units | (75 000) | (25 000) | |
| Total payments | (6 902 246) | (3 363 522) | |
| Redemption of bonds | 40.2 | 3 547 110 | 540 000 |
| Repayment of loans granted | 40.2 | 1 000 000 | 142 024 |
| Dividends received | 359 787 | 1 485 152 | |
| Interest received | 40.2 | 642 017 | 474 126 |
| Other proceeds | 44 | 102 677 | |
| Total proceeds | 5 548 958 | 2 743 979 | |
| Net cash from (used in) investing activities | (1 353 288) | (619 543) | |
| Cash flows from financing activities | |||
| Payment of finance lease liabilities | (3 442) | (3 208) | |
| Repayment of loans and borrowings | 40.3 | (175 695) | (132 818) |
| Redemption of debt securities | 40.3 | (1 650 000) | (3 300 000) |
| Interest paid | 40.3 | (265 223) | (351 147) |
| Commission paid | (19 632) | (11 411) | |
| Total payments | (2 113 992) | (3 798 584) | |
| Issue of debt securities | 40.3 | 2 707 462 | 4 284 607 |
| Other proceeds | – | 141 | |
| Total proceeds | 2 707 462 | 4 284 748 | |
| Net cash from financing activities | 593 470 | 486 164 | |
| Net increase / (decrease) in cash and cash equivalents | (513 791) | (366 266) | |
| Net foreign exchange difference | 2 038 | 1 179 | |
| Cash and cash equivalents at the beginning of the period | 30 | (1 045 441) | (679 175) |
| Cash and cash equivalents at the end of the period, of which: | 30 | (1 559 232) | (1 045 441) |
| restricted cash | 30 | 49 792 | 56 787 |
These financial statements have been prepared by TAURON Polska Energia Spó³ka Akcyjna (the "Company") with its registered office in ul. ks. Piotra Œciegiennego 3 in Katowice, Poland, whose shares are publicly traded.
The Company was established by a notarized deed on 6 December 2006 under the name of Energetyka Po³udnie S.A. On 8 January 2007, the Company was registered at the District Court for Katowice-Wschód, Business Division of the National Court Register, under number KRS 0000271562. The change of the name to TAURON Polska Energia S.A. was registered with the District Court on 16 November 2007.
The Company was assigned statistical number (REGON) 240524697 and tax identification number (NIP) 9542583988.
TAURON Polska Energia S.A. was established for an unlimited period. •
The core business of TAURON Polska Energia S.A. is: •
TAURON Polska Energia S.A. is the parent of the TAURON Polska Energia S.A. Capital Group (the "Group", the "TAURON Group").
The financial statements prepared by the Company cover the financial year ended 31 December 2017 and include comparative information for the year ended 31 December 2016. These financial statements were approved for publication by the Management Board on 12 March 2018.
The consolidated financial statements for the year ended 31 December 2017 prepared by the Company were approved for publication by the Management Board on 12 March 2018.
As at 31 December 2017, the composition of the Management Board was as follows: •
Changes in the composition of the Management Board in the year ended 31 December 2017 have been presented in the Management Board's report on the activities of the TAURON Polska Energia S.A. for the year ended 31 December 2017 (Section 6.11.1).
As at the date of approval of these financial statements for publication the composition of the Management Board had not changed. •
As at 31 December 2016, the composition of the Management Board was as follows: •
As at 31 December 2017, TAURON Polska Energia S.A. held direct and indirect interest in the following key subsidiaries:
Financial statements for the year ended 31 December 2017 prepared in accordance with IFRS, as endorsed by the EU (in PLN '000)
| Item | Company name | Registered office |
Core business | Share of TAURON Polska Energia S.A. in the entity's capital |
Share of TAURON Polska Energia S.A. in the governing body |
|---|---|---|---|---|---|
| 1 | TAURON Wydobycie S.A. | Jaworzno | Hard coal mining | 100.00% | 100.00% |
| 2 | TAURON Wytwarzanie S.A.1 | Jaworzno | Generation, transmission and distribution of electricity and heat |
100.00% | 100.00% |
| 3 | Nowe Jaworzno Grupa TAURON Sp. z o.o.1 |
Jaworzno | Generation, transmission and distribution of electricity and heat and sale of electricity |
100.00% | 100.00% |
| 4 | TAURON Ekoenergia Sp. z o.o. | Jelenia Góra | Generation of electricity | 100.00% | 100.00% |
| 5 | Marselwind Sp. z o.o. | Katowice | Production, transmission and sale of electricity |
100.00% | 100.00% |
| 6 | TAURON Ciep³o Sp. z o.o. | Katowice | Production and distribution of heat |
100.00% | 100.00% |
| 7 | TAURON Serwis Sp. z o. o. | Katowice | Services | 95.61% | 95.61% |
| 8 | TAURON Dystrybucja S.A. | Kraków | Distribution of electricity | 99.74% | 99.75% |
| 9 | TAURON Dystrybucja Serwis S.A. | Wroc³aw | Services | 100.00% | 100.00% |
| 10 | TAURON Dystrybucja Pomiary Sp. z o.o.2 |
Tarnów | Services | 99.74% | 99.75% |
| 11 | TAURON Sprzeda¿ Sp. z o.o. | Kraków | Sale of electricity | 100.00% | 100.00% |
| 12 | TAURON Sprzeda¿ GZE Sp. z o.o. | Gliwice | Sale of electricity | 100.00% | 100.00% |
| 13 | TAURON Czech Energy s.r.o. | Ostrawa, Czech Republic |
Sale of electricity | 100.00% | 100.00% |
| 14 | TAURON Obs³uga Klienta Sp. z o.o. | Wroc³aw | Services | 100.00% | 100.00% |
| 15 | Kopalnia Wapienia Czatkowice Sp. z o.o. |
Krzeszowice | Limestone quarrying and stone quarrying |
100.00% | 100.00% |
| 16 | Polska Energia Pierwsza Kompania Handlowa Sp. z o.o.3 |
Warszawa | Sale of electricity | 100.00% | 100.00% |
| 17 | TAURON Sweden Energy AB (publ) |
Sztokholm, Sweden |
Services | 100.00% | 100.00% |
| 18 | Biomasa Grupa TAURON Sp. z o.o. | Stalowa Wola | Wholesale of waste and scrap | 100.00% | 100.00% |
| 19 | Wsparcie Grupa TAURON Sp. z o.o.2, 4 |
Tarnów | Services | 99.74% | 99.75% |
1 On 3 April 2017 TAURON Wytwarzanie S.A. was spun off and an organized part of the enterprise was transferred to Nowe Jaworzno Grupa TAURON Sp. z o.o. 2 TAURON Polska Energia S.A. holds indirect interest in TAURON Dystrybucja Pomiary Sp. z o.o. and Wsparcie Grupa TAURON Sp. z o.o. (formerly: KOMFORT-ZET Sp. z o.o.) through its subsidiary, TAURON Dystrybucja S.A. TAURON Polska Energia S.A. uses shares in TAURON Dystrybucja Pomiary Sp. z o.o.
3 On 8 March 2017, the Extraordinary General Shareholders' Meeting of Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. in liquidation adopted a resolution to revoke the liquidation of the company.
4 On 6 September 2017, the name of Komfort-Zet Sp. z o.o. was changed to Wsparcie Grupa TAURON Sp. z o.o.
As at 31 December 2017, TAURON Polska Energia S.A. held direct and indirect interest in the following key jointly-controlled entities:
| Item | Company name | Registered office | Core business | Share of TAURON Polska Energia S.A. in the entity's capital and governing body |
|---|---|---|---|---|
| 1 | Elektrociep³ownia Stalowa Wola S.A.1 | Stalowa Wola | Generation of electricity | 50.00% |
| 2 | TAMEH HOLDING Sp. z o.o.2 | D¹browa Górnicza | Head office and holding operations |
50.00% |
| 3 | TAMEH POLSKA Sp. z o.o.2 | D¹browa Górnicza | Generation, transmission, distribution and sale of electricity and heat |
50.00% |
| 4 | TAMEH Czech s.r.o.2 | Ostrawa, Czech Republic |
Production, trade and services |
50.00% |
1 TAURON Polska Energia S.A. holds indirect interest in Elektrociep³ownia Stalowa Wola S.A. through a subsidiary, TAURON Wytwarzanie S.A. 2 The companies form a capital group. TAURON Polska Energia S.A. holds direct interest in the issued capital and the governing body of TAMEH HOLDING Sp. z o.o., which holds 100% interest in the issued capitals and the governing bodies of TAMEH POLSKA Sp. z o.o. and TAMEH Czech s.r.o.
These financial statements have been prepared in compliance with the requirements of the International Financial Reporting Standards ("IFRS"), as endorsed by the European Union ("EU").
The IFRS consist of standards and interpretations approved by the International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee.
These financial statements have been prepared on the assumption that the Company will continue as a going concern in the foreseeable future. As at the date of approval of these financial statements for publication, no circumstances had been identified which would indicate a risk to the Company's ability to continue as a going concern.
Polish zloty is the functional currency of the parent and the presentation currency of these financial statements. These financial statements have been presented in the Polish zloty ("PLN") and all figures are in PLN thousand, unless stated otherwise.
When applying the accounting policy to the issues mentioned below, professional judgement of the management, along with accounting estimates, have been of key importance; they have impacted the figures disclosed in these financial statements and in the explanatory notes. The assumptions underlying the estimates have been based on the Management Board's best knowledge of current and future actions and events in individual areas. In the period covered by these financial statements, there were no significant changes in estimates or estimation methods applied, which would affect the current or future periods, other than those presented below or mentioned further in these financial statements.
The items of the financial statements which are exposed to the risk of material adjustment of the carrying amounts of assets and liabilities have been presented below. Detailed information regarding assumptions has been presented in notes to these financial statements, in line with the table below.
Financial statements for the year ended 31 December 2017 prepared in accordance with IFRS, as endorsed by the EU
(in PLN '000)
| Item | Significant accounting policies |
Note | Estimates and assumptions |
|---|---|---|---|
| Shares | Note 9.4 Note 9.8 |
Note 21 | As at the end of each reporting period, the Company verifies whether there is any objective indication that investemt in shares may be impaired. If the objective indication appears, the Company is obliged to perform impairment tests and to recognize the impairment or the reversal of the impairment recognized earlier. |
| Loan to a subsidiary | Note 9.7 Note 9.8 |
Note 25 | As at the end of each reporting period, the Company verifies whether there is any objective indication that loans granted to subsidiary may be impaired. If the objective indication appears, the Company is obliged to perform impairment tests and to recognize the impairment or the reversal of the impairment recognized earlier. As at the end of each reporting period, the Company classifes the loan granted to subsidiiary as non-current or current assets In the event of planned maintenance of involvement in entity for longer than one year, the Comapny classifies the loan as non-current assets. |
| Provisions | Note 9.18 Note 9.19 |
Note 34 Note 35 |
The value of provisions is determined based on assumptions made by the Company as well as a methodology and calculation method that is appropriate for a specific provision. To this end, the Company verifies the probability of an outflow of resources embodying economic benefits and estimates reliably the amount necessary to fulfil the obligation. The Company recognized provisions if the probability of an outflow of resources embodying economic benefits is higher than 50%. |
| Deferred tax assets | Note 9.22 | Note 16 | As at the end of each reporting period, the Company asses the realisation of deferred tax assets and verifies deferred tax assets which were not recognized. |
| Derivative instruments |
Note 9.9 | Note 23 | The Company measured derivative financial instruments at fair value at the end of each reporting period. Derivative instruments acquired and held for internal purposes are not measured at the end of the reporting period. |
| Intra-group bonds | Note 9.6 | Note 22 | As at the end of each reporting period, the Company classifes the intra-group bonds as non-current or current assets. In the event of intended rollover, bonds maturing within one year as of the end of reporting period are classified as long-term instruments. |
Additionally, the Company's material estimates include contingent liabilities recognized, in particular, in relation to legal proceedings to which it is a party. Contingent liabilities have been discussed in more detail in Note 44 to these financial statements.
The Company did not choose an early application of any standards, amendments to standards or interpretations, which were published, but are not yet mandatorily effective. •
According to the Management Board, the following new standards may materially impact the accounting policies applied thus far:
Effective date in the EU: annual periods beginning on or after 1 January 2018. •
Key changes introduced by IFRS 9 Financial Instruments:
Instead of four classes of financial assets as determined under IAS 39 Financial Instruments: Measurement and Recognition, IFRS 9 Financial Instruments has introduced three: ––
Pursuant to IFRS 9 Financial Instruments, financial assets are classified upon initial recognition based on: –
IFRS 9 Financial Instruments replaces the incurred credit losses with the concept of expected credit losses, resulting in recognition of a loss allowance upon initial recognition of an asset. The requirements regarding impairment of financial assets apply in particular to financial assets measured at amortized cost and at fair value through other comprehensive income.
Estimated effect on retained earnings of the application of IFRS 9 Financial Instruments as at 1 January 2018:
| IAS 39 | IFRS 9 | Estimated effect of change |
||||
|---|---|---|---|---|---|---|
| Categories and classes of financial instruments | Fair value through: | |||||
| in line with IAS 39 | At amortised/ at historical cost |
At fair value | At amortised cost |
Profit/loss | Other comprehensive income |
Increase/ (decrease) |
| 1 Financial assets at fair value through profit | ||||||
| or loss, held for trading | – | 106 292 | – | 106 292 | – | – |
| Derivative instruments | – | 4 934 | – | 4 934 | – | – |
| Investment fund units | – | 101 358 | – | 101 358 | – | – |
| 2 Financial assets available for sale | 39 244 | – | – | 39 244 | – | – |
| Long-term shares* | 39 244 | – | – | 39 244 | – | – |
| 3 Loans and receivables | 8 228 015 | – | 7 550 923 | 177 274 | – | (499 818) |
| Receivables from buyers | 719 133 | – | 716 526 | – | – | (2 607) |
| Gross value | 720 057 | – | 720 057 | – | – | – |
| Impairment loss | (924) | – | (3 531) | – | – | (2 607) |
| Bonds | 6 572 696 | – | 6 176 103 | – | – | (396 593) |
| Gross value | 6 572 696 | – | 6 572 696 | – | – | – |
| Impairment loss | – | – | (396 593) | – | – | (396 593) |
| Loans granted under cash pool agreement | 190 526 | – | 190 526 | – | – | – |
| Other loans granted | 712 654 | – | 461 077 | 150 959 | – | (100 618) |
| Gross value | 712 654 | – | 471 887 | 150 959 | – | (89 808) |
| Impairment loss | – | – | (10 810) | – | – | (10 810) |
| Other financial receivables | 33 006 | – | 6 691 | 26 315 | – | – |
| 4 Hedging derivative instruments | – | 28 482 | – | 28 482 | – | – |
| 5 Cash and cash equivalents | – | 721 577 | – | 721 577 | – | – |
| Total estimated effect of the application of IFRS 9 on financial assets | (499 818) | |||||
| 1 Financial liabilities measured at amortised cost | 470 239 | – | 437 128 | – | – | 33 111 |
| Loan granted by European Investment Bank | 470 239 | – | 437 128 | – | – | 33 111 |
| Total estimated effect of the application of IFRS 9 on financial liabilites | 33 111 | |||||
| Estimated effect on retained earnings | (466 707) | |||||
| Deferred tax | 88 674 | |||||
| Estimated effect on retained earnings after deferred tax • |
(378 033) |
* Measurement at historical cost.
The categories of financial assets identified in IAS 39 Financial Instruments: Recognition and Measurement cannot be directly translated into those identified in IFRS 9 Financial instruments and therefore the Company has developed a method of classification of financial assets which sets the terms of SPPI test (Solely Payments of Principal and Interest) and business model tests. The Company performed business model and SPPI tests for all material items of its financial assets as at 31 December 2017.
The carried out analysis revealed that a considerable portion of financial assets presented in the above table generates cash flows corresponding solely to the repayment of principal and interest and they are maintained under a business model based solely on acquiring cash flows, which translates into classification as financial assets measured at amortized cost.
The subordinated loan and the loans used for the purposes of repayment of debt originated to the joint venture Elektrociep³ownia Stalowa Wola S.A., measured at amortized cost in line with IAS 39 Financial Instruments: Recognition and Measurement, whose carrying amount as at 31 December 2017 was PLN 240 767 thousand, were categorized into financial assets measured at fair value through profit or loss at PLN 150 959 thousand since the cash flows they generate do not correspond solely to the repayment of principal and interest. Implementation of IFRS 9 Financial instruments in this scope, would decrease retained ernings on 1 January 2018 in total amount of PLN 89 808 thousand.
As IFRS 9 Financial Instruments requires that equity interests in other entities be measured at fair value, also with respect to those shares which – due to limited availability of information – have thus far been measured at cost less impairment losses, considering that the key factors affecting the value of acquired shares did not change as at the end of the reporting period versus initial recognition, the Company relied on the historical cost as a reasonable approximation of fair value. In accordance with IFRS 9 Financial Instruments the above equity instruments will be measured at fair value through profit or loss. •
The Company has identified the following categories of financial assets for which it has verified the impact of the calculation of expected credit losses in line with IFRS 9 Financial Instruments on the financial statements: ––
As far as receivables from buyers are concerned, the Company has designated a portfolio of strategic counterparties in the case of which it is expected that the historical performance (lack of material delinquencies) does not provide full information on the expected credit losses to which the Company may be exposed. The risk of insolvency on the part of the strategic counterparties has been assessed based on the ratings assigned to the counterparties using an internal scoring model and appropriately restated to account for the probability of default. The expected credit loss, in line with IFRS 9 Financial Instruments, will be calculated based on the estimated potential recovery due to the security lodged. It is expected that the historical performance information concerning the receivables from buyers (other counterparties) may reflect the credit risk that will be faced in future periods. The expected credit losses for such a group of counterparties have been estimated through an analysis of ageing of receivables and percentage ratios assigned to individual ranges and groups (such as receivables claimed at court, receivables from counterparties in bankruptcy) which help estimate the value of receivables from buyers which are not expected to be paid.
Based on analyses carried out the Company expects that the total value of loss allowance for expected credit losses on receivables from buyers following the application of IFRS 9 Financial Instruments will increase compared to the value estimated in line with the earlier principles, which will consequently decrease the retained earnings as at 1 January 2018, by PLN 2 607 thousand.
As far as loans granted and bonds purchased by the Company are concerned, the Company assesses the risk of insolvency on the part of the borrowers and issuers based on the ratings assigned to the counterparties using an internal scoring model, appropriately restated to account for the probability of default. The expected credit loss, in line with IFRS 9 Financial Instruments, will be calculated based on the estimated potential recovery due to the security lodged and the time value of money.
It is expected that due to the application of IFRS 9 Financial Instruments the total value of loss allowance for expected credit losses on originated loans and bonds purchased, measured at amortized cost, will decrease retained earnings of Company as at 1 January 2018 by PLN 407 403 thousand. •
IFRS 9 Financial Instruments also introduces a change in the terms of measurement of liabilities for which there is a modification of cash flows resulting from the contract. The Company has liabilities under loans granted by European Investment Bank, for which such a modification takes place in the form of a change in the interest rate on a fixed date. The Company estimates that the implementation of IFRS 9 Financial Instruments in this respect will increase the retained earnings of Company as at 1 January 2018 by PLN 33 111 thousand. •
As at 31 December 2017 the Company held instruments hedging fluctuations in cash flows related to issued bonds and resulting from the interest rate risk. These interest rate swaps are subject to hedge accounting.
An analysis of risks and rewards related to the adoption of the hedge accounting solutions introduced by IFRS 9 Financial Instruments in light of the Company's portfolio of financial instruments revealed that the principles defined in IAS 39 Financial Instruments: Recognition and Measurement should still be applied. It is not expected that the application of the provisions of IFRS 9 Financial Instruments concerning hedge accounting will have a material impact on the Company's financial statements as regards its transactions. The Company has been monitoring the work carried out by the International Accounting Standards Board, also with respect to the date of obligatory application of the hedge accounting provisions.
The Company conducted an analysis of the influence of IFRS 9 Financial Instruments on the measurement of financial liabilities arising from issued financial guarantees. As a result of conducted analysis no material impact of IFRS 9 Financial Instruments on the measurement of liabilities in the amount of expected credit losses was identified.
The standard specifies how and when to recognize revenue and requires more detailed disclosures. The Standard replaces IAS 18 Revenue, IAS 11 Construction Contracts, IFRIC 18 Transfer of Assets from Customers and a number of interpretations concerning revenue recognition. •
Key principles introduced by IFRS 15 Revenue from Contracts with Customers include:
The new standard requires significantly extended disclosures regarding sales and revenue in order to help users of financial statements to understand the nature, recognition period, amount, risks and uncertainties related to the revenue and cash flows arising from contracts with customers. In particular, a reporting entity is obliged to make quantitative and qualitative disclosures regarding: contracts with customers, key assumptions and estimates made and assets recognized from the costs to obtain or fulfil a contract with a customer.
The Company has decided to apply the modified retrospective approach and the practical expedients allowed by IFRS 15 Revenue from Contracts with Customers, i.e. with the cumulative effect of initially applying this Standard recognized at the date of initial application.
The Company has conducted a five-step analysis of its contracts with customers, which is necessary for proper measurement of its revenue in accordance with IFRS 15 Revenue from Contracts with Customers – from identification of contracts (or contract groups), through selection of liability items and determination of prices, their allocation to individual liability items to revenue recognition.
In accordance with IFRS 15 Revenue from Contracts with Customers, if the consideration specified in the contract includes a variable amount, the entity estimates the amount of the consideration to which it will be entitled in exchange for the transfer of promised goods or services to the customer and includes part or all of the variable consideration only in the transaction price to the extent that there is a high probability that there will be no reversal of a significant portion of the amount of previously recognized cumulative revenues when the uncertainty about the amount of variable consideration is subsequently resolved. On the basis of the analysis, the Company did not identify contracts containing variable amounts of consideration.
Under contracts concluded with customers the Company does not offer any warranties for the products sold.
In accordance with IFRS 15 Revenue from Contracts with Customers, the transaction price is allocated to the performance obligations by reference to their relative standalone selling prices. According to the Company, the existing contracts with customers do not meet the requirements to be aggregated and treated as a single contract. Therefore, the implementation of IFRS 15 Revenue from Contracts with Customers will not affect the allocation of the transaction price to each performance obligation.
In terms of the services provided, the Company believes that the customer simultaneously receives and consumes the benefits from the service at the same time as the Company performs the service. Consequently, the Company transfers control and thus fulfills the obligation to perform the service over time. Therefore, in accordance with IFRS 15 Revenue from Contracts with Customers, the Company will continue to recognize revenues from the sale of services over time.
Pursuant to IFRS 15 Revenue from Contracts with Customers, the Company considers whether their contracts include a significant financing arrangement. As a practical expedient, the Company will not adjust the promised amount of consideration for the effects of a significant financing arrangement as it expects, at contract inception, that the interval between the transfer of the promised goods or services and payment by the customer is expected to be less than one year. Therefore, the Company shall not separate a significant financing arrangement for short-term advance payments.
The Company has not identified any contracts with customers for which the interval between the transfer of the promised goods or services and payment exceeds one year and therefore it is believed the contracts do not include a significant financing arrangement.
IFRS 15 Revenue from Contracts with Customers introduces new requirements regarding disclosures. According to the Company the effects of these disclosures will be insignificant.
The recognition and measurement requirements under IFRS 15 Revenue from Contracts with Customers apply also to the recognition and measurement of gain/loss on sale of non-financial assets (such as property, plant and equipment or intangible assets) if the sale does not take place in the usual course of business activity. Therefore, in the opinion of the Company the impact of implementation IFRS 15 Revenue from Contracts with Customers should not be material.
Following an analysis, of the contracts with customers the Company has concluded that implementation of IFRS 15 Revenue from Contracts with Customers does not affect the equity as at 1 January 2018.
Effective date in the EU: annual periods beginning on or after 1 January 2019.
Under IFRS 16 Leases, the lessee recognizes the right-of-use asset and the lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly. The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease if that can be readily determined. If that rate cannot be readily determined, the lessee shall use the incremental borrowing rate. Lessors continue to classify leases as operating or finance leases, with the approach to lessor accounting substantially unchanged from IAS 17 Leases. A lease is classified by a lessor as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. Otherwise, a lease is classified as an operating lease. A lessor recognizes finance income over the lease term of a finance lease, based on a pattern reflecting a constant periodic rate of return on the net investment. A lessor recognizes operating lease payments as income on a straight-line basis or another systematic basis if that basis is more representative of the pattern in which benefit from the use of the underlying asset is diminished.
A preliminary analysis of the impact of IFRS 16 Leases on the accounting policies has shown a change material for the Company, i.e. the need to recognize lease assets and liabilities for leases currently classified as operating leases in the financial statements. The Company analyses all its lease agreements to identify leases which require recognition of assets and liabilities in the financial statements. As at the date of approval of these financial statements for publication the Company had not carried out any analyses which would enable it to determine the impact of the planned changes on the financial statements. The analysis will be conducted at a later time.
Clarifications to IFRS 15 Revenue from Contracts with Customers Effective date in the EU: annual periods beginning on or after 1 January 2018.
The amendment provides additional clarifications as to some requirements in addition to introducing a new exemption for entities applying IFRS 15 Revenue from Contracts with Customers for the first time.
(in PLN '000)
According to the Management Board the following revised standards will not materially impact the accounting policies applied.
| Standard | Effective date in the EU (annual periods beginning on or after the date provided) |
|---|---|
| Revised IFRS 4 Insurance Contracts | 1 January 2018 |
| Revised IFRS 2 Share-based Payments: Classification and Measurement of Share-based Payment Transactions |
1 January 2018 |
| Annual Improvements to IFRS (cycle 2014–2016): | |
| IFRS 1 First-time Adoption of International Financial Reporting Standards | 1 January 2018 |
| • IAS 28 Investments in Associates and Joint Ventures |
1 January 2018 |
According to the Management Board, the following standards, amendments to standards and interpretations will not materially impact the accounting policies applied thus far:
| Standard | Effective date specified in the Standard, not endorsed by the EU (annual periods beginning on or after the date provided) |
|---|---|
| IFRS 14 Regulatory Deferral Accounts | 1 January 2016* |
| IFRS 17 Insurance contracts | 1 January 2021 |
| Revised IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures: Sale or Contribution of Assets between Investor and its Associate or Joint Venture with subsequent amendments |
the effective date has been postponed |
| IFRIC 22 Foreign Currency Transactions and Advance Consideration | 1 January 2018 |
| Revised IAS 40 Investment Property – Transfers of Investment Property | 1 January 2018 |
| Annual Improvements to IFRS (cycle 2015–2017): | |
| IAS 12 Income Taxes | 1 January 2019 |
| IAS 23 Borrowing Costs | 1 January 2019 |
| IFRS 3 Business Combinations | 1 January 2019 |
| IFRS 11 Joint Arrangements | 1 January 2019 |
| IFRIC 23 Uncertainty over Income Tax Treatments | 1 January 2019 |
| Revised IFRS 9 Financial Instruments | 1 January 2019 |
| Revised IAS 19 Employee Benefits | 1 January 2019 |
| Revised IAS 28 Investments in Associates and Joint Ventures | 1 January 2019 |
* The European Commission decided not to launch the process of endorsement of the interim standard for use in the EU until the publication of the final version of IFRS 14.
Hedge accounting for the financial assets and liabilities portfolio remains beyond the scope of the regulations adopted by the EU.
The accounting principles (policy) adopted for the preparation of these financial statements are consistent with those used for the preparation of the annual financial statements of TAURON Polska Energia S.A. for the year ended 31 December 2016, except for the application of the following amendments to standards.
According to the Management Board, the introduction of the following revised standards has not materially impacted the accounting policies applied thus far:
| Standard | Effective date in the EU (annual periods beginning on or after the date provided) |
|---|---|
| Revised IAS 7 Statement of Cash Flows | 1 January 2017 |
| Revised IAS 12 Income Taxes | 1 January 2017 |
| Annual Improvements to IFRS (cycle 2014–2016): | |
| IFRS 12 Disclosure of Interests in Other Entities | 1 January 2017 |
Items of property, plant and equipment are measured at acquisition price or manufacturing cost less depreciation and impairment losses. The initial value of fixed assets includes their cost increased by all expenses directly related to the purchase and bringing the asset to a usable condition. Depreciation is calculated by reference to the cost of the asset less its residual value. The depreciation method applied reflects the manner of the Company's consuming economic benefits generated by the asset.
Average residual useful lives by fixed asset group:
| Tangible fixed assets by type | Average remaining depreciation period in years |
|---|---|
| Plant and machinery | – |
| Motor vehicles | less than 1 year |
| Other tangible fixed assets | 2 years |
The depreciation method and rate, as well as the residual value of fixed assets are reviewed at least at the end of each financial year with possible changes recognized as changes in estimates. Depreciation is recognized in profit or loss in an appropriate cost category corresponding to the function of the non-current asset.
The Company holds an investment property generating revenue from rental fees. The property is rented to a subsidiary. At initial recognition investment property is measured at cost including transaction costs. After initial recognition all investment properties held are measured in line with IAS 16 Property, Plant and Equipment, i.e. at cost. This means that the Company gradually depreciates the real property throughout its useful life.
| 9.3. Intangible assets |
Note 20 |
|---|---|
| --------------------------- | --------- |
Intangible assets include mostly software and licences as well as copyrights and related rights.
Intangible assets are measured at cost at initial recognition. After initial recognition intangible assets are measured at cost less accumulated amortization and impairment losses.
The Company assesses whether the useful life of an intangible asset is finite or indefinite and, if finite, estimates its duration or another measure providing the basis for determination of the useful life.
Intangible assets with a finite useful life are amortized over the period of their estimated use and tested for impairment each time when impairment indications occur. The period and method of amortizing intangible assets with a finite useful life are verified at least at the end of each reporting period; changes in the expected useful life or a pattern of consuming economic benefits generated by a given asset are treated as changes in estimates. Amortization of intangible assets with a finite useful life is recognized in profit or loss in an appropriate cost category corresponding to the function of the intangible asset.
The Company does not have any intangible assets with an indefinite useful life.
Average residual useful lives by intangible asset group:
| Intangible assets by type | Average remaining amortization period in years |
|---|---|
| Software | 2 years |
| Other intangible assets | 6 years |
Shares in subsidiaries are measured at cost less impairment losses. Impairment losses are recognized in line with IAS 36 Impairment of Assets, where the carrying amount is compared to the higher of the fair value less costs to sell and the value in use.
9.6. Bonds Note 22
Shares in co-subsidiaries are recognized at cost less impairment losses, if any.
Intra-group bonds maturing within one year, intended for rollover, are classified as long-term instruments. Such classification reflects the nature of funding under the intra-group bond issue scheme, which enables cash management in the medium and long term.
Loans granted by the Company are mostly loans to subsidiaries and include cash pooling loans and loans to joint ventures. Loans are classified to loans and receivables and measured at amortized cost Loans maturing within 12 months as of the end of the reporting period are classified to current assets and loans maturing in more than 12 months as of the end of the reporting period – to non-current assets considering the expectations as regards the loan repayment as at the end of the reporting period.
As at the end of each reporting period, the Company verifies whether there is any objective indication that a financial asset or a group of financial assets may be impaired.
The main item in the Company's financial assets are shares in subsidiaries and intra-group loans and bonds. The assets are tested for impairment, if there is any objective indication that the assets may be impaired. The amount of the impairment loss is the difference between the carrying amount of a financial asset or group of financial assets and the recoverable amount, which is the fair value less costs of disposal or the value in use, whichever is higher. The value in use is calculated as the present value of estimated future cash flows from the operations of subsidiaries and the estimated residual value discounted using the weighted average cost of capital.
Other financial assets measured at amortized cost are tested for impairment, if there is any objective indication that the assets may be impaired. The amount of the impairment loss is the difference between the carrying amount of a financial asset and the present value of estimated future cash flows discounted using the initial effective interest rate (i.e. the one determined at initial recognition).
If the impairment loss decreases in the subsequent period and the decrease can be objectively related to an event taking place after the loss has been recognized, the prior impairment loss is reversed. The subsequent reversal of an impairment loss is recognized in profit or loss to the extent that the carrying amount of the asset does not exceed its amortized cost as at the date of reversal.
Derivative financial instruments falling within the scope of IAS 39 Financial Instruments: Measurement and Recognition are classified as financial assets/financial liabilities measured at fair value through profit or loss, except derivatives which are designated as hedging instruments and subject to hedge accounting. Derivative instruments acquired and held for internal purposes as excluded from the scope of IAS 39 Financial Instruments: Measurement and Recognition are not measured at the end of the reporting period.
Derivatives classified as "financial assets/financial liabilities measured at fair value through profit or loss" are measured at fair value, taking into account their market value as at the end of the reporting period. Changes in the fair value of these instruments are recognized in profit or loss for the period. Derivatives are presented as assets if their value is positive or as liabilities if their value if negative.
As at the end of the reporting period, Interest Rate Swaps (IRS) acquired and held to hedge the interest rate risk relating to bonds issued are subject to hedge accounting (the accounting policy has been discussed in detail in Note 9.10). Other derivative instruments held by the Company as at the end of the reporting period are not subject to hedge accounting.
At the end of the reporting period, the Company held the following derivative instruments:
| Derivative instrument | Methodology of determining fair value hierarchy |
|---|---|
| IRS | The difference between discounted floating-rate interest cash flows and those based on fixed interest rates. Reuters interest rate curve is the input data. |
| CCIRS | The difference between discounted interest cash flows relating to payments and receipts, in two different currencies, expressed in the valuation currency. Interest rate curves, basis spreads and NBP fixing for the relevant currencies from Reuters are the input data. |
| Forward currency contracts |
The difference between discounted future cash flows: the forward price at the valuation date and the transaction price, multiplied by the nominal value of the contract in a foreign currency. NBP fixing and the implied interest rate curve from FX swap transactions for the relevant currency from Reuters are the input data. |
| Commodity forwards, futures |
The fair value of forwards for the purchase and sale of emission allowances, electricity and other commodities is based on prices quoted on an active market or based on cash flows being the difference between the price reference index (forward curve) and the contract price. |
In order to hedge the interest rate risk, the Company uses IRS (Interest Rate Swap) contracts. These instruments hedge cash flows related to bonds issued. Such transactions are subject to hedge accounting.
At the inception of the hedge the hedging relationship and the risk management objective and strategy for undertaking the hedge are documented formally. •
A cash flow hedge is accounted for in the following manner:
Gain or loss from revaluation of the hedging instrument disclosed in other comprehensive income is recognized directly in profit or loss in the same period during which the hedged item affects profit or loss for the period.
Other non-financial assets include mostly prepayments and advance payments for deliveries.
Prepayments are measured at the amount of reliably estimated expenses incurred by the entity, related to future reporting periods and resulting in an inflow of economic benefits to the entity in the future. Prepaid expenses may be settled based on the elapsed time or amounts paid.
The Company's inventories include acquired emission allowances and certificates of energy generated using renewable sources and in CHP units, intended for trading purposes.
At initial recognition inventories are measured at cost. At the end of the reporting period inventories are measured at cost or net realizable value, whichever is lower. If the cost is higher than the net realizable value, the Company recognizes an appropriate impairment loss.
Greenhouse gas emission allowances purchased for resale and generation of profit in the short term due to volatility of market prices are recognized within inventories. They are measured at fair value at initial recognition and at the end of each reporting period.
Releases of consumables and goods are measured using the weighted average method.
Receivables from buyers are recognized at originally invoiced amounts, except situations where the effect of the time value of money is material, less allowances/write-downs.
If the recoverable amount of an asset is lower than its carrying amount, the entity recognizes an allowance/write-down reducing it to the present value of projected cash flows. An allowance/write-down corresponding to the whole amount due is recognized for receivables from debtors placed into liquidation or bankruptcy, those for which court proceedings have been instituted as well as those subject to administrative or court enforcement proceedings. Otherwise, the allowance/write-down is recognized collectively based on the criterion of delinquency – for amounts past due by 6 to 9 months: 50% and for those which have not been paid for more than 9 months: 100%.
Allowances/write-downs on receivables are charged to operating expenses or finance costs, according to the type of receivables.
Other financial assets include investment fund units, Tax Capital Group receivables, deposits, performance bonds, collateral transferred and receivables arising from sales of property, plant and equipment and intangible assets.
In the financial statements, issued capital is presented at the amount specified in the articles of association and entered in the Company's court register.
Cash and short-term deposits recognized in the statement of financial position include in particular cash at bank and in hand and short-term deposits with original maturity of up to three months.
The balance of cash and cash equivalents recognized in the statement of cash flows consists of the aforesaid cash and cash equivalent items. If the entity uses overdraft facilities as a cash management solution, in line with IAS 7 Statement of Cash Flows the balance of cash is presented in the statement of cash flows less the outstanding balance of such facilities. Additionally, cash is adjusted by the balances of loans granted and taken out in a cash pool transaction as their main objective is to manage liquidity on a day-to-day basis.
9.16. Issued capital Note 31.1
Loans, borrowings, bonds issued and finance lease liabilities are presented as debt in the statement of financial position of the Company.
At initial recognition, all loans, borrowings and bonds issued are measured at fair value less the cost incurred to obtain a loan or borrowing. After initial recognition interest-bearing loans and debt securities are measured at amortized cost using the effective interest method.
Amortized cost includes the cost incurred to obtain a loan, borrowing or debt securities and discounts or premiums relating to the liability.
Finance leases transferring substantially all the risks and rewards of ownership of a lease object to the Company are recognized in the statement of financial position as at the inception of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments.
Leases whereby the lessor retains substantially all the risks and rewards of ownership of the leased asset are classified as operating leases. Operating lease payments and subsequent lease rents are charged to expenses using the straight-line method over the lease term.
In accordance with the Compensation Policy the employees of the Company are entitled to the following post-employment benefits: •
The present value of such liabilities is calculated by an independent actuary at the end of each reporting period. The accrued liabilities are equal to discounted future payments, including employee turnover, and pertain to the time remaining until the end of the reporting period. Demographic and employee turnover data are based on historical information.
Actuarial gains and losses on post-employment benefits are fully charged to other comprehensive income.
Provisions are recognized if the Company has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount of the obligation can be reliably estimated.
As at the end of the reporting period, a provision was recognized against the risk of an adverse decision arising from the pending inspection procedure.
In the reporting period, the Company recognized also a provision for the obligation to surrender energy certificates.
| 9.20. | Liabilities to suppliers and other financial liabilities | Note 37, 38 |
|---|---|---|
| ------- | ---------------------------------------------------------- | ------------- |
Current liabilities to suppliers are recognized at amount due. Other financial liabilities include Tax Capital Group settlements, payroll liabilities, deposits, performance bonds, collateral received and liabilities arising from purchases of property, plant and equipment and intangible assets, measured at amount due since the discount effects are immaterial.
(in PLN '000)
Settlements arising from taxes and charges presented in the statement of financial position comprise: •
•
Income tax recognized in profit or loss for the period includes actual tax charge for the given reporting period determined by the Company in line with provisions of the CIT Act and including the settlement of the Tax Capital Group the Company belongs to, as well as any previous year tax adjustments.
The Company recognizes a deferred tax asset and a deferred tax liability arising from temporary differences between the book value of assets and liabilities and their tax value, and a tax loss deductible in the future.
The carrying amount of the deferred tax asset is reviewed at the end of each reporting period. The Company reduces the carrying amount of the deferred tax asset to the extent the generation of taxable income sufficient to use the deferred tax asset in part or in whole is not probable. Unrecognized deferred tax asset is reviewed at the end of each reporting period and recognized to the extent its use is probable following generation of taxable income in the future. Deferred tax asset related to deductible differences concerning investments in subsidiaries is recognized insofar as their reversal is probable in the foreseeable future and where taxable income will be available to enable realization of deductible differences.
The deferred tax asset and liability are measured with the application of tax rates expected to be applicable in the period of realization of the asset or derecognition of the liability, with the consideration of tax rates (and tax regulations) that had been enacted or substantively enacted at the end of the reporting period.
Income tax related to items which are not recognized in profit or loss, i.e. items recognized in other comprehensive income or directly in equity, is recognized in other comprehensive income or in equity, respectively.
The Company offsets its deferred tax asset and deferred tax liability only if it has an enforceable legal title to offset its current tax receivables with liabilities and the deferred tax asset and liability concern the same tax authority.
Revenue is recognized in the amount it is probable that future economic benefits relating to a transaction will flow to the Company and the amount of the revenue can be measured reliably. Revenue is recognized at the fair value of the payment, received or due, following reduction by VAT, excise duty, other sales taxes, charges and discounts. Revenue recognition criteria set out below apply as well.
Revenue from sales of goods and materials is recognized if significant ownership-related risks and benefits from goods and materials have been transferred to the buyer and if the revenue amount can be reliably measured and incurred costs can be reliably estimated.
Revenue also includes amounts due for the sale of goods, materials and services related to the core business and determined based on the net price, adjusted by granted rebates and discounts and excise duty.
Revenue from sales of goods includes gains on the inventory of greenhouse gas emission allowances purchased for resale and generation of profit in the short term due to volatility of market prices, including the aggregate gain on: ••
Gains on change in measurement and on exercising derivative commodity instruments falling within the scope of IAS 39 Financial Instruments: Measurement and Recognition and related to purchases and sales of other commodities are recognized in revenue from sales of goods.
The Company presents expenses by function. •
They include:
The cost of sales includes losses on the inventory of greenhouse gas emission allowances purchased for resale and generation of profit in the short term due to volatility of market prices, including the aggregate loss on: ••
Losses on change in measurement and on exercising derivative commodity instruments falling within the scope of IAS 39 Financial Instruments: Measurement and Recognition and related to purchases and sales of other commodities are recognized in cost of sales.
Costs that can be assigned directly to revenue generated by the Company impact profit or loss for the period which the revenue pertains to.
Costs that can only be indirectly assigned to revenue or other benefits obtained by the Company impact the profit or loss in the portion pertaining to the given reporting period, and match the revenue or other economic benefits.
Finance income and costs include in particular items relating to: •
•
Foreign currency transactions are translated into PLN at initial recognition at the exchange rate applicable as at the transaction date. As at the end of the reporting period: •
Exchange differences from translation are recognized within finance income (costs), or, in the cases specified in the accounting principles (policy), capitalized in the value of assets.
Exchange rates applied for the purpose of balance sheet measurement:
| Currency | 31 December 2017 | 31 December 2016 |
|---|---|---|
| EUR | 4.1709 | 4.4240 |
| USD | 3.4813 | 4.1793 |
| CZK | 0.1632 | 0.1637 |
Business combinations of entities under common control are accounted for using the pooling of interest method.
The method is based on the assumption that the combining entities are controlled by the same shareholder before and after the business combination, and therefore the continuity of common control is presented in the financial statements, while the changes in the net value of assets to reflect their fair value (or recognition of new assets) or goodwill measurement are not presented therein, as none of the entities combined is actually acquired. The financial statements are prepared as if the combined entities had been combined as of the date when common control began to be exercised. •
The following items are eliminated when a business combination is accounted for using the pooling of interest method: •
When accounting for business combinations of subsidiaries from the TAURON Group, the Company uses the consolidated financial statements as the source of the value of assets and liabilities in a subsidiary acquired. The value of the acquiree's shares in the subsidiaries was measured by reference to the entities' net asset value from the consolidated financial statements and the subsidiary's goodwill.
The difference between the net book value of assets recognized as a result of a business combination in the statement of financial position of the acquirer and the value of investments recognized thus far in the accounting records of the acquirer is recognized in the equity of the acquirer.
The statement of cash flows is prepared in line with the indirect method.
Earnings (loss) per share for each period is calculated by dividing the net profit (loss) for a given reporting period by the weighted average number of shares existing in that period.
The Company carries out its business in two operating segments, that is "Sales" and "Holding activity". "Holding activity" segment assets include: ••
"Holding activity" segment liabilities include:
"Holding activity" segment includes intra-group receivables and liabilities arising from income tax settlements of the Tax Capital Group companies.
Finance income and finance costs include dividend income as well as net interest income and expense earned/incurred by the Company in relation to the central financing model adopted by the Group.
General and administrative expenses are presented under unallocated expenses, as they are incurred for the Group as a whole and are not directly attributable to a specific operating segment.
EBIT is the profit/loss on continuing operations before tax, finance income and finance costs, i.e. operating profit (loss).
EBITDA is the profit/loss on continuing operations before tax, finance income and finance costs, increased by amortization/depreciation and impairment of non-financial assets.
| Sales | Holding activity | Unallocated items | Total | |
|---|---|---|---|---|
| Revenue | ||||
| Sales outside the Group | 995 252 | – | – | 995 252 |
| Sales within the Group | 6 765 388 | 31 385 | – | 6 796 773 |
| Segment revenue | 7 760 640 | 31 385 | – | 7 792 025 |
| Profit/(loss) of the segment | 320 154 | 31 385 | – | 351 539 |
| Unallocated expenses | – | – | (88 751) | (88 751) |
| EBIT | 320 154 | 31 385 | (88 751) | 262 788 |
| Net finance income/(costs) | – | 812 855 | (156 078) | 656 777 |
| Profit/(loss) before income tax | 320 154 | 844 240 | (244 829) | 919 565 |
| Income tax expense | – | – | (65 214) | (65 214) |
| Net profit/(loss) for the year | 320 154 | 844 240 | (310 043) | 854 351 |
| Assets and liabilities | ||||
| Segment assets | 1 748 324 | 28 423 410 | – | 30 171 734 |
| Unallocated assets | – | – | 101 358 | 101 358 |
| Total assets | 1 748 324 | 28 423 410 | 101 358 | 30 273 092 |
| Segment liabilities | 543 154 | 12 115 606 | – | 12 658 760 |
| Unallocated liabilities | – | – | 236 426 | 236 426 |
| Total liabilities | 543 154 | 12 115 606 | 236 426 | 12 895 186 |
| EBIT | 320 154 | 31 385 | (88 751) | 262 788 |
| Depreciation/amortization | (5 532) | – | – | (5 532) |
| Impairment | 100 | – | – | 100 |
| EBITDA | 325 586 | 31 385 | (88 751) | 268 220 |
| Other segment information | ||||
| Capital expenditure* | 160 | – | – | 160 |
* Capital expenditure includes expenditures for property, plant and equipment and non-current intangible assets, except for energy certificates acquired by the Company.
| Sales | Holding activity | Unallocated items | Total | |
|---|---|---|---|---|
| Revenue | ||||
| Sales outside the Group | 1 669 734 | – | – | 1 669 734 |
| Sales within the Group | 6 323 024 | 2 570 | – | 6 325 594 |
| Segment revenue | 7 992 758 | 2 570 | – | 7 995 328 |
| Profit/(loss) of the segment | 76 695 | 2 570 | – | 79 265 |
| Unallocated expenses | – | – | (113 868) | (113 868) |
| EBIT | 76 695 | 2 570 | (113 868) | (34 603) |
| Net finance income (costs) | – | (101 050) | (13 481) | (114 531) |
| Profit/(loss) before income tax | 76 695 | (98 480) | (127 349) | (149 134) |
| Income tax expense | – | – | (17 119) | (17 119) |
| Net profit/(loss) for the year | 76 695 | (98 480) | (144 468) | (166 253) |
| Assets and liabilities | ||||
| Segment assets | 1 450 322 | 26 114 360 | – | 27 564 682 |
| Unallocated assets | – | – | 107 694 | 107 694 |
| Total assets | 1 450 322 | 26 114 360 | 107 694 | 27 672 376 |
| Segment liabilities | 785 879 | 10 221 533 | – | 11 007 412 |
| Unallocated liabilities | – | – | 134 696 | 134 696 |
| Total liabilities | 785 879 | 10 221 533 | 134 696 | 11 142 108 |
| EBIT | 76 695 | 2 570 | (113 868) | (34 603) |
| Depreciation/amortization | (7 722) | – | – | (7 722) |
| Impairment | 197 | – | – | 197 |
| EBITDA | 84 220 | 2 570 | (113 868) | (27 078) |
| Other segment information | ||||
| Capital expenditure* | 837 | – | – | 837 |
* Capital expenditure includes expenditures for property, plant and equipment and non-current intangible assets, except for energy certificates acquired by the Company.
In the financial year ended 31 December 2017, revenue from sales to two major clients from the Capital Group accounted for 67% and 10% of the Company's total revenue in the "Sales" segment and amounted to PLN 5 208 284 thousand and PLN 799 943 thousand, respectively.
In the financial year ended 31 December 2016, revenue from sales to two major clients from the TAURON Capital Group accounted for 62% and 10% of the Company's total revenue in the "Sales" segment and amounted to PLN 4 934 454 thousand and PLN 810 728 thousand, respectively.
The majority of the Company's business operations are carried out in Poland. In the years ended 31 December 2017 and 31 December 2016, export sales amounted to PLN 147 938 thousand and PLN 164 540 thousand, respectively.
Considering the circumstances underlying the Company's long-term market cap being below its carrying amount and changes in the global commodity prices as well as changes in the local power coal market following the consolidation in the mining sector; amendments to the Act on Renewable Energy Sources and the publication of related obligations for the years 2018–2019 which affected the prices of renewable energy certificates; the adoption of the Act on capacity market and the analysis of functional solutions described in the draft regulation of the capacity market; continuing unfavourable market conditions as far as the profitability of conventional power industry is concerned; as well as the increase in the risk free rate, shares, borrowings and intra-group bonds were tested for impairment as at 31 December 2017 and 30 June 2017. Shares and intra-group loans and bonds accounted for about 94% of the balance sheet total as at the end of the reporting period.
The recoverable amount is the value in use. The calculation method has been presented below.
Relevant tests were conducted based on the present value of projected cash flows from operations of the key entities, by reference to detailed projections by 2027 and the estimated residual value. The projections used for the power generating and mining units cover the entire period of their operation. Reliance on projections covering a period longer than 5 years results mainly from the fact that investment processes in the power industry are time-consuming. The macroeconomic and sector assumptions serving as the basis for projections are updated as frequently as any indications for their modification are observed on the market. Projections also take into account changes in the regulatory environment known as at the date of the test.
The level of the weighted average cost of capital (WACC) during the projection period, as used in the calculations, ranges from 7.05% to 10.20% in nominal terms before tax. WACC is calculated by taking into account the risk-free rate determined by reference to the yield on 10-year treasury bonds (3.85%) and the risk premium for operations appropriate for the power industry (6%). The growth rate used for extrapolation of projected cash flows beyond the detailed planning period is at 2.5% and it corresponds to the estimated long-term inflation rate. The level of WACC at 31 December 2017 increased comparing to level as at 31 December 2016, mainly due to increase of risk-free rate and increase of debt cost. •
The key business assumptions affecting the estimated value in use of the tested entities are:
There were taken into consideration green, red and yellow energy production volumes depending on the production capacity, along with the price path for individual energy certificates;
Limited support periods for green energy have been assumed in accordance with the Act on Renewable Energy Sources, which provides for new support mechanisms for renewable energy. The support period has been limited to 15 years as from the date of the first supply of electricity qualifying for an energy certificate to the distribution network;
Fixed assets were also tested for impairment. To this end, the Company applied the relevant assumptions used for impairment testing of shares.
Sensitivity analyses conducted by the Company reveal that the capacity market mechanism (assuming that other market factors remain unchanged), the projected prices of electricity and coal, the prices of greenhouse gas emission allowances and the adopted discount rates are the key factors exerting an effect on the estimated cash flows of the key entities. If the capacity market mechanism was not taken into account in the assumptions made for estimating the value in use of shares and intra-group loans and bonds, the additional net impairment loss that would be recognized in the Company's profit or loss would be ca. PLN 4 970 million, provided that other market conditions remained unchanged.
Fixed assets were also tested for impairment. To this end, the Company applied the relevant assumptions used for impairment testing of shares.
The impairment tests carried out in line with IAS 36 Impairment of Assets as at 31 December 2017 indicated impairment of the carrying amount of shares in subsidiaries of PLN 211 398 thousand and reversal of an impairment loss of subsidiaries shares of PLN 72 603 thousand.
The impairment tests carried out in line with IAS 36 Impairment of Assets as at 30 June 2017 indicated impairment of the carrying amount of loans of subsidiaries of PLN 60 578 thousand and a reversal of an impairment loss of subsidiaries shares of PLN 120 057 thousand.
| Company | WACC* assumed in tests as at | Recoverable amount of shares, intra-group loans |
Impairment loss recognized in the year ended 31 December 2017 |
Impairment loss reversed in the year ended 31 December 2017 |
|||
|---|---|---|---|---|---|---|---|
| 31 December 2017 |
30 June 2017 (unaudited) |
31 December 2016 |
and bonds as at 31 December 2017 |
Shares | Loans granted |
Shares | |
| TAURON Wytwarzanie S.A. |
8.39% | 8.20% | 7.79% | 2 814 014 | (63 528) | – | 120 057 |
| TAURON Ekoenergia Sp. z o.o. |
8.78% | 8.42% | 7.67% | 953 340 | – | (60 578) | 72 603 |
| TAURON Wydobycie S.A. |
10.20% | 10.20% | 6.95% | 1 428 477 | (147 870) | – | – |
The aforesaid impairment losses were recognized in the Company's finance costs and concerned the following entities:
* The level of the weighted average cost of capital (WACC) in nominal terms before tax.
Following the repayment of a portion of an impaired loan of PLN 1 000 000 thousand by the subsidiary TAURON Ekoenergia Sp. z o.o. in October 2017 and the Company's acquisition of shares in the increased issued capital of TAURON Ekoenergia Sp. z o.o. totalling PLN 1 000 000 thousand, the previous impairment losses on loans of PLN 197 953 thousand and of PLN 60 578 thousand, recognized in the year ended 31 December 2016 and in the year ended 31 December 2017, respectively, have been reclassified and allocated to the value of shares.
Changes in impairment losses on shares in the year ended 31 December 2017 have been presented in the following table.
| Company | Impairment as at 1 January 2017 |
Impairment loss recognized in the year ended 31 December 2017 |
Impairment loss reversed in the year ended 31 December 2017 |
Impairment loss reclassification |
Impairment as at 31 December 2017 |
Carrying amount of shares including impairment losses as at 31 December 2017 |
|---|---|---|---|---|---|---|
| TAURON Wytwarzanie S.A. |
(5 403 825) | (63 528) | 120 057 | – | (5 347 296) | 1 738 405 |
| TAURON Ekoenergia Sp. z o.o. |
(939 765) | – | 72 603 | (258 531) | (1 125 693) | 814 072 |
| TAURON Wydobycie S.A. |
– | (147 870) | – | – | (147 870) | 853 885 |
The necessity to recognize an impairment loss on shares in TAURON Wytwarzanie S.A. as at 31 December 2017 was mainly driven by the effect of the deferred tax liabilities, while the possibility to reverse the impairment loss as at 30 June 2017 was attributable, in particular, to the following circumstances: •
The possibility to reverse an impairment loss on shares in TAURON Ekoenergia Sp. z o.o. as at 31 December 2017 was mainly attributable to the effect of the deferred tax asset, while the necessity to recognize an impairment loss as at 30 June 2017 was driven, in particular, by the following circumstances: •
The necessity to recognize an impairment loss on shares in TAURON Wydobycie S.A. in the year ended 31 December 2017 was mainly driven by the following circumstances: •
The loans extended to Elektrociep³ownia Stalowa Wola S.A. were tested for impairment. The results of the test showed that there is no need for an impairment loss provided that the assumption are compliant with the impairment tests on shares.
| Year ended | Year ended | |
|---|---|---|
| 31 December 2017 | 31 December 2016 | |
| Sale of goods for resale, finished goods and materials without elimination of excise |
7 667 345 | 7 899 621 |
| Excise | (2 630) | – |
| Revenue from sales of goods for resale and materials | 7 664 715 | 7 899 621 |
| Electricity | 7 117 988 | 7 255 819 |
| Gas | 190 507 | 236 215 |
| Property rights arising from energy certificates | 14 939 | 36 137 |
| Emission allowances | 336 566 | 363 500 |
| Other | 4 715 | 7 950 |
| Rendering of services | 127 310 | 95 707 |
| Trading income | 52 711 | 54 517 |
| Use of shares | 31 385 | 2 570 |
| Other | 43 214 | 38 620 |
| Total | 7 792 025 | 7 995 328 |
The Company has been acting as an agent coordinating and supervising purchases, supplies and transportation of fuel. The Company purchases raw materials from third parties and from the TAURON Group companies, which were subsequently sold to related parties. It recognizes revenue from agency services (supply management).
In the year ended 31 December 2017, the value of raw materials purchased and subsequently resold in the aforementioned transactions was PLN 753 663 thousand. The Company recognized revenue from agency services of PLN 32 526 thousand. •
Greenhouse gas emission allowances include:
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Depreciation of property, plant and equipment and amortization of | ||
| intangible assets | (5 532) | (7 722) |
| Materials and energy | (1 311) | (1 211) |
| Consultancy services | (6 598) | (7 994) |
| IT services | (13 160) | (12 422) |
| Rental services | (10 366) | (6 360) |
| Stock market services | (9 621) | (4 468) |
| Other external services | (9 532) | (7 638) |
| Taxes and charges | (4 375) | (3 238) |
| Employee benefits expense | (87 068) | (78 993) |
| Impairment loss on inventories | 100 | – |
| Allowance for receivables from clients | 34 | 1 543 |
| Advertising expenses | (22 207) | (29 198) |
| Other | (1 983) | (2 107) |
| Total costs by type | (171 619) | (159 808) |
| Selling and distribution expenses | 23 309 | 19 326 |
| Administrative expenses | 88 751 | 81 368 |
| Cost of goods for resale and materials sold | (7 355 148) | (7 778 453) |
| Cost of sales | (7 414 707) | (7 837 567) |
In the year ended 31 December 2017 the decrease cost of goods for resale and materials sold, includes the result of reversal of the provisions for onerous contracts with Elektrociep³ownia Stalowa Wola S.A., totaling PLN 201 174 thousand, which has been discussed in more detail in Note 35 to these financial statements.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Wages and salaries | (70 026) | (63 237) |
| Social security costs | (9 662) | (8 657) |
| Jubilee bonuses | (247) | 526 |
| Appropriations to the Social Fund | (520) | (404) |
| Costs of employee retirement plans | (2 475) | (3 075) |
| Post-employment benefits expenses – actuarial provisions | (606) | (787) |
| Other employee benefits expenses | (3 532) | (3 359) |
| Total | (87 068) | (78 993) |
| Items included in cost of sales | (22 741) | (23 131) |
| Items included in selling and distribution expenses | (7 640) | (8 910) |
| Items included in administrative expenses | (56 687) | (46 952) |
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Income and costs from financial instruments | 659 477 | (92 654) |
| Dividend income | 560 832 | 1 485 152 |
| Interest income on bonds and loans | 456 426 | 503 897 |
| Other interest income | 19 539 | 6 829 |
| Interest expense | (334 638) | (356 947) |
| Commissions due to external financing | (19 068) | (18 814) |
| Gain/(loss) on derivative instruments | (18 042) | 14 127 |
| Exchange gains/(losses) | 127 476 | (29 669) |
| Surplus of impairment losses (recognised)/reversed on shares | (134 372) | (1 610 396) |
| Loss on disposal/liquidation of investment | – | (87 260) |
| Other | 1 324 | 427 |
| Other finance income and costs | (2 700) | (21 877) |
| Interest on discount (other provisions) | (2 330) | (11 502) |
| Other | (370) | (10 375) |
| Total, incl. recognized in the statement of comprehensive income: | 656 777 | (114 531) |
| Dividend income | 560 832 | 1 485 152 |
| Interest income on bonds and loans | 456 426 | 503 897 |
| Interest expense on debt | (334 638) | (356 947) |
| Revaluation of shares and loans | (134 372) | (1 610 396) |
| Other finance income and costs | 108 529 | (136 237) |
In the year ended 31 December 2017 the Company recognized an impairment loss on shares in and loans of subsidiaries totalling PLN 327 032 thousand and released an impairment loss on shares of PLN 192 660 thousand. Impairment losses on shares have been presented in more detail in Note 21 hereto.
In the year ended 31 December 2017, exchange gains exceeded exchange losses by PLN 127 476 thousand. Exchange gains were mainly related to the Company's debt in the euro, i.e. loans obtained from a subsidiary, subordinated bonds issued in December 2016 and eurobonds issued in July 2017. The related surplus of exchange gains over exchange losses was PLN 128 270 thousand.
Key items of the tax expense in the statement of comprehensive income:
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Current income tax | (66 160) | (9 541) |
| Current income tax expense | (66 429) | (9 541) |
| Adjustments of current income tax from prior years | 269 | – |
| Deferred tax | 946 | (7 578) |
| Income tax expense in profit or loss | (65 214) | (17 119) |
| Income tax expense in other comprehensive income | 1 574 | (24 401) |
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Profit/(loss) before tax | 919 565 | (149 134) |
| Tax at Poland's statutory tax rate of 19% | (174 717) | 28 335 |
| Adjustments to income tax from previous years | 269 | – |
| Tax resulting from tax non-deductible costs | (66 366) | (413 933) |
| Impairment loss on shares and loans in subsidiaries | (62 136) | (390 193) |
| Recognition of non-deductible provisions | (798) | (19 032) |
| Other | (3 432) | (4 708) |
| Tax resulting from income not included in taxable base | 154 377 | 366 397 |
| Dividends | 106 558 | 282 179 |
| Reversal of impairment loss on shares in subsidiaries | 36 605 | 84 218 |
| Reversal of non-deductible provisions | 10 419 | – |
| Other | 795 | – |
| Settlement of the TCG | 21 223 | 2 082 |
| Tax at the effective tax rate of 7.1% (2016: -11.5%) | (65 214) | (17 119) |
| Income tax expense in profit/(loss) | (65 214) | (17 119) |
Deferred income tax results from the following items:
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| due interest on bonds and loans | 29 275 | 66 356 |
| difference between tax base and carrying amount of other financial assets | 520 | 4 861 |
| valuation of hedging instruments | 5 412 | 6 962 |
| other | 4 812 | 4 300 |
| Deferred tax liabilities | 40 019 | 82 479 |
| provision for employee benefits | 660 | 544 |
| other provisions and accruals | 2 270 | 31 122 |
| difference between tax base and carrying amount of fixed and intangible assets |
821 | 1 107 |
| difference between tax base and carrying amount of financial liabilities | 4 125 | 15 887 |
| other | 2 300 | 1 455 |
| Deferred tax assets | 10 176 | 50 115 |
| Deferred tax assets/(liabilities), net, of which: | (29 843) | (32 364) |
| Deferred tax assets/(liabilities), net – recognized in profit or loss | (24 403) | (25 349) |
| Deferred tax assets/(liabilities), net – recognized in other comprehensive income |
(5 440) | (7 015) |
Deferred tax asset related to deductible differences related to investments in subsidiaries is recognized insofar as their reversal is probable in the foreseeable future and where taxable income will be available to enable realization of deductible differences. According to the Company, deductible temporary differences related to recognition of impairment losses on shares in subsidiaries of PLN 6 675 915 thousand will not be reversed in the foreseeable future, as the investments are not intended for sale. Consequently, no related deferred tax asset has been recognized.
As taxable profit is forecast for the subsequent years for the Tax Capital Group ("TCG") of which the Company is a member, the deferred tax asset related to all deductible differences, except those described above, has been recognized in these financial statements in the full amount.
A Tax Capital Group agreement for the years 2015–2017 was concluded on 22 September 2014. Pursuant to the previous agreement, TCG was registered for the period of three fiscal years from 2012 to 2014.
The major companies constituting the Tax Capital Group as from 1 January 2015 are TAURON Polska Energia S.A., TAURON Wytwarzanie S.A., TAURON Dystrybucja S.A., TAURON Ciep³o Sp. z o.o., TAURON Sprzeda¿ Sp. z o.o., TAURON Sprzeda¿ GZE Sp. z o.o., TAURON Obs³uga Klienta Sp. z o.o., TAURON Ekoenergia Sp. z o.o., TAURON Wydobycie S.A. and Kopalnia Wapienia Czatkowice Sp. z o.o.
As at 31 December 2017, the Tax Capital Group had an income tax liability of PLN 37 629 thousand, constituting the surplus of the tax expense of the Tax Capital Group for 2017 of PLN 253 477 thousand over the income tax withholdings of the Tax Capital Group in 2017 totalling PLN 215 848 thousand.
At the same time, due to the Company's settlements, as the Representative Company, with the Tax Capital Group companies, it has reported a liability to these subsidiaries arising from tax overpayment of PLN 34 836 thousand, which has been presented in the statement of financial position as "Other financial liabilities", as well as receivables from the Tax Capital Group companies arising from tax underpayment of PLN 6 133 thousand, which have been presented in the statement of financial position as "Other financial assets".
On 30 October 2017 a relevant decision regarding the registration of the Tax Capital Group for the years 2018–2020 was given. Since 1 January 2018 the major companies which are members of the Tax Capital Group have not changed with respect to those listed in the Tax Capital Group agreement for the years 2015–2017.
| Earnings (loss) per share (in PLN) | Year ended 31 December 2017 |
Year ended 31 December 2016 |
|---|---|---|
| Basic and diluted, for profit (loss) for the financial year | 0.49 | (0.09) |
Presented below is information about the (negative) earnings and number of shares which served as the basis for calculation of the basic and diluted (negative) earnings per share presented in the statement of comprehensive income.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Net profit (loss) attributable to ordinary shareholders | 854 351 | (166 253) |
| Number of ordinary shares | 1 752 549 394 | 1 752 549 394 |
| Plant and machinery |
Motor vehicles |
Other | Assets under construction |
Property, plant and equipment, total |
|
|---|---|---|---|---|---|
| COST | |||||
| Opening balance | 5 918 | 6 857 | 11 635 | – | 24 410 |
| Direct purchase | – | – | – | 130 | 130 |
| Allocation of assets under construction | – | – | 32 | (32) | – |
| Sale | – | (580) | – | – | (580) |
| Liquidation | – | – | (932) | – | (932) |
| Closing balance | 5 918 | 6 277 | 10 735 | 98 | 23 028 |
| ACCUMULATED DEPRECIATION | |||||
| Opening balance | (5 917) | (5 732) | (11 485) | – | (23 134) |
| Depreciation for the period | (1) | (847) | (109) | – | (957) |
| Sale | – | 580 | – | – | 580 |
| Liquidation | – | – | 932 | – | 932 |
| Closing balance | (5 918) | (5 999) | (10 662) | – | (22 579) |
| NET CARRYING AMOUNT AT THE BEGINNING OF THE PERIOD | 1 | 1 125 | 150 | – | 1 276 |
| NET CARRYING AMOUNT AT THE END OF THE PERIOD | – | 278 | 73 | 98 | 449 |
| Plant and machinery |
Motor vehicles |
Other | Assets under construction |
Property, plant and equipment, total |
|
|---|---|---|---|---|---|
| COST | |||||
| Opening balance | 6 761 | 6 857 | 10 798 | – | 24 416 |
| Direct purchase | – | – | – | 837 | 837 |
| Allocation of assets under construction | – | – | 837 | (837) | – |
| Sale/Liquidation | (843) | – | – | – | (843) |
| Closing balance | 5 918 | 6 857 | 11 635 | – | 24 410 |
| ACCUMULATED DEPRECIATION | |||||
| Opening balance | (6 438) | (4 771) | (9 771) | – | (20 980) |
| Depreciation for the period | (322) | (961) | (1 714) | – | (2 997) |
| Sale/Liquidation | 843 | – | – | – | 843 |
| Closing balance | (5 917) | (5 732) | (11 485) | – | (23 134) |
| NET CARRYING AMOUNT AT THE BEGINNING OF THE PERIOD | 323 | 2 086 | 1 027 | – | 3 436 |
| NET CARRYING AMOUNT AT THE END OF THE PERIOD | 1 | 1 125 | 150 | – | 1 276 |
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| COST | ||
| Opening balance | 36 169 | 36 169 |
| Closing balance | 36 169 | 36 169 |
| ACCUMULATED DEPRECIATION | ||
| Opening balance | (10 851) | (7 234) |
| Depreciation for the period | (3 617) | (3 617) |
| Closing balance | (14 468) | (10 851) |
| NET CARRYING AMOUNT AT THE BEGINNING OF THE PERIOD | 25 318 | 28 935 |
| NET CARRYING AMOUNT AT THE END OF THE PERIOD | 21 701 | 25 318 |
The investment property is composed of buildings located in Katowice-Szopienice, in ul. Lwowska 23 used based on a finance lease agreement with PKO Leasing S.A. The monthly lease payment is ca. PLN 346 thousand, while the monthly depreciation charge is PLN 301 thousand.
The Company is a party to a lease agreement with a subsidiary (the lessee) valid until 30 April 2018, whereby buildings and structures the rights to which result from the aforesaid lease agreement have been subleased. In the year ended 31 December 2017, rental income related to the investment property totalled PLN 5 654 thousand.
The Company estimates that fair value of investment property as at the end of reporting period accounts for about PLN 26 000 thousand.
| Software and licenses |
Other intangible assets |
Intangible assets not commissioned for use |
Intangible assets, total |
|
|---|---|---|---|---|
| COST | ||||
| Opening balance | 2 259 | 4 125 | – | 6 384 |
| Direct purchase | – | – | 30 | 30 |
| Allocation of intangible assets not made available for use | – | 30 | (30) | – |
| Closing balance | 2 259 | 4 155 | – | 6 414 |
| ACCUMULATED AMORTIZATION | ||||
| Opening balance | (2 046) | (2 147) | – | (4 193) |
| Amortization for the period | (209) | (749) | – | (958) |
| Closing balance | (2 255) | (2 896) | – | (5 151) |
| NET CARRYING AMOUNT AT THE BEGINNING OF THE PERIOD | 213 | 1 978 | – | 2 191 |
| NET CARRYING AMOUNT AT THE END OF THE PERIOD | 4 | 1 259 | – | 1 263 |
| Software and licenses |
Other intangible assets |
Intangible assets not commissioned for use |
Intangible assets, total |
|
|---|---|---|---|---|
| COST | ||||
| Opening balance | 3 539 | 4 185 | – | 7 724 |
| Liquidation | (1 280) | (60) | – | (1 340) |
| Closing balance | 2 259 | 4 125 | – | 6 384 |
| ACCUMULATED AMORTIZATION | ||||
| Opening balance | (2 985) | (1 440) | – | (4 425) |
| Amortization for the period | (341) | (767) | – | (1 108) |
| Liquidation | 1 280 | 60 | – | 1 340 |
| Closing balance | (2 046) | (2 147) | – | (4 193) |
| NET CARRYING AMOUNT AT THE BEGINNING OF THE PERIOD | 554 | 2 745 | – | 3 299 |
| NET CARRYING AMOUNT AT THE END OF THE PERIOD | 213 | 1 978 | – | 2 191 |
| Gross value | Impairment losses | Net value | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| No. | Company | Opening balance |
(De creases) |
In creases |
Closing balance |
Opening balance |
De creases |
(In creases) |
Closing balance |
Opening balance |
Closing balance |
| 1 | TAURON Wydobycie S.A. | 841 755 | – | 160 000 | 1 001 755 | – | – | (147 870) | (147 870) | 841 755 | 853 885 |
| 2 | TAURON Wytwarzanie S.A. | 7 236 727 | (151 026) | – | 7 085 701 (5 403 825) | 120 057 | (63 528) (5 347 296) | 1 832 902 | 1 738 405 | ||
| 3 | TAURON Ciep³o Sp. z o.o. | 1 328 043 | – | 600 000 | 1 928 043 | – | – | – | – | 1 328 043 | 1 928 043 |
| 4 | TAURON Ekoenergia Sp. z o.o. | 939 765 | – | 1 000 000 | 1 939 765 | (939 765) | 72 603 | (258 531) (1 125 693) | – | 814 072 | |
| 5 | Marselwind Sp. z o.o. | 107 | – | 200 | 307 | – | – | – | – | 107 | 307 |
| 6 | TAURON Serwis Sp. z o.o. | 1 268 | – | – | 1 268 | – | – | – | – | 1 268 | 1 268 |
| 7 | Nowe Jaworzno Grupa TAURON Sp. z o.o. | – | – | 3 551 026 | 3 551 026 | – | – | – | – | – | 3 551 026 |
| 8 | TAURON Dystrybucja S.A. | 9 511 628 | – | 1 000 000 10 511 628 | – | – | – | – | 9 511 628 10 511 628 | ||
| 9 | TAURON Dystrybucja Serwis S.A. | – | – | 201 045 | 201 045 | – | – | – | – | – | 201 045 |
| 10 | TAURON Sprzeda¿ Sp. z o.o. | 613 505 | – | – | 613 505 | – | – | – | – | 613 505 | 613 505 |
| 11 | TAURON Sprzeda¿ GZE Sp. z o.o. | 129 823 | – | – | 129 823 | – | – | – | – | 129 823 | 129 823 |
| 12 | TAURON Czech Energy s.r.o. | 4 223 | – | – | 4 223 | – | – | – | – | 4 223 | 4 223 |
| 13 | Kopalnia Wapienia Czatkowice Sp. z o.o. | 41 178 | – | – | 41 178 | – | – | – | – | 41 178 | 41 178 |
| 14 | Polska Energia Pierwsza Kompania | ||||||||||
| Handlowa Sp. z o.o. | 55 056 | – | – | 55 056 | – | – | (55 056) | (55 056) | 55 056 | – | |
| 15 | TAURON Sweden Energy AB (publ) | 28 382 | – | – | 28 382 | – | – | – | – | 28 382 | 28 382 |
| 16 | Biomasa Grupa TAURON Sp. z o.o. | 1 269 | – | – | 1 269 | – | – | – | – | 1 269 | 1 269 |
| 17 | TAURON Obs³uga Klienta Sp. z o.o. | 39 831 | – | – | 39 831 | – | – | – | – | 39 831 | 39 831 |
| 18 | TAMEH HOLDING Sp. z o.o. | 415 852 | – | – | 415 852 | – | – | – | – | 415 852 | 415 852 |
| 19 | PGE EJ 1 Sp. z o.o. | 26 546 | – | – | 26 546 | – | – | – | – | 26 546 | 26 546 |
| 20 | Magenta Grupa TAURON Sp. z o.o. | 500 | – | 9 000 | 9 500 | – | – | – | – | 500 | 9 500 |
| 21 | ElectroMobility Poland S.A. | 2 500 | – | – | 2 500 | – | – | – | – | 2 500 | 2 500 |
| 22 | Other | 50 | – | 341 | 391 | – | – | – | – | 50 | 391 |
| Total | 21 218 008 | (151 026) | 6 521 612 27 588 594 (6 343 590) | 192 660 | (524 985) (6 675 915) 14 874 418 20 912 679 |
Changes in the balance of long-term investments in the year ended 31 December 2017 resulted mainly from the following transactions:
Increase in the capital of TAURON Wydobycie S.A.
On 21 March 2017, the Extraordinary General Shareholders' Meeting of TAURON Wydobycie S.A. adopted a resolution to increase the company's issued capital from PLN 355 511 thousand to PLN 357 111 thousand, i.e. by PLN 1 600 thousand, through the issue of 160 000 new shares with the nominal value of PLN 10 each, which were subscribed by the Company for PLN 1 000 per one share, i.e. for the total of PLN 160 000 thousand. The aforesaid increase in the issued capital of TAURON Wydobycie S.A. was registered on 7 April 2017. •
TAURON Wytwarzanie S.A. to Nowe Jaworzno Grupa TAURON Sp. z o.o.
On 3 April 2017 TAURON Wytwarzanie S.A. was spun off under Article 529.1.4 of the Code of Commercial Companies by way of separation and transfer of a branch of activity involved in the preparation, development and operations of a new unit with the capacity of 910 MW in Elektrownia Jaworzno III to Nowe Jaworzno Grupa TAURON Sp. z o.o. An appropriate resolution was taken by the Extraordinary General Shareholders' Meeting of TAURON Wytwarzanie S.A. on 31 January 2017. Following the spin-off the Company reclassified the investment in TAURON Wytwarzanie S.A. in the amount of PLN 151 026 thousand to Nowe Jaworzno Grupa TAURON Sp. z o.o. •
Increase in the capital of TAURON Ciep³o Sp. z o.o.
On 11 May 2017, the Extraordinary General Shareholders' Meeting of TAURON Ciep³o Sp. o.o. adopted a resolution to increase the company's issued capital from PLN 1 098 348 thousand to PLN 1 104 348 thousand, i.e. by PLN 6 000 thousand, through the issue of 120 000 new shares with the nominal value of PLN 50 each and the total nominal value of PLN 6 000 thousand. The shares were acquired for PLN 5 thousand each, i.e. the total value of PLN 600 000 thousand. The aforesaid increase in the issued capital of TAURON Ciep³o Sp. o.o. was registered on 20 June 2017. •
Increase in the capital of Nowe Jaworzno Grupa TAURON Sp. z o.o.
On 16 May 2017, the Extraordinary General Shareholders' Meeting of Nowe Jaworzno Grupa TAURON Sp. z o.o. adopted a resolution (to change the terms and conditions of increasing the issued capital of the company determined by the Extraordinary General Shareholders' Meeting on 19 April 2017) to increase the company's issued capital from PLN 1 850 thousand to PLN 31 850 thousand, i.e. by PLN 30 000 thousand, through the issue of 600 000 new shares with the nominal value of PLN 50 each and the total nominal value of PLN 30 000 thousand. The shares were acquired for PLN 5 thousand each, i.e. the total value of PLN 3 000 000 thousand. The aforesaid increase in the issued capital of Nowe Jaworzno Grupa TAURON Sp. z o.o. was registered on 26 June 2017.
On 29 June 2017, the Extraordinary General Shareholders' Meeting of Nowe Jaworzno Grupa TAURON Sp. z o.o. adopted a resolution to increase the company's issued capital by PLN 4 000 thousand, through the issue of 80 000 new shares with the nominal value of PLN 50 each. TAURON Polska Energia S.A. took all of new shares in the company for PLN 5 thousand per share, i.e. the total acquisition price of PLN 400 000 thousand. The increase in the issued capital of Nowe Jaworzno Grupa TAURON Sp. z o.o. was registered on 13 July 2017. •
Agreement for the transfer of shares in TAURON Dystrybucja Serwis S.A.
On 9 August 2017, the Company concluded an agreement for the transfer of shares with TAURON Dystrybucja S.A., a subsidiary, under the acceptance in lieu scheme in accordance with Article 453 of the Civil Law Act of 23 April 1964 (Journal of Laws of 2017 item 459 as amended). In line with the agreement TAURON Dystrybucja S.A. transferred 5 101 003 shares, constituting 100% of the issued capital of TAURON Dystrybucja Serwis S.A. with the value of PLN 201 045 thousand to the Company in order to be discharged from a portion of its obligation to pay out dividend to the Company in the amount of PLN 201 046 thousand. •
Increase in the capital of TAURON Ekoenergia Sp. z o.o.
On 24 October 2017 the Extraordinary Meeting of Shareholders of TAURON Ekoenergia Sp. z o.o. resolved to increase the issued capital of the company by PLN 10 000 thousand by creating 10 000 new shares with the nominal value of PLN 1000 each which were acquired by the Company for PLN 100 000 each, totalling PLN 1 000 000 thousand. On 26 and 27 October 2017 the Company advanced monies to increase the capital. After the end of the reporting period, on 2 March 2018 year, the increase in the issued capital of TAURON Ekoenergia Sp. z o.o. was registered. •
Increase in the capital of Magenta Grupa TAURON Sp. z o.o.
On 24 October 2017 the Extraordinary Meeting of Shareholders of Magenta Grupa TAURON Sp. z o.o. resolved to increase the issued capital of the company by PLN 1 000 thousand by creating 20 000 new shares with the nominal value of PLN 50 each which were acquired by the Company for PLN 450 each, totalling PLN 9 000 thousand. On 26 October 2017 the Company advanced monies to increase the capital. After the end of reporting period, on 11 January 2018, the increase in the issued capital of Magenta Grupa TAURON Sp. z o.o. was registered. •
Increase in the capital of TAURON Dystrybucja S.A.
On 26 October 2017 the Extraordinary Meeting of Shareholders of TAURON Dystrybucja S.A. resolved to increase the issued capital of the company by PLN 48 685 thousand by issuing 2 434 274 587 shares with the nominal value of PLN 0.02 each, which will be acquired by the Company for PLN 0.4108 each, totalling PLN 1 000 000 thousand. The increase in the issued capital of TAURON Dystrybucja S.A. was registered on 29 December 2017.
Impairment loss on shares in Polska Energia Pierwsza Kompania Handlowa Sp. z o.o.
In the year ended 31 December 2017 the Company recognized an impairment loss of PLN 55 056 thousand on its shares in a subsidiary. •
Impairment of shares
In the year ended 31 December 2017 shares in subsidiaries were tested for impairment following which the impairment loss on the shares in TAURON Wytwarzanie S.A. totalling PLN 120 057 thousand and TAURON Ekoenergia Sp. z o.o. totalling PLN 72 603 thousand were released and an impairment loss on the shares in TAURON Wytwarzanie S.A. of PLN 63 528 thousand and shares in TAURON Wydobycie S.A. of PLN 147 870 thousand were recognized. Additionally, following the repayment of a loan by TAURON Ekoenergia Sp. z o.o. and subscription of shares in the company, the impairment loss on the loan of PLN 258 531 thousand was reclassified to the shares in TAURON Ekoenergia Sp. z o.o. The impairment tests have been discussed in more detail in Note 11 to these financial statements.
| Gross value | Impairment losses | Net value | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| No. | Company | Opening balance |
(De creases) |
In creases |
Closing balance |
Opening balance |
De creases |
(In creases) |
Closing balance |
Opening balance |
Closing balance |
| 1 | TAURON Wydobycie S.A. | 494 755 | – | 347 000 | 841 755 | – | – | – | – | 494 755 | 841 755 |
| 2 | Nowe Brzeszcze Grupa TAURON Sp. z o.o. | 2 102 | (185 002) | 182 900 | – | – | – | – | – | 2 102 | – |
| 3 | TAURON Wytwarzanie S.A. | 7 236 727 | – | – | 7 236 727 (4 487 895) | – | (915 930) (5 403 825) | 2 748 832 | 1 832 902 | ||
| 4 | TAURON Wytwarzanie GZE Sp. z o.o. in liquidation |
4 935 | (4 935) | – | – | – | – | – | – | 4 935 | – |
| 5 | TAURON Ciep³o Sp. z o.o. | 1 328 043 | – | – | 1 328 043 | (443 252) | 443 252 | – | – | 884 791 | 1 328 043 |
| 6 | TAURON Ekoenergia Sp. z o.o. | 939 765 | – | – | 939 765 | – | – | (939 765) | (939 765) | 939 765 | – |
| 7 | Marselwind Sp. z o.o. | 107 | – | – | 107 | – | – | – | – | 107 | 107 |
| 8 | TAURON Serwis Sp. z o.o. | – | 1 268 | 1 268 | – | – | – | 1 268 | |||
| 9 | TAURON Dystrybucja S.A. | 9 511 628 | – | – | 9 511 628 | – | – | – | – | 9 511 628 | 9 511 628 |
| 10 | TAURON Sprzeda¿ Sp. z o.o. | 613 505 | – | – | 613 505 | – | – | – | – | 613 505 | 613 505 |
| 11 | TAURON Sprzeda¿ GZE Sp. z o.o. | 129 823 | – | – | 129 823 | – | – | – | – | 129 823 | 129 823 |
| 12 | TAURON Czech Energy s.r.o. | 4 223 | – | – | 4 223 | – | – | – | – | 4 223 | 4 223 |
| 13 | Kopalnia Wapienia Czatkowice Sp. z o.o. | 41 178 | – | – | 41 178 | – | – | – | – | 41 178 | 41 178 |
| 14 | Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. in liquidation |
49 056 | – | 6 000 | 55 056 | – | – | – | – | 49 056 | 55 056 |
| 15 | TAURON Sweden Energy AB (publ) | 28 382 | – | – | 28 382 | – | – | – | – | 28 382 | 28 382 |
| 16 | Biomasa Grupa TAURON Sp. z o.o. | 1 269 | – | – | 1 269 | – | – | – | – | 1 269 | 1 269 |
| 17 | TAURON Obs³uga Klienta Sp. z o.o. | 39 831 | – | – | 39 831 | – | – | – | – | 39 831 | 39 831 |
| 18 | TAMEH HOLDING Sp. z o.o. | 415 852 | – | – | 415 852 | – | – | – | – | 415 852 | 415 852 |
| 19 | PGE EJ 1 Sp z o.o. | 23 046 | – | 3 500 | 26 546 | – | – | – | – | 23 046 | 26 546 |
| 20 | Magenta Grupa TAURON Sp. z o.o. | – | – | 500 | 500 | – | – | – | – | – | 500 |
| 21 | ElectroMobility Poland S.A. | – | – | 2 500 | 2 500 | – | – | – | – | – | 2 500 |
| 22 | Other | 114 | (1 267) | 1 203 | 50 | – | – | – | – | 114 | 50 |
| Total | 20 864 341 | (191 204) | 544 871 21 218 008 (4 931 147) | 443 252 (1 855 695) (6 343 590) 15 933 194 14 874 418 |
Under the central financing model, TAURON Polska Energia S.A. acquires bonds issued by the TAURON Group companies.
The table below presents the balances of acquired bonds and interest accrued as at the end of the reporting period, i.e. 31 December 2017 and as at 31 December 2016, broken down by individual companies issuing the bonds.
| As at 31 December 2017 |
As at 31 December 2016 |
||||
|---|---|---|---|---|---|
| Company | par value of purchased bonds |
accrued interest | par value of purchased bonds |
accrued interest | |
| TAURON Wytwarzanie S.A. | 1 064 920 | 10 689 | 3 548 770 | 55 396 | |
| TAURON Dystrybucja S.A. | 3 770 000 | 62 326 | 3 800 000 | 62 470 | |
| TAURON Ciep³o Sp. z o.o. | 1 075 000 | 15 169 | 1 673 260 | 46 848 | |
| TAURON Wydobycie S.A. | 570 000 | 4 592 | 570 000 | 4 592 | |
| TAURON Obs³uga Klienta Sp. z o.o. | – | – | 85 000 | 12 046 | |
| Total | 6 479 920 | 92 776 | 9 677 030 | 181 352 | |
| Non-current | 6 009 920 | – | 9 612 030 | 3 887 | |
| Current | 470 000 | 92 776 | 65 000 | 177 465 |
Intra-group bonds maturing within one year, intended for rollover, are classified as long-term instruments. Such classification reflects the nature of funding under the intra-group bond issue scheme, which enables cash management in the medium and long term. The agreements provide for the possibility to roll over the bonds. As at 31 December 2017, the par value of bonds maturing within one year, which were classified as long-term bonds, was PLN 864 920 thousand.
Internal bonds maturing over one year, totalling PLN 470 000 thousand, were classified to short-term as their redemption took place at 22 February 2018.
| As at 31 December 2017 | As at 31 December 2016 | |||||||
|---|---|---|---|---|---|---|---|---|
| Charged | Charged to | Total | Charged | Charged to | Total | |||
| to profit or loss |
other com prehensive income |
Assets | Liabilities | to profit or loss |
other com prehensive income |
Assets | Liabilities | |
| CCIRS | (9 299) | – | – | (9 299) | – | – | – | – |
| IRS | 23 | 28 459 | 28 482 | – | 23 | 36 618 | 36 641 | – |
| Commodity future/forward | 395 | – | 4 934 | (4 539) | 15 999 | – | 16 559 | (560) |
| Currency forward | (346) | – | – | (346) | 3 217 | – | 3 217 | – |
| Total | 33 416 | (14 184) | 56 417 | (560) | ||||
| Non-current | 26 445 | (4 958) | 35 814 | – | ||||
| Current | 6 971 | (9 226) | 20 603 | (560) |
The fair value hierarchy for derivative financial instruments is as follows:
| As at 31 December 2017 |
As at 31 December 2016 |
|||
|---|---|---|---|---|
| 1 level | 2 level | 1 level | 2 level | |
| Assets | ||||
| Derivative instruments – commodity | 4 934 | – | 16 559 | – |
| Derivative instruments – currency | – | – | – | 3 217 |
| Derivative instruments – IRS | – | 28 482 | – | 36 641 |
| Total | 4 934 | 28 482 | 16 559 | 39 858 |
| Liabilities | ||||
| Derivative instruments – commodity | 4 539 | – | 560 | – |
| Derivative instruments – currency | – | 346 | – | – |
| Derivative instruments – CCIRS | 9 299 | – | – | |
| Total | 4 539 | 9 645 | 560 | – |
The methodology of fair value measurement of the derivative financial instruments presented in the table above has been discussed in Note 9.9 to these financial statements.
Based on a decision of the Financial and Credit Risk Management Unit, in the year ended 31 December 2016, the Company hedged a portion of its interest rate risk for cash flows relating to the exposure to WIBOR 6M, designated under the dynamic risk management strategy, i.e. interest on debt securities with the nominal value of PLN 2 100 000 thousand, through the entry into interest rate swap (IRS) transactions for a term of 4 to 5 years. The aforementioned transactions are subject to hedge accounting with the exception of the first interest period. This is due to the fact that the floating interest rate in the first interest period was determined in advance, hence the Company could not apply hedge accounting principles to cash flows resulting from the first interest period.
As at 31 December 2017, derivative instruments which did not fall within the scope of hedge accounting and were classified as financial assets or financial liabilities measured at fair value through profit or loss comprised: ••
The CCIRSs have been used with respect to the Company's Coupon Only Cross Currency Swap fixed-fixed transactions concluded on November and December 2017 and involve an exchange of interest payments on the total nominal value of EUR 300 000 thousand. They mature in July 2027. In accordance with the terms and conditions, the Company pays interest accrued based on a fixed interest rate in PLN and receives fixed interest-rate payments in EUR. Hedge accounting principles do not apply to the transaction in question.
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Receivables from the TCG | 6 133 | 20 945 |
| Units in investment funds | 101 358 | 25 316 |
| Bid bonds, deposits, collateral transferred | 15 343 | 10 156 |
| Initial margin deposits | 11 140 | – |
| Other | 390 | 461 |
| Total | 134 364 | 56 878 |
| Non-current | 2 724 | 1 524 |
| Current | 131 640 | 55 354 |
In the year ended 31 December 2017, the Company acquired units in investment funds for the total amount of PLN 75 000 thousand.
| As at 31 December 2017 | As at 31 December 2016 | |||||
|---|---|---|---|---|---|---|
| Principal | Interest | Total | Principal | Interest | Total | |
| Value of items before allowance/write-down | ||||||
| Loan granted to TAURON Ekoenergia Sp. z o.o. | 120 000 | 19 268 | 139 268 | 1 120 000 | 129 802 | 1 249 802 |
| Loans granted to EC Stalowa Wola S.A. | 529 007 | 41 425 | 570 432 | 218 525 | 37 542 | 256 067 |
| Loans granted to PGE EJ 1 Sp. z o.o. | 2 940 | 14 | 2 954 | – | – | – |
| Granted cash pool loans including accrued interest | 189 928 | 598 | 190 526 | 15 306 | 544 | 15 850 |
| Total | 841 875 | 61 305 | 903 180 | 1 353 831 | 167 888 | 1 521 719 |
| Allowance/write-down | ||||||
| Loan granted to TAURON Ekoenergia Sp. z o.o. | – | (197 953) | ||||
| Value of item net of allowance (carrying amount) | 903 180 | 1 323 766 | ||||
| Non-current | 382 989 | 1 292 800 | ||||
| Current | 520 191 | 30 966 |
On 27 February 2015, the Company entered into an agreement with its subsidiary, TAURON Ekoenergia Sp. z o.o., whereby TAURON Polska Energia S.A. granted a one-year loan of PLN 1 120 000 thousand to TAURON Ekoenergia Sp. z o.o. The purpose of the loan was to repurchase and redeem the same amount of intra-group bonds issued by the borrower in prior years to finance construction of wind farms. Under subsequent annexes, the loan repayment date was postponed to 27 February 2018.
On 26 and 27 October 2017 a portion of the loan extended by the Company to subsidiary TAURON Ekoenergia Sp. z o.o. was prematurely repaid. On both dates the amount prepaid by the subsidiary was PLN 500 000 thousand, i.e. PLN 1 000 000 thousand in total. Since the subsidiary TAURON Ekoenergia Sp. z o.o. repaid a portion of the loan and the shares in its increased capital were acquired by the Company, the impairment loss on the loan was reclassified to the shares in TAURON Ekoenergia Sp. z o.o., which has been discussed in more detail in Note 11 to these financial statements.
After the end of the reporting period, on 27 February 2018, a subsidiary repaid the remanding part of a loan of PLN 120 000 thousand.
As at 31 December 2017, the loan, including interest, whose carrying amount was PLN 139 268 thousand, was classified by the Company as a long-term loan, as the exposure was planned to be maintained for a period of more than one year of the end of the reporting period.
The table below presents loans granted to joint venture Elektrociep³ownia Stalowa Wola S.A. as at the end of the reporting period, i.e. 31 December 2017 and as at 31 December 2016:
| Agreement | Loan | As at 31 December 2017 |
Maturity | Interest rate | Purpose | ||||
|---|---|---|---|---|---|---|---|---|---|
| date | amount | Principal | Interest | date | |||||
| Subordinated loan |
20.06.2012 | 177 000 | 177 000 | 35 052 | 31.12.2032 | floating/ WIBOR 3M+mark-up |
Project performance: the borrower to obtain external funding |
||
| Loan for | 14.12.2015 | 15 850 | 15 850 | 1 370 | floating/ WIBOR 3M+mark-up |
Repayment of the principal instalment with interest with regard to loans granted to the borrower by European |
|||
| repayment of debt | 15.12.2016 | 15 300 | 11 000 | 495 | 31.12.2027 | floating/ WIBOR 6M+mark-up |
Investment Bank, European Bank for Reconstruction and Development and Bank Polska Kasa Opieki S.A. |
||
| Arrangements to consolidate |
30.06.2017 | 150 000 | 150 000 | 3 259 | floating/ | Payment of total liabilities under loan agreements entered into by the borrower with the European Investment Bank, the European |
|||
| the borrower's debt |
31.10.2017 | 175 157 | 175 157 | 1 249 | 28.02.2018 | WIBOR 6M+mark-up | Bank for Reconstruction and Development and Bank Polska Kasa Opieki S.A. and financing of current operations |
||
| Total | 529 007 | 41 425 | |||||||
| Non-current | 203 850 | 36 917 | |||||||
| Current | 325 157 | 4 508 |
| Agreement | Loan | As at 31 December 2016 |
Maturity | Interest rate | Purpose | ||
|---|---|---|---|---|---|---|---|
| date | amount | Principal | Interest | date | |||
| Subordinated loan |
20.06.2012 | 177 000 | 177 000 | 36 381 | 31.12.2032 | floating/ WIBOR 3M+mark-up |
Project performance: the borrower to obtain external funding |
| 14.12.2015 | 15 850 | 15 850 | 699 | floating/ WIBOR 3M+mark-up |
Repayment of the principal instalment with interest with regard to loans granted to the borrower by European |
||
| Loan for repayment of debt |
15.12.2016 | 15 300 | 11 000 | 21 | 31.12.2027 | floating/ WIBOR 6M+mark-up |
Investment Bank, European Bank for Reconstruction and Development and Bank Polska Kasa Opieki S.A. |
| 25.11.2015 | 2 600 | 2 600 | 117 | floating/ WIBOR 6M+mark-up |
|||
| 22.01.2016 | 5 500 | 5 500 | 214 | Financing of current | |||
| Other loans | 22.04.2016 | 1 200 | 600 | 17 | 30.06.2017 | floating/ | operations |
| 27.05.2016 | 3 100 | 3 100 | 65 | WIBOR 1M+mark-up | |||
| 31.08.2016 | 3 800 | 2 875 | 28 | ||||
| Total | 218 525 | 37 542 | |||||
| Non-current | 203 850 | 37 101 | |||||
| Current | 14 675 | 441 |
Loans granted by the Company to Elektrociep³ownia Stalowa Wola S.A. under agreements dated 30 March 2017 for purposes of debt repayment totalled PLN 290 742 thousand. The said loans were granted for purposes of the debtor's early payment of liabilities under loan agreements entered into in relation to the construction of a heat and power unit in Stalowa Wola, which has been discussed in more detail in Note 35 to these financial statements.
Under agreements concluded on 16 February 2017 and 28 April 2017, the Company granted other loans totalling PLN 5 250 thousand to Elektrociep³ownia Stalowa Wola S.A. to finance the current operations of the borrower.
On 30 June 2017, the Company concluded two agreements with Elektrociep³ownia Stalowa Wola S.A. consolidating debt under loan agreements entered into for the purpose of refinancing debt totalling PLN 290 742 thousand and other loans for the total amount of PLN 19 925 thousand. Under the debt consolidation agreements, principal amounts and interest accrued by 30 June 2017 were consolidated and comprised: •
The total outstanding principal amount of PLN 145 991 thousand under the refinancing loan agreement dated 30 March 2017 and a portion of the principal amount of PLN 4 009 thousand under the refinancing loan agreement dated 30 March 2017 for PLN 73 518 thousand were included in the debt consolidation agreement of 30 June 2017 for the total amount of PLN 150 000 thousand. –
On 31 October 2017, the Company and Elektrociep³ownia Stalowa Wola S.A. signed:
After the end of the reporting period, on 12 January 2018, the Company and Elektrociep³ownia Stalowa Wola S.A. signed a long agreement totalling PLN 27 000 thousand to be used for the operations of the borrower. Under the agreement the loan should be repaid with interest accrued based on the WIBOR 1M rate increased by a mark-up, by 28 February 2018. The repayment of the loan, interest and other costs and amounts due to the Company under the agreement is secured by the borrower's blank promissory note and a promissory note agreement up to the maximum amount of PLN 32 400 thousand.
After the end of the reporting period, on 28 February 2018, the Company entered into an agreement with Elektrociep³ownia Stalowa Wola S.A. to consolidate the borrower's debt in the total amount of PLN 609 951 thousand, by renewing all the existing liabilities of the borrower arising from loans that had been granted and not repaid by 28 February 2018. The scope of the consolidation agreement includes principal amounts of loans granted whose carrying amount as at 31 December 2017 was PLN 529 007 thousand, the principal amount of a loan of 12 January 2018 of PLN 27 000 thousand as well as interest on the above debt, accrued as at 28 February 2018 in the total amount of PLN 53 944 thousand. Under the consolidation agreement, a portion of the debt of PLN 299 100 thousand is to be repaid within two business days of the borrower's receipt of external funding in relation to the gas and steam unit construction project in Stalowa Wola, while the remaining portion of PLN 310 851 thousand, along with interest accrued as of 1 March 2018, is to be repaid by the borrower by 30 June 2033. The interest rate on the loan is fixed and the repayment is secured by a blank promissory note along with a promissory note agreement up to the maximum amount of PLN 732 000 thousand.
After the end of the reporting period, on 8 March 2018 Elektrociep³ownia Stalowa Wola S.A. signed a loan agreement with Bank Gospodarstwa Krajowego and Polskie Górnictwo Naftowe i Gazownictwo S.A. Under the above mentioned agreement Bank Gospodarstwa Krajowego and PGNiG S.A. will grant Elektrociep³ownia Stalowa Wola S.A. a loan in the amount of PLN 450 000 thousand each, to be used to refinance the debt of Elektrociep³ownia Stalowa Wola S.A. towards the Company and PGNiG S.A. in the total amount of PLN 600 000 thousand and to cover new capital expenditures of PLN 300 000 thousand allowing Elektrociep³ownia Stalowa Wola S.A. to complete the project of constructing of a gas and steam unit. The final loan repayment date is 14 June 2030. The loan agreement provides for the funds to be paid out to Elektrociep³ownia Stalowa Wola S.A. after the suspending conditions have been met, with one of them being presenting to Bank Gospodarstwa Krajowego of a bank guarantee issued at the Company's instruction and securing the Loan Taker's debt towards Bank Gospodarstwa Krajowego. The bank guarantee will be renewed annually, and its value will not exceed PLN 517 500 thousand.
Detailed information on the cash pool service has been presented in Note 33.4 to these financial statements.
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Gross Value | ||
| Energy certificates | 250 | 250 |
| Greenhouse gas emission allowances | 198 459 | 271 729 |
| Materials | 40 | 23 |
| Total | 198 749 | 272 002 |
| Measurement to net realisable value | ||
| Energy certificates | (184) | (195) |
| Greenhouse gas emission allowances | (145) | (234) |
| Measurement to fair value | ||
| Greenhouse gas emission allowances | 8 | 13 226 |
| Total | (321) | 12 797 |
| Net value | ||
| Energy certificates | 66 | 55 |
| Greenhouse gas emission allowances | 198 322 | 284 721 |
| Materials | 40 | 23 |
| Total | 198 428 | 284 799 |
Inventories are measured at net realizable value, except for the inventory of emission allowances purchased for resale and generation of profit in the short term due to volatility of market prices, which is measured at fair value as at the end of the reporting period.
| As at | As at | |
|---|---|---|
| 31 December 2017 | 31 December 2016 | |
| Gross Value | ||
| Receivables from buyers | 719 144 | 840 665 |
| Receivables claimed at court | 913 | 890 |
| Total | 720 057 | 841 555 |
| Allowance/write-down | ||
| Receivables from buyers | (11) | (9) |
| Receivables claimed at court | (913) | (890) |
| Total | (924) | (899) |
| Net Value | ||
| Receivables from buyers | 719 133 | 840 656 |
| Receivables claimed at court | – | – |
| Total | 719 133 | 840 656 |
As at 31 December 2017 and 31 December 2016, the largest item of receivables from buyers was receivables from TAURON Sprzeda¿ Sp. z o.o., a subsidiary, amounting to PLN 481 526 thousand and PLN 478 220 thousand, respectively.
| Not past due | <30 days | 30–360 days | >360 days | Total | |
|---|---|---|---|---|---|
| Value of item before allowance/write-down | 719 112 | 39 | 37 | 869 | 720 057 |
| Allowance/write-down | (33) | – | (22) | (869) | (924) |
| Net Value | 719 079 | 39 | 15 | – | 719 133 |
| Not past due | <30 days | 30–360 days | >360 days | Total | |
|---|---|---|---|---|---|
| Value of item before allowance/write-down | 840 494 | 172 | 35 | 854 | 841 555 |
| Allowance/write-down | (3) | (7) | (35) | (854) | (899) |
| Net Value | 840 491 | 165 | – | – | 840 656 |
Financial statements for the year ended 31 December 2017 prepared in accordance with IFRS, as endorsed by the EU (in PLN '000)
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Opening balance | (899) | (2 582) |
| Recognised | (74) | (66) |
| Reversed | 49 | 1 749 |
| Closing balance | (924) | (899) |
Related-party transactions as well as related party receivables and liabilities have been presented in Note 47.1 hereto.
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Corporate Income Tax | – | 83 162 |
| VAT receivables | 36 094 | 35 674 |
| Excise duty receivables | – | 1 750 |
| Total | 36 094 | 120 586 |
A drop in receivables arising from taxes and charges results mostly from a drop in CIT receivables in the Tax Capital Group. As at 31 December 2017, the Tax Capital Group had income tax liabilities of PLN 37 629 thousand, which has been discussed in more detail in Note 16.4 to these financial statements. As at 31 December 2016, the Tax Capital Group reported income tax receivables of PLN 83 153 thousand.
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Prepaid expenses, including: | 16 799 | 10 284 |
| Prepaid fee on borrowings | 16 169 | 9 531 |
| Advance payments for deliveries | 1 313 | 19 315 |
| Total | 18 112 | 29 599 |
| Non-current | 13 255 | 6 071 |
| Current | 4 857 | 23 528 |
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Cash at bank and in hand | 521 343 | 198 087 |
| Short-term deposits (up to 3 months) | 200 234 | 3 |
| Total cash and cash equivalents presented in the statement of financial position, including: restricted cash |
721 577 49 792 |
198 090 56 787 |
| Cash pool | (2 186 508) | (1 229 639) |
| Overdraft | (93 502) | (15 131) |
| Foreign exchange | (799) | 1 239 |
| Total cash and cash equivalents presented in the statement of cash flows | (1 559 232) | (1 045 441) |
The balances of loans granted and taken out in cash pool transactions do not represent cash flows from investing or financing activities as they are mainly used to manage the Group's liquidity on a day-to-day basis. They are presented as an adjustment to the balance of cash instead.
Restricted cash includes mainly cash held in the settlement account for trading in electricity on the Polish Power Exchange (Towarowa Gie³da Energii S.A), amounting to PLN 49 380 thousand.
Detailed information on cash pool balances has been presented in Note 33.4 to these financial statements.
| Class/ issue |
Type of shares | Number of shares |
Nominal value of one share (in PLN) |
Value of class/issue at nominal value |
Method of payment |
|---|---|---|---|---|---|
| AA | bearer shares | 1 589 438 762 | 5 | 7 947 194 | cash/in-kind contribution |
| BB | registered shares | 163 110 632 | 5 | 815 553 | in-kind contribution |
| 1 752 549 394 | 8 762 747 |
As at 31 December 2017, the value of issued capital, the number of shares and the nominal value of shares had not changed as compared to 31 December 2016.
| Shareholder | Number of shares | Nominal value of shares |
% of issued capital | % of total vote | |
|---|---|---|---|---|---|
| State Treasury | 526 848 384 | 2 634 242 | 30.06% | 30.06% | |
| KGHM Polska MiedŸ S.A. | 182 110 566 | 910 553 | 10.39% | 10.39% | |
| Nationale - Nederlanden Otwarty Fundusz Emerytalny |
88 742 929 | 443 715 | 5.06% | 5.06% | |
| Other shareholders | 954 847 515 | 4 774 237 | 54.49% | 54.49% | |
| Total | 1 752 549 394 | 8 762 747 | 100% | 100% |
To the best of the Company's knowledge, the shareholding structure as at 31 December 2017 had not changed since 31 December 2016.
On 29 May 2017, the Ordinary General Shareholders' Meeting adopted a resolution to offset the Company's net loss for the 2016 financial year, totalling PLN 166 253 thousand, against the reserve capital.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Opening balance | 29 660 | (73 414) |
| Remeasurement of hedging instruments | (8 159) | 132 108 |
| Remeasurement of hedging instruments charged to profit or loss | – | (4 856) |
| Deferred income tax | 1 550 | (24 178) |
| Closing balance | 23 051 | 29 660 |
The revaluation reserve from valuation of hedging instruments results from valuation of Interest Rate Swaps (IRS) hedging the interest rate risk arising from bonds issued, which has been discussed in more detail in Note 23 to these financial statements.
The Company applies hedge accounting to hedging transactions covered by the policy for specific risk management in the area of finance.
As at 31 December 2017 the Company recognized PLN 23 051 thousand of revaluation reserve from valuation of hedging instruments. It represents an asset arising from valuation of interest rate swaps as at the end of the reporting period, totalling PLN 28 482 thousand, adjusted by a portion of valuation relating to interest accrued on bonds as at the end of the reporting period, including deferred tax.
The amount of PLN 1 525 thousand was recognized in profit/loss for the period as a payment under a realized hedge for past interest periods.
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| amounts subject to distribution | 4 032 169 | 4 032 169 |
| amounts from distribution of prior years profits | 4 032 169 | 4 032 169 |
| non-distributable amounts | 3 624 917 | 3 791 170 |
| decrease in the value of issued capital | 3 390 037 | 3 556 290 |
| settlement of mergers with subsidiaries | 234 880 | 234 880 |
| Total reserve capital | 7 657 086 | 7 823 339 |
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| distributable amounts or losses to be covered | 854 364 | (166 240) |
| profit (loss) for the year ended 31 December 2017 | 854 351 | – |
| profit (loss) for the year ended 31 December 2016 | – | (166 253) |
| adjustment of prior years profit | 13 | 13 |
| non-distributable amounts | 80 658 | 80 762 |
| actuarial gains and losses on provisions for post-employment benefits | 140 | 244 |
| settlement of mergers with subsidiaries | 80 518 | 80 518 |
| Total retained earnings (accumulated losses) | 935 022 | (85 478) |
The Company's Management Board recommends the net profit for the year 2017 in amount of PLN 854 351 thousand to be transferred the Company's reserve capital.
On 13 March 2017, the Management Board of TAURON Polska Energia S.A. adopted a resolution to file a motion with the Ordinary General Shareholders' Meeting of TAURON Polska Energia S.A. to offset the Company's net loss for the 2016 financial year of PLN 166 253 thousand against the reserve capital. The Management Board of the Company decided not to put forward a recommendation to the Ordinary General Shareholders' Meeting, concerning the adoption of a decision to use the Company's reserve capital for purposes of payment of dividend for 2016 to the Company's shareholders. On 29 May 2017, the Ordinary General Shareholders' Meeting of the Company adopted a resolution following the recommendation of the Management Board.
On 10 March 2016, the Management Board adopted a resolution to put forward a recommendation to the Ordinary General Shareholders' Meeting, concerning the use of the Company's reserve capital representing amounts transferred from prior year profit for purposes of dividend payment to the Company's shareholders in the amount of PLN 175 255 thousand, which equals to PLN 0.10 per share. On 17 March 2016, the Supervisory Board of the Company approved the recommendation presented by the Management Board. On 8 June 2016, the Ordinary General Shareholders' Meeting did not adopt a resolution to use a portion of the Company's reserve capital representing amounts transferred from prior year profit for purposes of dividend payment to the Company's shareholders.
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Long-term portion of debt | ||
| Subordinated hybrid bonds | 791 355 | 839 330 |
| Other issued bonds | 7 113 161 | 6 089 821 |
| Loans received from the European Investment Bank | 873 770 | 1 035 927 |
| Loans from the subsidiary | 694 168 | 765 450 |
| Finance lease | – | 23 519 |
| Total | 9 472 454 | 8 754 047 |
| Short-term portion of debt | ||
| Subordinated hybrid bonds | 1 597 | 1 693 |
| Other issued bonds | 34 233 | 11 287 |
| Cash pool loans received, including accrued interest | 2 377 034 | 1 245 489 |
| Loans from the European Investment Bank | 168 340 | 154 574 |
| Loans from the subsidiary | 27 112 | 2 300 |
| Overdraft | 93 502 | 15 131 |
| Finance lease | 23 945 | 3 455 |
| Total | 2 725 763 | 1 433 929 |
| Tranche/Bank | Maturity date | Currency | Principal at nominal value |
As at balance sheet date | of which maturing within (after the balance sheet date) |
|||
|---|---|---|---|---|---|---|---|---|
| in currency | Accrued interest | Principal at amortized cost |
up to 2 years |
2–5 years | over 5 years |
|||
| 20.12.2019 | PLN | 100 000 | 107 | 99 869 | 99 869 | – | – | |
| 20.12.2020 | PLN | 100 000 | 107 | 99 838 | – | 99 838 | – | |
| 20.12.2021 | PLN | 100 000 | 107 | 99 817 | – | 99 817 | – | |
| 20.12.2022 | PLN | 100 000 | 107 | 99 800 | – | 99 800 | – | |
| 20.12.2023 | PLN | 100 000 | 107 | 99 787 | – | – | 99 787 | |
| 20.12.2024 | PLN | 100 000 | 107 | 99 778 | – | – | 99 778 | |
| 20.12.2025 | PLN | 100 000 | 107 | 99 770 | – | – | 99 770 | |
| 20.12.2026 | PLN | 100 000 | 107 | 99 761 | – | – | 99 761 | |
| 20.12.2027 | PLN | 100 000 | 107 | 99 756 | – | – | 99 756 | |
| Bank | 20.12.2028 | PLN | 100 000 | 107 | 99 752 | – | – | 99 752 |
| Gospodarstwa Krajowego |
20.12.2020 | PLN | 70 000 | 74 | 69 963 | – | 69 963 | – |
| 20.12.2021 | PLN | 70 000 | 74 | 69 961 | – | 69 961 | – | |
| 20.12.2022 | PLN | 70 000 | 74 | 69 959 | – | 69 959 | – | |
| 20.12.2023 | PLN | 70 000 | 74 | 69 958 | – | – | 69 958 | |
| 20.12.2024 | PLN | 70 000 | 74 | 69 957 | – | – | 69 957 | |
| 20.12.2025 | PLN | 70 000 | 74 | 69 956 | – | – | 69 956 | |
| 20.12.2026 | PLN | 70 000 | 74 | 69 956 | – | – | 69 956 | |
| 20.12.2027 | PLN | 70 000 | 74 | 69 955 | – | – | 69 955 | |
| 20.12.2028 | PLN | 70 000 | 74 | 69 955 | – | – | 69 955 | |
| 20.12.2029 | PLN | 70 000 | 74 | 69 955 | – | – | 69 955 | |
| Bond Issue Scheme of 24 November 2015 |
29.12.2020 | PLN | 1 600 000 | 389 | 1 597 188 | – | 1 597 188 | – |
| TPEA1119 | 4.11.2019 | PLN | 1 750 000 | 7 609 | 1 749 277 | 1 749 277 | – | – |
| European Investment Bank |
16.12.2034 | EUR | 190 000 | 1 597 | 791 355 | – | – | 791 355 |
| Eurobonds EURBD050727 |
5.07.2027 | EUR | 500 000 | 24 425 | 2 069 193 | – | – 2 069 193 | |
| Total | 35 830 | 7 904 516 | 1 849 146 | 2 106 526 3 948 844 |
(in PLN '000)
| Principal at | As at balance sheet date | of which maturing within (after the balance sheet date) |
||||||
|---|---|---|---|---|---|---|---|---|
| Tranche/Bank | Maturity date | Currency | nominal value in currency |
Accrued interest | Principal at amortized cost |
up to 2 years |
2–5 years | over 5 years |
| 20.12.2019 | PLN | 100 000 | 107 | 99 805 | – | 99 805 | – | |
| 20.12.2020 | PLN | 100 000 | 107 | 99 786 | – | 99 786 | – | |
| 20.12.2021 | PLN | 100 000 | 107 | 99 773 | – | 99 773 | – | |
| 20.12.2022 | PLN | 100 000 | 107 | 99 763 | – | – | 99 763 | |
| 20.12.2023 | PLN | 100 000 | 107 | 99 754 | – | – | 99 754 | |
| 20.12.2024 | PLN | 100 000 | 107 | 99 749 | – | – | 99 749 | |
| 20.12.2025 | PLN | 100 000 | 107 | 99 744 | – | – | 99 744 | |
| 20.12.2026 | PLN | 100 000 | 107 | 99 738 | – | – | 99 738 | |
| 20.12.2027 | PLN | 100 000 | 107 | 99 734 | – | – | 99 734 | |
| Bank | 20.12.2028 | PLN | 100 000 | 107 | 99 733 | – | – | 99 733 |
| Gospodarstwa | 20.12.2020 | PLN | 70 000 | 74 | 69 976 | – | 69 976 | – |
| Krajowego | 20.12.2021 | PLN | 70 000 | 74 | 69 976 | – | 69 976 | – |
| 20.12.2022 | PLN | 70 000 | 74 | 69 976 | – | – | 69 976 | |
| 20.12.2023 | PLN | 70 000 | 74 | 69 976 | – | – | 69 976 | |
| 20.12.2024 | PLN | 70 000 | 74 | 69 975 | – | – | 69 975 | |
| 20.12.2025 | PLN | 70 000 | 74 | 69 975 | – | – | 69 975 | |
| 20.12.2026 | PLN | 70 000 | 74 | 69 975 | – | – | 69 975 | |
| 20.12.2027 | PLN | 70 000 | 74 | 69 975 | – | – | 69 975 | |
| 20.12.2028 | PLN | 70 000 | 74 | 69 975 | – | – | 69 975 | |
| 20.12.2029 | PLN | 70 000 | 74 | 69 975 | – | – | 69 975 | |
| Bond Issue | 29.12.2020 | PLN | 2 250 000 | 549 | 2 244 801 | – | 2 244 801 | – |
| Scheme of | 25.03.2020 | PLN | 100 000 | 790 | 99 771 | – | 99 771 | – |
| 24 November 2015 |
9.12.2020 | PLN | 300 000 | 560 | 298 761 | – | 298 761 | – |
| TPEA1119 | 4.11.2019 | PLN | 1 750 000 | 7 578 | 1 749 155 | – | 1 749 155 | – |
| European Investment Bank |
16.12.2034 | EUR | 190 000 | 1 693 | 839 330 | – | – | 839 330 |
| Total | 12 980 | 6 929 151 | – | 4 831 804 2 097 347 |
On 5 July 2017 the Company issued eurobonds with the total par value of EUR 500 000 thousand and the issue price of 99.438 percent of the par value. They are 10-year bonds with fixed interest paid on an annual basis. The bonds have been admitted to trading on the London Stock Exchange. They were rated "BBB" by the Fitch rating agency.
On 20 June 2017 the Company signed annexes to the agency and custody agreement and the underwriting agreement of 24 November 2015 whereby the scheme was extended: •
After the end of the reporting period, on 9 March 2018 amendments to the agency and custody agreement as well as the underwriting agreement were signed, the result of which is an extension by some banks of the period of availability of the funds under the Program. This means that the maximum value of the Program: •
By 31 December 2020 the Scheme's value will not change and will not exceed PLN 6 270 000 thousand.
The amendments were signed with the following banks taking part in the Program: Bank Handlowy in Warsaw S.A., Bank BG¯ BNP Paribas S.A., Bank Zachodni WBK S.A., CaixaBank S.A. (Joint Stock Company) Branch in Poland, Industrial and Commercial Bank of China (Europe) S.A. Branch in Poland, ING Bank Œl¹ski S.A., mBank S.A., MUFG Bank (Europe) N.V., MUFG Bank (Europe) N.V. S.A. Branch in Poland and Powszechna Kasa Oszczêdnoœci Bank Polski S.A. Due to the extension, the financing margin in the Scheme did not change.
The bonds issued on 16 December 2016, with the par value of EUR 190 000 thousand, were subordinated, unsecured coupon bearer securities, and they were acquired by the European Investment Bank as part of the operations of the European Fund for Strategic Investments, launched by EIB and the European Commission to implement the Juncker Plan. The euro is the currency of the issue. The bonds will mature 18 years of the issue date, with the proviso that in line with the description of hybrid funding the first funding period was defined to last 8 years ("1st Funding Period") during which the Company will not be allowed to repurchase the bonds early and the bonds can not be sold early by EIB to third parties (in both cases, subject to the exceptions set out in the agreement). The bonds bear fixed interest during the 1st Funding Period and during the next 10-year funding period ("2nd Funding Period") interest will be floating and determined by reference to Euribor 6M increased by an agreed margin. Under the agreement, interest on the bonds may be deferred. As the bonds are subordinated, any claims arising therefrom will have priority of satisfaction only before the amounts due to the Company's shareholders in the event of its bankruptcy or liquidation. The bond issue has had a positive effect on the financial stability of the Group as the bonds are not taken into account for purposes of calculation of the debt ratio, which is a covenant in some funding schemes. Additionally, 50% of the bond amount has been classified by the rating agency as equity in the rating model, which has had a beneficial effect on the rating of the TAURON Group. The rating assigned to the bonds by Fitch is BB+.
Other bonds issued on the Polish market are dematerialized, unsecured coupon bonds with floating interest determined by reference to WIBOR 6M increased by a margin agreed separately for each issue. The Polish zloty is the currency of the issue and the repayment.
A change in the balance of bonds, excluding interest which increased the carrying amount in the year ended 31 December 2017 and in the comparable period, has been presented below.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Opening balance | 6 929 151 | 5 956 033 |
| Issue* | 2 703 643 | 4 273 379 |
| Redemption | (1 650 000) | (3 300 000) |
| Measurement change | (78 278) | (261) |
| Closing balance | 7 904 516 | 6 929 151 |
* Costs of discount and issue have been included.
In the year ended 31 December 2017, the Company issued (par value) and repurchased the following bonds:
| Date of | Year ended 31 December 2017 |
|||
|---|---|---|---|---|
| issue/ redemption |
Agreement/ Scheme | Description | Par value of issue |
Redemption |
| 05.07.2017 | Eurobonds | Issue of eurobonds with the total par value of EUR 500,000 thousand and the issue price of 99.438% of the par value, maturing on 5 July 2027. |
2 107 462 | |
| 30.01.2017 | Issue of bonds with the par value of PLN 100,000 thousand, maturing on 30 January 2020. |
100 000 | ||
| 01.03.2017 | Issue of bonds with the par value of PLN 100,000 thousand, maturing on 1 March 2020. |
100 000 | ||
| 31.03.2017 | Issue of bonds with the par value of PLN 300,000 thousand, maturing on 30 June 2017. |
300 000 | ||
| 30.06.2017 | Issue of bonds with the par value of PLN 100,000 thousand, maturing on 30 July 2017. |
100 000 | ||
| 30.06.2017 | Redemption (at maturity) of bonds with the par value of PLN 300,000 thousand, which were issued on 31 March 2017. |
(300 000) | ||
| 30.07.2017 | Bond Issue Scheme dated |
Early redemption of bonds with the par value of PLN 100,000 thousand, which were issued on 30 January 2017. |
(100 000) | |
| 30.07.2017 | 24 November 2015 | Redemption (at maturity) of bonds with the par value of PLN 100,000 thousand, which were issued on 30 June 2017. |
(100 000) | |
| 01.09.2017 | Early redemption of bonds with the par value of PLN 100,000 thousand, which were issued on 1 March 2017. |
(100 000) | ||
| 25.09.2017 | Early redemption of bonds with the par value of PLN 100,000 thousand, which were issued on 25 March 2016. |
(100 000) | ||
| 09.12.2017 | Early redemption of bonds with the par value of PLN 300,000 thousand, which were issued on 9 December 2016. |
(300 000) | ||
| 29.12.2017 | Early partial redemption of bonds with the par value of PLN 650,000 thousand, which were issued on 29 February 2016. |
(650 000) | ||
| Total | 2 707 462 | (1 650 000) |
The Company hedges a portion of interest cash flows related to issued bonds using IRS contracts. The instruments are subject to hedge accounting, which has been discussed in more detail in Note 23 to these financial statements.
The agreements signed by the Company with the banks include legal and financial covenants which are commonly used in such transactions. The key covenant is net debt/ EBITDA ratio (for the domestic bond programmes), which defines the maximum level of debt diminished by cash versus EBITDA produced. As at 31 December 2017, none of these covenants had been breached and the contractual provisions were complied with.
As at 31 December 2017, the balance of loans obtained from the European Investment Bank was PLN 1 042 110 thousand, including interest accrued of PLN 6 100 thousand. As at 31 December 2016, the balance of loans obtained from the European Investment Bank was PLN 1 190 501 thousand, including interest accrued of PLN 7 086 thousand.
A change in the balance of loans from the European Investment Bank, excluding interest increasing their carrying amount, is presented below.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Opening balance | 1 183 415 | 1 316 061 |
| Repaid | (147 568) | (132 818) |
| Measurement change | 163 | 172 |
| Closing balance | 1 036 010 | 1 183 415 |
In the year ended 31 December 2017, the Company repaid PLN 147 568 thousand of the principal amount and PLN 41 017 thousand of interest.
As at 31 December 2017, the carrying amount of loans from a subsidiary, TAURON Sweden Energy AB (publ), was PLN 721 280 thousand (EUR 172 932 thousand), including interest of PLN 27 112 thousand (EUR 6 500 thousand) accrued as at the end of the reporting period. As at 31 December 2016, the carrying amount of loans from a subsidiary, TAURON Sweden Energy AB (publ), was PLN 767 750 thousand (EUR 173 542 thousand), including interest of PLN 2 300 thousand (EUR 520 thousand) accrued as at the end of the reporting period.
A change in the balance of the loan from the subsidiary, excluding interest increasing its carrying amount, is presented below.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Opening balance | 765 450 | 737 296 |
| Repaid | (28 127) | – |
| Measurement change | (43 155) | 28 154 |
| Closing balance | 694 168 | 765 450 |
The Company's liability is a long-term loan granted under an agreement entered into in December 2014 by TAURON Polska Energia S.A. and TAURON Sweden Energy AB (publ). The interest rate on the loan is fixed and interest is paid annually, in December, until the final loan repayment date. The loan will be fully repaid on 29 November 2029.
In the year ended 31 December 2017, on 31 July 2017, the Company repaid the loan granted by the subsidiary TAURON Sweden Energy AB (publ) from 27 July 2015 of PLN 28 127 thousand (EUR 6 600 thousand) with interest of PLN 197 thousand (EUR 46 thousand).
In order to optimize cash management, financial liquidity and finance income and costs, the TAURON Group has implemented a cash pool structure. On 18 December 2014, the Company concluded a new zero-balancing agreement with PKO Bank Polski S.A. for a 3-year term which may be extended by 12 months, with TAURON Polska Energia S.A. acting as an agent. The interest rates were determined on market terms.
(in PLN '000)
The balances of receivables and liabilities arising from cash pool transactions have been presented in the table below.
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Receivables from cash pool loans granted | 189 928 | 15 306 |
| Interest receivable on loans granted under cash pool agreement | 598 | 544 |
| Total Receivables | 190 526 | 15 850 |
| Loans received under cash pool agreement | 2 374 430 | 1 244 471 |
| Interest payable on loans received under cash pool agreement | 2 604 | 1 018 |
| Total Liabilities | 2 377 034 | 1 245 489 |
Surplus cash obtained by the Company under the cash pool agreement is deposited in bank accounts.
Under the cash pool agreement, the Company may use external financing in the form of an overdraft of up to PLN 300 000 thousand and an intraday limit of up to PLN 500 000 thousand. As at 31 December 2017, the Company did not have any related liabilities.
As at 31 December 2017, the balance of overdraft facilities included:
As at 31 December 2016, the balance of overdraft facilities was PLN 15 131 thousand.
| As at 31 December 2017 |
As at 31 December 2016 |
|||
|---|---|---|---|---|
| Minimum lease payments |
Present value of lease payments |
Minimum lease payments |
Present value of lease payments |
|
| Within 1 year | 24 142 | 23 945 | 4 105 | 3 455 |
| Within 1 to 2 years | – | – | 23 716 | 23 519 |
| Minimum lease payments, total | 24 142 | 23 945 | 27 821 | 26 974 |
| Less amounts representing finance charges | (197) | – | (847) | – |
| Present value of minimum lease payments | 23 945 | 23 945 | 26 974 | 26 974 |
| Non-current | – | – | 23 519 | 23 519 |
| Current | 23 945 | 23 945 | 3 455 | 3 455 |
As at 31 December 2017 and 31 December 2016, the finance lease liability resulted from a lease of investment property.
As at 31 December 2017, the Company used a real property located in Katowice at ul. ks. Piotra Œciegiennego 3, based on a lease agreement.
The Company's registered office is located in the leased premises with the usable area of 9 931.39 square meters. In 2017, the average monthly rental fee with the service charges was PLN 818 thousand.
| Provision for retirement, disability and similar benefits |
Employee electricity rates |
Social Fund | Provisions, total |
|
|---|---|---|---|---|
| Opening balance | 1 653 | 1 083 | 97 | 2 833 |
| Current service costs | 348 | 240 | 18 | 606 |
| Actuarial gains and losses, of which: | 153 | (32) | 7 | 128 |
| arising from changes in financial assumptions | (19) | – | – | (19) |
| arising from changes in demographic assumptions | – | – | – | – |
| arising from other changes | 172 | (32) | 7 | 147 |
| Benefits paid | (158) | (7) | (1) | (166) |
| Interest expense | 41 | 32 | 3 | 76 |
| Closing balance | 2 037 | 1 316 | 124 | 3 477 |
| Non-current | 1 719 | 1 307 | 121 | 3 147 |
| Current | 318 | 9 | 3 | 330 |
| Provision for retirement, disability and similar benefits |
Employee electricity rates |
Social Fund |
Jubilee bonuses |
Provisions, total |
|
|---|---|---|---|---|---|
| Opening balance | 1 547 | 1 314 | 282 | 5 422 | 8 565 |
| Current service costs | 210 | 85 | 26 | 924 | 1 245 |
| Actuarial gains and losses, of which: | (364) | (563) | (246) | (526) | (1 699) |
| arising from changes in financial assumptions | (30) | (304) | (32) | – | (366) |
| arising from changes in demographic assumptions | (130) | (119) | (12) | – | (261) |
| arising from other changes | (204) | (140) | (202) | (526) | (1 072) |
| Benefits paid | (9) | (4) | (1) | (693) | (707) |
| Past service costs | 225 | 213 | 28 | (5 280) | (4 814) |
| Interest expense | 44 | 38 | 8 | 153 | 243 |
| Closing balance | 1 653 | 1 083 | 97 | – | 2 833 |
| Non-current | 1 361 | 1 077 | 96 | – | 2 534 |
| Current | 292 | 6 | 1 | – | 299 |
Provisions for employee benefits were estimated using actuarial methods. Key actuarial assumptions made as at the end of the reporting period for purposes of calculation of the provision:
| 31 December 2017 | 31 December 2016 | |
|---|---|---|
| Discount rate (%) | 3.00% | 3.00% |
| Estimated inflation rate (%) | 2.50% | 2.50% |
| Employee rotation rate (%) | 7.93% | 7.94% |
| Estimated salary increase rate (%) | 2.50% | 2.50% |
| Estimated electricity price increase rate (%) | 3.50% | 3.50% |
| Estimated increase rate for contribution to the Social Fund (%) | 3.50% | 3.50% |
| Remaining average employment period | 17.11 | 13.06 |
A sensitivity analysis of measurement results as at 31 December 2017 to changes in key actuarial assumptions by 0.5 percentage point has been presented below:
| Provision | Measurement as at | Financial discount rate | Planned increases in base amount |
|||
|---|---|---|---|---|---|---|
| 31 December 2017 | -0.5 p.p. | +0.5 p.p. | -0.5 p.p. | +0.5 p.p. | ||
| Provision for retirement, disability and similar benefits |
2 037 | 2 136 | 1 948 | 1 948 | 2 136 | |
| Employee electricity rates | 1 316 | 1 477 | 1 180 | 1 180 | 1 475 | |
| Social Fund | 124 | 136 | 110 | 110 | 136 | |
| Total | 3 477 | 3 749 | 3 238 | 3 238 | 3 747 |
A discount rate reduction by 0.5 percentage point would result in an increase in the provision for employee benefits from PLN 3 477 thousand to PLN 3 749 thousand. A discount rate increase by 0.5 percentage point, i.e. application of a 3.50% discount rate, would result in a decrease in the provision to PLN 3 238 thousand.
The benefits were calculated based on the assumptions set out in the Compensation Policy. Reducing the planned increases of compensation bases by 0.5 percentage point would result in a decrease in the provision for employee benefits down to PLN 3 238 thousand, while their increase by 0.5 percentage point would cause an increase in the provision up to PLN 3 747 thousand.
| Provisions for onerous contracts with a jointly-controlled entity and provision for costs |
Other provisions |
Provisions total |
|
|---|---|---|---|
| Opening balance | 198 844 | 64 505 | 263 349 |
| Unwinding of discount and change in discount rate | 2 330 | – | 2 330 |
| Recognision | 2 250 | 4 277 | 6 527 |
| Reversal | (203 424) | – | (203 424) |
| Utilisation | – | (11) | (11) |
| Closing balance | – | 68 771 | 68 771 |
| Non-current | – | – | – |
| Current | – | 68 771 | 68 771 |
| Provisions for onerous contracts with a jointly-controlled entity and provision for costs |
Other provisions |
Provisions total |
|
|---|---|---|---|
| Opening balance | 182 877 | 15 | 182 892 |
| Unwinding of discount and change in discount rate | 13 759 | – | 13 759 |
| Recognision | 2 221 | 64 509 | 66 730 |
| Reversal | (13) | (3) | (16) |
| Utilisation | – | (16) | (16) |
| Closing balance | 198 844 | 64 505 | 263 349 |
| Non-current | 152 943 | – | 152 943 |
| Current | 45 901 | 64 505 | 110 406 |
Changes in provisions in the year ended 31 December 2017 have been presented in the table below.
| Provision for electricity contract |
Provision for "take or pay" clause in gas contract |
Provision for costs |
Total provisions for onerous contracts with a jointly-controlled entity and provision for costs |
|
|---|---|---|---|---|
| Opening balance | 133 327 | 54 837 | 10 680 | 198 844 |
| Unwinding of discount | 1 626 | 475 | 229 | 2 330 |
| Recognision | – | – | 2 250 | 2 250 |
| Reversal | (134 953) | (55 312) | (13 159) | (203 424) |
| Closing balance | – | – | – | – |
In year 2015, the Company recognized provisions for onerous contracts with Elektrociep³ownia Stalowa Wola S.A., which as at 31 December 2016 totalled PLN 198 844 thousand.
In the year ended 31 December 2017, the Company reversed in total amount the provisions for onerous contracts with a joint venture: •
Reversal of the provision for costs relating to the electricity sales contract and the provision for losses which might be incurred under the take-or-pay clause was the result of the fulfilment of the conditions precedent under the conditional arrangement made on 27 October 2016 to determine the key boundary conditions of the restructuring of the "Construction of a gas and steam unit in Stalowa Wola" project. The conditions precedent were discharged on 31 March 2017 when Elektrociep³ownia Stalowa Wola paid all its liabilities to the financing institutions, i.e. the European Investment Bank, European Bank for Reconstruction and Development and Bank Polska Kasa Opieki S.A. The funds for repayment of the said bank loans were obtained by Elektrociep³ownia Stalowa Wola S.A. under loan agreements entered into with the Company and Polskie Górnictwo Naftowe i Gazownictwo S.A. as the lenders. To this end, the Company granted a loan of PLN 290 742 thousand, which has been discussed in more detail in Note 25 to these financial statements. Once the conditions precedent were discharged the following documents came into effect: •
The aforesaid agreement sets out mainly the terms of settlement of liquidated damages, brings the existing price formulas into line with the market ones as well as governing the issue of financial restructuring of the Project. It reflects the will of the Project sponsors, i.e. TAURON Polska Energia S.A. and Polskie Górnictwo Naftowe i Gazownictwo S.A., to continue the construction of the gas and steam unit, modify the gaseous fuel supply contract and the electricity sales contract and change the existing project finance formula to a corporate finance formula. Notwithstanding the above, the sponsors and Elektrociep³ownia Stalowa Wola S.A. have continued their efforts to secure new funding for the gas and steam unit construction project in Stalowa-Wola, whose terms and structure would be more favourable than those under the existing agreements.
The changes to the gaseous fuel supply contract and the electricity sales contract include in particular the application of market price formulas for the contracts in question. Furthermore, due to delays in the project, the annex to the gaseous fuel supply contract provides for changes in the amount, time limits and methodologies of imposition of liquidated damages. According to the Management Board of the Company, the aforesaid changes constituted a basis for reversal of the provision for costs related to the electricity sales contract and the provision for losses which might be incurred under the take-or-pay clause in Q1 2017.
As at 31 December 2017 other provisions included mainly the provisions for tax risks due to the pending inspection proceedings. As at 31 December 2016 the Company recognized a related provision of PLN 64 494 thousand. As at 31 December 2017, the relevant provision amounted to PLN 68 694 thousand. An increase in the provision by PLN 4 200 thousand, is attributable to interest accrued as at the year ended 31 December 2017.
The Company is a party to VAT inspection proceedings instigated by the Director of the Tax Inspection Office in Warsaw ("Director of the TIO"). The duration of the proceedings was extended by the Director of the Tax Inspection Office a number of times. The proceedings are to be closed on 28 April 2018.
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Unused holidays | 2 587 | 2 577 |
| Bonuses | 6 499 | 10 867 |
| Accruals relating to post-service benefits for members of the Management Board/key management personnel |
1 764 | 2 230 |
| Accruals relating to payments in lieu of jubilee bonuses | – | 4 356 |
| Other | 3 744 | 1 473 |
| Total | 14 594 | 21 503 |
| Non-current | – | 170 |
| Current | 14 594 | 21 333 |
As at 31 December 2017, the value of the said liabilities to the subsidiaries TAURON Wytwarzanie S.A. and TAURON Sprzeda¿ Sp. z o.o. was the highest: PLN 163 952 thousand and PLN 87 255 thousand, respectively. As at 31 December 2016, liabilities to the subsidiaries TAURON Wytwarzanie S.A. and TAURON Wydobycie S.A. were the highest and totalled PLN 106 417 thousand and PLN 98 682 thousand, respectively.
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Liabilities arising from the TCG | 34 836 | 75 662 |
| Margin deposits | 7 163 | 13 106 |
| Commissions related to securities | 5 889 | 8 020 |
| Bid bonds, deposits and collateral received | 5 400 | 5 681 |
| Wages and salaries, deductions on wages and salaries as well as other employee related liabilities |
6 424 | 3 770 |
| Other | 23 004 | 33 438 |
| Total | 82 716 | 139 677 |
| Non-current | 20 126 | 27 918 |
| Current | 62 590 | 111 759 |
(in PLN '000)
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Corporate Income Tax | 37 629 | – |
| Personal Income Tax | 1 878 | 1 484 |
| VAT | 25 385 | 15 850 |
| Excise | 880 | – |
| Social security | 4 311 | 2 846 |
| Other | 36 | 29 |
| Total | 70 119 | 20 209 |
An increase in liabilities arising from taxes and charges results mainly from a rise in CIT liabilities in the Tax Capital Group. As at 31 December 2017, the Tax Capital Group had income tax liabilities of PLN 37 629 thousand, which has been discussed in more detail in Note 16.4 to these financial statements. As at 31 December 2016, the Tax Capital Group reported income tax receivables of PLN 83 153 thousand.
Regulations concerning VAT, corporate income tax and social insurance charges are frequently amended. The applicable regulations may also contain ambiguous issues, which lead to differences in opinions concerning the legal interpretation of tax legislation both among the tax authorities and between such authorities and enterprises.
Tax reports and other matters (e.g. customs or foreign currency transactions) may be audited by authorities competent to impose substantial penalties and fines, whereas any additional tax liabilities assessed during such audits have to be paid together with interest. Consequently, the figures presented and disclosed in these financial statements may change in future if a final decision is issued by tax inspection authorities.
As of 15 July 2016, changes were introduced to the Tax Ordinance to incorporate the general anti-avoidance rule (GAAR), which is aimed to prevent the creation and use of artificial legal structures with a view to avoiding the payment of taxes in Poland. GAAR defines tax avoidance as an activity which is primarily intended to derive a tax benefit that is, in specific circumstances, in conflict with the scope and the objectives of the applicable tax law. The new regulations will require considerably more judgment in the assessment of the tax consequences of transactions.
GAAR should be applied to transactions made following its entry into force as well as transactions made prior to its implementation for which benefits continued or continue to be derived following the date of GAAR introduction.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Change in receivables | 105 267 | (254 506) |
| Change in inventories | 86 371 | (35 307) |
| Change in payables excluding loans and borrowings | (59 096) | 21 190 |
| Change in other non-current and current assets | 11 211 | 60 110 |
| Change in deferred income, government grants and accruals | (6 909) | 1 867 |
| Change in provisions | (194 062) | 75 897 |
| Change in working capital | (57 218) | (130 749) |
Payments to purchase bonds, in the amount of PLN 350 000 thousand, are related to purchases of intra-group bonds issued by the following subsidiaries: ••
Payments to acquire shares of PLN 6 169 590 thousand were mainly related to the Company's transfer of funds to increase the issued capital of subsidiaries: ••
Payments to grant loans result from the loans disbursed to Elektrociep³ownia Stalowa Wola S.A., a jointly-controlled entity, in the total amount of PLN 304 192 thousand, and to PGE EJ 1 Sp. z o.o., in the amount of PLN 2 940 thousand.
Proceeds from redemption of bonds, in the amount of PLN 3 547 110 thousand, are related to redemption of intra-group bonds issued by the following subsidiaries: ••
Loan repayment of PLN 1 000 000 thousand constitutes partial repayment of a loan granted to the subsidiary TAURON Ekoenergia Sp. z o.o., which has been discussed in more detail in Note 25 to these financial statements.
| Total | 642 017 | 474 126 |
|---|---|---|
| Interest received in relation to loans granted | – | 1 681 |
| Interest received in relation to debt securities | 642 017 | 472 445 |
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
The expenditure on repayment of loans and borrowings in the year ended 31 December 2017 totalling PLN 175 695 thousand is the repayment of: ••
Payments on the redemption of debt securities in the year ended 31 December 2017 resulted from the redemption of a tranche of bonds with the par value of PLN 1 650 000 thousand under a bond issue scheme of November 2015, which has been discussed in more detail in Note 33.1 to these financial statements.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Interest paid in relation to debt securities | (221 832) | (271 220) |
| Interest paid in relation to loans | (41 295) | (51 205) |
| Interest paid in relation to borrowings | (1 446) | (27 644) |
| Interest paid in relation to the finance lease | (650) | (603) |
| Exchange differences on loans and borrowings | – | (475) |
| Total | (265 223) | (351 147) |
Proceeds from the issue of debt securities in the year ended 31 December 2017 are related to:
| As at 31 December 2017 | As at 31 December 2016 | ||||
|---|---|---|---|---|---|
| Categories and classes of financial assets | Note | Carrying amount |
Fair value | Carrying amount |
Fair value |
| 1 Financial assets at fair value through profit or loss, held for trading | 106 292 | 106 292 | 45 092 | 45 092 | |
| Derivative instruments | 23 | 4 934 | 4 934 | 19 776 | 19 776 |
| Investment fund units | 24 | 101 358 | 101 358 | 25 316 | 25 316 |
| 2 Financial assets available for sale | 39 244 | 29 703 | |||
| Long-term shares | 21 | 39 244 | 29 703 | ||
| 3 Loans and receivables | 8 228 015 | 8 072 480 | 12 054 366 | 11 920 587 | |
| Receivables from buyers | 27 | 719 133 | 719 133 | 840 656 | 840 656 |
| Bonds | 22 | 6 572 696 | 6 506 729 | 9 858 382 | 9 814 505 |
| Loans granted under cash pool agreement | 33.4 | 190 526 | 190 526 | 15 850 | 15 850 |
| Other loans granted | 25 | 712 654 | 623 086 | 1 307 916 | 1 218 014 |
| Other financial receivables | 33 006 | 33 006 | 31 562 | 31 562 | |
| 4 Financial assets excluded from the scope of IAS 39 | 20 873 435 | 14 844 715 | |||
| Shares in subsidiaries | 21 | 20 457 583 | 14 428 863 | ||
| Shares in jointly-controlled entities | 21 | 415 852 | 415 852 | ||
| 5 Hedging derivative instruments | 23 | 28 482 | 28 482 | 36 641 | 36 641 |
| 6 Cash and cash equivalents | 30 | 721 577 | 721 577 | 198 090 | 198 090 |
| Total financial assets, of which in the statement of financial position: | 29 997 045 | 27 208 607 | |||
| Non-current assets | 27 334 757 | 25 820 473 | |||
| Shares | 20 912 679 | 14 874 418 | |||
| Bonds | 6 009 920 | 9 615 917 | |||
| Loans granted | 382 989 | 1 292 800 | |||
| Derivative instruments | 26 445 | 35 814 | |||
| Other financial assets | 2 724 | 1 524 | |||
| Current assets | 2 662 288 | 1 388 134 | |||
| Receivables from buyers | 719 133 | 840 656 | |||
| Bonds | 562 776 | 242 465 | |||
| Loans granted | 520 191 | 30 966 | |||
| Derivative instruments | 6 971 | 20 603 | |||
| Other financial assets | 131 640 | 55 354 | |||
| Cash and cash equivalents | 721 577 | 198 090 |
| As at 31 December 2017 | As at 31 December 2016 | ||||
|---|---|---|---|---|---|
| Categories and classes of financial liabilities | Note | Carrying amount |
Fair value | Carrying amount |
Fair value |
| 1 Financial liabilities at fair value through profit or loss, held for trading | 14 184 | 14 184 | 560 | 560 | |
| Derivative instruments | 23 | 14 184 | 14 184 | 560 | 560 |
| 2 Financial liabilities measured at amortized cost | 12 670 253 | 12 699 476 | 10 774 316 | 10 808 300 | |
| Arm's length loans, of which: | 4 140 424 | 4 135 000 | 3 203 740 | 3 237 724 | |
| Liability under the cash pool loan | 33.4 | 2 377 034 | 2 377 034 | 1 245 489 | 1 245 489 |
| Loans from the European Investment Bank | 33.2 | 1 042 110 | 1 044 424 | 1 190 501 | 1 193 410 |
| Loans from the subsidiary | 33.3 | 721 280 | 713 542 | 767 750 | 798 825 |
| Overdraft | 33.5 | 93 502 | 93 502 | 15 131 | 15 131 |
| Bonds issued | 33.1 | 7 940 346 | 7 974 993 | 6 942 131 | 6 942 131 |
| Liabilities to suppliers | 37 | 413 265 | 413 265 | 473 637 | 473 637 |
| Other financial liabilities | 38 | 82 586 | 82 586 | 139 177 | 139 177 |
| Liabilities due to purchases of fixed and intangible assets | 38 | 130 | 130 | 500 | 500 |
| 3 Liabilities under guarantees, factoring and excluded from the scope of IAS 39 | 23 945 | 23 945 | 26 974 | 26 974 | |
| Liabilities under finance leases | 33.6 | 23 945 | 23 945 | 26 974 | 26 974 |
| Total financial liabilities, of which in the statement of financial position: | 12 708 382 | 10 801 850 | |||
| Non-current liabilities | 9 497 538 | 8 781 965 | |||
| Debt | 9 472 454 | 8 754 047 | |||
| Other financial liabilities | 20 126 | 27 918 | |||
| Derivative instruments | 4 958 | – | |||
| Current liabilities | 3 210 844 | 2 019 885 | |||
| Debt | 2 725 763 | 1 433 929 | |||
| Liabilities to suppliers | 413 265 | 473 637 | |||
| Derivative instruments | 9 226 | 560 | |||
| Other financial liabilities | 62 590 | 111 759 |
Derivative financial instruments measured at fair value as at the end of the reporting period and classified as assets and liabilities measured at fair value through profit or loss, or designated as hedging derivatives (subject to hedge accounting), have been measured in line with the method described in Note 9.9 to these financial statements. Fair value hierarchy disclosures are provided in Note 23 to these financial statements. Measurement of investment fund units has been classified to Level 1 in the fair value hierarchy. •
Financial instruments classified to other categories of financial instruments:
Consequently, the fair value of the instruments in question has been disclosed in the tables above at their carrying amount.
The Company did not disclose the fair value as at the end of the reporting period of shares in companies not quoted in active markets, categorised to financial assets available for sale. They are measured at cost less impairment losses as at the end of the reporting period. Following the adoption of IFRS 9 Financial Instruments as from 1 January 2018, the Company estimated the fair value of the above shares as at that date, which has been discussed in more detail in Note 7 to these financial statements. In accordance with the Company's accounting policy, shares in subsidiaries and jointly-controlled entities (joint ventures) – financial assets excluded from the scope of IAS 39 Financial Instruments: Recognition and Measurement – are also measured at cost less impairment losses.
| Assets / liabilities at fair value through profit or loss |
Financial assets available for sale |
Loans and receivables |
Financial liabilities measured at amortized cost |
Hedging instruments |
Financial assets / liabilities excluded from the scope of IAS 39 |
Total | |
|---|---|---|---|---|---|---|---|
| Dividends | – | 2 858 | – | – | – | 557 974 | 560 832 |
| Interest income/(expense) | 19 321 | – | 456 413 | (335 282) | 1 525 | (650) | 141 327 |
| Commissions | – | – | – | (19 068) | – | – | (19 068) |
| Exchange differences | (2 483) | – | 1 689 | 128 270 | – | – | 127 476 |
| Impairment / revaluation | (11 820) | – | (32) | – | – | (134 372) | (146 224) |
| Other | (4 866) | – | – | – | – | – | (4 866) |
| Net financial income/(costs) | 152 | 2 858 | 458 070 | (226 080) | 1 525 | 422 952 | 659 477 |
| Revaluation | (13 514) | – | 34 | – | – | – | (13 480) |
| Gain/(loss) on realized commodity derivative instruments |
8 737 | – | – | – | – | – | 8 737 |
| Net operating income/(costs) | (4 777) | – | 34 | – | – | – | (4 743) |
| Remeasurement of IRS | – | – | – | – | (8 159) | – | (8 159) |
| Other comprehensive income | – | – | – | – | (8 159) | – | (8 159) |
| Assets / liabilities at fair value through profit or loss |
Financial assets available for sale |
Loans and receivables |
Financial liabilities measured at amortized cost |
Hedging instruments |
Financial assets / liabilities excluded from the scope of IAS 39 |
Total | |
|---|---|---|---|---|---|---|---|
| Dividends | – | 2 201 | – | – | – | 1 482 951 | 1 485 152 |
| Interest income/(expense) | 6 371 | – | 504 355 | (275 686) | (80 658) | (603) | 153 779 |
| Commissions | – | – | – | (18 814) | – | – | (18 814) |
| Exchange differences | (2 148) | – | 183 | (27 704) | – | – | (29 669) |
| Impairment / revaluation | 14 495 | – | (197 840) | – | – | (1 412 443) (1 595 788) | |
| Gain/(loss) on disposal of investments | – | 1 051 | – | – | – | (88 311) | (87 260) |
| Other | (54) | – | – | – | – | – | (54) |
| Net financial income/(costs) | 18 664 | 3 252 | 306 698 | (322 204) | (80 658) | (18 406) | (92 654) |
| Revaluation | 15 982 | – | 1 543 | – | – | – | 17 525 |
| Gain/(loss) on realized commodity derivative instruments |
(34 365) | – | – | – | – | – | (34 365) |
| Net operating income/(costs) | (18 383) | – | 1 543 | – | – | – | (16 840) |
| Remeasurement of IRS | – | – | – | – | 127 252 | – | 127 252 |
| Other comprehensive income | – | – | – | – | 127 252 | – | 127 252 |
Following the performance of impairment tests for shares, bonds and loans as at 31 December 2017 and as at 30 June 2017, which has been discussed in more detail in Note 21 to these financial statements, the Company revalued its shares in subsidiaries. •
Revaluation recognized within finance income (costs) affected mostly the following classes of financial instruments:
In the year ended 31 December 2017, gains/losses from valuation of an IRS hedging instrument subject to hedge accounting were recognized within other comprehensive income. In 2017, the change in valuation was PLN (8 159) thousand. Gains/losses from revaluation of the hedging instrument, recognized in other comprehensive income, were recognized in profit/loss for the period as finance costs resulting from interest on issued bonds when the hedged item, i.e. interest on bonds, affected the profit/loss for the period. The amount of PLN 1 525 thousand was recognized in profit/loss for the period as a payment relating to a realized hedge for past interest periods.
The TAURON Group has implemented the policy for management of specific risks in the area of finance, which defines the strategy for management of the currency and interest rate risk. The policy has also introduced hedge accounting in the Group, which lays down the principles and defines the types of hedge accounting, along with the accounting treatment of hedging instruments and hedged items, to be applied as part of hedge accounting under IFRS. The policy for specific risk management in the area of finance and hedge accounting principles are applicable to the cash flow risk.
As at 31 December 2017, the Company was a party to hedging transactions covered by the policy for specific risk management in the area of finance and subject to hedge accounting. The Company hedges a portion of the interest rate risk inherent in cash flows related to issued bonds, which has been discussed in more detail in Note 23 to these financial statements. •
Risks related to financial instruments which the Company is exposed to in its business operations: •
liquidity risk;
market risk, including: –
Credit risk regards potential credit events that may have the form of: a contractor's insolvency, partial repayment of receivables, a material payment delay or another unpredicted breach of contract terms.
The credit risk related to financial assets of the Company results from the inability to make payment by the other party to the agreement and the maximum exposure is equal to the carrying amount of these instruments.
Categories of financial assets held by the Company that give rise to credit risk exposure with different characteristics include: ••
The Company monitors credit risk related to its operations on an ongoing basis. In 2017, the Company was exposed to counterparty credit risk resulting from commercial contracts. To mitigate the risk, as part of the regular analysis of reliability and financial standing of its counterparties, in justified cases the Company required security.
Receivables from buyers include amounts due from subsidiaries and corporate buyers from outside the Group. They do not bear any interest and mature within seven to thirty days, depending on the contract. Sales transactions are only entered into with clients subject to a verification procedure. This – in the opinion of the management – eliminates any additional credit risk, over the level defined by the allowance for bad debts applied to the Company's trade receivables.
The ageing analysis of receivables from buyers as well as information on allowances/write-downs on receivables from buyers have been presented in Note 27 to these financial statements.
According to the Company credit risk exposure of other categories of financial assets is insignificant. Bonds acquired by the Company and loans granted concern mostly transactions with related parties. The items in question had not been overdue as at the end of the reporting period.
The Company manages credit risk related to cash by diversifying banks where it deposits its cash surplus. All entities the Company concludes deposit transactions with operate in the financial sector. They include high-rating banks with sufficient equity and stable, strong market position.
The entities the Company concludes derivative transactions with in order to hedge against interest rate and currency risk operate in the financial sector. They are Polish banks with high financial rating, sufficient equity and strong, stable market position.
The Company maintains a balance between continuity, flexibility and cost of financing by using various sources of funding, which enable management of liquidity risk and effective mitigation of risk consequences.
Liquidity is managed at the Group level. The TAURON Group has adopted Liquidity management policy for the TAURON Group, which facilitates optimization of liquidity management at the TAURON Group and reduces the risk of liquidity loss by the Group and each company from the TAURON Group.
Additionally, in order to minimize the possibility of cash flow disruption and liquidity risk, the TAURON Group, as in previous years, used the cash pooling mechanism. Regardless of funds collected by its individual members, cash pooling is linked to a flexible credit facility in the form of an overdraft. Under the cash pooling agreement, the Company may use external financing in the form of an overdraft of up to PLN 300 000 thousand and an intraday limit of up to PLN 500 000 thousand.
Apart from the overdraft made available under the cash pooling agreement, the Company may use foreign currency overdrafts: ••
Ageing structure of financial liabilities presenting undiscounted payments under applicable agreements has been presented below.
| Contractual Carrying undiscounted |
Including contractual undiscounted payments maturing during the period (from the reporting date) |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| amount | payments | less than 3 months |
3–12 months |
1–2 years | 2–3 years | 3–5 years | over 5 years |
||
| Financial liabilities other than derivative instruments |
|||||||||
| Interest-bearing loans and borrowings (including bonds issued) |
12 174 272 | (14 560 425) | (2 537 566) | (413 335) | (2 322 897) | (2 189 338) | (981 420) (6 115 869) | ||
| Liabilities to suppliers | 413 265 | (413 265) | (413 265) | – | – | – | – | – | |
| Liabilities due to purchases of fixed and intangible assets |
130 | (130) | (130) | – | – | – | – | – | |
| Other financial liabilities | 82 586 | (82 586) | (57 182) | (5 281) | (2 500) | (2 500) | (5 000) | (10 124) | |
| Liabilities under finance lease | 23 945 | (24 142) | (1 474) | (22 668) | – | – | – | – | |
| Derivative financial liabilities | |||||||||
| Derivative instruments – commodity | 4 539 | (4 424) | – | (4 424) | – | – | – | – | |
| Derivative instruments – currency | 346 | (346) | (275) | (71) | – | – | – | – | |
| Derivate instruments – CCIRS | 9 299 | (47 125) | – | (4 694) | (4 694) | (4 748) | (9 427) | (23 562) | |
| Total | 12 708 382 | (15 132 443) (3 009 892) | (450 473) (2 330 091) (2 196 586) | (995 847) (6 149 555) |
| Carrying | Contractual | (from the reporting date) | Including contractual undiscounted payments maturing during the period | |||||
|---|---|---|---|---|---|---|---|---|
| amount | undiscounted payments |
less than 3 months |
3–12 months |
1–2 years | 2–3 years | 3–5 years | over 5 years |
|
| Financial liabilities other than derivative instruments |
||||||||
| Interest-bearing loans and borrowings (including bonds issued) |
10 161 002 | (12 283 976) | (1 297 437) | (399 745) | (475 139) | (2 290 161) | (3 668 348) (4 153 146) | |
| Liabilities to suppliers | 473 637 | (473 637) | (473 616) | (21) | – | – | – | – |
| Liabilities due to purchases of fixed and intangible assets |
500 | (500) | (500) | – | – | – | – | – |
| Other financial liabilities | 139 177 | (139 177) | (110 621) | (638) | (7 918) | (2 500) | (5 000) | (12 500) |
| Liabilities under finance lease | 26 974 | (27 821) | (1 021) | (3 084) | (23 716) | – | – | – |
| Derivative financial liabilities | ||||||||
| Derivate instruments – commodity | 560 | (538) | – | (538) | – | – | – | – |
| Total | 10 801 850 | (12 925 649) (1 883 195) | (404 026) | (506 773) (2 292 661) (3 673 348) (4 165 646) |
As at 31 December 2017, the Company had granted guarantees, sureties and other forms of collateral to related parties in the total amount of PLN 825 876 thousand (excluding registered and financial pledges on shares) versus PLN 1 338 438 thousand as at 31 December 2016, which has been discussed in more detail in Note 44 to these financial statements. As at 31 December 2017, a corporate guarantee granted to a subsidiary to collateralize bonds issued by the entity up to EUR 168 000 thousand (PLN 700 711 thousand) was the key item. The guarantee is valid in the entire bond period, i.e. until the redemption date – 3 December 2029.
The guarantees and sureties granted by the Company constitute contingent liabilities and do not considerably affect the liquidity risk of the Company.
Market risk results from possible adverse impact of fluctuations of the fair value of financial instruments or related future cash flows due to market price changes on the Company's performance. •
The Company identifies the following types of market risk it is exposed to: •
raw material and commodity price risk related to commodity derivative instruments and price risk related to units held by the Company.
The Company is exposed to the risk of interest rate changes related to floating interest rate borrowings acquired and investing in assets with floating and fixed interest rates. The Company is also exposed to lost benefit risk related to a decrease in interest rates in the case of fixed interest rate debt.
The purpose of interest rate risk management is to limit negative effects of market interest rate fluctuations on the Company's cash flows to an acceptable level and to minimize finance costs. In order to hedge interest rate risk related to floating-rate bonds issued, the Company entered into interest rate swap contracts (IRS), which has been discussed in more detail in Note 23 to these financial statements.
Carrying amounts of financial instruments of the Company exposed to the interest rate risk have been presented in tables below. Except the hybrid bonds issued in December 2016 with fixed interest in the first funding period and the fixed-rate eurobonds issued in July 2017, other bonds issued by the Company bear floating interest. As the Company has adopted a dynamic financial risk management strategy where the hedged item concern cash flows relating to the exposure to the floating WIBOR 6M interest rate, the interest rate risk for a portion of interest cash flows has been reduced by the hedging IRS transactions. Thus, a portion of the carrying amount of bonds with interest cash flow fluctuations hedged with interest rate swaps has been presented in the tables below together with valuation of these hedging instruments as fixed-rate items.
| Financial instruments | Fixed interest rate |
Floating interest rate |
Total |
|---|---|---|---|
| Financial assets | |||
| Bonds | 6 572 696 | – | 6 572 696 |
| Loans granted | 142 223 | 760 957 | 903 180 |
| Cash and cash equivalents | – | 721 577 | 721 577 |
| Derivative instruments – IRS | 28 482 | – | 28 482 |
| Financial liabilities | |||
| Bank overdrafts | – | 93 502 | 93 502 |
| Arm's length loans | 1 763 390 | 2 377 034 | 4 140 424 |
| Bonds issued | 4 984 389 | 2 955 957 | 7 940 346 |
| Obligations under finance leases | – | 23 945 | 23 945 |
| Derivative instruments – CCIRS | 9 299 | – | 9 299 |
| Financial instruments | Fixed interest rate |
Floating interest rate |
Total |
|---|---|---|---|
| Financial assets | |||
| Bonds | 9 858 382 | – | 9 858 382 |
| Loans granted* | 1 051 849 | 271 917 | 1 323 766 |
| Cash and cash equivalents | – | 198 090 | 198 090 |
| Derivative instruments – IRS | 36 641 | – | 36 641 |
| Financial liabilities | |||
| Bank overdrafts | – | 15 131 | 15 131 |
| Arm's length loans | 1 958 251 | 1 245 489 | 3 203 740 |
| Bonds issued | 2 938 091 | 4 004 040 | 6 942 131 |
| Obligations under finance leases | – | 26 974 | 26 974 |
* The amount of a loan granted to a subsidiary on which an impairment loss has been recognized has been presented in the table above on a net basis, i.e. less the impairment loss.
Other financial instruments of the Company which have not been presented in the tables above bear no interest and therefore are not exposed to the interest rate risk.
The Company's exposure to currency risk by financial instrument class as at 31 December 2017 and 31 December 2016 has been presented below.
| Total carrying | EUR | USD | GBP | CZK | |||||
|---|---|---|---|---|---|---|---|---|---|
| amount in PLN | in currency | in PLN | in currency | in PLN | in currency | in PLN | in currency | in PLN | |
| Financial assets | |||||||||
| Receivables from buyers | 719 133 | 250 | 1 043 | – | – | – | – | – | – |
| Other financial receivables | 33 006 | 3 321 | 13 852 | – | – | – | – | – | – |
| Cash and cash equivalents | 721 577 | 2 577 | 10 748 | 314 | 1 093 | 485 | 2 280 | 11 003 | 1 796 |
| Derivatives (assets) | 33 416 | 1 169 | 4 876 | 16 | 58 | – | – | – | – |
| Total | 1 507 132 | 7 317 | 30 519 | 330 | 1 151 | 485 | 2 280 | 11 003 | 1 796 |
| Financial liabilities | |||||||||
| Arm's length loans | 4 140 424 | 172 932 | 721 282 | – | – | – | – | – | – |
| Overdraft | 93 502 | 22 069 | 92 048 | 418 | 1 454 | – | – | – | – |
| Bonds issued | 7 940 346 | 692 073 | 2 886 567 | – | – | – | – | – | – |
| Liabilities to suppliers | 413 265 | 65 | 271 | 3 | 10 | 1 | 5 | – | – |
| Other financial liabilities | 82 586 | 1 717 | 7 161 | – | – | – | – | – | – |
| Derivatives (liabilities) | 14 184 | 1 061 | 4 425 | 33 | 114 | – | – | – | – |
| Total | 12 684 307 | 889 917 | 3 711 754 | 454 | 1 578 | 1 | 5 | – | – |
| Net currency position | (882 600) (3 681 235) | (124) | (427) | 484 | 2 275 | 11 003 | 1 796 |
| Total carrying | EUR | USD | GBP | |||||
|---|---|---|---|---|---|---|---|---|
| amount in PLN |
in currency | in PLN | in currency | in PLN | in currency | in PLN | ||
| Financial assets | ||||||||
| Receivables from buyers | 840 656 | 12 | 53 | – | – | – | – | |
| Other financial receivables | 31 562 | 342 | 1 515 | – | – | – | – | |
| Cash and cash equivalents | 198 090 | 5 983 | 26 469 | 306 | 1 279 | 499 | 2 567 | |
| Derivatives (assets) | 56 417 | 3 649 | 16 143 | 100 | 416 | – | – | |
| Total | 1 126 725 | 9 986 | 44 180 | 406 | 1 695 | 499 | 2 567 | |
| Financial liabilities | ||||||||
| Arm's length loans | 3 203 740 | 173 542 | 767 750 | – | – | – | – | |
| Overdraft | 15 131 | 3 032 | 13 415 | 410 | 1 716 | – | – | |
| Bonds issued | 6 942 131 | 190 105 | 841 023 | – | – | – | – | |
| Liabilities to supplier | 473 637 | 32 | 144 | 12 | 50 | – | – | |
| Other financial liabilities | 139 177 | 2 958 | 13 088 | 94 | 393 | 2 | 10 | |
| Derivatives (liabilities) | 560 | 122 | 538 | 5 | 22 | – | – | |
| Total | 10 774 376 | 369 791 | 1 635 958 | 521 | 2 181 | 2 | 10 | |
| Net currency position | (359 805) (1 591 778) | (115) | (486) | 497 | 2 557 |
In 2017 and in 2016, TAURON Polska Energia S.A. used forward contracts for currency risk management purposes. The objective of these transactions is to hedge currency risk related to the operations of the Company. The Company did not use hedge accounting to hedge currency risk. As at 31 December 2017, liabilities arising from valuation of FX forwards held by the Company amounted to PLN 346 thousand (versus assets of PLN 3 217 thousand as at 31 December 2016).
In the year ended 31 December 2017, the Company entered into CCIRS transactions, whose fair value measurement is exposed to the risk of changes in the EUR/PLN exchange rate. These transactions are not subject to hedge accounting. As at 31 December 2017, the amount from valuation of CCIRS was PLN (9 299) thousand, which has been discussed in more detail in Note 23 to these financial statements.
The Company concludes derivative contracts, with underlying instruments being commodities and raw materials. The Company's exposure to price risk inherent in commodity derivative instruments is related to a risk of changes in the fair value of the said instruments, driven by fluctuations of prices of the underlying raw materials/commodities. This way the Company hedges the price risk related to commodity derivative instruments by entering to opposite transaction. The risk is limited to open long and short positions concerning a given commodity or raw material.
As at 31 December 2017, open positions mostly included forwards and futures for emission allowances. As at 31 December 2017, the total carrying amount of all derivative contracts for emission allowances was PLN 453 thousand (the asset item of PLN 4 877 thousand and the liability item of PLN 4 424 thousand). As at 31 December 2016, open positions mostly included forwards and futures for emission allowances as well as a futures contract for gas. The total carrying amount of all derivative contracts for emission allowances was PLN 15 012 thousand (the asset item of PLN 15 550 thousand and the liability item of PLN 538 thousand) and PLN 593 thousand (asset) in the case of the gas derivative transaction.
As at 31 December 2017, the Company held units in investment funds with the carrying amount of PLN 101 358 thousand. As they are measured at fair value at the end of the reporting period, they are exposed to the price risk.
As for financial instruments held, the Company is exposed mostly to the risk of EUR/PLN, USD/PLN and GBP/PLN exchange rate changes as well as changes in reference interest rates for PLN, EUR and USD.
The analysis of sensitivity to changes in market risk factors is conducted by means of a scenario analysis. The Company relies on expert scenarios reflecting its judgment concerning the behaviour of individual market risk factors in the future.
The scenario analyses presented herein are aimed at examining the effect of changes in market risk factors on the Company's financial performance. The scope of the analysis includes only those items which meet the IFRS definition of financial instruments.
Presented below is the sensitivity analysis for the interest rate, currency and price risks to which the Company is exposed as at the end of the reporting period, along with the effect of potential changes in individual risk factors on the gross profit/loss as well as other comprehensive income (gross), by class of financial assets and liabilities.
The interest rate risk sensitivity analysis is conducted by the Company using the parallel shift in the yield curve by the potential change in reference interest rates within a horizon until the date of the next financial statements. The interest rate risk sensitivity analysis has been carried out based on average reference interest rates in the year. The scale of potential changes in interest rates has been estimated on the basis of implied volatility for interest rate options quoted on the interbank market for currencies which expose the Company to the interest rate risk as at the end of the reporting period.
The Company identifies its exposure to the risk of changes in WIBOR, EURIBOR and LIBOR USD interest rates. As at 31 December 2017, its exposure to the risk of changes in LIBOR USD was immaterial, while the sensitivity analysis performed as at 31 December 2016 did not focus on changes in EURIBOR and LIBOR USD as their effect was considered insignificant. The tables below present sensitivity of the gross profit/loss as well as other comprehensive income (gross) to reasonably possible changes in interest rates within a horizon until the date of the next financial statements, assuming that all other risk factors remain unchanged.
| 31 December 2017 | Sensitivity analysis for interest rate risk as at 31 December 2017 |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| WIBOR EURIBOR |
|||||||||
| Classes of finacial instruments | Carrying | Value at | WIBOR + 43 bp |
WIBOR - 43 bp |
EURIBOR + 1 bp |
EURIBOR - 1 bp |
|||
| amount | risk | Profit/ (Loss) |
Other comprehensive income |
Profit/ (Loss) |
Other comprehensive income |
Profit/(Loss) | |||
| Loans granted | 903 180 | 760 957 | 3 272 | – | (3 272) | – | – | – | |
| Cash and cash equivalents | 721 577 | 721 577 | 3 034 | – | (3 034) | – | 1 | (1) | |
| Derivatives (assets) | 33 416 | 28 482 | – | 21 217 | – | (21 217) | – | – | |
| Bank overdrafts | 93 502 | 93 502 | – | – | – | – | (9) | 9 | |
| Arm's length loans | 4 140 424 2 377 034 | (10 221) | – | 10 221 | – | – | – | ||
| Bonds issued | 7 940 346 5 053 777 | (21 731) | – | 21 731 | – | – | – | ||
| Obligations under finance leases | 23 945 | 23 945 | (103) | – | 103 | – | – | – | |
| Derivates (liabilities) | 14 184 | 9 299 | 5 995 | – | (5 995) | – | (146) | 146 | |
| Total | (19 754) | 21 217 | 19 754 | (21 217) | (154) | 154 |
The exposure to risk as at 31 December 2017 is representative for the Company's exposure to risk during the annual period preceding the aforementioned date, except for material transactions made at the end of 2017. They concern derivative instruments (liabilities), including CCIRS transactions entered into in November and December 2017, which are sensitive to both changes in WIBOR and EURIBOR interest rates. CCIRS instruments have been discussed in more detail in Note 23 to these financial statements.
| 31 December 2016 | Sensitivity analysis for interest rate risk as at 31 December 2016 |
|||||||
|---|---|---|---|---|---|---|---|---|
| WIBOR | ||||||||
| Classes of finacial instruments | Carrying | WIBOR + 60 bp | WIBOR -60 bp | |||||
| amount | Value at risk | Profit/(Loss) | Other comprehensive income |
Profit/(Loss) | Other comprehensive income |
|||
| Loans granted | 1 323 766 | 271 917 | 1 632 | – | (1 632) | – | ||
| Cash and cash equivalents | 198 090 | 198 090 | 1 007 | – | (1 007) | – | ||
| Derivatives (assets) | 56 417 | 36 641 | – | 40 992 | – | (40 992) | ||
| Arm's length loans | 3 203 740 | 1 245 489 | (7 473) | – | 7 473 | – | ||
| Bonds issued | 6 942 131 | 6 101 108 | (36 607) | – | 36 607 | – | ||
| Obligations under finance leases | 26 974 | 26 974 | (162) | – | 162 | – | ||
| Total | (41 603) | 40 992 | 41 603 | (40 992) |
The exposure to risk as at 31 December 2016 is representative for the Company's exposure to risk during the annual period preceding the aforementioned date.
The potential changes in foreign exchange rates have been determined within a horizon until the date of the next financial statements and calculated on the basis of annual implied volatility for FX options quoted on the interbank market for a given currency pair as at the end of the reporting period or, in the absence of quoted market prices, on the basis of historical volatility for a period of one year preceding the end of the reporting period.
The Company identifies its exposure to foreign currency risk related to EUR/PLN, USD/PLN and GBP/PLN exchange rates, and additionally the CZK/PLN exchange rate in the year ended 31 December 2017. The tables below present sensitivity of the gross profit/loss to reasonably possible changes in the EUR/PLN, USD/PLN, GBP/PLN and CZK/PLN exchange rates within a horizon until the date of the next financial statements, assuming that all other risk factors remain unchanged.
| 31 December 2017 | Sensitivity analysis for currency risk as at 31 December 2017 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| EUR/PLN | USD/PLN | GBP/PLN | CZK/PLN | |||||||
| Classes of finacial instruments |
Carrying amount |
Value at risk |
exchange rate EUR/PLN +6.2% |
exchange rate EUR/PLN -6.2% |
exchange rate USD/PLN +9.76% |
exchange rate USD/PLN -9.76% |
exchange rate GBP/PLN +9.35% |
exchange rate GBP/PLN -9.35% |
exchange rate CZK/PLN +6.34% |
exchange rate CZK/PLN -6.34% |
| Profit/(Loss) | Profit/(Loss) | Profit/(Loss) | Profit/(Loss) | |||||||
| Receivables from buyers | 719 133 | 1 043 | 65 | (65) | – | – | – | – | – | – |
| Other financial receivables | 33 006 | 13 852 | 859 | (859) | – | – | – | – | – | – |
| Cash and cash equivalents | 721 577 | 15 917 | 667 | (667) | 107 | (107) | 213 | (213) | 114 | (114) |
| Derivatives (assets) | 33 416 | 4 934 | 302 | (302) | 6 | (6) | – | – | – | – |
| Overdraft | 93 502 | 93 502 | (5 705) | 5 705 | (142) | 142 | – | – | – | – |
| Arm's length loans | 4 140 424 | 721 282 | (44 720) | 44 720 | – | – | – | – | – | – |
| Bonds issued | 7 940 346 2 886 567 | (178 967) | 178 967 | – | – | – | – | – | – | |
| Liabilities to suppliers | 413 265 | 286 | (17) | 17 | (1) | 1 | – | – | – | – |
| Other financial liabilities | 82 586 | 7 161 | (444) | 444 | – | – | – | – | – | – |
| Derivatives (liabilities) | 14 184 | 14 184 | 19 394 | (19 394) | (11) | 11 | – | – | – | – |
| Total | (208 566) | 208 566 | (41) | 41 | 213 | (213) | 114 | (114) |
The exposure to risk as at 31 December 2017 is representative for the Company's exposure to risk during the annual period preceding the aforementioned date, except for material transactions made in the second half of 2017. These include issued bonds, consisting of eurobonds issued by the Company in July 2017, which has been discussed in more detail in Note 33.1 to these financial statements, and derivatives (liabilities), consisting of CCIRS transactions entered into in November and December 2017, which has been discussed in more detail in Note 23 to these financial statements.
| 31 December 2016 | Sensitivity analysis for currency risk as at 31 December 2016 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| EUR/PLN | USD/PLN | GBP/PLN | ||||||||
| Classes of finacial instruments | Carrying amount |
Value at risk |
exchange rate EUR/PLN +7.8% |
exchange rate EUR/PLN -7.8% |
exchange rate USD/PLN +13.8% |
exchange rate USD/PLN -13.8% |
exchange rate GBP/PLN +11.55% |
exchange rate GBP/PLN -11.55% |
||
| Profit/(Loss) | Profit/(Loss) | Profit/(Loss) | ||||||||
| Receivables from buyers | 840 656 | 53 | 4 | (4) | – | – | – | – | ||
| Other financial receivables | 31 562 | 1 515 | 118 | (118) | – | – | – | – | ||
| Cash and cash equivalents | 198 090 | 30 315 | 2 065 | (2 065) | 177 | (177) | 296 | (296) | ||
| Derivatives (assets) | 56 417 | 19 776 | 6 624 | (6 624) | 57 | (57) | – | – | ||
| Overdraft | 15 131 | 15 131 | (1 046) | 1 046 | (237) | 237 | – | – | ||
| Arm's length loans | 3 203 740 | 767 750 | (59 884) | 59 884 | – | – | – | – | ||
| Bonds issued | 6 942 131 | 841 023 | (65 600) | 65 600 | – | – | – | – | ||
| Liabilities to suppliers | 473 637 | 194 | (11) | 11 | (7) | 7 | – | – | ||
| Other financial liabilities | 139 177 | 13 491 | (1 021) | 1 021 | (54) | 54 | (1) | 1 | ||
| Derivatives (liabilities) | 560 | 560 | (42) | 42 | (3) | 3 | – | – | ||
| Total | (118 793) | 118 793 | (67) | 67 | 295 | (295) |
The exposure to risk as at 31 December 2016 is representative for the Company's exposure to risk during the annual period preceding the aforementioned date, except for a transaction made at the end of 2016. It concerned a class of the Company's hybrid bonds issued in December 2016 with the euro as the issue and repayment currency.
The analysis of sensitivity to changes in emissions risk factors is conducted by the Company by means of a scenario analysis. The scenarios reflect the Group's assessment of individual risk factors in the future and are aimed to analyse the effect of changes in risks on the Company's financial performance.
| Carrying amount as at 31 December 2017 |
Increase | Decrease | ||||||
|---|---|---|---|---|---|---|---|---|
| price (EUR) |
Assets | Liabilities | price (EUR) |
Impact on gross profit |
price (EUR) |
Impact on gross profit |
||
| Derivative instruments – commodity (emission allowances) |
||||||||
| EUA Dec18 | 8.18 | 4 877 | 4 424 | 10.81 | (22) | 7.14 | 9 | |
| EUA inventory – measurement to fair value | 8.14 | 8 | – | 10.75 | 22 | 7.11 | (9) | |
| Total | 4 885 | 4 424 | – | – |
| Carrying amount as at 31 December 2016 |
Increase | Decrease | ||||||
|---|---|---|---|---|---|---|---|---|
| price (EUR) |
Assets | Liabilities | price (EUR) |
Impact on gross profit |
price (EUR) |
Impact on gross profit |
||
| Derivative instruments – commodity (emission allowances) |
||||||||
| EUA Dec17 | 6.57–6.58 | 5 410 | 319 | 10.18 | (10 381) | 4.14 | 6 988 | |
| EUA Jan17 | 6.54 | 10 140 | – | 10.14 | (21 421) | 4.12 | 14 400 | |
| EUA Apr17 | 6.55 | – | 219 | 10.15 | (780) | 4.13 | 524 | |
| EUA inventory – measurement to fair value | 6.54 | 13 226 | – | 10.14 | 32 553 | 4.12 | (21 883) | |
| Total | 28 776 | 538 | (29) | 29 |
For purposes of the analysis of sensitivity to changes in the quoted prices of the units in investment funds held by the Company, the Company relies on a scenario analysis. The potential changes in the quoted prices are determined within a horizon until the date of the next financial statements and calculated by reference to the funds' monthly quoted prices within one year preceding the end of the reporting period.
| 31 December 2017 | Sensitivity analysis for price risk as at 31 December 2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| Value at risk | Price change | Price change | ||||||
| Investment fund units | Carrying amount |
+1.3% | -1.3% | +0.8% | -0.8% | |||
| Impact on gross profit | ||||||||
| Units in fund investing in money market instruments |
5 084 | 5 084 | 66 | (66) | ||||
| Units in fund investing in money market instruments and other debt securities |
96 274 | 96 274 | 770 | (770) | ||||
| Total | 101 358 | 101 358 | 66 | (66) | 770 | (770) |
| 31 December 2016 | Sensitivity analysis for price risk as at 31 December 2016 | |||||||
|---|---|---|---|---|---|---|---|---|
| Price change | Price change | |||||||
| Investment fund units | Carrying amount |
Value at risk | +1.0% | -1.0% | -0.7% | |||
| Impact on gross profit | ||||||||
| Units in fund investing in money market instruments |
2 519 | 2 519 | 25 | (25) | ||||
| Units in fund investing in money market instruments and other debt securities |
22 797 | 22 797 | 160 | (160) | ||||
| Total | 25 316 | 25 316 | 25 | (25) | 160 | (160) |
The Company is exposed to adverse effects of risks related to changes in cash flows and financial performance in the domestic currency due to changes in prices of goods in the open market position.
Commercial operational risk is managed at the level of the TAURON Group, which has been discussed in more detail in Notes 45 and 46 to the consolidated financial statements of the TAURON Polska Energia S.A. Capital Group for the year ended 31 December 2017. The Company manages its commercial risk following the Commercial risk management policy developed and adopted in the TAURON Group.
The Company's exposure to the risk of prices of goods reflects the volume of electricity and gas acquired. The volume and cost of electricity and gas acquired have been presented below.
| 2017 | 2016 | ||||
|---|---|---|---|---|---|
| Fuel type Unit Volume |
Purchase cost | Volume | Purchase cost | ||
| Electricity | MWh | 42 245 897 | 6 962 695 | 41 966 994 | 7 152 963 |
| Gas | MWh | 2 561 368 | 201 315 | 3 084 545 | 249 878 |
| Total | 7 164 010 | 7 402 841 |
As for trading in coal, the Company is not exposed to the price risk, as it acts as an agent generating revenue from agency services only.
As at 31 December 2017 and 31 December 2016 the Company's contingent liabilities arise mainly from collateral and guarantees granted to related parties. Contingent liabilities recognized as of below:
| Type of contingent | Company in respect of | which contingent liability Beneficiary |
As at 31 December 2017 |
As at 31 December 2016 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| liability | has been granted | Validity | EUR | PLN | EUR | PLN | ||||||||
| corporate guarantee | TAURON Sweden Energy AB (publ) |
holders of bonds issued by TAURON Sweden Energy AB (publ) |
3.12.2029 | 168 000 | 700 711 | 168 000 | 743 232 | |||||||
| corporate guarantee | TAURON Ekoenergia Sp. z o.o. | Business entities and buyers being parties to contracts with TAURON Ekoenergia Sp. z o.o. based on the electricity trading licence issued by the President of the Energy Regulatory Office |
31.12.2030 | 16 400 | – | |||||||||
| blank promissory note | TAURON Wytwarzanie S.A. | Regional Fund for | 15.12.2022 | 40 000 | 40 000 | |||||||||
| with a promissory note declaration |
TAURON Ciep³o Sp. z o.o. | Environmental Protection and Water Management in Katowice |
15.12.2022 | 30 000 | 30 000 | |||||||||
| financing commitment | TAURON Ciep³o Sp. z o.o. | Regional Fund for Environmental Protection and Water Management in Katowice |
– | 178 300 | ||||||||||
| Bank Polska Kasa Opieki S.A. | – | 74 992 | ||||||||||||
| guarantees issued by The Bank of |
Elektrociep³ownia Stalowa | European Investment Bank | – | 156 000 | ||||||||||
| Tokyo-Mitsubishi UFJ, Ltd. | Wola S.A. | European Bank for Reconstruction and Development |
– | 83 494 | ||||||||||
| registered pledges and financial pledge of shares in TAMEH HOLDING Sp. z o.o. |
TAMEH Czech s.r.o. TAMEH POLSKA Sp. z o.o. |
RAIFFEISEN BANK INTERNATIONAL AG |
31.12.2028* | 415 852 | 415 852 | |||||||||
| surety contract | Kopalnia Wapienia Czatkowice Sp. z o.o. |
Regional Fund for Environmental Protection and Water Management in Kraków |
15.06.2021 | 914 | 930 | |||||||||
| surety contract | TAURON Wydobycie S.A. | Millennium Leasing Sp. z o.o. | – | 2 900 | ||||||||||
| surety contract | Nowe Jaworzno Grupa TAURON Sp. z o.o. |
Fund Advisors | 28.09.2025 | 2 350 | – | |||||||||
| TAURON Wytwarzanie S.A. | Polskie Sieci Elektroenergetyczne S.A. |
4.08.2019 | 5 000 | 5 000 | ||||||||||
| surety contract | TAURON Sprzeda¿ Sp. z o.o. | Polska Spó³ka Gazownictwa Sp. z o.o. |
31.03.2018 | 15 000 | 15 000 | |||||||||
| Elektrociep³ownia Stalowa Wola S.A. |
Operator Gazoci¹gów Przesy³owych GAZ-SYSTEM S.A. 30.07.2020 |
1 667 | – | |||||||||||
| TAURON Czech Energy s.r.o. | CEZ a.s. | – | – | 1 500 | 6 636 | |||||||||
| liability towards CaixaBank S.A. being result |
TAURON Ciep³o Sp. z o.o. | Elektrobudowa S.A. | 31.12.2018 | 12 300 | – | |||||||||
| of guarantees issued by the bank for subsidiaries |
other subsidiaries | various entities | 2018–2020 | 1 534 | 263 | |||||||||
| liability towards Powszechna Kasa Oszczêdnoœci Bank Polski S.A. being result of guarantees issued by the bank for subsidiaries |
subsidiaries | various entities | – | 1 691 |
* Registered pledges are valid in the collateral period, i.e. until the total repayment or until release of the pledge by the pledgee. The financial pledge is valid in the entire collateral period or until release by the pledgee, not later than on 31 December 2028. •
The key items of contingent liabilities arising from guarantees, collateral and financing commitments are:
Corporate guarantee
Corporate guarantee given to secure the bonds issued by TAURON Sweden Energy AB (publ). The guarantee remains valid until 3 December 2029, i.e. until the date of redemption of bonds, and amounts to EUR 168 000 thousand (PLN 700 711 thousand). The beneficiaries of the guarantee are the bondholders.
On 15 May 2015, TAURON Polska Energia S.A. established a financial pledge and registered pledges on 3 293 403 issued shares of TAMEH HOLDING Sp. z o.o., representing ca. 50% of the issued capital. RAIFFEISEN BANK INTERNATIONAL AG is the beneficiary of the aforesaid pledges. They include a first lien registered pledge on shares with the maximum collateral amount of CZK 3 950 000 thousand and a first lien registered pledge on shares with the maximum collateral amount of PLN 840 000 thousand. On 15 September 2016, Annex 1 was executed to the aforementioned agreement, whereby the maximum collateral amount was changed to PLN 1 370 000 thousand. The Company also agreed to establish a financial pledge and registered pledges of new shares acquired or taken up. Moreover, the Company assigned the rights to dividend and other payments.
The agreement to establish registered pledges and a financial pledge was concluded to secure transactions including the agreement for term loans and working capital loans, entered into by TAMEH Czech s.r.o. and TAMEH POLSKA Sp. z o.o. as original borrowers, TAMEH HOLDING Sp. z o.o. as the parent and the guarantor, and RAIFFEISEN BANK INTERNATIONAL AG as the agent and the collateral agent. The registered pledges are valid in the collateral period, i.e. until the total repayment or until release of the pledge by the pledgee. The financial pledge is valid in the entire collateral period or until release by the pledgee, not later than on 31 December 2028.
As at 31 December 2017, the carrying amount of shares in TAMEH HOLDING Sp. z o.o. was PLN 415 852 thousand.
Financing commitments
In order to enable TAURON Ciep³o Sp. z o.o. to apply for a non-refundable grant for the projects undertaken under the "Low emission liquidation in the Silesia and Dabrowa urban area" scheme funded by the Regional Fund for Environmental Protection and Water Management in Katowice, the Company provided TAURON Ciep³o Sp. z o.o. with a commitment to finance the latter with the total amount of PLN 178 300 thousand. The commitments were valid until 31 December 2017; they were not renewed.
Bank guarantees issued on the Company's request by The Bank of Tokyo-Mitsubishi UFJ, Ltd.
The Company requested bank guarantees to secure the liabilities of Elektrociep³owna Stalowa Wola S.A. under the standstill agreement. The bank guarantees, valid until 14 April 2017 and totalling PLN 314 486 thousand, were issued to: ––
On 31 March 2017, Elektrociep³ownia Stalowa Wola S.A. paid all its liabilities to the financing banks. The guarantees expired on 14 April 2017.
Blank promissory notes
The Company issued blank promissory notes along with promissory note declarations, totalling PLN 70 000 thousand, as collateral for loan agreements entered into by its subsidiaries with the Regional Fund for Environmental Protection and Water Management in Katowice. The collateral in the form of promissory notes is valid until the subsidiaries' payment of all their liabilities to the lender. The promissory notes are valid until 15 December 2022.
On 18 March 2015 the subsidiary in liquidation terminated long-term contracts concluded in the years 2009–2010 to purchase electricity and property rights from wind farms owned by the companies in the in.ventus group, Polenergia and Wind Invest. The reason for the termination of the contracts by Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. was that the counterparties had breached the contractual provisions by refusing to negotiate in good faith the terms and conditions of the contracts. A case was brought against the Company for the statements made in the notice of termination be declared void. In the case brought by Dobies³aw Wind Invest Sp. z o.o. in 2016 the Regional Court in Warsaw dismissed the claim for declaring the termination of the contracts void. The claimant appealed against the ruling.
In 2016 the claims against the Company were changed to include claims for compensation for termination of the contracts totalling approx. PLN 40 000 thousand.
In October 2017 Dobies³aw Wind Invest Sp. z o.o. filed a new lawsuit against Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. for payment of PLN 42 095 thousand of compensation and liquidated damages.
After the balance sheet date, in January 2018 the claims brought by Amon Sp. z o.o., Talia Sp. z o.o. and Mogilno III-VI have been amended by extending them with further claims for liquidated damages related to the termination of contracts in the total amount of approximately PLN 69 472 thousand.
In light of the current status of the proceedings and the related circumstances, the Group believes that the probability of losing the cases both as regards declaration of ineffectiveness of the termination notices and securing non-monetary claims and the claims for compensation does not exceed 50%. Therefore, no provision for the related costs has been recognized.
In November 2014 an action was brought against Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. and TAURON Polska Energia S.A. by Dobies³aw Wind Invest Sp. z o.o. to prevent an imminent danger of loss. It was claimed that the Company should revoke the liquidation of Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. in liquidation. A subsidiary claim was that TAURON Polska Energia S.A. should be obliged to provide security in the amount of PLN 183 391 thousand as a court deposit.
On 8 March 2017, pursuant to a decision of the Shareholders' Meeting of Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. the liquidation of the company was revoked. Therefore, in accordance with the order of the Regional Court in Krakow issued on 15 March 2017, the parties to the dispute exchanged pleadings to respond to the change in the company in which the claimant upheld their demands.
On 2 August 2017 the Company's representative in the case received pleadings from Dobies³aw Wind Invest Sp. z o.o. which changed the claims. The claimant withdrew the initial claim against subsidiary Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. and changed the claim against the Company from a claim for prevention of an imminent danger of loss to a claim for compensation. Dobies³aw Wind Invest Sp. z o.o. demands payment of approx. PLN 34 700 thousand with statutory interest as of the date of the claim to the date of payment. Moreover, the claimant seeks a ruling that the Company is liable for future damages of Dobies³aw Wind Invest Sp. z o.o., which the latter estimates at approx. PLN 254 000 thousand, (resulting from the Company's alleged torts) and a security of approx. PLN 254 000 thousand in case the court does not establish the Company's liability for future losses. The factual basis of the claim, in accordance with the claimant, is the termination of the long-term contracts to sell electricity and property rights by subsidiary Polska Energia Pierwsza Kompania Handlowa Sp. z o.o.
An analysis of the justification of the statements of the claim shows that they are wholly groundless. At a hearing on 4 October 2017, upon request of TAURON Polska Energia S.A., the Court decided that the new statement of claim against TAURON Polska Energia S.A. would be examined separately. As far as the initial claims against TAURON Polska Energia S.A. and Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. (demand that the liquidation be revoked), the Court referred the case to be examined at a closed-door hearing and dismissed.
As the court will have to examine extensive evidence and conduct an analysis of a legal issue which has not been resolved before, it is too early to anticipate the outcome of the proceedings but it is very likely that the decision of the court will be favourable for the defendants.
On 20 July 2017 the Company was served with a summons dated 29 June 2017 of Gorzyca Wind Invest Sp. z o.o. against TAURON Polska Energia S.A. for damages of approx. PLN 39 700 thousand and assessment of liability for future damages resulting from torts, including unfair competition, estimated by the claimant at approx. PLN 465 900 thousand. The case will be heard by a Regional Court in Katowice. On 18 September 2017 the Company responded to the summons and among other things requested that the claim be dismissed in full as manifestly unfounded. On 1 December 2017 Gorzyca Wind Invest Sp. z o.o. filed a reply to the defence in which it sustained the position presented in the claims and denied the position and arguments of the Company presented in the reply. By the decision of the District Court in Katowice of 8 February 2018, the proceedings brought by Gorzyca Wind Invest Sp. z o.o. against TAURON Polska Energia SA, is entirely carried out in camera, the announcement of the decision ending the proceedings will take place publicly.
Another summons, dated 29 June 2017, of Pêkanino Wind Invest Sp. z o.o. against TAURON Polska Energia S.A. for damages of approx. PLN 28 500 thousand and assessment of liability for future damages resulting from torts, including unfair competition, estimated by the claimant at PLN 201 600 thousand was delivered on 21 August 2017. On 5 October 2017 the Company responded to the claim and among other things requested that the claim be dismissed in full as manifestly unfounded. On 1 December 2017 Pêkanino Wind Invest Sp. z o.o. filed a reply to the defence in which it sustained the position presented in the claims and denied the position and arguments of the Company presented in the reply. By the date of approval of these financial statements for issue the date of the hearing had not been set.
On 16 October 2017 the Company was served a summons dated 29 June 2017 of Nowy Jaros³aw Wind Invest Sp. z o.o. against TAURON Polska Energia S.A. for damages of approx. PLN 27 000 thousand and assessment of liability for future damages resulting from torts, including unfair competition, estimated by the claimant at PLN 197 800 thousand. On 28 December 2017 the Company responded to the claim and among other things requested that the claim be dismissed in full as manifestly unfounded. By the date of approval of these financial statements for issue the date of the hearing had not been set.
The factual basis of all the claims, in accordance with the claimants, is the termination of the long-term contracts to purchase electricity and property rights resulting from energy certificates by subsidiary Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. and the total amount of the future loss incurred by all members of the Wind Invest group estimated by the claimant will be PLN 1 212 900 thousand.
As at date of approval of these financial statements for issue, the Company stands a good chance of a favourable ruling, i.e. the changes are estimated at 70%. •
Following the Company's business combination with Górnoœl¹ski Zak³ad Elektroenergetyczny S.A. ("GZE"), TAURON Polska Energia S.A. became a party to a court dispute with Huta £aziska S.A. ("Huta"), against GZE and the State Treasury represented by the President of the Energy Regulatory Office. At present, the case is pending at the Regional Court in Warsaw.
Based on a decision of 12 October 2001, the President of the Energy Regulatory Office ordered GZE to resume electricity supplies to Huta (suspended on 11 October 2001 since Huta had not paid its liabilities) on such terms as set out in the agreement of 30 July 2001, in particular at the price of PLN 67/MWh, until final resolution of the dispute, and on 14 November 2001 the dispute was finally resolved pursuant to a decision stating that discontinuation of electricity supplies was not unjustified. Huta appealed against that decision. On 25 July 2006, the Court of Appeals in Warsaw issued a final and binding decision ending the dispute concerning GZE's energy supplies to Huta. The court dismissed Huta's appeal against the decision of the Regional Court in Warsaw dated 19 October 2005, in which the court had dismissed Huta's appeal against the decision of the President of the Energy Regulatory Office. Huta filed a cassation appeal against the decision of the Court of Appeals in Warsaw, which was dismissed by the judgment of the Supreme Court dated 10 May 2007. On 15 November 2001 (following the issue of the above decision by the President of the Energy Regulatory Office on 14 November 2001 and due to the growing indebtedness of Huta to GZE due to power supply) GZE again suspended power supply. Therefore, Huta has sued GZE for damages.
Under a suit of 12 March 2007 against GZE and the State Treasury represented by the President of the Energy Regulatory Office (jointly and severally) Huta claimed the payment of PLN 182 060 thousand together with interest from the date of filing the suit to the date of payment, in respect of damages for alleged losses resulting from GZE's failure to comply with the decision of the President of the Energy Regulatory Office dated 12 October 2001.
In this case, the courts of the first and second instance passed judgements favourable for GZE; however, in its judgement of 29 November 2011 the Supreme Court overruled the decision of the Court of Appeals and remanded the case for re-examination by that Court. On 5 June 2012, the Court of Appeals overruled the decision of the Regional Court and remanded the case for re-examination by the latter. The case has been heard by the first-instance court since 27 November 2012.
Based on a legal analysis of claims the Company believes that they are unjustified and the risk that they must be satisfied is remote. As a result, no provision has been recognized by the Company for any costs associated with those claims. •
The claim filed by ENEA S.A. ("ENEA") against TAURON Polska Energia S.A. in a case heard by the Regional Court in Katowice since 2016 regards the payment of PLN 17 086 thousand with statutory interest calculated from 31 March 2015 to the payment date. ENEA's claim is based on charges relating to unjust enrichment of the Company associated with possible errors in determination of aggregate measurement and settlement data by ENEA Operator Sp. z o.o. (as the Distribution System Operator), used as the basis for settlements between ENEA and the Company and Polskie Sieci Elektroenergetyczne S.A. arising from non-balancing volumes on the Balancing Market between January and December 2012.
In the course of the proceedings, at the request of ENEA, the court decided to extend the suit against seven sellers for which TAURON Polska Energia S.A. acted as an entity in charge of trade balances in the distribution area of ENEA Operator Sp. z o.o. in 2012. The sellers included two subsidiaries of TAURON Polska Energia S.A., i.e.: TAURON Sprzeda¿ Sp. z o.o. (from which ENEA S.A. demanded PLN 4 934 thousand with statutory interest as of the date of serving a copy of the request to extend the suit until the date of payment) and TAURON Sprzeda¿ GZE Sp. z o.o. (from which ENEA S.A. demanded PLN 3 480 thousand with statutory interest as of the date of serving a copy of the request to extend the suit until the date of payment). The demand for payment of the above amounts as well as the amounts claimed from the other five sellers was submitted by the petitioner in case the claim against TAURON Polska Energia S.A. is dismissed. The case is pending. By the date of approval of these financial statements for publication, the hearing had been adjourned ex officio.
The Company did not recognize any provision as, in its opinion, the risk of losing the case is below 50%. Provisions were recognized by the subsidiaries of TAURON Polska Energia S.A. in the total amount of PLN 5 237 thousand (TAURON Sprzeda¿ Sp. z o.o.) and in the total amount of PLN 3 726 thousand (TAURON Sprzeda¿ GZE Sp. z o.o.). The said provisions cover the principal, interest reviewed as at 31 December 2017 and the cost of the proceedings.
As at 31 December 2017, the value of the claim against the Company is PLN 17 086 thousand, including statutory interest accrued between 31 March 2015 and the payment date. Should the claim filed against the Company be dismissed, the claim for payment by the Group companies totals PLN 8 414 thousand, including statutory interest accrued between the date of service of a copy of the request filed by ENEA S.A. to extend the suit by a specific Group company and the payment date. As new measurement data were presented by ENEA Operator sp. z o.o. in the course of the proceedings, the values of the claims against the Company and/or the Group companies may be expected to change.
| Agreement/transaction | Collateral | Collateral amount |
|---|---|---|
| Bond Issue Scheme dated 16 December 2010 with subsequent annexes |
declaration of submission to enforcement | up to PLN 6 900 000 thousand, valid until 31 December 2018 |
| Long-term Bond Issue Scheme in Bank Gospodarstwa Krajowego |
declaration of submission to enforcement | up to PLN 2 550 000 thousand, valid until 20 December 2032 |
| Bond Issue Scheme dated 24 November 2015 | declaration of submission to enforcement | up to PLN 7 524 000 thousand, valid until 31 December 2023 |
| Bank guarantee agreement with The Bank of Tokyo-Mitsubishi UFJ, Ltd. |
declaration of submission to enforcement | up to PLN 377 383 thousand, valid until 27 October 2018 |
| Agreement for hybrid funding in the form of a subordinated bond issue scheme of 6 September 2017 |
declaration of submission to enforcement | up to PLN 600 000 thousand, valid until 30 June 2034 |
| Framework bank guarantee agreement concluded with CaixaBank S.A. The Company and TAURON Group |
authorization to debit the bank account maintained by CaixaBank S.A. |
up to PLN 100 000 thousand |
| companies can use the limit for guarantees to secure transactions (the maximum guarantee limit amount was determined at PLN 100 000 thousand). |
declaration of submission to enforcement | up to PLN 120 000 thousand valid until 11 July 2021 |
| Agreement with Bank Zachodni WBK S.A. on bank guarantees for Izba Rozliczeniowa Gie³d Towarowych S.A. |
authorization to debit the bank account maintained by BZ WBK S.A. |
up to PLN 150 000 thousand |
| Overdraft agreement and intra-day limit | authorizations to debit the bank account maintained by PKO Bank Polski S.A. |
up to the total amount of PLN 800 000 thousand |
| (bank account agreement) at PKO Bank Polski S.A. (overdraft of up to PLN 300 000 thousand and intra-day limit of |
declaration of submission to enforcement | up to PLN 600 000 thousand, valid until 17 December 2021 |
| up to PLN 500 000 thousand) | declaration of submission to enforcement | up to PLN 360 000 thousand, valid until 29 December 2021 |
| Overdraft agreement with Bank | authorization to debit the bank account maintained by Bank Gospodarstwa Krajowego |
up to PLN 187 690 thousand (EUR 45 000 thousand) |
| Gospodarstwa Krajowego (in EUR, up to EUR 45 000 thousand) |
declaration of submission to enforcement | up to PLN 100 102 thousand (EUR 24 000 thousand) valid until 31 December 2019 |
| declaration of submission to enforcement | up to PLN 208 545 thousand (EUR 50 000 thousand) valid until 31 December 2020 |
|
| Overdraft agreement with mBank (in USD, up to USD 2 000 thousand) |
declaration of submission to enforcement | up to PLN 10 444 thousand (USD 3 000 thousand) valid until 31 March 2019 |
| Security for adequate performance of obligations under Grant Agreements with the National Centre for Research and Development |
blank promissory notes to secure the payment of the Company's liabilities |
up to the total amount of PLN 4 244 thousand |
| Finance lease agreement concerning an investment property |
The agreement covers an investment property. The agreement is collateralized by two blank promissory notes, assignment of receivables and authorization to debit a bank account. |
As at 31 December 2017 the carrying amount of the leased asset was PLN 21 702 thousand. |
Under the bank guarantee agreement made with Bank Zachodni WBK S.A., the bank issued guarantees to secure stock exchange transactions resulting from the membership in the Commodity Clearing House. As at 31 December 2017, the guarantees issued by the bank totalled PLN 50 000 thousand and were valid until 31 March 2018.
Under the bank guarantee agreement made with CaixaBank S.A. (Spó³ka Akcyjna) Branch in Poland, at the request of the Company the bank issued bank guarantees to secure liabilities and transactions of the subsidiaries of TAURON Polska Energia S.A. totalling PLN 13 834 thousand (Note 44 to these financial statements) and to secure the transactions performed by the Company: –
As at 31 December 2017 and 31 December 2016, the Company did not have any material capital commitments.
The Company enters into transactions with related parties, as presented in Note 2 to these financial statements. In addition, due to the fact that the State Treasury of the Republic of Poland is the Company's majority shareholder, State Treasury companies are treated as related parties. Transactions with State Treasury companies are mainly related to the operating activities of the Company and are made on an arm's length terms.
The total value of transactions with the aforementioned entities and the balances of receivables and liabilities have been presented in the tables below.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Revenue from subsidiaries | 8 629 630 | 9 706 997 |
| Revenue from operating activities | 7 602 324 | 7 650 113 |
| Dividend income | 542 474 | 1 458 951 |
| Revenue from sale of shares | – | 96 691 |
| Other operating income | 5 669 | 5 345 |
| Other finance income | 479 163 | 495 897 |
| Revenue from jointly-controlled entities | 56 611 | 126 811 |
| Revenue from State Treasury companies | 411 956 | 162 649 |
| Costs from subsidiaries | (3 175 156) | (2 852 147) |
| Costs of operating activities | (3 127 698) | (2 814 659) |
| Finance costs | (47 458) | (37 488) |
| Costs incurred with relation to transactions with jointly-controlled | ||
| entities | (3 183) | (12 521) |
| Costs from State Treasury companies | (532 007) | (571 124) |
| As at 31 December 2017 |
As at 31 December 2016 |
|
|---|---|---|
| Loans granted to subsidiaries and receivables from subsidiaries | 7 561 140 | 11 940 640 |
| Receivables from buyers | 658 936 | 795 482 |
| Loans granted under cash pool agreement plus interest accrued | 182 933 | 15 800 |
| Other loans granted | 139 268 | 1 249 802 |
| Receivables from the TCG | 6 078 | 20 945 |
| Bonds | 6 572 696 | 9 858 382 |
| Other financial receivables | 240 | 229 |
| Other non-financial receivables | 989 | – |
| Loans granted to jointly-controlled entities and receivables from jointly-controlled entities |
579 381 | 274 502 |
| Receivables from State Treasury companies | 49 941 | 25 210 |
| Liabilities to subsidiaries | 3 406 474 | 2 413 451 |
| Liabilities to suppliers | 288 965 | 335 344 |
| Loans received under cash pool agreement plus interest accrued | 2 355 765 | 1 229 344 |
| Other loans received | 721 280 | 767 750 |
| Liabilities arising from the TCG | 34 836 | 75 415 |
| Other financial liabilities | 5 257 | 5 259 |
| Other non-financial liabilities | 371 | 339 |
| Liabilities to jointly-controlled entities | 503 | 1 209 |
| Liabilities to State Treasury companies | 28 952 | 55 389 |
Revenue from subsidiaries includes revenue from sales of coal to TAURON Wytwarzanie S.A. and TAURON Ciep³o Sp. z o.o., which is presented in the statement of comprehensive income less cost in the amount of the surplus constituting the revenue due to agency services, presented in detail in Note 12 to these financial statements.
In the year ended 31 December 2017, the major contracting party as regards sales revenue from transactions made by TAURON Polska Energia S.A. with State Treasury companies was PSE S.A. Sales to that entity accounted for 95% of the total revenue from State Treasury companies.
In the year ended 31 December 2017, Polska Grupa Górnicza Sp. z o.o., PSE S.A. and Jastrzêbska Spó³ka Wêglowa S.A. were the major contracting parties of TAURON Polska Energia S.A. as regards costs incurred in transactions with State Treasury companies. Costs incurred in transactions with those entities represented 97% of total costs incurred in purchase transactions entered into with State Treasury companies.
In relation to agreements entered into with the joint venture Elektrociep³ownia Stalowa Wola S.A., the Company recognized provisions for onerous contracts and for costs. In the year ended 31 December 2017 the Company reversed all these provisions, which has been discussed in more detail in Note 35 to these financial statements.
The Company concludes material transactions on the energy market through Izba Rozliczeniowa Gie³d Towarowych S.A. As it is only responsible for organization of commodities exchange trading, the Company does not classify purchase and sale transactions made through this entity as related-party transactions.
The amount of compensation and other benefits paid or payable to the Management Board, Supervisory Board and other key executives of the Company in the year ended 31 December 2017 and in the comparative period has been presented in the table below.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Management Board | 6 957 | 12 858 |
| Short-term benefits (with surcharges) | 4 545 | 6 367 |
| Temination benefits | 2 104 | 5 806 |
| Other | 308 | 685 |
| Supervisory Board | 739 | 1 159 |
| Short-term employee benefits (salaries and surcharges) | 739 | 1 159 |
| Other members of key management personnel | 13 832 | 13 284 |
| Short-term employee benefits (salaries and surcharges) | 12 151 | 10 554 |
| Temination benefits | 776 | 1 911 |
| Other | 905 | 819 |
| Total | 21 528 | 27 301 |
In accordance with the adopted accounting policy, the Company recognizes provisions for termination benefits allocated to members of the Management Board and other key executives, which may be paid or payable in future reporting periods. The table above includes the amounts paid and due to be paid until 31 December 2017.
No loans have been granted from the Company's Social Benefit Fund to members of the Management Board, Supervisory Board or other key executives.
Finance and capital are managed at the level of the TAURON Polska Energia S.A. Capital Group. During the period covered by these financial statements there were no significant changes in finance and capital management objectives, principles or procedures. Finance and capital management at the level of the TAURON Polska Energia S.A. Capital Group has been discussed in more detail in Note 51 to the Consolidated Financial Statements for the year ended 31 December 2017.
The following note presents average employment in the annual periods ended 31 December 2017 and 31 December 2016.
| Year ended 31 December 2017 |
Year ended 31 December 2016 |
|
|---|---|---|
| Management | 1 | 5 |
| Administration | 330 | 249 |
| Sales department | 104 | 115 |
| Total | 435 | 369 |
Information concerning the fee of the certified auditor has been presented in the Management Board's report on the activities of TAURON Polska Energia S.A. for the 2017 financial year (Section 4.8).
Under Article 44.2 of the Energy Law, TAURON Polska Energia S.A., as an energy company, is obliged to disclose specific items of the balance sheet and the statement of profit or loss broken down by individual types of business activity in notes to these financial statements. •
The Company has identified the following types of business activities in accordance with Article 44.2 of the Energy Law: •
The Company keeps accounting records which enable separate calculation of expense and revenue and the profit/loss for the activities mentioned above.
The Company has directly separated sales revenue and cost of sales related to individual types of activities.
Selling and distribution costs related to the entire sales process carried out by the Company have been divided proportionally to the sales revenue generated by the Company.
Other operating and financing activities have been identified as those related to other business activities of the Company.
Administrative expenses of the Company are incurred for the benefit of the entire Capital Group, hence they have been recognized in the statement of comprehensive income as unallocated items and are not directly attributable to a specific business activity, as such attribution would be unjustified. Also CIT charged to profit or loss has been presented under unallocated items.
| Gas | Other activity |
Unallocated items |
Total | |
|---|---|---|---|---|
| Sales revenue | 194 290 | 7 597 735 | – | 7 792 025 |
| Cost of sales | (194 375) | (7 220 332) | – | (7 414 707) |
| Gross profit (loss) | (85) | 377 403 | – | 377 318 |
| Selling and distribution expenses | (580) | (22 729) | – | (23 309) |
| Administrative expenses | – | – | (88 751) | (88 751) |
| Other operating expenses | – | (2 470) | – | (2 470) |
| Operating profit (loss) | (665) | 352 204 | (88 751) | 262 788 |
| Dividend income | – | 560 832 | – | 560 832 |
| Interest income on bonds and loans | – | 456 426 | – | 456 426 |
| Interest expense on debt | – | (334 638) | – | (334 638) |
| Revaluation of shares and loans | – | (134 372) | – | (134 372) |
| Other finance income and costs | – | 108 529 | – | 108 529 |
| Profit (loss) before tax | (665) | 1 008 981 | (88 751) | 919 565 |
| Income tax expense | – | – | (65 214) | (65 214) |
| Net profit (loss) for the year | (665) | 1 008 981 | (153 965) | 854 351 |
| Gas | Other activity |
Unallocated items |
Total | |
|---|---|---|---|---|
| Sales revenue | 242 615 | 7 752 713 | – | 7 995 328 |
| Cost of sales | (233 922) | (7 603 645) | – | (7 837 567) |
| Gross profit (loss) | 8 693 | 149 068 | – | 157 761 |
| Selling and distribution expenses | (586) | (18 740) | – | (19 326) |
| Administrative expenses | – | – | (81 368) | (81 368) |
| Other operating income and expenses | – | (59 170) | (32 500) | (91 670) |
| Operating profit (loss) | 8 107 | 71 158 | (113 868) | (34 603) |
| Dividend income | – | 1 485 152 | – | 1 485 152 |
| Interest income on bonds and loans | – | 503 897 | – | 503 897 |
| Interest expense on debt | – | (356 947) | – | (356 947) |
| Revaluation of shares and loans | – | (1 610 396) | – | (1 610 396) |
| Other finance income and costs | – | (136 237) | – | (136 237) |
| Profit (loss) before tax | 8 107 | (43 373) | (113 868) | (149 134) |
| Income tax expense | – | – | (17 119) | (17 119) |
| Net profit (loss) for the year | 8 107 | (43 373) | (130 987) | (166 253) |
The Company has directly separated receivables from buyers, liabilities to suppliers and other receivables and other liabilities related to individual types of its business activities.
Equity, provisions for employee benefits, cash as well as receivables and liabilities relating to taxes and charges have been presented as unallocated items in the statement of financial position.
The remaining assets and liabilities are related to other activities of the Company.
| Gas | Other | Unallocated | Total | |
|---|---|---|---|---|
| activity | items | |||
| ASSETS | ||||
| Non-current assets, of which: | 834 | 27 370 591 | – | 27 371 425 |
| Shares | – | 20 912 679 | – | 20 912 679 |
| Bonds | – | 6 009 920 | – | 6 009 920 |
| Loans granted | – | 382 989 | – | 382 989 |
| Other financial assets | 834 | 1 890 | – | 2 724 |
| Current assets, of which: | 20 912 | 2 123 084 | 757 671 | 2 901 667 |
| Receivables from buyers | 20 413 | 698 720 | – | 719 133 |
| Receivables arising from taxes and charges | – | – | 36 094 | 36 094 |
| Bonds | – | 562 776 | – | 562 776 |
| Loans granted | – | 520 191 | – | 520 191 |
| Other financial assets | 499 | 131 141 | – | 131 640 |
| Cash and cash equivalents | – | – | 721 577 | 721 577 |
| TOTAL ASSETS | 21 746 | 29 493 675 | 757 671 | 30 273 092 |
| EQUITY AND LIABILITIES | ||||
| Equity | – | – | 17 377 906 | 17 377 906 |
| Non-current liabilities, of which: | – | 9 497 538 | 32 990 | 9 530 528 |
| Debt | – | 9 472 454 | – | 9 472 454 |
| Deferred income tax liability | – | – | 29 843 | 29 843 |
| Provisions for employee benefits | – | – | 3 147 | 3 147 |
| Current liabilities, of which: | 4 081 | 3 290 128 | 70 449 | 3 364 658 |
| Debt | – | 2 725 763 | – | 2 725 763 |
| Liabilities to suppliers | 4 081 | 409 184 | – | 413 265 |
| Liabilities arising from taxes and charges | – | – | 70 119 | 70 119 |
| Provisions for employee benefits | – | – | 330 | 330 |
| Other financial liabilities | – | 62 590 | – | 62 590 |
| TOTAL EQUITY AND LIABILITIES | 4 081 | 12 787 666 | 17 481 345 | 30 273 092 |
| Gas | Other activity |
Unallocated items |
Total | |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets, of which: | 1 109 | 25 854 220 | – | 25 855 329 |
| Shares | – | 14 874 418 | – | 14 874 418 |
| Bonds | – | 9 615 917 | – | 9 615 917 |
| Loans granted | – | 1 292 800 | – | 1 292 800 |
| Other financial assets | 984 | 540 | – | 1 524 |
| Current assets, of which: | 24 292 | 1 474 079 | 318 676 | 1 817 047 |
| Receivables from buyers | 23 230 | 817 426 | – | 840 656 |
| Receivables arising from taxes and charges | – | – | 120 586 | 120 586 |
| Bonds | – | 242 465 | – | 242 465 |
| Loans granted | – | 30 966 | – | 30 966 |
| Other financial assets | 594 | 54 760 | – | 55 354 |
| Cash and cash equivalents | – | – | 198 090 | 198 090 |
| TOTAL ASSETS | 25 401 | 27 328 299 | 318 676 | 27 672 376 |
| EQUITY AND LIABILITIES | ||||
| Equity | – | – | 16 530 268 | 16 530 268 |
| Non-current liabilities, of which: | – | 8 935 078 | 34 898 | 8 969 976 |
| Debt | – | 8 754 047 | – | 8 754 047 |
| Deferred income tax liability | – | – | 32 364 | 32 364 |
| Provisions for employee benefits | – | – | 2 534 | 2 534 |
| Current liabilities, of which: | 3 591 | 2 148 033 | 20 508 | 2 172 132 |
| Debt | – | 1 433 929 | – | 1 433 929 |
| Liabilities to suppliers | 3 173 | 470 464 | – | 473 637 |
| Liabilities arising from taxes and charges | – | – | 20 209 | 20 209 |
| Provisions for employee benefits | – | – | 299 | 299 |
| Other financial liabilities | 418 | 111 341 | – | 111 759 |
| TOTAL EQUITY AND LIABILITIES | 3 591 | 11 083 111 | 16 585 674 | 27 672 376 |
On 11 January 2018, an increase in the issued capital of Magenta Grupa TAURON Sp. z o.o. of PLN 9 000 thousand in accordance with a resolution of the Extraordinary General Shareholders' Meeting of 24 October 2017 was registered by the National Court Register.
On 12 January 2018 and 28 February 2018, the Company entered into a loan agreement for PLN 27 000 thousand with Elektrociep³ownia Stalowa Wola S.A. and an agreement to consolidate the borrower's debt of PLN 609 951 thousand, respectively, which has been discussed in more detail in Note 25 to these financial statements.
On 2 March 2018, an increase in the issued capital of TAURON Ekoenergia Sp. z o.o. of PLN 1 000 000 thousand in accordance with a resolution of the Extraordinary General Shareholders' Meeting of 24 October 2017 was registered by the National Court Register.
On 1 March 2018, the Extraordinary General Shareholders' Meeting of Polska Energia Pierwsza Kopalnia Handlowa Sp. z o.o. adopted a resolution to impose an additional contribution of PLN 6 000 thousand on the Company, as the sole shareholder. On 7 March 2018, the contributions were made by the Company.
After the end of the reporting period, on 8 March 2018, a joint venture Elektrociep³ownia Stalowa Wola S.A. signed a loan agreement with Bank Gospodarstwa Krajowego and Polskie Górnictwo Naftowe i Gazownictwo S.A., which has been discussed in more detail in Note 25 to these financial statements.
After the end of the reporting period, on 8 March 2018 the period of availability of the funds under Bond Issue Scheme of 24 November 2015 was extended as a result of signing amendments to the agency and custody agreement as well as the underwriting agreement, as described in Note 33.1 to these financial statements.
Katowice, 12 March 2018
| Filip Grzegorczyk | – President of the Management Board | |
|---|---|---|
| Jaros³aw Broda | – Vice-President of the Management Board | |
| Kamil Kamiñski | – Vice-President of the Management Board | |
| Marek Wadowski | – Vice-President of the Management Board |
Oliwia Tokarczyk – Executive Director in Charge of Taxes and Accounting ...............................................................
MARCH 2018
| 1. TAURON POLSKA ENERGIA S.A. |
6 |
|---|---|
| 1.1. General Information on the Company 6 | |
| 1.2. TAURON Capital Group's organization and structure 6 1.2.1. Units subject to consolidation 6 1.2.2. Organizational or equity ties 7 1.2.3. Major domestic and foreign investments 8 |
|
| 1.3. Strategy and strategic priorities of TAURON Capital Group 10 1.3.1. TAURON Capital Group's mission, vision and values 11 1.3.2. TAURON Capital Group's 2016-2025 Strategy 11 1.3.3. Key challenges for TAURON Capital Group 14 1.3.4. Opportunities and threats 15 1.3.5. Implementation of the Strategy and priorities of TAURON Capital Group in 2017 17 |
|
| 1.4. Description of TAURON Capital Group's expansion policy and directions 19 1.4.1. Long term goals and financial assumptions of the Strategy 20 1.4.2. Implementation of strategic investment projects 21 1.4.3. Evaluation of the capability to complete the intended investment projects 22 1.4.4. Building TAURON Capital Group's value 22 1.4.5. Directions for advancing innovations as well as research and development activities 22 1.4.6. Major achievements in the field of research and development 23 |
|
| 2. TAURON POLSKA ENERGIA S.A. OPERATIONS |
25 |
| 2.1. Factors and non-typical events that have a significant impact on earnings achieved 25 2.1.1. Internal factors and the assessment thereof 25 2.1.2. External factors and the assessment thereof 25 2.1.2.1. Macroeconomic environment 25 2.1.2.2. Market environment 25 2.1.2.3. Regulatory environment 33 |
|
| 2.2. Material growth impacting factors 38 | |
| 2.3. What can be expected in 2018 39 | |
| 2.4. Core products, goods and services 40 | |
| 2.5. Markets and supply sources 42 2.5.1. Markets 42 2.5.2. Supply sources - fuels 43 |
|
| 2.6. Timeline 43 | |
| 2.7. Key events and accomplishments with a significant impact on the operations 44 | |
| 2.8. Prizes and accolades (honorable mentions) 51 | |
| 2.9. Information on TAURON Capital Group's employment 51 2.9.1. Policy of Human Resources Management at TAURON Group 51 2.9.2. Development and training 52 2.9.3. Social dialogue 56 2.9.4. Key headcount data 56 |
|
| 2.10. Corporate Social Responsibility (CSR) Policy 58 2.10.1. Energy security 59 2.10.2. Customer orientation 60 2.10.3. Customer satisfaction survey 60 2.10.4. Impact on natural environment 62 2.10.5. Sponsoring activities 65 |
|
| 3. TAURON RISK MANAGEMENT AT TAURON CAPITAL GROUP | 67 |
| 3.1. Risk management objective and principles 67 | |
| 3.2. Risk management using the "Three Defense Lines Model" 67 |
| 3.3. Risk management process and its participants 68 | |
|---|---|
| 3.4. Architecture of the enterprise risk management system (ERM) 69 | |
| 3.4.1. Commercial (trading) risk management 71 | |
| 3.4.2. Financial risk management 72 3.4.3. Credit risk management 73 |
|
| 3.4.4. Operational risk management 73 | |
| 3.4.5. Project risk management 74 | |
| 3.5. Description of the most significant risks related to TAURON Capital Group's operations 75 | |
| 4. ANALYSIS OF TAURON POLSKA ENERGIA S.A.'S FINANCIAL POSITION AND ASSETS | 79 |
| 4.1. Overview of economic and financial data disclosed in the consolidated annual financial statements | |
| 79 4.2. Differences between the financial results reported in the annual report and the forecasts of results |
|
| for the given year published earlier 84 | |
| 4.3. Key financial and non-financial ratios 84 | |
| 4.4. Proceeds from securities issues 85 | |
| 4.5. Financial instruments 86 | |
| 4.5.1. Application of financial instruments in order to eliminate price changes, credit risk, material disruptions | |
| of cash flows and loss of financial liquidity 86 4.5.2. Objectives and methods of financial risk management 86 |
|
| 4.6. Objectives and methods of financial risk management 86 | |
| 4.7. Principles of preparing annual financial statements 87 | |
| 4.8. Information on the entity authorized to audit financial statements 87 | |
| 5. SHARES AND SHAREHOLDERS | 89 |
| 5.1. Structure of shareholding 89 | |
| 5.2. Dividend policy 89 | |
| 5.3. Number and nominal value of the Company's shares, as well as of the shares in units related to the Company, held by members of the Management Board and the Supervisory Board 90 |
|
| 5.4. Agreements related to potential changes to the shareholding structure 90 | |
| 5.5. Own shares buybacks 90 | |
| 5.6. Employee stock award programs 90 | |
| 5.7. Shares performance on the Warsaw Stock Exchange (WSE) 90 | |
| 5.8. Investor relations 93 | |
| 6. STATEMENT ON APPLICATION OF CORPORATE GOVERNANCE |
96 |
| 6.1. Indication of applied set of corporate governance rules 96 | |
| 6.2. Indication of abandoned rules of corporate governance 96 | |
| 6.3. Description of main characteristics of internal control and risk management systems in relation to the process of generating the financial statements and consolidated financial statements 97 |
|
| 6.4. Shareholders holding substantial blocks of shares 99 | |
| 6.5. Holders of securities providing special control rights 100 | |
| 6.6. Restrictions on exercising the voting right 100 | |
| 6.7. Restrictions on transfer of securities ownership right 101 | |
| 6.8. Rules on appointing and dismissing managing and supervising persons and their powers 101 | |
| 6.8.1. Management Board 101 | |
| 6.8.2. Supervisory Board 102 | |
| 6.9. Description of the procedure of amendment of the Company's Articles of Association 105 |
| 6.10. Procedures of the General Meeting of Shareholders, its fundamental powers and description of shareholders' rights and the manner of exercising thereof 105 |
|
|---|---|
| 6.11. Composition of the Company's managing and supervising bodies and their committees, its changes, description of operation 108 |
|
| 6.11.1. Management Board 108 | |
| 6.11.2. Supervisory Board111 | |
| 6.11.3. Audit Committee116 | |
| 6.11.4. Nominations and Compensation Committee 118 | |
| 6.11.5. Strategy Committee118 | |
| 6.11.6. Description of activities of the Committees of the Supervisory Board 119 | |
| 6.12. Description of the policy of diversity applied to the governing bodies of the Company 120 | |
| 7. COMPENSATION POLICY WITH RESPECT TO THE MANAGEMENT AND SUPERVISORY STAFF |
121 |
| 7.1. Compensation system for members of the Management Board and key managers 121 | |
| 7.1.1. General information on the adopted compensation system for members of the Management Board 121 | |
| 7.1.2. General information on the adopted compensation system for key managers 121 | |
| 7.1.3. Rules, terms and conditions as well level of compensation of members of the Management Board 122 | |
| 7.1.4. Agreements concluded with managing persons which envisage compensation in case of their resignation or dismissal from the position held, without material reason, or if their dismissal or resignation |
|
| takes place as a result of the merger of the Company through takeover 124 | |
| 7.1.5. Non-financial components of compensation allocated to members of the Management Board and key managers 124 |
|
| 7.1.6. Information on changes to the compensation policy over the last financial year 124 | |
| 7.1.7. Assessment of functioning of the compensation policy in terms of fulfilment of its objectives, in particular, | |
| the long-term growth in shareholders' value and stability of the undertaking performance 125 | |
| 7.2. Compensation system for members of the Supervisory Board 125 | |
| 7.3. Liabilities arising from pensions and similar benefits for former the Members of the Management Board and the Supervisory Board 126 |
|
| 8. STATEMENT ON NON-FINANCIAL INFORMATION | 127 |
| 8.1. TAURON Group's Business and Operational Model 127 | |
| 8.1.1. Assumptions of the Business Model 127 | |
| 8.1.2. Company management principles 127 | |
| 8.1.3. TAURON Capital Group management principles 127 | |
| 8.1.4. TAURON Capital Group's Lines of Business 129 | |
| 8.1.5. Changes in the principles of managing TAURON Capital Group 130 | |
| 8.2. Key non-financial performance indicators in operations of TAURON Capital Group 133 | |
| 8.3. Description of TAURON's policies 133 | |
| 8.3.1. Social issues 134 | |
| 8.3.2. Employee issues 134 | |
| 8.3.3. Natural environment 134 | |
| 8.3.4. Respect of human rights 134 8.3.5. Countering corruption 135 |
|
| 8.4. Description of the results of application of policies by TAURON 135 | |
| 8.5. Description of due diligence procedures in operation under the policies applied by TAURON 136 | |
| 8.6. Description of significant risks related to operations of TAURON that may exert adverse impact on the policies applied by TAURON, as well as description of management of these risks 137 |
|
| 9. OTHER MATERIAL INFORMATION AND EVENTS |
140 |
| 9.1. Proceedings pending before the court, competent arbitration authority or public administration authority 140 |
|
| 9.2. Information on agreements concluded by TAURON Capital Group's subsidiaries 140 | |
| 9.2.1. Agreements significant for TAURON Capital Group's operations 140 | |
| 9.2.2. Transactions with related entities on terms other than at arm's length 143 | |
| 9.2.3. Signed and terminated credit and loan agreements 143 |
| 9.2.4. Loans and sureties granted as well as sureties and guarantees received 145 | |
|---|---|
| 9.3. Information on other agreements and events 147 | |
| APPENDIX A: GLOSSARY OF TERMS AND LIST OF ABBREVIATIONS |
150 |
| APPENDIX B: INDEX OF TABLES AND FIGURES |
154 |
TAURON Polska Energia Spółka Akcyjna (hereinafter referred to as the Company or TAURON) was established on 6 December 2006 as part of the Program for the Power Sector. The founders of the Company included: State Treasury represented by the Minister of Treasury, EnergiaPro S.A. with its seat in Wrocław, ENION S.A. with its seat in Kraków (currently: TAURON Dystrybucja S.A. that was formed as a result of a merger of then EnergiaPro S.A. and ENION S.A.), and Elektrownia Stalowa Wola S.A. with its seat in Stalowa Wola (currently a branch of TAURON Wytwarzanie S.A.). The Company was registered in the National Court Register on 8 January 2007 under the enterprise name: Energetyka Południe S.A. The change of the Company enterprise to its current name, i.e. TAURON Polska Energia S.A., was registered on 16 November 2007
The table below presents general information on the Company and the basic types of operations conducted by the Company.
| No. | General information | Basic types of operations conducted by the Company |
|---|---|---|
| 1. | Name (enterprise): TAURON Polska Energia S.A. | |
| 2. | Legal form: joint stock company | 1) Head office and holding company operations, excluding |
| 3. | Seat (Head Office): Katowice | financial holdings (PKD 70.10 Z), |
| 4. | Website: www.tauron.pl | 2) trading in electricity (PKD 35.14 Z), |
| 5. | National Court Register: 0000271562 Sąd Rejonowy Katowice - Wschód w Katowicach |
3) wholesale of fuels and derivative products (trading in coal and biomass) (PKD 46.71 Z), |
| 6. | NIP: 9542583988 | 4) trading in gas fuels (PKD 35.23 Z). |
| 7. | REGON: 240524697 | |
| 8. | The Company does not have any branches (plants) |
The below figure presents the level of TAURON's share capital as of December, 2017, by the number and type of shares.
Figure no. 1. TAURON's share capital (paid up) as of December, 2017, by the number and type of shares
TAURON Polska Energia S.A. Capital Group (TAURON Capital Group) is a vertically integrated energy group located in the south of Poland. TAURON Capital Group conducts its operations in all key segments of the energy market (excluding electricity transmission which is the sole responsibility of the Transmission System Operator (TSO)), i.e. hard coal mining as well as electricity and heat generation, distribution and trading.
As of December 31, 2017 TAURON Capital Group's key subsidiaries, besides the TAURON parent company, included 19 subsidiaries subject to consolidation, listed in section 1.2.1. of this report. Furthermore, as of December 31, 2017, the Company held, directly or indirectly, shares in the other 38 subsidiaries.
The below figure presents TAURON Capital Group's structure, including the subsidiaries subject to consolidation, as of December 31, 2017.
Figure no. 2. TAURON Capital Group's structure, including the subsidiaries subject to consolidation, as of December 31, 2017
TAURON Capital Group also holds stakes in joint ventures: Elektrociepłownia Stalowa Wola S.A. (EC Stalowa Wola) and TAMEH HOLDING sp. z o.o. (TAMEH HOLDING), TAMEH POLSKA sp. z o.o. (TAMEH POLSKA) and TAMEH Czech s.r.o. (TAMEH Czech) that are valued using the equity method in the consolidated financial statements.
Detailed information on subsidiaries subject to consolidation and TAURON's share in their stock capital, as well in the parent company, is provided in section 1.2.2. of this report.
The below table presents a list of material direct or indirect subsidiaries subject to consolidation in which the Company held shares as of December 31, 2017.
| # | Subsidiary name | Seat | Main subject of operations |
TAURON's share in the subsidiary's capital |
TAURON's share in the subsidiary's parent company |
|---|---|---|---|---|---|
| 1. | TAURON Wydobycie | Jaworzno | Hard coal mining | 100.00% | 100.00% |
| 2. | TAURON Wytwarzanie1 | Jaworzno | Electricity and heat generation, transmission and distribution |
100.00% | 100.00% |
| 3. | Nowe Jaworzno GT1 | Jaworzno | Electricity and heat generation, transmission and distribution, as well as electricity trading |
100.00% | 100.00% |
| 4. | TAURON EKOENERGIA | Jelenia Góra | Electricity generation | 100.00% | 100.00% |
| 5. | Marselwind | Katowice | Electricity generation, transmission and trading |
100.00% | 100.00% |
| 6. | TAURON Ciepło | Katowice | Heat production and distribution | 100.00% | 100.00% |
| 7. | TAURON Serwis | Katowice | Services | 95.61% | 95.61% |
| 8. | TAURON Dystrybucja | Kraków | Electricity distribution | 99.74% | 99.75% |
| 9. | TAURON Dystrybucja Serwis | Wrocław | Services | 100.00% | 100.00% |
| 10. | TAURON Dystrybucja Pomiary2 | Tarnów | Services | 99.74% | 99.75% |
Table no. 2. List of material subsidiaries subject to consolidation as of December 31, 2017
| # | Subsidiary name | Seat | Main subject of operations |
TAURON's share in the subsidiary's capital |
TAURON's share in the subsidiary's parent company |
|---|---|---|---|---|---|
| 11. | TAURON Sprzedaż | Kraków | Electricity trading | 100.00% | 100.00% |
| 12. | TAURON Sprzedaż GZE | Gliwice | Electricity trading | 100.00% | 100.00% |
| 13. | TAURON Czech Energy | Ostrava, Czech Republic |
Electricity trading | 100.00% | 100.00% |
| 14. | TAURON Obsługa Klienta | Wrocław | Services | 100.00% | 100.00% |
| 15. | KW Czatkowice | Krzeszowice | Limestone and rock extraction |
100.00% | 100.00% |
| 16. | PEPKH3 | Warsaw | Electricity trading | 100.00% | 100.00% |
| 17. | TAURON Sweden Energy | Stockholm, Sweden | Services | 100.00% | 100.00% |
| 18. | Biomasa Grupa TAURON | Stalowa Wola | Waste and scrap metal wholesale |
100.00% | 100.00% |
| 19. | Wsparcie Grupa TAURON2,4 | Tarnów | Services | 99.74% | 99.75% |
1On April 3, 2017 TAURON Wytwarzanie subsidiary was split and an organzied part of the enterprise was spun off to Nowe Jaworzno GT subsidiary. 2Share in TAURON Dystrybucja Pomiary and Wsparcie Grupa TAURON (formerly KOMFORT - ZET sp. z o.o.) is held by TAURON indirectly via TAURON Dystrybucja subsidiary. TAURON is a user of TAURON Dystrybucja Pomiary subsidiary's shares.
3On March 8, 2017 the Extraordinary GM of the PEPKH subsidiary in liquidation passed a resolution on revoking the liquidation of this company.
4On September 6, 2017 KOMFORT-ZET sp. z o.o. changed its name to "Wsparcie Grupa TAURON sp. z o.o.".
The below table presents a list of material joint subsidiaries subject to consolidation in which the Company held shares as of December 31, 2017.
| # | Subsidiary name | Seat | Main subject of operations | TAURON's share in the capital and subsidiary's parent company |
|---|---|---|---|---|
| 1. | EC Stalowa Wola1 | Stalowa Wola | Electricity generation | 50.00% |
| 3. | TAMEH HOLDING2 | Dąbrowa Górnicza | Central companies and holding operations |
50.00% |
| 4. | TAMEH POLSKA2 | Dąbrowa Górnicza | Electricity and heat generation, transmission, distribution and trading |
50.00% |
| 5. | TAMEH Czech2 | Ostrava, Czech Republic |
Production, trading and services | 50.00% |
1Share in EC Stalowa Wola is held by TAURON indirectly via TAURON Wytwarzanie subsidiary.
2Subsidiaries form a capital group. TAURON holds a diet share in the capital and the parent company of TAMEH HOLDING subsidiary that holds a 100% share in the capital and the parent company of TAMEH POLSKA and TAMEH Czech.
Due to the change to the organization of TAURON Capital Group as of the day of drawing up this report TAURON holds, directly or indirectly, shares in 57 subsidiaries.
The other most important equity investment in financial assets as of December 31, 2017 includes involvement in PGE EJ 1 sp. z o.o. (PGE EJ 1) worth PLN 26 546 thousand.
Major investments in share securities made by the Company in 2017 and by the day of drawing up this report include:
In 2017 TAURON took up new shares Nowe Jaworzno GT's share capital three times:
1) On January 31, 2017 the Extraordinary GM of TAURON Wytwarzanie passed a resolution on the split of TAURON Wytwarzanie subsidiary by way of spinning off under art. 529 § 1 clause 4) of the Commercial Companies Code, i.e. by transferring some assets of TAURON Wytwarzanie in the form of an organized part of the enterprise including the investment process related to the construction of the new 910 MW power generation unit at Jaworzno III Power Plant, carried out by TAURON Wytwarzanie Oddział Elektrownia Jaworzno III in Jaworzno, to the newly established Nowe
Jaworzno GT company (in organization) in exchange for 37 000 shares in the Nowe Jaworzno GT company with the nominal value of PLN 50 per share and the total nominal value of PLN 1 850 000 that were taken up by the sole shareholder of the split company - TAURON. On April 3, 2017 Nowe Jaworzno GT company was registered in the National Court Register.
On December 29, 2017 the District Court for Kraków - Śródmieścia in Kraków, 11th Commercial Department, registered in the National Court Register an increase in the share capital of TAURON Dystrybucja subsidiary, passed by the Extraordinary GM of the company on October 26, 2017. The subsidiary's share capital was increased from PLN 511 925 759.22 to PLN 560 611 250.96, i.e. by PLN 48 685 491.74, by way of issuing 2 434 274 587 new ordinary registered shares with the nominal value of PLN 0.02 each, i.e. with the total amount of PLN 48 685 491.74. All the shares will were taken up by TAURON at the price of PLN 0.4108 per share, i.e. for the total amount of PLN 1 000 000 000.34, where the surplus of the issuing price of each share above its nominal value in the amount of PLN 0,3908 per each such share, i.e. in the total amount of PLN 951 314 508.60 was allocated to the company's spare capital.
In conjunction with the increase of the share capital TAURON's share in the subsidiary's share capital increased from 99.72% to 99.74%.
On March 2, 2018, the District Court for Wrocław – Fabryczna in Wrocław, 9th Commercial Department, registered in the National Court Register an increase in the share capital of TAURON EKOENERGIA passed by the Extraordinary GM on October 24, 2017. The share capital was increased by PLN 10 000 000 by way of issuing 10 000 new shares with the nominal value of PLN 1 000 each and the total nominal value of PLN 10 000 000. All the new shares were taken up by the existing sole shareholder of the company - TAURON at the price of PLN 100 000 per share, i.e. for the total amount of PLN 1 000 000 000, where the surplus of the price of taking up each new share in the company's increased share capital above its nominal value in the amount of PLN 99 000 per each new share, i.e. in the total amount of PLN 990 000 000 was allocated to the company's spare capital.
On June 20, 2017 the District Court for Katowice – Wschód, 8th Commercial Department, registered in the National Court Register an increase in the share capital of TAURON Ciepło, passed by the Extraordinary GM of TAURON Ciepło on May 11, 2017. The subsidiary's share capital was increased from PLN 1 098 348 500 to PLN 1 104 348 500, i.e. by PLN 6 000 000, by way of issuance of 120 000 new shares with the nominal value of PLN 50 per share and the total nominal value of PLN 6 000 000. All of the new shares were taken up by the subsidiary's existing sole shareholder – TAURON. at the price of PLN 5 000 per share, i.e. for the total amount of PLN 600 000 000, where the surplus of the price of taking up each new share in the company's increased share capital above its nominal value in the amount of PLN 4 950 per each new share, i.e. in the total amount of PLN 594 000 000 was allocated to the company's spare capital
On April 7, 2017 the District Court for Katowice – Wschód, 8th Commercial Department registered in the National Court Register an increase in the share capital of Tauron Wydobycie, passed by the Extraordinary GM of TAURON Wydobycie on March 21, 2017. The subsidiary's share capital was increased from PLN 355 510 780 to PLN 357 110 780, i.e. by PLN 1 600 000, by way of issuance of 160 000 new "K" series registered shares with the nominal value of PLN 10 per share and the total nominal value of PLN 1 600 000. All of the "K" series shares were taken up, by way of a private placement subscription, by the subsidiary's sole shareholder – TAURO, at the price of PLN 1 000 per share, i.e. for the total amount of PLN 160 000 000, where the surplus of the price of taking up each new share in the company's increased share capital above its nominal value in the amount of PLN 990 per each new share, i.e. in the total amount of PLN 158 400 000, was allocated to the company's spare capital
On January 11, 2018 the District Court for Katowice – Wschód, 8th Commercial Department, registered in the National Court Register an increase in the share capital of Magenta Grupa TAURON sp. z o.o. (Magenta GT), passed by the Extraordinary GM of the company on October 24, 2017. The subsidiary's share capital was increased from PLN 500 000 to PLN 1 500 000, i.e. by PLN 1 000 000, by way of issuance of 20 000 new shares with the nominal value of PLN 50 per share and the total nominal value of PLN 1 000 000. All of the new shares were taken up by the subsidiary's existing sole shareholder – TAURON. at the price of PLN 450 per share, i.e. for the total amount of PLN 9 000 000, where the surplus of the price of taking up each new share in the company's increased share capital above its nominal value in the amount of PLN 400 per each new share, i.e. in the total amount of PLN 8 000 000 was allocated to the company's spare capital.
On January 3, 2018 the Extraordinary General Meeting of the Shareholders of ElectroMobility Poland S.A. passed a resolution on increasing the company's share capital from PLN 10 000 000 to PLN 30 000 000, i.e. by PLN 20 000 000, by way of increasing the nominal value of the existing shares from PLN 1 000 per share up to PLN 3 000 per share, as part of which TAURON took up, in proportion to the shares held, the increased nominal value of 2 500 shares held from the total amount of PLN 2 500 000 up to the total amount of PLN 7 500 000, i.e. in the total amount of PLN 5 000 000.
In conjunction with the August 9, 2017 conclusion of the agreement between TAURON and TAURON Dystrybucja on the transfer of shares in TAURON Dystrybucja Serwis in order to release TAURON Dystrybucja from the obligation to pay out a dividend to TAURON (datio in solutum), TAURON became the owner of 5 101 003 shares in TAURON Dystrybucja Serwis, used up to now from TAURON Dystrybucja, representing 100% of shares in its share capital.
TAURON Capital Group's major investments in financial assets in the year ended on December 31, 2017 include:
Investments in financial assets were finance using own funds and the funds obtained as part of the central financing model functioning at TAURON Capital Group. With respect to the above additionally it should be indicated that to finance the transactions: taking up of shares in the increased share capital of TAURON Dystrybucja and taking up of shares in the increased share capital of TAURON EKOENERGIA the funds coming from TAURON Eurobond issue that had taken place on July 5, 2017 were dedicated. Taking up of shares in the above indicated companies represented accomplishing the main goal of the issue stated in the Eurobond issue prospectus, according to which the funds obtained from the issue were to be used, first of all, to refinance the costs of constructing and purchasing wind farms and to finance the investments of TAURON Capital Group in the Distribution segment.
TAURON Group's 2016-2025 Strategy (Strategy), adopted by the Management Board of TAURON on September 2, 2016 and positively evaluated by the Supervisory Board, was implemented in 2017. This Strategy is the response to the challenges stemming from the current and forecast situation on the electricity market and in the power sector. In the process of preparing the Strategy a thorough analysis was conducted of the macroeconomic, market and regulatory environment as well as of the forecasts on the directions of the sector's growth, including translating them into opportunities and risks facing TAURON Capital Group over the next ten years. TAURON Capital Group's ability to finance the current and planned investment projects was reviewed in detail with a view that their completion could be achieved using funds generated from operations and debt financing. The above analyses and market trends were the basis for verifying market and macroeconomic assumptions as well as the CAPEX plan.
Strategy defines the Mission and Vision and specifies the key values of TAURON Capital Group:
Mission and vision best describe TAURON Capital Group's strategic intentions. The Supply segment and new products represent the field of operations that TAURON Capital Group is intensely developing. TAURON Capital Group is adjusting its profile in order to ensure full focus on the customer, while appreciating the potential of new products, compatible services, modern contact channels as a way to shape the response to customer needs.
The below figure presents TAURON Capital Group's 2025 Vision.
The key values that are to support the implementation of the Strategy include "Partnership", "Development" and "Courage". The values reflect the way in which TAURON Capital Group wants to achieve its goals. What is important as part of the partnership is customer orientation, development of sustainable relationships and engagement. Development means focus on innovations, developing competences, skills and knowledge and seeking ever better solutions meeting customer needs and raising the quality of services. Courage means boldness and openness, determination as well as engagement and passion in achieving common goals.
Combination of such values is to lead to a better understanding of customer expectations, responding to market challenges and developing TAURON Capital Group's organizational culture.
The adopted 2016-2025 Strategy presents the optimal expansion path that will ensure financial stability and growth, while at the same time providing support for ensuring stability of the power system. The long term growth will be driven by solutions based on customer relationships. The adopted mission and vision reflect new management philosophy and are in line with the customer-oriented growth concept.
Strategy describes the approach to developing individual segments of TAURON Capital Group's operations, dividing them into ones that TAURON Capital Group is planning to strongly expand, ones that will constitute the foundation of the financial stability and ones where strong emphasis on cost efficiency is required. The above reflects a new management philosophy and emphasizes a turn towards the customer and his/her needs as well as towards developing an innovative, open to new solutions TAURON Capital Group.
The below figure presents the prospects of TAURON Capital Group's segments
Strategy sets the priorities that will transform TAURON Capital Group into an innovative, aligned to the market and customer needs, growing energy company ultimately providing a return on invested capital for its shareholders.
Strategy defines a new approach to the value chain where key tasks are set for each Line of Business. Strategy does not assume balanced growth along each link of the value chain. Sales and development of new products and services are to constitute a strong base for the Group's growth. The Group is planning to rapidly develop its offering for the customers in this segment which will allow for retaining the existing base of customers that purchase TAURON products and increasing profitability. Electricity distribution as well as heat generation and distribution segments are to constitute a stable base of the Group's regulated businesses. Mining and conventional generation segments have tasks related first of all to efficiency improvement. The following three pillars of the strong capital group were defined:
c) Efficient conventional assets, i.e. mining and conventional generation segments, which as a result of improving cost efficiency and productivity will be competitive on the market or, in case of generation assets, they will be shifted to the regulated segment of the power system.
The below figure presents implementation of priorities based on the pillars of TAURON Capital Group's Strategy.
Figure no. 5. Implementation of priorities based on the pillars of TAURON Capital Group's Strategy
The implementation of the Strategy will allow for increasing EBITDA from PLN 3.5bn in 2015 to more than PLN 4bn in 2020 and to more than PLN 5bn in 2025. Estimated, recurring effect of implementing the Efficiency Improvement Program in the form of an impact on the Group's EBITDA will be approximately PLN 0.4bn starting from 2018, while the effect of implementing the Strategic Initiatives in the form of an impact on the Group's EBITDA will be approximately PLN 0.3bn beyond 2020.
As part of rationalizing CAPEX the expenditures planned for 2016-2020 were reduced from PLN 20.2bn to approx. PLN 18bn. It is assumed that the commenced and well advanced investment projects will be continued. The detailed analysis revealed that 75 percent of the CAPEX plan until 2020 are tasks that are either a continuation or are related to keeping the commitments made. Such tasks include the investment in the 910 MW unit at Jaworzno III Power Plant as well as the contracted or resulting from regulatory requirements tasks in the distribution segment. Resigning or delaying these tasks would have a negative impact on the Group's value or is impossible due to legal or safety reasons.
In the Mining segment investments at Janina coal mine and the construction of Grzegorz shaft at Sobieski coal mine will be continued and the planned investments at Brzeszcze coal mine will be carried out. CAPEX in this line of business is approximately PLN 1.3bn until 2020.
In the Generation segment investments in the construction of the 910 MW unit at Jaworzno III Power Plant and the CCGT unit at Stalowa Wola Combined Heat and Power Plant as well as the investments in the heating networks will be continued. TAURON assumes that the construction of the 910 MW unit at Jaworzno III Power Plant will be carried out under a new financing formula envisaging spinning off of an organized part of the enterprise and selling its shares to third party partners, provided they do not acquire a controlling stake. A change of the way the unit's construction is financed would reduce the net debt/EBITDA ratio, and thus significantly lower the risk of breaching the threshold value of this covenant (3.5x) defined in the financing agreements.
Strategy assumes maintaining financial stability and not breaching the net debt/EBITDA covenant of 3.5x without taking into account selling a minority stake in the construction of the 910 MW unit to third party partners. This means that the planned change of this project's financing formula represents an additional element that would stabilize TAURON Capital Group's financial position. Generation segment's capital expenditures amount to PLN 6.7bn until 2020.
More than 50 percent of the entire CAPEX, i.e. PLN 9.5bn by 2020, are investments in the Distribution segment that include connecting new customers and generation sources as well as upgrading and replacing grid assets
The below figure presents capital expenditures by segments in 2016-2020.
With respect to innovative as well as research and development activities the Strategy assumes expenditures equal to 0.4% of the consolidated revenue a year.
The overall objective in terms of CAPEX is to align the investment portfolio to the market needs.
In particular the actions to be undertaken will be aimed at:
Assumed directions of investments beyond 2020 include first of all the regulated segments of the power sector (i.e., among others, electricity distribution, heat generation and distribution, participation in the nuclear power generation and regulated conventional generation) and the new power industry (i.e. e-mobility, distributed heat and electricity generation, power generation by prosumers, Smart Home, Smart City solutions and energy related services). Strategy assumes that in 2020- 2025 TAURON Capital Group's estimated investment potential will be more than PLN 6bn.
Strategy is TAURON Capital Group's response to the challenges posed by the business environment and the requirements of the energy sector's customers that have been changing fast over the last few years.
Strategy defines four key challenges facing TAURON Capital Group: regulations, market, customer and technologies.
Introduction of the dual-product market – capacity market, the European Union's (EU) decarbonization policy and successive regulations aimed at reducing emissions, introduction of the quality based regulation in the distribution segment, changes to the support for RES installations and EU actions aimed at developing a common electricity market.
Changing forecasts of electricity prices, hard coal oversupply and prices, demand for electricity, demand for capacity, growing competition on the retail market, rising level of RES generation along with the withdrawal of the European players and the reduction of the financing for the conventional power generation.
Growing awareness of the customers and the requirements with respect to satisfying their needs as well as comprehensiveness of the offering, increased expectations with respect to customer service quality and availability.
Falling prices of renewable and dispersed technologies, rising competitiveness of such sources versus conventional sources, a change of the role of the distribution service due to the expansion of dispersed power generation, advancement of smart technologies, microgeneration and energy storage.
In the long term profound changes of the entire power sector, towards the so-called "power industry of tomorrow", are important. A transformation of the system power sector towards decentralized generation, increased role of transborder connections, energy storage and new energy services, as for example "virtual power plants", demand side management, dispersed generation. This also leads to a change of the role of the distribution segment that must deal with smart technologies, electric vehicle charging infrastructure, distributed generation, including prosumers, bi+directional flows, while at the same time raising the quality and security of supplies.
The below figure presents the key challenges facing TAURON Capital Group.
The defined key challenges facing TAURON Capital Group create both opportunities as well as threats for TAURON Capital Group's operations.
The below table presents opportunities and threats for TAURON Capital Group's operations
| Opportunities | Threats | ||||
|---|---|---|---|---|---|
| Regulations | |||||
| • Introduction of the dual-product market – additional revenue for maintaining generation capacity. • Support for electromobility (growing electricity consumption). • Introduction of legal regulations supporting the reduction of low emissions (e.g. system district heating, increasing the share of eco-pea coal in the sales). • Expected support for the cogeneration beyond 2018 |
• Rising costs of electricity production from conventional assets, growing environmental costs and further tightening of the decarbonization policy. • Negative impact of the EU regulations related to the common energy market. • Lack of stability and predictability of the regulations for the RES sources, including rising costs of maintaining wind farms and hydro-electric power plants as well as uncertain future of the RES sources based on the biomass burning and co-firing technology (RES directive draft). • Lack of support for the cogeneration beyond 2018 |
||||
| Market | |||||
| • Cost effective, own mining assets, competitive on the Polish market, allowing for stabilization and predictability of the fuel cost. • Access to the largest, among Poland's energy companies, customer base. • Entry to the energy related services market segments based on the competences held. • Commercialization of innovative solutions developed as part of research and development operations. |
• Declining margins and lower utilization of conventional assets (deteriorating profitability, required outlays for upgrades or the need to shutdown old generating units due to the new high efficiency units entering the system and due to the BAT requirements). • Loss of volume and profitability of the Supply Segment, in particular in the B2B area. • Pressure on electricity prices with the growing transborder exchange volumes. • Rising costs and limited availability of financing. • Increased prices of products and services negatively impacting investment efficiency. |
||||
| Customer | |||||
| • Competitive advantage with respect to customer service quality. • Customer segmentation and offering additional products in line with customer expectations. • Greater customer awareness and expectations towards comprehensive, personalized offering of additional services and products (greater customer product saturation). • Expanding an offering of services for customers based on competences held and trust in TAURON brand. • Growth through concentration on a customer that is not generating large capital investments. • Developing modern and integrated sales and customer service channels. • New competences and business models based on research and development operations. • Maintaining an upward trend in electricity consumption trend by final consumers. |
• Potential loss of customers due to an increase in the number of competitors offering customers similar products and due to low electricity supply market entry barriers. • Decreasing customer loyalty – growing number of supplier switchings. • Greater customer awareness and requirements with respect to service quality and product offering. • Power independence of consumers (prosumers, energy (power) islands, clusters). • Energy intensive consumers building their own generation sources, as a result of the drive to reduce electricity costs. • "Carbon leakage" – moving business operations to other countries due to the cost of energy. |
||||
| Technologies | |||||
| • Falling prices of renewable technologies. • Advancement of storage technologies, smart technologies and technologies related to dispersed (distributed) generation. • Additional services for customers related to new technologies (internet of things, dynamic tariffs, virtual power plants). • Advancement of dispersed (distributed) power generation, including prosumers. |
• The need to adapt the grid to the growth of dispersed (distributed) power generation (bi-directional flows). • Arrival of new, cost competitive electricity generation technologies in countries neighbouring with Poland. |
• Developing and implementing (commercializing) of own innovative solutions that provide a competitive advantage.
2017 was the time when the first effects of the Strategy adopted in September 2016 were achieved. In accordance with the Assumption the most important priority was to ensure financial stability in order to lay down solid foundations for the expansion of TAURON Capital Group. As part of the Strategy actions in the form of Strategic Initiatives were taken and the Efficiency Improvement Program was continued, involving reorganizing core processes throughout TAURON Capital Group and raising asset utilization efficiency. Strategy is implemented by:
The below figure presents the 2016-2018 Efficiency Improvement Program.
TAURON Capital Group's Efficiency Improvement Program brought, in 2016-2017, savings of PLN 1 091 mln which represents 84% of the planned savings, out of which PLN 640 mln impacted EBITDA, while PLN 451 mln was applicable to CAPEX savings. The largest contribution to the savings achieved came from the Generation Line of Business.
3) Strategic Initiatives and CAPEX rationalization in 2017-2020 assuming financial effects of PLN 3.4 bln, including the cumulative EBITDA increase by approximately PLN 1.2 bln, CAPEX reduction by approximately PLN 0.7 bln and stopping the investment in the new unit at Łagisza Power Plant worth PLN 1.5 bln.
The below figure presents Strategic Initiatives and CAPEX rationalization in 2017-2020.
In accordance with the objectives set TAURON Capital Group will be expanding the Supply Line of Business and customer service. In this respect a further introduction of coherent, high customer service standards in each area of the value chain and the growth of modern and integrated sales and customer service channels is planned.
In the Distribution Line of Business the "Single Distribution" program based on actions related to unifying the processes and systems as well as implementing an optimal and coherent structure of TAURON Dystrybucja so as to improve operational and investment efficiency of this Line of Business will be continued.
In the Mining and Generation Lines of Businesses tasks related to a further improvement of the cost and investment efficiency will be carried out. The introduction of the detailed regulations related to the capacity market in Poland and the planned auctions related thereto will be important for the generation assets.
In 2017 Strategic Initiatives brought a financial effect of PLN 937 mln, out of which PLN 320 mln impacted EBITDA, while PLN 617 mln was applicable to CAPEX savings (including PLN 428 mln due to stopping the Łagisza investment project). The largest contributions to the savings achieved came from the Generation (PLN 314 mln) and Distribution (PLN 103 mln) Lines of Business.
In 2018 TAURON Capital Group's largest investment projects will be continued in line with the adopted Strategy, including:
Furthermore, the Low Emission Elimination Program in the Silesia and Dąbrowa conurbation as well as the project related to implementing heat production at unit no. 10 and construction of peaking and backup boilers at Łagisza Power Plant, as a consequence of planned shutdown of 120 MW units at this site, will be carried out.
Strategy sets the directions of TAURON Capital Group's short and long term expansion. The tasks for TAURON Capital Group's individual Lines of Business were defined in detail until 2020 and the financial effects for such tasks were set. The priority is to maintain stable financial position and lay down solid foundations for growth in a changing environment. This priority is to be achieved through the Efficiency Improvement Program and Strategic Initiatives aimed at the cost and investment optimization. It is planned that by 2020 PLN approximately 18 bln worth of CAPEX will be spent, with more than half on the distribution assets generating TAURON Capital Group's most stable revenue. Strategy sets the priority directions for the innovations as well as research and development activities that will be the basis for developing new products and services in the longer term. In order to achieve this goal TAURON Capital Group adopted a new model for the innovations as well as research and development activities, setting up a dedicated central organization for managing and coordinating such operations and allocating a budget of 0.4% of revenue thereto.
In the longer term Strategy assumes full utilization of the potential of TAURON Capital Group's assets, supporting innovations, organizational culture and, first of all, the broad customer base. Strategy assumes that in 2020-2025 TAURON Capital Group will gain an additional CAPEX potential in the region of approximately PLN 6 bln to be used for projects that will generate value for TAURON Capital Group in the longer term. TAURON Capital Group will be investing in the regulated areas such as electricity distribution as well as heat distribution and generation, RES (on the condition of a stable support system), regulated conventional generation and in the new power sector, e.g. electromobility, dispersed (distributed) electricity and heat generation, smart solutions.
The below figure presents the outlook for CAPEX directions beyond 2020.
Figure no. 10. Outlook for CAPEX directions beyond 2020
TAURON Capital Group's main competitive advantage is the base of 5.5 mln customers. The most important actions in the short and long term will be relatively low capital intensive actions related to an expansion of the product and service offering for the consumers and developing new operations based on TAURON Capital Group's competences. Strategy assumes that in 2025 new businesses will be generating approx. 25% of the total margin or revenue from the Supply Segment's sales.
Actions defined in the Strategy will allow for achieving the set key goals for TAURON Capital Group:
The below figure presents the 2025 EBITDA outlook taking into account the risks and the implementation of the Strategy as well as the effects of the implementation of the Strategy.
Actions planned for the coming years will allow for stopping the profitability decline. This will be achieved by optimizing operations in the Generation and Mining Segments while at the same time maintaining stability in the Distribution Line of Business.
On February 15, 2017 PGE EJ 1's share capital increase was registered in the National Court Register, in line with the resolution passed by the Extraordinary GM of the PGE EJ 1 special purpose vehicle on December 21, 2016. The share capital was increased from PLN 275 859 450 to PLN 310 858 470, i.e. by PLN 34 999 020, by way of issuance of 248 220 new shares with the nominal value of PLN 141 per share and the total nominal value of PLN 34 999 020. TAURON took up 24 822 new shares with the nominal value of PLN 141 per share and the total nominal value of PLN 3 499 902, paid for by cash in the amount of PLN 3 499 902.
On September 3, 2014 TAURON, ENEA S.A. (ENEA) and KGHM Polska Miedź S.A. (Business Partners) concluded the Partners' Agreement governing the rules of cooperation in the implementation of Poland's first nuclear power plant construction project. On April 15, 2015 the above entities concluded the agreement on the purchase of shares in PGE EJ 1 - a special purpose vehicle responsible for preparing and implementing an investment project involving the construction and operation of a nuclear power plant with the capacity of approximately 3 thousand MWe (Project). Each Business Partner acquired from PGE a 10% stake (30% of shares in total) in the PGE EJ 1 special purpose vehicle. TAURON paid PLN 16 044 000 for the acquired stake. This way one of the commitments under the Partners' Agreement, according to which the parties undertook to jointly, in proportion to the stakes held, finance operations as part of a project milestone, was fulfilled
The Partners' Agreement envisages that the successive decisions related to the project, including the decision on the declaration to further continue participation in a subsequent project stage by the individual parties (including TAURON), will be taken following the completion of the preliminary stage.
In 2017 PGE EJ 1 carried out the scope of the works related to conducting environmental and siting research at Żarnowiec and Lubiatowo-Kopalino sites.
On April 20, 2017 TAURON signed a letter of intent with Grupa Azoty S.A., defining general rules of commencing cooperation aimed at implementing the coal gasification project.
The product of the technological process system that the letter of intent is applicable to is primarily the synthesis gas (syngas) with the composition that would allow using it directly to produce hydrogen, ammonia, methanol or other chemicals. The parties came to the conclusion that the current natural gas consumption in the nitrogen fertilizers manufacturing industry could partly be replaced with the synthesis gas (syngas) obtained as a result of coal gasification. This opens new prospects for the mining industry, increasing Poland's security of electricity supply by developing low emission technology.
The project is at the preFeed (Preliminary Front End Engineering Design) and accompanying analyses, including market research, stage. As part of the project Grupa Azoty commissioned works related to documentation, in particular a preliminary selection of licensors and updating of the analyses. The Project's estimated value will reach between EUR 400 mln and EUR 600 mln, depending on the selected technology version.
TAURON has declared its participation in the Project's implementation in accordance with the rules that will be defined by the Parties in separate agreements, including assuming selecting and completing an installation that would ensure maximizing the use of hard coal coming from TAURON Capital Group's coal mines. If TAURON is not able to provide appropriate quantity or parameters of coal required by the installation, it shall be permitted to supplement the supply with coal coming from other suppliers.
The letter of intent expresses the readiness of the parties to commence talks and defines the general cooperation framework and does not cause, at the current stage, any financial or management implications for either Party. The Parties declared an intention to cooperate and expressed the will to sign further agreements, including agreements related to establishing a joint special purpose vehicle (SPV) to carry out the project. Either Party shall have the right to terminate the letter of intent at one month's notice.
On December 19, 2017 the Extraordinary GM of Shareholders of Elektrownia Blachownia Nowa sp. z o.o. in liquidation confirmed, through applicable resolutions, the completion of the company's liquidation process. The remaining assets (funds) were split into two equal parts and transferred to KGHM and TAURON Wytwarzanie.
The above was the consequence of the agreement signed on July 28, 2016 between: TAURON, KGHM and TAURON Wytwarzanie, under which the companies decided in unison to withdraw from implementing the CCGT unit construction project at Elektrownia Blachownia Nowa sp. z o.o., suspended since 2013, and terminate the Partners' Agreement signed between KGHM and TAURON Wytwarzanie, and also to proceed to the liquidation of Elektrownia Blachownia Nowa sp. z o.o.
TAURON Capital Group's strategic investment projects and the financing thereof are centrally managed at the Company's level. Based on the analyses completed the Company's Management Board assesses that TAURON Capital Group is able to finance the current and future intended investment projects included in the Strategy using funds generated from operations and obtaining debt financing.
TAURON Capital Group is conducting operations in all key segments of the energy market, i.e. hard coal mining as well as electricity and heat generation, distribution and trading. Strategy assumes that each Line of Business will be building TAURON Capital Group's value, but in a manner aligned to the market conditions for the given segment. Supply Line of Business as well as the new products and services represent the field of operations that will be intensely expanded by TAURON Capital Group. TAURON Capital Group is changing its profile towards full concentration on the customer. This is achieved by building sustainable relationships with customers, introducing consistent, high customer service standards in each link of the value chain, modern and integrated sales and customer service channels (omnichannel and ecommerce), adapted to today's highest standards. Supply segment and customer service will the main drivers for building TAURON Capital Group's value. Electricity Distribution Line of Business is the most stable line of business in terms of contribution to generating TAURON Capital Group's EBITDA. TAURON Capital Group is planning to maintain a stable role of the Distribution Line of Business and continue the up to now investment policy. Through further upgrades and expansion of its distribution grid TAURON Capital Group will be able to meet the requirements in terms of security and quality of supplies. Generation and Mining Lines of Business will continue to improve the cost and operating efficiency, while a potential expansion of the conventional generation will depend on the market situation or favorable regulations for the conventional generation.
In its adopted Strategy TAURON Capital Group places its bet on a dynamic expansion of the research and development as well as innovations line of business (R+D+I), viewing it as a way to achieve new revenue in the future. It is assumed that, starting from 2017, minimum 0.4% of consolidated revenue will be spent on R+D+I, as well as on expansion based on, among others, Corporate Venture Capital (CVC) and long term return on the portfolio, and also an annual revision depending on the financial position.
The research and development as well as innovations line of business (R+D+I), in line with the Strategy, introduced portfolio based management of research and development projects in accordance with the priority directions of innovations as well as research and development activities.
The below figure presents the priority directions of innovations as well as research and development activities.
The directions of innovations as well as research and development activities were taken into account in the works on developing the Strategic Research Agenda (SRA) conducted in 2017. This document will constitute a conversion of the goals indicated in the Strategy into a "road map" for the R+D+I operations of TAURON Capital Group, accommodating the specifics of the challenges in each of the above four directions and at the same time reaching in the adopted timeframe beyond the timeline of the current Strategy in force.
Additionally, process based management introduced in the R+D+I line of business provided more effective and timely implementation of the R+D portfolio projects by TAURON and TAURON Capital Group's subsidiaries. The change of the line of business operations' organization ensured effective supervision of the Corporate Center over the R+D projects' implementation by TAURON Capital Group's subsidiaries and management of financial and non-financial resources.
In 2017, TAURON has been continuing and also initiating research projects, among others, in the European programme Horizon 2020 and the Sectoral Electricity Research Program (PBSE) addressed to the electricity sector.
With co-financing from the Horizon 2020 program, the company has been working on the following projects:
In 2017 TAURON launched a new project under the Horizon 2020 program under the name of "Transformation of an electricity supplier's business model with a view to energy efficiency based on changing human behaviors and the use of information and communications technologies". The project activities are aimed at implementing a solution that will increase electricity efficiency consumption by actively engaging customers in their behaviors related to electricity consumption with the use of information and communications technologies as well as DSM mechanisms.
In 2017, work was progressing on launching the projects under the PBSE organised by the National Centre for Research and Development. Two year long preparations by the companies of TAURON Capital Group resulted in obtaining co financing for 8 R&D projects, including TAURON obtaining co financing for 2 projects. These projects cover the work on a system for optimising operation of conventional generating plants and development of creation of local electric grids – micro grids. It is expected that the Sectoral Programme will provide support to intensification of implementation of innovations in the energy sector, and that the follow up contests announced under this Programme will also be supporting the directions of work conducted by TAURON Capital Group.
In 2017 TAURON continued activities with respect to building mechanisms for cooperation between industry and science as well as between industry and startups. In this regard the participation in the works of the Technology and Innovations Highway Institute (Instytut Autostrada Technologii i Innowacji), set up in 2014, that is the new platform for cooperation between industry and Polish universities, took place. In the Pilot Maker program, co-financed by the Polish Agency for Enterprise Development (PARP) as part of the Scale Up competition, 3 startup selection processes were carried out. Since the beginning of 2017 in the entire program TAURON reviewed almost 130 solutions prepared by startups. i.e. 46 in the first selection process, 23 in the second selection process and 60 in the third selection process. 30 startups began cooperating with TAURON on preparing solutions in response to the technological challenges defined by TAURON Capital Group. Currently 26 startups are testing their solutions on TAURON's infrastructure or preparing their solutions for such tests (pilots). The program's leader is techBrainers sp. z o.o., the main partner is TAURON, the other partners are well known companies Kross S.A. and Amplus sp. z o.o.
In 2017 TAURON Capital Group was carrying out works as part of KIC InnoEnergy, in particular the Polish node of InnoEnergy Central Europe sp. z o.o. with its seat in Kraków (one of six in the EU). Within the structures of KIC InnoEnergy TAURON holds the Associated Partner status. One of TAURON's areas of interests are the so-called clean coal technologies. At the same time conducting of tests and coordinating of activities in this area are the main tasks of CC Poland Plus sp. z o.o., of which TAURON is one of the shareholders. In 2017 the Company's representatives were engaged in the works of KIC InnoEnergy, related to evaluating projects/initiatives proposed to be implemented by other partners operating within the structures of KIC InnoEnergy, both on the national, as well as international level.
In 2017, TAURON has received several awards relating to its Research, Development and Innovation activities. Gazeta Bankowa has for the 15th time awarded its "Leader" title to institutions that in 2016 have performed the most interesting implementations in several industries. TAURON was awarded the second prize in energy, fuel and chemicals category for implementation of the "Innovation Zone" at the TAURON Capital Group that allows company employees to submit solutions that improve effectiveness of operation of the entire organisation.
In 2017, at the Grand Gala of Leaders of the Energy World and Production at the EuroPOWER conference, TAURON was awarded a prize in the "Leaders of the Energy World and Production" competition for the energy industry's first start-up accelerator programme – the PilotMaker. Additionally, for its participation in the PilotMaker programme, TAURON received the Wprost 2017 Innovator prize in energy industry category.
In 2017 no material internal factors that would have a significant impact on the financial result achieved occurred.
The Company's and TAURON Capital Group's operations and earnings in 2017 were impacted by the following external factors:
TAURON's core business operations are conducted on the Polish market and the Company takes advantage of the positive trends occurring thereupon as well as it is affected by the changes thereof. The macroeconomic situation, both in the individual sectors of the economy as well as on the financial markets, is a significant factor impacting the earnings generated by the Company and TAURON Capital Group.
2017 was generally positive for the Polish economy. The Central Statistics Office (GUS) informed in March 2017 that all economic indicators improved. Registered (official) jobless rate reached 8.5% in February 2017. Additionally, Moody's raised Poland's Gross Domestic Product (GDP) growth rate forecast to 3.2% year on year. All this information allowed for strengthening of the Polish currency both versus EUR as well as USD. In March 2017 the USD/PLN exchange rate declined 2.54% to PLN 3.96, while the EUR/PLN exchange rate dropped 1.74% to PLN 4.23 zł. In April 2017 more positive information on the Polish economy surfaced. In March 2017 the manufacturing industry's sold output rose 11.1% year on year. The actual monthly industrial production growth rate reached 17.6%.
In the subsequent months of 2017 more positive information was published. In June 2017 average wages in the enterprises sector rose to PLN 4 508. Also, employment in the enterprises sector went up, leading to the fall of the jobless rate to 7.1%. Furthermore, in Poland, similar to the Eurozone, an increase of the manufacturing industry's PMI was observed reaching 53,1 and 56.8, accordingly.
It should be noted that CPI rose 1,5% in the period under review. In November 2017 the consumer products and services price index increased 2.50% on annual basis and 0.50% on monthly basis. GDP growth rate reached 4.9% year on year in Q3 2017, versus 4% in Q2 2017. According to the Central Statistics Office (GUS) data GDP growth rate for the entire 2017 reached 4.6% versus 3.6% expected earlier which undoubtedly proves the strengthening of the country's economy.
According to the data of Polskie Sieci Elektroenergetyczne S.A. (PSE, TSO) 2017 brought a significant increase (2.13% year on year) of the gross national electricity consumption (KZEE), covered mainly by the rise of production from the domestic power plants (1.98% year on year) – and increased imports (14.41% year on year) that reached 2.23 TWh in 2017.
Due to the increased demand for electricity in the National Power System in 2017 TAURON Wytwarzanie's generating units produced approx. 8,8% more gross electricity than in 2016. Increased electricity output had a direct impact on the volume of consumed coal.
Wholesale electricity prices on the Day Ahead Market (RDN) of the Polish Power Exchange (Towarowa Giełda Energii S.A. - TGE) in 2017 in Poland, in spite of rising commodity and CO2 emission allowance prices, were on an averaged annualized basis lower than in 2016 and reached 157.84 PLN/MWh (-1,38 PLN/MWh in comparison to 2016). The CRO price on the Balancing Market (RB) reached 166.65 PLN/MWh (+2,46 PLN/MWh on an annualized basis).
The main reason for a slight price decline on the RDN was a good situation in the National Power System (KSE) and relatively low and very low prices in the 1st half of 2017. The situation improved in the 2nd half of 2017. Rising demand for capacity (year on year increase by 3.99 TWh to 168.4 TWh) in combination with overhaul plans for the centrally dispatched
generating units had a significant impact on the increase of CRO prices that were higher, on average, by 8.81 PLN/MWh than the prices on the RDN.
The impact of the rising electricity consumption on the increase of electricity prices was to a certain extent offset by the record volume of electricity produced by the wind sources (14.4 TWh, increase by 2.7 TWh in comparison to 2016). In 2017, in spite of the rising demand, generation output from hard coal fired power plants declined (to 78.7 TWh, i.e. by 1.5 TWh in comparison to 2016). Rising demand was satisfied by increased production at more expensive power plants, for example, the gas-fired ones, the output from which, on an annualized basis, rose 37.8% to 5.8 TWh.
In spite of commissioning approx. 730 MW of new capacity in wind power plants in 2016, a slight increase of the production from RES did not bring the expected output increase in this sub-sector. At the same time a significant, by as much as 4.4%, drop of production from cheap lignite fired power plants was observed in 2017 which had to be offset by the rising production at more expensive power plants, for example, the gas-fired ones, the output from which, on an annualized basis, rose 24.2% to 7.2 TWh. Additionally, KSE was supported by electricity imports in the volume of almost 2.4 TWh.
The below figure presents average monthly electricity prices on the SPOT and RB markets, as well as average temperatures.
Figure no. 13. Average monthly electricity prices on the SPOT and RB markets, as well as average temperatures
The base load contract with the delivery in 2018 was in a clear upward trend on the futures market in 2017. BASE_Y-18 contract prices, after the closing of the BASE_Y-17 contract, began with an up gap in the region of approx. 3 PLN/MWh. However, the gap was quickly closed due to the declining CO2 prices to the level below 160 PLN/MWh at the end of the first decade of January 2017. In the second half of January 2017 the prices rose and fluctuated in the approx. 160-161 PLN/MWh range. Subsequent months brought stabilization of prices. Only at the end of the summer holidays period rising electricity prices were observed on the energy markets almost all over Europe. The biggest price increases occurred in France, Spain and in Germany (fears of a repeat of the cold 2016/2017 winter and problems with satisfying the demand). In August 2017 the BASE_Q4-17 and BASE_Q1-18 products were particularly high priced, frequently above 50.00 EUR/MWh, i.e. much higher than the reference quarterly product listed on TGE. In September 2017 the average price of the BASE_Y-18 futures contract reached 166.80 PLN/MWh, i.e. it was 3.00 PLN/MWh higher than in August 2017. Forward market electricity prices in October 2017 continued the upward trend commenced in September.
Factors supporting the demand side remained unchanged. A high coal price on the world markets, rising EUA unit prices and a tight situation in the French power system as well as the approaching winter effectively supported reaching new price peaks on the forward products. Additionally, high SPOT price levels also had a clear impact on the wholesale market prices. In October 2017 the average price of the BASE_Y-18 futures contract reached 172.70 PLN/MWh, i.e. it was almost 6.00 PLN/MWh higher than in September. However, the biggest price increase occurred at the beginning of December 2017, when the price of the BASE_Y-18 contract was close to 180 PLN/MWh. The average volume weighted price of the BASE_Y-18 product reached 165.98 PLN/MWh, with the total trading volume reaching 65.2 TWh, i.e. it was more than 10 TWh lower than in 2016.
The below figure presents the BASE Y-18 contracts performance.
Figure no. 14. BASE Y-18 contracts performance
2017 on the crude oil market was characterized by the continuation of the upward trend following the declines that had taken place in 2014-2015. The crude oil prices fluctuated in the 44,35-67.1 USD/bbl range in the period under review.
The beginning of 2017 was characterized by low price volatility. In February crude oil prices fluctuated in the 54.4-57.45 USD/bbl range. At that time investors were analyzing the agreement between the OPEC cartel and Russia, aimed at reducing the crude oil output, and the data on the crude oil production output and inventory levels in the US. It should be noted that a large role in OPEC is played by Saudi Arabia and this country is interested in high oil prices due to the largest IPO in history – the stock market debut of Saudi Aramco.
On March 26, 2017 an OPEC meeting was held in Vienna during which, however, no unequivocal and binding decisions on production levels were taken. Two days later cyclone Debbie hit the north-western coast of Australia which led to a rise of commodity prices, including also crude oil. In spite of OPEC and Russia's efforts the United States did not join the agreement aimed at reducing oil production, on the contrary, in April 2017 the US observed an increase of its output by almost 0.5 mln bpd, and as a result the worldwide crude oil inventory did not decrease to the expected levels which had a direct impact on the mood on the market.
The second half of 2017 was characterized by a strong anxiety on the market caused by weather related natural disasters and political turmoil. Hurricanes Harvey and Irma had a strong impact on oil prices at the end of August and beginning of September. As a result of the forces of nature a number of US refineries had to stop their operations which led to problems with excessive stockpiles of extracted oil.
Due to increased exports of US oil to other markets the US WTI oil price discount versus the Brent oil widened. Petrol price increased, refining margins rose due to smaller supply of petrol. The strengthening of the crude oil prices in September was due to the "restart" of the US refining industry, but also due to the rising geopolitical tensions. An important factor was also an increase of tension between North Korea and the US and Japan.
Additionally, Kurdistan announced an independence referendum which led to a sharp reaction from Turkey. It threatened to cut off oil supplies from Iraqi oil field in the Kirkuk area to the Ceyhan port in Turkey, which would substantially reduce oil supply.
The situation on the coal market was similar. In Q1 2017 the coal prices were not highly volatile. However, looking at the entire 2017 an upward trend of this commodity should be emphasized. Prices moved in the range between 61.75, and 90.75 USD/Mg. Relative peace on the market was due to investors waiting for the decision of the Chinese National Development and Reform Commission - NDRC, on limiting the number of days in a year when coal may be extracted. Furthermore, safety issues also arose in China – as a result of ad-hoc audits mining was suspended at coal mines that did not meet safety requirements.
On the other hand, due to the beginning of the season characterized by the lower demand for coal, prices on the worldwide market began to drop. Unexpectedly, the aftermath of cyclone Debbie that hit Australia became a factor inhibiting the market declines observed. Particularly strong price hikes during that time were applicable to coke with Australia being one of its main producers, where some mines were closed and the railway infrastructure was destroyed due to difficult conditions as a result of weather related natural disasters. Following the disruptions related to cyclone Debbie coal prices with the delivery in 2018 returned to lower levels. However, Australia was soon hit with flooding rains and finally the price stayed at a relatively high level of 66 USD/Mg.
Additionally, in China, due to overhauls, a very important railway line that connects regions where coal is extracted with the Quindango port was temporarily closed. As a result of these occurrences coal prices with the delivery in 2018 went up by a few dollars - to 68 USD/Mg. Only after a few weeks the situation began to normalize. Finally, the coal at ARA ports with the delivery in 2018 cost 66.50 USD/Mg. In the subsequent months of 2017 temperatures were rising and the precipitation was declining which as a consequence led to the falling water levels. In China the hydroelectric plants' production fell by as much as 70%, and hydro is the second largest source of energy in this country, following coal. Additionally, continued disruptions on the supply side, as a consequence of cyclone Debbie and flooding rains, led to the rising demand on the market.
Coal prices in September at ARA ports with the delivery in 2018 were in an upward trend that began already in March 2017. In the period under review coal prices with the delivery in 2018 reached the maximum level of 84.25 USD/Mg, i.e. the highest value since 2014. Such increases were caused by the strong demand in the Asia region and speculations related to the possibility of a repeat of last year's problems of nuclear plants in France and higher coal consumption in Europe. At the end of the month the prices suffered a correction which was due to the lower demand for coal in China, related to the approaching National Days holidays lasting a full week. Also, a transition period for a ban on coal imports from North Korea was introduced which led to increased supply. Finally, at the end of the year coal prices landed at levels not seen since 2013, reaching 90 USD/Mg.
Year 2017 brought price increases on the gas market following the record low prices in 2016. The average price on the Day Ahead Market for gas on the Polish Power Exchange (TGE) reached 84.69 PLN/MWh in 2017 and it was more than PLN 13 higher than in 2016. Contracts with the delivery on the day ahead were particularly high priced in the first two and the last two months of 2017, i.e. during the gas winter season, when the demand for fuel is the highest. Prices in January and in December topped 100 PLN/MWh a number of times. The maximum value was achieved on December 13, 2017 and it reached 105.10 PLN/MWh. High prices in Q1 2017 were the result of increased demand for gas all over Europe, caused by unavailability of some nuclear plants in France (which led to a larger generation from gas-fired sources) and a relatively long cold period.
In Poland the daily average temperatures on a few January days did not exceed -11ºC, while temperatures above 0ºC began to appear only in mid-February 2017. Due to increased gas consumption an extension of the cold spell may have led to real problems with availability of gas fuel in Europe. Fears of a repeat of the situation that occurred at the end of 2016 / beginning of 2017 were also the reason for high prices at the end of 2017. The distribution of prices on the spot market in 2017 was characteristic for the gas demand distribution (a clear drop of prices during the period of lower demand in the summer).
Similar to the markets with a shorter delivery period, on the forward contracts market Q1 and Q3 were characterized by a markedly higher price. The reference one year contract in 2017 was priced within the 76.80-92.27 PLN/MWh range, while upon expiration it was priced at 86.50 PLN/MWh.
The total trading volume on TGE in 2017 reached more than 138.5 TWh. As compared to the previous year an increase by 21% occurred. The forward contracts market had the biggest share in the trading volume, generating a volume at the level close to 115 TWh. On the spot market the total volume of the day ahead contracts and weekend contracts reached more than 19 TWh, which was 0.5 TWh less than in the previous year. A similar slight decline was also observed on the Day Ahead Market for gas where the trading volume reached 4.7 TWh.
The key event for the development of the gas market in Poland was the first historic LNG delivery from the US. A ship carrying liquid gas entered the terminal in Świnoujście on June 7, 2017. While the new rules of maintaining mandatory gas inventory came into force on October 1, 2017. According to these rules importers that want to maintain mandatory gas inventory outside Poland must – in order to ensure their ability to transfer such gas to Poland in case of an energy crisis reserve the so-called continuous transmission capabilities on the transborder lines (interconnectors). The reserved transmission capabilities are to allow for transmitting the entire inventory to Poland in any conditions within maximum 40 days and additionally they cannot be used for any other purposes, for example commercial (trading) ones.
Figure no. 15. Average monthly SPOT and Y-18 contract prices on TGE in 2017
The below figure presents average monthly SPOT and Y-18 contract prices on TGE in 2017.
The CO2 emission allowances market in 2017 was characterized by high price volatility, caused to a large degree by political factors. During the period under review the prices moved within the 4.29-8.30 EUR/Mg range.
Q1 2017 market should, finally, be deemed as being in the downward trend, in spite of major political events at the EU level, related to the 4th trading period of the European CO2 Emission Allowances Trading System (EU ETS). The first factor indicating a downward trend were clear declines of electricity contract prices in Germany and France, previously featuring high volatility due to the design problems of the French nuclear plants. Another factor impacting the entire 2017 year was a record high volume offered at the CO2 emission allowances auctions, Poland's first auction was held on March 29, 2017. It worth noting that the weather conditions in Q1 2017 supported increased utilization of the renewable energy sources. Events that occurred in Q2 2017 resulted in a change of the market mood, and as a consequence a reversal of the downward trend. The main themes attracting the market's attention were:
July 2017 for the emission allowances market was a month that continued the upward trend commenced in June. The prices fluctuated between 4.99 EUR/Mg and 5.62 EUR/Mg, while the average price for the period under review reached 5.27 EUR/Mg. Continued price increases on the market were to a large degree a consequence of the weather conditions in Europe. Extended period of high temperature and low precipitation led, first of all, to increased demand for electricity (substantial increase of use of cooling devices) and secondly, a difficult hydrological situation in some EU countries. The above mentioned factors of fundamental nature increased the intensity of the use of the hard coal-fired power plants, and thus contributed to an increase of demand for EUAs. In August the ASE Agency ordered a re-checking of all nuclear reactors located in France in order to finally verify the safety of the installations. This information led to a wave of speculations related to the possibility of a repeat of the 2016 situation. The last month of Q3 2017 featured a substantial
price volatility. During only 8 session days the price rose by almost 33%. In the beginning of the month market transactions were made at the level of 5.82 EUR/Mg, while a few days later, the CO2 emission allowances were contracted at the level of 7.72 EUR/Mg. Such large increases were a consequence of rising fears related to the situation of the French nuclear power plants, as well as the German elections. Furthermore, following the takeover of the EU presidency by Estonia, the works related to the legislation of the EU ETS system's phase 4 were accelerated. October 2017 for the emission allowances market was a month of continued strong growth commenced in the previous month. The EUA prices fluctuated between 6.77 EUR/Mg and 8.05 EUR/Mg, which indicates that in the period under review the prices went up by 18.91%, i.e. by 1.28 EUR/Mg. The price increase was caused mainly by the speculative factors, related to the legislation of the EU ETS system's phase 4, surfacing information on the manner of Great Britain exiting the system, as well as related to the problems of the nuclear power plants in France. Additionally, EUA price increases were impacted by the strong upward trend on the coal market. In November 2017 a working group made up of representatives of three main European institutions completed the works on the EU ETS system's phase 4 that will be in force in 2021-2030. In accordance with the agreements reached the reform defined among others:
It is worth noting that the so-called Modernization Fund, and specifically its provisions, prevented the completion of the legislation in October 2017. In its current form the provision on the emission conditions was removed from the provisions setting up the Modernization Fund, however a provision prohibiting the Modernization Fund from subsidizing coal-fired units. In December 2017 the growth trend, developing since Q2, was continued – the prices were moving within the 6.94- 8.30 EUR/Mg range.
The below figure presents the impact of the legislative works and the environment on the EUA SPOT product price in 2017.
2017 has brought upon significant changes on the property rights market, mainly related to amendments of legal regulations. Lasting oversupply of PMOZE_A property rights in the market has caused that since June 2017 the average monthly values of the OZEX_A index have been dropping from 37.98 PLN/MWh in January to a historic minimum of 24.38 PLN/MWh in June. In the same period, the surplus on the PMOZE_A register increased by 8.6% to 25.42 TWh. Beginning with July 2017, the prices started to slowly grow back. Compared to 2016, the average weighted price of the OZEX_A index has dropped by nearly 50% to 38.83 PLN/MWh, while the balance on the PMOZE_A register by the end of 2017 was
28.14 TWh that when taking into account the rights blocked for redemption leaves a value of 24.90 TWh at the end of 2017. One should also note the trading volume in "green" certificates in 2017, which amounted to over 10 TWh. So far this was the biggest trade in the history of "green" property rights (higher by as much as 36% than in 2016). According to the act of 20 July 2017 on amendment of the act on the renewable energy sources, which came into force on 25 September 2017, the substitution fee in force until September 2017 was 300.03 PLN/MWh, while for the following three months of 2017 this fee dropped to 92.03 PLN/MWh, being 125% of the weighted average price of 2016. The obligation to submit PMOZE_A certificates for redemption increased to 15.40%.
The prices of certificates confirming energy generation from agricultural biogas (called "blue" certificates) for which the obligation rate in 2017 was 0.6% were above the substitution fee that was 300.03 PLN/MWh. From January to May the monthly average prices of the TGEozebio index were dynamically growing, respectively from 301.15 PLN/MWh to as high as 408.08 PLN/MWh. In the following two months this trend has reversed and the prices returned to the substitution fee level. Finally the average weighted value of the index at the end of 2017 was 333.89 PLN/MWh. The total traded volume was 522.5 GWh, and the PMOZE_BIO register balance at the end of 2017 was 309 GWh. Taking into account the certificates blocked for redemption, this value has dropped to 206 GWh.
According to the act of 10 April 1997, the Energy Law, amended in 2016, until 30 June of each calendar year the property rights issued to cogeneration units for generation in the previous year may be redeemed. Due to the above, until the end of H1 listings included the property rights for cogeneration both in 2016 and in 2017, while in H2 listings included exclusively the property rights confirming energy generation in 2017.
Until the end of June 2017, the PMEC-2016 (high-efficiency cogeneration) was traded, listed in a narrow price band from 10.76 PLN/MWh in January to 9.27 PLN/MWh in June. However, as of beginning of May 2017, the POLPX started listing PMEC-2017 with opening at 9.68 PLN/MWh. Until the end of 2017, also in case of this instrument the volatility of the KECX index was symbolic and with respect to the monthly values was a mere 0.11 PLN/MWh, while by the end of 2017 the listings ended at 9.79 PLN/MWh. The market prices fluctuated slightly below the substitution fee defined at 10 PLN/MWh.
In gas cogeneration the situation was very much alike. By the end of June 2017, the PMGM-2016 instrument was still listed, closing at 112.21 PLN/MWh. This level, like in case of the coal based cogeneration, was determined by the substitution fee, for 2016 set at 125 PLN/MWh. The PMGM-2017 instrument, concerning generation in 2017, was listed already in March 2017, with the average KGMX index at 116.00 PLN/MWh. Until the end of 2017 its value was increasing on month to month basis, reaching 117.14 PLN/MWh in December. The average listings in 2017 for PMGM-2017 instrument were 116.48 PLN/MWh and were just c.a. 3.50 PLN/MWh below the substitution fee, which for 2017 has dropped to 120 PLN/MWh.
The situation on the market in PMMET property rights confirming energy generation from firing methane was developing similarly to that in case of "yellow" and "red" certificates. Until the end of June 2017 the PMMET-2016 instrument was still listed, with its average value of the KMETX index being 62.19 PLN/MWh. The substitution fee concerning production in 2016 was 63 PLN/MWh, while for 2017 it was lower by 7 PLN/MWh and determined the market prices. The PMMET-2017 instrument for production from the previous year was listed on average at 54.88 PLN/MWh.
The property rights due to the PMEF certificates of energy efficiency (the so-called "white" certificates) continued the downward trend. At the beginning of 2017 the average monthly prices dropped from 1 219,38 PLN/toe in January to the historical lows of 385.86/toe. Finally the weighted average index reached 693.36 PLN/toe and it was as much as 807 PLN/toe lower than the substitution fee set for 2017 at PLN 1 500.00/toe.
The below figure presents the property rights indices, the so-called "green", "blue", "red", "yellow" and "violet" certificates
On December 28, 2017 the President of the Republic of Poland signed the act of December 8, 2017 on the capacity market, that came into force on January 18, 2018. This act has a significant impact on the future functioning of the Polish energy sector. The essential goal of the act is to satisfy the deficit of generation capacity due to the foreseen growth of demand for the peak capacity and the simultaneous substantial scope of the planned retirements of generating units from operation. The law defines, among others:
The finally adopted law envisages:
Furthermore, it was specified in detail that the period of incurring capital expenditures for the needs of the first main auction shall cover the period from January 1, 2014, and for the needs of the second main auction, from January 1, 2017. For the delivery periods falling in 2021-2023 foreign capacities will be taking part in the capacity market solely by participating in additional auctions. Capacity agreements will not be subject to enforcement until the day the European Commission's decision on their compliance with the internal market or a decision that this solution does not constitute public aid is issued.
Currently the energy sector is awaiting the publishing of the draft capacity market regulations which is to be published in the coming months and for the executive ordinances. The regulations will describe in detail the course of an auction, including the detailed description of the electricity demand curve. The first capacity auctions are to be held in Q 2018 and they will be applicable to the 2021-2023 time frame.
Best Available Technologies (BAT) mean the most efficient and advanced stage of development and methods of conducting the given operations that indicate the possible use of individual techniques as the base when setting the admissible emissions values and other conditions aimed at preventing arising, and if it is not possible, reducing emissions and impact on the environment as a whole.
BAT conclusions is a document drawn up based on the reference document on the best available technologies, the socalled BREF. BAT conclusions for large combustion plants (LCP) as an executive decision to directive 2010/75/EU on industrial emissions (IED Directive) will be directly applicable. They define the new requirements with respect to admissible emissions values and the monitoring obligation. A consequence of their implementation will be the need to adapt the fuel combustion installations to the requirements defined in the BAT Conclusions by constructing or refurbishing generation sources, flue gases cleaning (scrubbing) installations and in certain cases additionally installing the continuous monitoring systems for the pollutants so far not covered by such an obligation which means the need to bear exceptionally high capital expenditures.
On April 28, 2017 the representatives of the member states in the European Commission passed the new standards tightening the emission standards for the manufacturing industry, i.e. the so-called BAT conclusions for large utility scale combustion facilities. On August 17, 2017 the executive decision of the European Commission (EE) 2017/1442 of July 31, 2017, introducing the conclusions related to the best available technologies (BAT) with respect to large utility scale combustion facilities, was published in the Official Journal of the European Union. Upon publishing the BAT conclusions became a part of the legal order in force in Poland and they will be the basis for issuing the integrated permits.
Apart from more stringent restrictions for the SO2, NOx and dust emissions the BAT conclusions introduce emission standards for substances not covered thereby so far, namely for mercury, hydrogen chloride, hydrogen fluoride and ammonia, and also in specific cases order installing continuous monitoring for the pollutants not covered by such an obligation so far. The existing installations have 4 years to adapt to the new requirements and they will have to comply therewith after August 17, 2021. BAT conclusions will be applicable to the facilities and installations burning fuels with the capacity not lower than 50 MW in fuel. They are applicable to both the new facilities that will obtain an integrated permit following the publishing of the conclusions, as well as to the facilities already in operation. New, more stringent requirements related to the permitted values of pollutant emissions will have a significant impact on the future of the European coal-fired power plants.
According to the Ministry of the Environment adapting large industrial installations, including the ones generating electricity and heat, to the tighter SO2, NOx and dust emission standards and introduced for the first time binding emission levels for mercury, hydrogen chloride, hydrogen fluoride and ammonia will cost at least PLN 10 bln. Both the costs as well as the schedule of the investment projects aimed at adapting the installations covered by the tightening will be an enormous challenge for the energy sector, especially due to the fact that the refurbishing will have to encompass practically all the power generation units currently in operation. Although the IED Directive provides for an option to obtain temporary derogations from meeting the limit emission values defined based on the BAT conclusions, but such derogation may be granted only if achieving the limit emission values were to lead to unproportionally high costs in relation to the benefits for the environment due to the geographical location of the installations, local environmental conditions or the technical features of the installation.
Further tightening of the emission limits is to take place as a result of subsequent revisions of the conclusions that are to be published every 8 years.
In 2017 works were underway on successive amendments of the Act on Renewable Energy Sources (RES law) passed on February 20, 2015. A draft amendment of the law was published and sent for public consultations in June 2017, with its main goal being to ensure the compliance of the provisions of the RES law with the regulations on public aid issued by the European Commission. The amendments presented make the provisions of the Act on RES fully compliant with the requirements defined in the guidelines on public aid related to environment protection and energy goals in 2014-2020, that permit, as compliant with the common market principles, such market instruments as auctions or tender procedures in line with the competition principles that are open for all producers generating electricity from RES competing against one another on equal terms that should substantially ensure that subsidies are reduced to the minimum.
The scope of the amendment defined, among others, a rule on cumulating public aid, new split into auction baskets, additional support rules were proposed in the form Feed-in-tariff (FIT) and Feed-in-premium (FIP) tariffs for electricity generators from renewable sources dedicated for micro and small RES installations that use stable and predictable energy sources (hydroelectricity, biogas, agricultural biogas) with an installed capacity lower than 500 kW – FIT and a capacity not lower than 500 kW and lower than 1 MW – FIP;
On 30 August 2017, the ordinance of the Minister of Energy of 11 August 2017 on amendment of the quantity share of electricity volume resulting out of the redeemed certificates of origin confirming generation of electricity from renewable sources in 2018 - 2019 came into force, defining the levels of obligations. These levels are 17.5% and 18.5% respectively, while for the "blue" certificates the share for 2018 and 2019 is 0.5%. The new obligations should result in reduction of certificate surplus on the market, and thus increase of their prices that will be capped by a new substitution fee defined for each year.
On 25 September 2017, the act of 20 July 2017, amending the act on renewable energy sources, came into force. The key change introduced with this amendment is the discontinuation of the fixed substitution fee in the amount of 300.03 PLN/MWh and relating it to the market prices of certificates of origin of energy from certain RES ("green" and "blue" certificates). This fee is to be equal to 125% annual weighted average price of property rights resulting out of certificates of origin of RES energy, published pursuant to Article 47 (3) 2) of the act of 20 February 2015 on renewable energy sources, however not more than 300.03 PLN/MWh.
On 13 December 2017, on power of EU State aid regulations, the European Commission has approved the Polish program concerning energy from renewable sources. The decision by the European Commission has influenced intensification of work on amendment of the RES act concerning support for RES generators; therefore adoption of another amendment to the RES act is expected in Q1 2018.
In H1 2017, based on the ordinances to the RES act adopted by the Council of Ministers, concerning: the order of conducting the auction sales of electricity from renewable sources in 2017, the maximum volume and value of electricity from renewable sources that may be sold in auctions in 2017 and the reference price of electricity from renewable sources in 2017 and the terms binding the producers who have won auctions in 2017, two RES auctions were conducted for new build and existing producers with installed capacities of up to 1 MW. Subsequent auctions planned to be held in H2 2017 were cancelled by amendment to the previous ordinances.
The act of July 20, 2017, the Water Law was announced on August 23, 2017, however the majority of the new Water law provisions came into force on January 1, 2018.
The act implements into the Polish law, among other, the EU regulations defined in the Water Framework Directive, stating that all water users must incur the costs thereof. The fees shall be applicable to the energy sector, fish growers, farmers and businesses using large quantities of water for their production.
In case of the energy sector the fee for water consumption by hydroelectric power plants is to be borne by the owners of hydroelectric power plants solely for the volume of electricity generated using the reclaimable water and for the intake of non-reclaimable process water.
With respect to the fee for water intake to ensure operation of cooling systems of power plants or combined heat and power plants such fee will be borne solely for the difference between the quantity of water taken for such purposes, and the quantity of water discharged to water streams or to the ground from the cooling systems.
Another fee is the fee for discharging the water from the cooling systems of power plants or combined heat and power plants to water streams or to the ground.
The beginning of 2017 saw intensification of work on the EU ETS legislation; however, already in 2016 the EU's administration bodies received the preliminary decisions on phase 4 of the EU ETS for consultation. On 15 February 2017, the European Parliament has adopted selected legislative proposals submitted by the ENVI and ITRE committees concerning the shape of the EU ETS in 2021-2030. However, on 28 February 2017 a meeting of environment ministers of the Members States of the European Union was held in Belgian's capital, which adopted the postulates voted at the European Parliament despite objections by nine countries (including Poland), thus demonstrating that EU Member States in majority are for increasing restrictions on greenhouse gas emissions.
Preliminary approval of the resolutions of these institutions has paved the way to further stage of the legislation path adopted in the EU. A working party consisting of representatives of the European Parliament, the European Council and the European Commission (the Trilog) has on 8-9 November 2017 agreed on the compromise text of the draft directive on the reform of the EU ETS in the 4th trading period (2021-2030). The text of the approved reform stipulates, among others:
At present, the reform of the fourth trading period of the EU ETS is at the last stage of the approval path provided for by the EU legislative procedure process.
The act of 8 December 2017 on the capacity market announced on 3 January 2018 has amended the act of 10 April 1997 – the Energy Law. In the new wording of the energy Law "energy undertakings dealing with electricity generation are required to sell not less than 30% (previously not less than 15%) of electricity generated in a given year at commodity exchanges in understanding of the act of 26 October 2000 on commodity exchanges, or on market organised by a leading undertaking operating a regulated market on the territory of the Republic of Poland (…). The obligation for 2018 shall be fulfilled by energy undertakings dealing with electricity generation with respect to electricity generated as of 1 January 2018.
In December 2017, the total volume of electricity traded in the SPOT and futures markets operated by the POLPX was 13.3 TWh, on year on year basis an increase of 51.2%. In December 2017, the volume of electricity traded in the futures market was 10.8 TWh, meaning an increase by 74.4% comparing to the same period of the previous year, and the trade volume on the SPOT market reached 2.5 TWh, meaning a drop by 3.7% year on year.
However, throughout the entire 2017 the total volume of electricity traded in the SPOT and futures markets was 111.7 TWh, meaning a decrease of 11.8% comparing to the volume in 2016. In 2017 the electricity trading volume on the futures market was 86.4 TWh, meaning a drop of 12.7% comparing to 2016, and the trading volume on the SPOT market reached 27.6 TWh, meaning a drop of 8.6% year on year.
In 2017, the OR model did not change functionally. However, the model parameters have changed due to the change of the model calculation baseline. The hourly OR budget was increased from PLN 128 758.72 to PLN 144 070.61 and the CRRM reference hourly price changed from PLN 41.20/MWh to PLN 41.79 /MWh. The hourly required operating reserve volume changed from 3 451.09 MW/h to 3 447.49 MW/h. The COR weighted average price in 2017, determined based on the data published by the Polish Power Grid (PSE) was PLN 33.88/MWh.
On 2 August 2017, the act of 7 July 2017 came into force amending the act on stocks of crude oil, petroleum products and natural gas, the principles of proceeding in circumstances of a threat to the fuel security of the State and disruption on the petroleum market and certain other acts, which amended the act of 16 February 2007 on stocks of crude oil, petroleum products and natural gas, the principles of proceeding in circumstances of a threat to the fuel security of the State and disruption on the petroleum market, the act of 10 April 1997 – the Energy Law and the act of 22 July 2016 on amendment of the act – the Energy Law and certain other acts.
The key changes introduced by the above amendment notably include:
The act of 30 November 2016 amending the act – the Energy Law and certain other acts a time schedule was introduced for abolishment of the obligation of gaining approval by the President of the Energy Regulatory Office and application of Tariffs for gas fuels, as of:
In 2017, at the EU level, work has been conducted focused on elaboration of the final provisions of 11 documents constituting the "Winter Package" proposed by the European Commission on 30 November 2016. The key documents include: Regulation on the Governance of the Energy Union, amendment of the Regulation on the Internal Energy Market, amendment of the Directive on the Internal Energy Market, amendment of the Directive on the Use of Energy from Renewable Sources, amendment of the ACER regulation, amendment of the Energy Efficiency Directive and the Regulation on Risk Preparedness in the Electricity Sector. The documents submitted by the European Commission present the vision of changes that would be implemented in the Union's energy sector.
The entire "Winter Package" in the proposed shape is intended to guarantee the best possible functioning of noncontrollable RES by creating broad opportunities for flow of energy they generate between the Member States. At the same time proposals include transferring a range of – so far national – competences from Member States to the regional and the EU levels. Building an energy union is in principle focused on streamlining the reporting obligations imposed on the Member States and supervision over fulfillment of the goals of the EU climate policy (both the 2030 goals and obligations arising out of the Paris Agreement) with particular attention to decreasing the CO2 emissions and increasing the use of renewable energy sources.
A lot of stress is placed on growing the internal energy market with particular consideration to the infrastructure interconnecting the energy systems of individual Member States and initiatives to increase the flexibility of operation of the systems with a view to significantly increase the share of renewable energy sources. The Member States are also required to report the progress in improving energy efficiency, including presenting plans for renovation and modernization of buildings, both public and private.
Initially, the proposals presented by the European Commission provided it with authority to act at the EU level if in the opinion of the European Commission the goals of the energy union or the climate goals could not be achieved due to insufficient contributions by the Member States. Such authority would impose, for example, on the Member States the duty of financial contributions when in the opinion of the European Commission the Union's goal of RES share would not be pursued collectively. The contributions would be paid into the EU financial platform "contributing" towards development of renewable projects, established at the EU level and managed directly or indirectly by the European Commission. Member States could use as financial contribution their proceeds from greenhouse gas emissions allowances auctions. The European Commission would also be empowered to adopt delegated acts to establish and allow functioning and financing of the aforementioned financial platform. The proposed amendments of the rules governing the functioning of the internal energy market presented the mechanisms limiting the possibilities of use of capacity mechanisms by Member States, by limiting participation in these mechanisms to units with emissions below 550 gr CO2/kWh, practically unattainable for coal based technologies. The text of the currently amended Renewable Sources Directive presents proposals for limiting the possibility of counting the energy generated from biomass towards achievement of domestic RES goals.
The work on final versions of the texts of regulatory acts constituting the "Winter Package" have been conducted within a "Trilog" of the European Parliament, European Council and the European Commission and at the present stage no agreement has been reached that could gain mutual acceptance.
In 2017, significant part of work was finalised on Network Codes and Guidelines that are the measures used under the EU law for the purpose of construction of Union-wide harmonised market in electricity and gas. The Codes are implemented legally as Regulations of the European Commission that are directly applicable in the Member States without the necessity for their implementation in national legislations. The Codes define common rules for operation and management of energy systems and are intended to eliminate the technical obstacles to further integration of the European electricity and gas markets; they are also intended to foster deregulation and ongoing growth of competition in these markets, as well as to improve service standards and security of supply. The Codes are being developed by ENTSO-E/ENTSO-G and have to comply with the non-binding framework guidelines developed by ACER. Network Codes and Guidelines may be divided into three families:
At present all of the eight proceeded Network Codes and Guidelines became effective and the stage of their implementation commences. This process will require further extensive consultations and conducting joint projects, both on the national and the European arenas. Implementation of provisions of the Codes will to a significant extent remodel the principles of operation of the Polish energy market in the upcoming years.
The most material impact on TAURON's operations will come, similar as it was in the past, from the following factors:
External factors:
Changes of the above mentioned external factors may constitute premises obliging TAURON Capital Group, in accordance with the International Accounting Standard 36, to conduct asset impairment tests. The results of these tests may have an impact on TAURON Capital Group's financial results in the subsequent reporting periods.
Internal factors:
The impact of the above factors on the financial results achieved in 2017 is described in section 4 of this report. The effects of this impact are visible both in the short term, as well as in the long term.
2017 was the year of growth, both for the world economy, as well as for the Polish economy. According to the World Bank's forecasts the world economy will accelerate in 2018 even more than in 2017, and the estimated 2018 GDP growth rate worldwide will reach 3.1%.
With respect to the Polish economy analysts are predicting the 2018 GDP growth rate to continue at the level of approx. 4%1 , the unemployment rate to drop to approx. 6% and the inflation to increase (the annual average inflation rate at the level of approx. 2.3%)2 . Poland's economy growth rate is to a large extent determined by internal consumption, however foreign investment is also the key factor. Investors TFI and BZ WBK analysts are expecting strong consumption (impacted, among others, by the declining unemployment and rising wages) in 2018, and also investments to increase, including private sector investments. Good economic situation in the Eurozone will provide a strong support for the expansion of the Polish manufacturing industry and fuel Poland's exports.
Poland's power sector can expect big challenges related to the industry regulations in 2018. The detailed capacity market regulations (ordinances, regulations) as well as the first certification process and, as a consequence, the first auctions. This will allow for developing detailed plans with respect to the future of many generating units in Poland.
In 2018, in accordance with the public announcements, works on Poland's fuel and energy policy that will set the long term expansion (growth) directions and also works on the new support system for the cogeneration will be conducted. Also, probably the decision on the future of the nuclear energy in Poland will be taken. The above material issues will impact the developing of the detailed expansion (growth) directions for Poland's energy sector. The construction of the Baltic Pipe gas pipeline, with respect to which the final investment decision should be taken by the end of the year, while the completion of its construction is expected at the end of 2022, will have a real impact on the situation of Poland's energy sector and energy security.
For KSE 2018 will be the year of commissioning or launching the full operation in the system of new conventional units with the total capacity of more than 3 GW. Also, numerous projects implemented based on the first RES auction should be commissioned (the volume contracted for 2018 reached close to 70 GWh).
Following the 2017 acquisitions on the power market (the acquisition of EDF assets by PGE Group and ENGIE assets by ENEA Group) these assets will be integrated and the impact of this concentration on the market will be visible, first of all in the generation segment.
The capacity market, and also RES auctions, should stimulate appetite for investments in new capacity. On the other hand, in case of the distribution grids the rising number of dispersed RES sources and microinstallations pose challenges in terms of ensuring the reliability of electricity supplies which will require capital expenditures on grid upgrades and replacements.
As consumption is rising the domestic electricity production is expected to increase, including electricity generated from RES. Wholesale coal prices and EUA prices can be expected to rise, and, as a consequence, also electricity and property rights prices.
1 2018 GDP growth rate forecasts: World Bank 4%, OECD 3,5%, government's budget assumptions 3.8%, European Commission 4.2%, NBP 4%
The below table presents the statement of comprehensive income for the financial year 2017 broken down into the Company's main lines of business versus 2016.
| Table no. 5.Statement of comprehensive income for the financial year 2017 broken down into the Company's main lines of | |||||||
|---|---|---|---|---|---|---|---|
| business |
| Item (PLN thou.) |
Financial year ended December 31, 2017 |
Financial year ended December 31, 2016 (data converted) |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| Total operations |
Supply | Holding operations |
Unassigned items |
Total operations |
Supply | Holding operations |
Unassigned items |
||
| Revenue | |||||||||
| Sales revenue outside the Group |
995 252 | 995 252 | - | - | 1 669 734 | 1 669 734 | - | - | |
| Intra-group sales revenue | 6 796 773 | 6 765 388 | 31 385 | - | 6 325 594 | 6 323 024 | 2 570 | - | |
| Total revenue of the segment |
7 792 025 | 7 760 640 | 31 385 | - | 7 995 328 | 7 992 758 | 2 570 | - | |
| Profit/(loss) of the segment |
351 539 | 320 154 | 31 385 | - | 79 265 | 76 695 | 2 570 | - | |
| Unassigned costs | (88 751) | - | - | (88 751) | (113 868) | - | - | (113 868) | |
| EBIT | 262 788 | 320 154 | 31 385 | (88 751) | (34 603) | 76 695 | 2 570 | (113 868) | |
| Net financial revenues (costs) |
656 777 | - | 812 855 | (156 078) | (114 531) | - | (101 050) | (13 481) | |
| Profit/ (loss) before tax | 919 565 | 320 154 | 844 240 | (244 829) | (149 134) | 76 695 | (98 480) | (127 349) | |
| Income tax | (65 214) | - | - | (65 214) | (17 119) | - | - | (17 119) | |
| Net profit / (loss) | 854 351 | 320 154 | 844 240 | (310 043) | (166 253) | 76 695 | (98 480) | (144 468) | |
| EBITDA | 268 220 | 325 586 | 31 385 | (88 751) | (27 078) | 84 220 | 2 570 | (113 868) |
The Company's operations are reported in two segments: "Supply" and "Holding operations".
Financial revenue and costs include revenue due to dividend as well as net interest revenue and costs gained and incurred by the Company due to the operation of TAURON Capital Group's central financing model. in. The financial costs include impairment write offs on the value of shares and stocks.
Unassigned items include the Company's overhead costs, as they are incurred for the benefit of entire TAURON Capital Group, thus, they cannot be directly allocated to a Line of Business.
As the parent entity TAURON performs the consolidating and management function at TAURON Capital Group.
As a result of implementing the Business Model and centralizing of the functions, TAURON concentrated many competences related to the functioning of TAURON Capital Group's subsidiaries and is currently carrying out operations, among others, in the following areas:
The above functions are gradually limited at TAURON Capital Group's subsidiaries. Such centralization is aimed at improving TAURON Capital Group's efficiency.
The core operations of the Company, besides managing TAURON Capital Group, include wholesale electricity trading on the territory of the Republic of Poland, based on the license for trading in electricity issued by the President of ERO for the period from June 1, 2008 until May 31, 2018.
The Company is focusing on purchasing and selling electricity for the needs of securing the purchase and sales positions of entities included in TAURON Capital Group and on wholesale electricity trading. Electricity sales performed by the Company in the financial year 2017 were mainly addressed to the following subsidiaries: TAURON Sprzedaż sp. z o.o. (TAURON Sprzedaż) and TAURON Sprzedaż GZE sp. z o.o. (TAURON Sprzedaż GZE).
The Company's additional operations include wholesale trading of natural gas on the territory of the Republic of Poland based on the license for trading in gas fuels issued by the President of ERO for the period from May 4, 2012 until May 4, 2022. The Company is focusing on selling natural gas for the sales needs of TAURON Sprzedaż and securing gas Leeds related to the production of heat and electricity of TAURON Wytwarzanie and TAURON Ciepło.
The competence of the Company also includes management of the property rights related to certificates of origin of electricity for the needs of TAURON Capital Group, representing the confirmation of electricity generation from renewable sources (including sources using agricultural biogas), in high-performance co-generation, in gas-fired co-generation, in mining methane-fired or biomass burning co-generation, from sources using agricultural biogas as well as the property rights related to electricity efficiency certificates.
The Company also acts as a competence centre in the area of management and trading in CO2 emission allowances for TAURON Capital Group's subsidiaries. Due centralizing the trading in emissions, a synergy effect was obtained, based on optimizing the costs of utilizing the resources of entities included in TAURON Capital Group. Due to centralizing of this function in TAURON the Company is responsible for settlements of CO2 emission allowances, securing the emission demand of the subsidiaries, taking into account the allowances allocated and the support in the process of acquiring limits of allowances for the following periods. In implementing the aforementioned goals the Company is an active participant of trading in CO2 emission allowances.
In addition, TAURON also acts as the Market Operator and the entity responsible for trade balancing for TAURON Capital Group's subsidiaries and for external customers. These functions are carried out on the basis of the Transmission Agreement of 21 June 2012 concluded with the TSO – PSE. The Company currently holds exclusive control over generation capacity with respect to trading and technical capabilities related thereto, it is responsible for optimizing the generation, i.e. the selection of generation units for operation as well as relevant distribution of loads in order to execute the contracts concluded, taking into consideration the technical conditions of the generation units, the grid constraints and other factors, in various time horizons. Within the services provided for the Generation Line of Business the Company participates in preparing the overhaul plans, developing plans of available (dispatchable) capacity as well as production plans for the generation units, in various time horizons, as well as in agreeing them with the relevant grid operator. TAURON is also developing its competence with respect to the Market Operator function based on the transmission agreement with GAZ – System S.A. Since July 2015 TAURON, as one of the first entities in Poland, launched a balancing group for entities trading in gas.
In accordance with the adopted Business Model, TAURON performs management function with respect to managing the purchasing of production fuels for the needs of the generating entities included in TAURON Capital Group.
In addition, on January 15, 2014 the Company launched commercial activities related to the new product - Gasoil Futures contracts, based on the valuation of diesel oil. The product is available on the ICE Futures Europe platform that TAURON has been the member of since 2012. Gasoil contracts may be used by market participants both as a hedging instrument as well as a commercial tool. Gasoil products demonstrate high liquidity and prices of contracts refer to prices for all trade distillates in Europe and outside.
In February 2015 trading in further products of crude oil market was commenced - Brent Crude, WTI Crude, the valuation of which is associated with oil prices, and Heating Oil - a product priced based on heating oil quotations. With respect to the aforementioned products trading is concentrated not only on trading in individual contracts (outright) but also on trading in spreads created both between specific products as well as calendar spreads, corresponding to the deadlines for settling individual contracts.
TAURON uses trading in derivative products as a commercial tool in order to accomplish additional margin.
TAURON conducts wholesale electricity and gas trading for the needs of securing the purchase and sales positions of entities from TAURON Capital Group. The Company also deals with proprietary trading activities, i.e. trading in electricity, natural gas, CO2 emission allowances and related products, with the purpose of generating profits on volatility of prices over time. The Company's operations also cover wholesale markets both in Poland and abroad, as well as the SPOT market and forward market.
In Poland, TAURON is an active participant of TGE and the OTC platform managed by a London energy broker - Tradition Financial Services. On February 1, 2016 TAURON signed an agreement with TGE on performing a market maker function with respect to instruments related to electricity on the RTT. In accordance with the aforementioned agreement TAURON provides not only the liquidity of products defined in the agreement, through issuance of buy and sell orders during the session but also animates the market through increasing own transactions made on the market. As a result, after exceeding a certain level of transactions market share, TAURON benefits by obtaining preferential clearing rates.
TAURON is actively participating in auctions related to the cross-border (interconnector) exchange of electricity transmission capacity on the Polish-Czech, Polish-German and Polish-Slovak border, managed by the CAO auction office. Trading on the German market with respect to trading in financial instruments such as futures, is mainly carried out through the EEX exchange. On the other hand, on the Czech and Slovak markets trading is performed through a subsidiary - TAURON Czech Energy s.r.o. Moreover, the Company is operating on exchanges of KOTE a.s. (Czech Republic) and OKTE a.s. (Slovakia).
TAURON has been steadfastly developing its competence with respect to gas fuel wholesale trade. The Company is an active participant of the gas market operated by TGE, executes transactions on the SPOT market as well as on the products of the RTT forward market. It is involved in proprietary trading activity on an international gas exchange POWERNEXT Pegas. The Company is present on the hub: GASPOOL, New Connect Germany and Tittle Transfer Facility.
Besides proprietary trading, the presence on the New Connect Germany hub (German market) also allows for physical gas deliveries to the Czech Republic. Furthermore, the Company is a participant of the Intercontinental Exchange (ICE) on the National Balancing Point (NBP) hub. Gaining access to new hubs is a consequence of the activity aimed at increasing TAURON's gas related competence and access to new sources. The volume of the OTC market transactions concluded by the Company is also successively increasing. By operating on the gas market the Company is securing commodity supplies for entities of TAURON Capital Group; moreover, proptrading operations are carried out on the forward market, aimed at taking advantage of the volatility of gas prices to generate additional margins.
Expanding the scale of its operations on the gas market TAURON is increasing its presence on foreign markets. Agreements concluded by the Company with German transmission system operators: GASCADE Gastransport and ONTRAS Gastransport GmbH as well as Czech NET4GAS s.r.o., enable purchasing gas in Germany and selling it on the Czech market.
TAURON is a participant of the European capacity trading platform, PRISMA European Capacity Platform GmbH, where it purchases interconnector capacity. With respect to capacity booking on the domestic market, the Company is operating as a participant of the auction platform, GSA GAZ-SYSTEM Auctions. Gas trading on the Czech and Slovak markets as well as interconnector gas exchange between Poland and the Czech Republic is carried out through TAURON Czech Energy s.r.o. subsidiary.
The competence of the Company also includes management of certificates of origin for the needs of TAURON Capital Group, that constitute a confirmation of generation of electricity from renewable sources, in high-performance cogeneration, in gas fuel fired co-generation, in mining methane fired or biomass burning co-generation, from sources using agricultural biogas as well as energy efficiency certificates and guarantees of origin. Such operations involve active monitoring of electricity production for which property rights are issued and analyzing the demand for certificates by TAURON Capital Group's subsidiaries. The Company conducts operating supervision over purchases of property rights allocated for the fulfillment of the statutory obligation imposed on TAURON Capital Group's subsidiaries to redeem those rights and over sales of property rights acquired due to the production carried out by TAURON Capital Group's subsidiaries.
The Company also acts as the competence centre with respect to CO2 emission allowances for TAURON Capital Group's subsidiaries and external customers. The management of CO2 emission allowances is based on determining the demand for CO2 emission allowances for TAURON Capital Group's installations, defining the strategy of commercial activities in the procedure in case of a deficit or surplus of allowances, replacing EUA units with cheaper CER units and active management of free allowances pool, in order to generate additional benefits. While fulfilling the role of the administrator of facilities in TAURON Capital Group, the Company is also responsible for CO2 emission settlements of individual facilities
through the redemption of allowances in the Register of Allowances. As part of the aforementioned activities, TAURON concludes sale agreements on behalf of TAURON Capital Group's subsidiaries and administers the account in the Register of Allowances. On behalf of TAURON Capital Group TAURON actively participates in consultations of legal acts on the national and European level, as well as supports the Generation Segment's subsidiaries in the process of acquiring free allowances. While implementing the above goals with respect to CO2 emission allowances trading, the Company actively participates in trading on the European Climate Exchange (The ICE), the EEX exchange in Leipzig and the OTC market.
In 2017 the Company continued coal and coal sludge purchases for the needs of: TAURON Wytwarzanie, TAURON Ciepło and TAMEH POLSKA, under agreements concluded with:
The below table presents the quantity of coal purchased in 2017.
| No. | Type of Supplier | unit | Coal quantity | Share (%) |
|---|---|---|---|---|
| 1. | Suppliers from outside TAURON Capital Group | Mg | 3 555 119 | 43,5% |
| 2. | Supplier from within TAURON Capital Group | Mg | 4 614 416 | 56,5% |
| Total | Mg | 8 169 535 | 100,0% |
The below figure presents the timeline of selected highlights associated with the operations of TAURON that took place in 2017.
43
The more important events and accomplishments that had a significant impact on TAURON Capital Group's operations that occurred in 2017, as well as until the day of drawing up this report are listed below. Additionally the above events should include concluding agreements significant for TAURON Capital Group's operations, described in detail in section 9.2.1. of this report.
On June 14, 2017 TAURON, in agreement with a consortium of investment banks, commenced activities aimed at conducting a eurobond issue of a nominal value not higher than EUR 500 mln that included in particular conducting meetings with investors in Europe. Conducting of a eurobond issue was dependent on market conditions, and the issue size, the final issue price and the interest rate of the eurobonds were determined following the meetings with investors in Europe.
The Company's intention was to file for admission of the eurobonds to trading on the regulated market of the London Stock Exchange, as well as to use the proceeds from the eurobonds issue to cover TAURON Capital Group's expenses.
On June 28, 2017 the following parameters of the eurobonds were set:
The condition for the bond issue was the signature of the documentation of the transaction and the fulfillment of the conditions indicated therein.
On July 5, 2017 the Company issued eurobonds with the above indicated parameters that were admitted to trading on the regulated market of the London Stock Exchange on July 10, 2017.
On the same day Fitch rating agency granted the "BBB" rating for unsecured and unsubordinated debt in the form of the Company's 10-year eurobonds with the total nominal value of EUR 500 mln. The rating reflects the Company's leading position in the regulated and stable distribution segment that generates a significant part of TAURON Capital Group's EBITDA (72% in 2016).
The Company disclosed information on the above events in the following regulatory filings (current reports): no. 28/2017 of June 14, 2017, no. 30/2017 of June 28, 2017, no. 31/2017 of July 5, 2017 and no. 32/2017 of July 5, 2017.
On December 21, 2017 Fitch rating agency ("Fitch") affirmed long-term foreign and local currency IDRs of TAURON at 'BBB' with a stable outlook and assigned local currency rating of 'BB+' and national rating of 'BBB+(pol) to the PLN400 million hybrid bonds program.
Full list of rating actions includes:
Information on the above event was published in the regulatory filing (current report): no. 41/2017 of December 21, 2017.
On February 28, 2017 TAURON Sprzedaż filed a statement on the termination of the long term agreements on the purchase of the property rights arising from the certificates of origin of electricity from renewable energy sources (the socalled "green" certificates). Parties to the agreements concluded in 2008 are the below listed counterparties that own facilities generating electricity from renewable sources:
The agreements were terminated effective immediately as a result of the parties failing to achieve an agreement while trying to renegotiate the contracts under the procedure provided for in the agreements. The financial implication of the termination of the agreements will be TAURON Sprzedaż avoiding a loss equal to the difference between the contractual prices and the market price of the "green" certificates. An estimated net value of the above mentioned loss due to the performance of the agreements until the end of the originally assumed agreements' term (i.e. until 2023), based on the current market prices of the "green" certificates is approximately PLN 343 mln. Estimated total net value of the contractual obligations of TAURON Sprzedaż in 2017-2023 is approximately PLN 417 mln. The above figure was calculated based on the pricing formulas assumed in the agreements for the period running from the day of drawing up this report until the end of the originally assumed agreements' term (i.e. until 2023).
The above event was described in detail in the regulatory filing (current report) no. 6/2017 of February 28, 2017.
On April 20, 2017 a Letter of intent was signed between TAURON and Grupa Azoty S.A. defining the general rules of commencing cooperation aimed at implementing the coal gasification project.
The parties signed the Letter of intent due to the fact that among various coal conversion methods of key importance in the medium and long term are those that are offering efficient utilization of coal resources, in line also with the direction of the European Union's policy. This is due, among others, to the need to reduce the ecological burden (footprint) of the power generation and chemical processes, including to significantly reduce the CO2 emissions.
The detailed information on the above event is provided in section 1.5.2. of this report.
The Company disclosed information on the signature of the letter of intent in the regulatory filing (current report) no. 12/2017 of April 20, 2017.
On March 15, 2017 the Company's Supervisory Board dismissed, effective as of the end of day on March 15, 2017, all members of the Company's Management Board of the 4th common term of office, i.e.: Filip Grzegorczyk - President of the Management Board, Jarosław Broda - Vice-President of the Management Board for Asset Management and Development, Kamil Kamiński - Vice-President of the Management Board for Corporate Governance, Marek Wadowski - Vice-President of the Management Board for Finance, Piotr Zawistowski - Vice-President of the Management Board for Customer and Trade.
At the same time the Supervisory Board on March 15, 2017 appointed as of March 16, 2017 the following persons to TAURON's Management Board of the 5th common three-year term of office: Filip Grzegorczyk, as the President of the Management Board, Jarosław Broda, as Vice-President of the Management Board for Asset Management and Development, Kamil Kamiński as Vice-President of the Management Board for Corporate Governance, Marek Wadowski as Vice-President of the Management Board for Finance.
On March 15, 2017 Piotr Zawistowski up to then performing the function of Vice-President of the Management Board for Customer and Trade provided the Supervisory Board with the information on the resignation from applying for being selected to be a member of TAURON's Management Board of the 5th common term of office. Due to the change made to the Company's Organizational Regulations the Supervisory Board made, as of April 14, 2017, a change of the existing position held by Kamil Kamiński to Vice-President of the Management Board for Customer and Corporate Support.
The Company disclosed information on the change to the composition of the Management Board in the regulatory filing (current report) no. 10/2017 of March 15, 2017.
On May 25, 2017 the Company received Jacek Rawecki a statement on the resignation, as of May 26, 2017, from the function of a member of the Company's Supervisory Board. Jacek Rawecki did not provide the reason for the submitted resignation.
On May 29, 2017 the Minister of Energy, acting pursuant to § 23, clause 1, sections 1) and 3) of the Company's Articles of Association, appointed the following persons to be members of the Company's Supervisory Board of the 5th common term of office as of May 29, 2017:
On May 29, 2017 the Ordinary GM of the Company, acting pursuant to § 22, clause 1 of the Company's Articles of Association, appointed the following persons to be members of the Company's Supervisory Board of the 5th common term of office:
The Company disclosed information on the above events in the regulatory filings (current reports): no. 19/2017 of May 25, 2017 and no. 22/2017 of May 29, 2017. The information on appointed members of the Supervisory Board was disclosed in the regulatory filing (current report) no. 27/2017 of June 5, 2017.
On March 13, 2017 TAURON's Management Board of the Company adopted the resolution on filing a motion to the Ordinary GM of the Company to cover the Company's net loss in the financial year 2016 in the amount of PLN 166 252 898.52 from the Company's spare (supplementary) capital.
At the same time, in reference to the information on the adoption of the 2016-2025 dividend policy, provided in the regulatory filing (current report) no. 35/2016 of September 2, 2016, the Company's Management Board decided not to recommend to the Ordinary GM of the Company taking of the decision on the use of the Company's spare (supplementary) capital for the payout of the dividend for 2016 to the Company's shareholders.
The above decision was dictated by the needs related to the implementation of the investment program worth approx. PLN 18 bln by 2020 and ensuring TAURON Capital Group's financial stability, including in particular maintaining the net debt/EBITDA ratio defined in TAURON's financial agreements at the level not higher than 3.5x.
Additionally, in accordance with the information published by the company in the regulatory filing (current report) no. 41/2016 of November 14, 2016 the planned stopping of the dividend payout until 2019 was one of the factors enabling the Fitch rating agency to maintain TAURON's long term rating at investment grade level and to change the outlook from negative to stable.
The Company disclosed information on the above decision in the regulatory filing (current report) no. 8/2017 of March 13, 2017.
On May 5, 2017 the State Treasury of the Republic of Poland, as a shareholder representing more than one twentieth of TAURON's share capital, submitted a request to include on the agenda of the Ordinary General Meeting of the Company convened on May 29, 2017 additional items related to a change of the resolution no. 5 of the Extraordinary GM of December 15, 2016 on the principles of setting the compensation of the members of the Management Board and a change to the Company's Articles of Association the scope of which was indicated in detail in the content of the regulatory filing (current report) no. 16/2017 of May 5, 2017.
State Treasury indicated as a justification for the proposed changes the need to align the principles of setting the compensation of the members of the Management Board and the content of the Company's Articles of Association to the requirements of the Act of December 16, 2016 on the state assets management principles.
The introduction of the amendment to the Company's Articles of Association was aimed at implementing a more transparent split of competences of the Company's corporate authorities, transparent asset management principles, investment decision making principles, manner of appointing members of the supervisory and management authorities and setting their compensation, as well as standards related to actions taken by the management boards of companies, among others in such areas as: consulting, marketing, sponsoring or meals and entertainment expenses.
The draft resolutions received from the State Treasury to be the subject of discussions at the Ordinary GM of the Company and the proposed changes to the Company's Articles of Association were published on May 19, 2017. Meanwhile on May 25, 2017 the State Treasury filed a change to the draft resolution on the change of § 20 of TAURON's Articles of Association and withdrew the draft resolution on the change of § 35 of TAURON's Articles of Association.
The Company disclosed information on the above events in the regulatory filings (current reports) no. 16/2017 of May 5, 2017, 17/2017 and 18/2017 of May 19, 2017 and 20/2017 and 21/2017 of May 25, 2017.
On May 29, 2017 the Ordinary GM of the Company was held which adopted resolutions concerning, inter alia: the approval of the Consolidated financial statements of TAURON Capital Group and the Report of the Management Board on the operations of TAURON Capital Group for the financial year 2016, the Financial statements of TAURON and the Report of the Management Board on the operations of TAURON for the financial year 2016, covering of net loss for the financial year 2016 from the spare (supplementary) capital, acknowledgement of the fulfillment of duties by members of the Company's Management Board and Supervisory Board, determining the number of members of the Company's Supervisory Board and appointing of members of the Supervisory Board, changing resolution no. 5 of the Ordinary GM of December 15, 2016, as well as amending the Company's Articles of Association.
It was decided to cover the net loss of the Company for the financial year 2016 in the amount of PLN 166 252 898,52 from the Company's spare (supplementary) capital.
The Company disclosed information on convening the Ordinary GM and on the content of the draft resolutions in the regulatory filings (current reports) no. 13/2017 and no. 14/2017 of April 27, 2017. The Company disclosed information on the adopted resolutions and the decisions of the Ordinary GM concerning: covering of the net loss, amendments to the Company's Articles of Association and appointment of the Supervisory Board members in the regulatory filings (current reports): no. 22/2017, no. 23/2017, no. 24/2017 of May 29, 2017.
On May 29, 2017 the Ordinary GM of the Company adopted the resolutions on the amendments to the Company's Articles of Association.
As part of the passed amendments to the Company's Articles of Association the majority of the provisions of the Act of December 16, 2016 on the state assets management principles were implemented directly in the Company's Articles of Association. Also the competences of the Supervisory Board were extended and it shall express its consent for the conclusion of agreements on legal, marketing services, public relations and social communications services and consulting services related to management if the envisaged total net compensation for the services provided exceeds PLN 500 000, on annualized basis, with respect to donations granted or other agreements of similar effect with the value exceeding PLN 20 000 or 0.1 % of the total assets, determined based on the last approved financial statements and relieving of debt exceeding PLN 50 000 or 0,1 % of the total assets. Furthermore, the competences of the Supervisory Board were extended by including: tasks related to determining the manner of exercising the voting rights at TAURON Capital Group's subsidiaries' GMs on issues regarding setting up companies, amending the Articles of Association or the Agreement, transformations or liquidations, raising or reducing share capital, divesting and leasing out the company's enterprises or its organized part and establishing a limited property right thereupon, redeeming shares, setting the compensation of members of management boards or supervisory boards, claims for redressing damage inflicted upon formation of the company or exercising management or supervision, with respect to issues mentioned in art. 17 of the Act of December 16, 2016 on the state assets management principles. Also the principles of divesting fixed asset components were defined and procedures for selecting members of the management board following the qualification proceeding by the Supervisory Board the goal of which will be to verify and evaluate the candidates' qualifications were introduced, as well as the requirements for candidates for members of management authorities were defined.
On July 12, 2017 the District Court for Katowice-Wschód, the 8th Commercial Department of the National Court Register, entered into the Register of Entrepreneurs of the National Court Register the amendments to the Company's Articles of Association, adopted by the Ordinary GM of the Company by way of resolutions no. 39-45 of May 29, 2017 on amendments to the Company's Articles of Association.
On July 17, 2017 the Supervisory Board of TAURON, acting pursuant to § 20, clause 1, section 13 of the Company's Articles of Association, adopted a consolidated text of the Articles of Association of TAURON that includes the amendment to the Articles of Association entered into the National Court Register by the District Court for Katowice-Wschód in Katowice, the 8th Commercial Division.
The information on the above events was provided in the regulatory filings (current reports): no. 24/2017 of May 29, 2017, 33/2017 of July 12, 2017 and 34/2017 of July 17, 2017.
On March 15 2017 the Company's Supervisory Board appointed Ernst & Young Audyt Polska Limited Liability Company Limited Joint-Stock Partnership as the entity authorized to examine TAURON's standalone and consolidated financial statements for the financial year 2017 and review TAURON's standalone and consolidated interim financial statements for the period ending on June 30, 2017. To date the services provided by Ernst & Young for the Company included examinations of the Company's standalone and consolidated financial statements for the years: 2008 - 2012, as well as reviews of the Company's standalone and consolidated interim financial statements for the periods ending on 30 June in the individual years from 2010 to 2012. The Company also used advisory and training services provided by Ernst & Young to the extent that in no way limited the impartiality and independence of the auditor. The certified auditor was appointed in accordance with the regulations in force, following a non-public order award procedure conducted by way of offer and acceptance. The agreement with Ernst & Young will be concluded by the Management Board of the Company for a period required to perform the contracted services
The Company disclosed information on the above event in the regulatory filing (current report) no. 9/2017 of March 15, 2017.
The preliminary assessment of the justification for the claims contained in the lawsuit indicates that they are completely groundless.
The plaintiff changed the lawsuit's claim in such a manner that it had withdrawn its original legal action against PEPKH, while it changed the legal action against TAURON from the claim to prevent the imminent danger of damage into the claim for the payment of compensation.
Dobiesław Wind Invest sp. z o.o. was demanding: 1) payment of PLN 34.7 mln including statutory interest accrued from the day the claim was filed until the payment date, 2) determination that TAURON is liable towards Dobiesław Wind Invest sp. z o.o. for damages that may arise in the future, estimated by the plaintiff at PLN 254 mln (and stemming from TAURON's alleged torts), 3) that injunctive relief be granted against TAURON for the amount of PLN 254 mln in case the court does not find TAURON liable for the damages that may arise in the future.
The factual basis for the lawsuit, according to the plaintiff, is the termination by TAURON's subsidiary - PEPKH with its registered office in Warsaw of the long-term contracts for the purchase of electricity and property rights arising from certificates of origin, as described by TAURON in the regulatory filing (current report) no. 7/2015 of March 19, 2015.
The preliminary assessment of the justification for the claims contained in the lawsuit indicates that they are completely groundless.
The case is pending before the Regional Court in Katowice. The factual basis for the lawsuit, according to the plaintiff, is the termination by PEPKH – the Issuer's subsidiary, of the long term contracts for the purchase of electricity and property rights arising from certificates of origin. The Issuer disclosed information on the termination of the above mentioned agreements in the regulatory filing (current report) no. 7/2015 of March 19, 2015.
The preliminary assessment of the justification for the claims contained in the lawsuit indicates that they are completely groundless.
The case is pending before the Regional Court in Katowice. The factual basis for the lawsuit, according to the plaintiff, is the termination by TAURON's subsidiary, i.e. PEPKH, of the long term contracts for the purchase of electricity and property rights arising from certificates of origin. TAURON disclosed information on the termination of the above mentioned agreements in the regulatory filing (current report) no. 7/2015 of March 19, 2015.
The preliminary assessment of the justification for the claims contained in the lawsuit indicates that they are completely groundless.
The Company disclosed information on the above events in the regulatory filings (current reports): no. 35/2017 of July 20, 2017, no. 37/2017 of August 3, 2017, no. 38/2017 of August 21, 2017 and no. 39/2017 of October 16, 2017.
On February 26, 2018 TAURON's Supervisory Board selected the audit company Ernst & Young Audyt Polska Limited Liability Company Limited Joint-Stock Partnership ("Ernst & Young") to conduct an audit of the standalone and consolidated financial statements of TAURON for the financial year 2018 and a review of the interim standalone and consolidated financial statements of TAURON for the six months ending on June 30, 2018.
The selection of Ernst & Young to conduct an audit of the standalone and consolidated financial statements of the Company took place in conjunction with the need to bring the agreement concluded with Ernst & Young on auditing the financial statements for the financial year 2017 in line with the requirements of the regulations of art. 66 clause 5 of the law of September 29, 1994 on accounting in the version given thereto by the law of May 11, 2017 on certified auditors, audit companies and public supervision, including with respect to the period for which the first audit agreement should be concluded (i.e. for a period not shorter than 2 years). An amendment to the agreement with Ernst & Young will be concluded for the period required to complete the entrusted activities.
The detailed information was provided in the regulatory filings (current reports): no. 3/2018 of February 26, 2018.
In 2017 TAURON received the following awards and accolades
• TAURON's inclusion, for the fifth time in a row, in the RESPECT Index - a group of listed companies managed in responsible and sustainable manner included in this index.
Adoption by TAURON Capital Group of the management by process style of management in 2017 led to updating of the applicable in all companies Human Resources Management Policy at TAURON Group, which together with the core values of Partnership, Development and Courage constitute the signposts for management and employees in meeting new challenges and efficiency increasing activities. TAURON Capital Group strives to develop, motivate and win employees capable of attaining the assumed objectives. The overriding purpose is to support the management in effective implementation of changes and promoting new initiatives. TAURON Capital Group seeks to establish conditions fostering development of knowledge and skills, and creating a work environment of cooperation and partnership, where innovativeness and all optimizing initiatives will be the basis for taking actions.
The below figure presents the assumptions of the Policy of Human Resources Management at TAURON Group.
Partnership attitudes as one of the core corporate values are being instilled already when developing systemic solutions. Challenges facing the HR function are undertaken in adherence to a principle of establishing workgroups consisting of HR staff from companies of the TAURON
Capital Group. Team members are appointed by the HR Management Council of TAURON Capital Group, consisting of top HR manager of the Group. This proven style of HR project management results in standardizing and optimizing HR management processes, improving at the same time task completion quality with consideration of the specific requirements in each of the Group companies. Such participative approach is reflected in effectiveness of solutions and building a consistent image of the HR function.
Employees of TAURON Capital Group's subsidiaries are participating various forms of development activities: The below figure presents the forms of development activities of employees of TAURON Capital Group's subsidiaries.
Figure no. 21. Forms of development activities of employees of TAURON Capital Group's subsidiaries
The below figure presents TAURON Capital Group's key 2017 training statistics.
Figure no. 22. TAURON Capital Group's key 2017 training statistics
The below figure presents the average number of training hours per employee, broken down into job (work position) groups.
Initiative
Employee satisfaction poll (survey) at TAURON Capital Group. The Employee satisfaction poll at TAURON Capital Group took place between end of April and beginning of May 2017. The questionnaire ensured full anonymity and for the first time in history of the TAURON Capital Group
was performed in all companies of the Group. Purpose of the poll was to acquire staff opinions as to the most important issues related with their working environs, including values of the company, communicating with superiors and within the company, team atmosphere and cooperation, work safety and hygiene and availability of training and development opportunities.
46% of TAURON Capital Group employees participated in the poll (3769 used hardcopy questionnaires and 7751 filled-in the electronic forms). Of the participants, 84% declared high levels of commitment to their work, 80% stated satisfaction with employee relationships and 70% expressed satisfaction with working conditions at TAURON Capital Group.
TAURON Group's Competence Model. TAURON Group's Competence Model was developed in mid-2017 as a result of interaction between representatives of individual group companies, coming from a variety of business areas and the HR function. The model reflects strategy,
mission, vision and key values, i.e.: Partnership, Development, Courage, and also involves business challenges facing TAURON Capital Group. The model assumes continuing staff development and supporting the attaining of results within TAURON Capital Group. Each employee has awareness of what competences and behaviors are expected of him/her; thus enabling not just performance of assigned tasks, but also developing of own professional capacities. The model affects a multitude of human resources management processes, including recruitment, adaptation, development and employee assessment. Also, individual companies held workshops devoted to the Model, addressed both to managers and employees.
Cooperation with universities. TAURON Capital Group cooperated with almost 50 educational establishments (universities, secondary and vocational schools) all over the country. As part of the cooperation, pupils, students and graduates may apply for internship and training at TAURON Capital Group. 693 persons worked as interns in 2017. Through the
cooperation partnership relations with the academic community are built - the scientific (academic) staff (faculty) and students. TAURON as a leader can influence education and gaining professional competence amount future adepts in the industry. Best students and graduates were searched for both at universities, through cooperation with university Career Offices and through participation in the largest national fair - Absolvent Talent Days. Furthermore, TAURON Group's Ambassador program was launched in 2017 with its goal to expand cooperation with universities, build a positive image of TAURON Capital Group and recruit top students from the business needs point of view. The program is announced for the given academic year, and the target group includes students in the 2nd to 5th year of their studies.
The "Join Us" internship program at TAURON. TAURON launched an internship (traineeship) program in 2017, the purpose of which is to prepare most talented students at Polish universities to enter the job market. Participants are offered a versatile professional development program in
state-of-the-art energy industry. Trainees are acquainted with the Company's structure, determinants and rules. The program heavily focuses on forming appropriate attitudes to the tasks assigned, attention to quality and timeliness of performing assigned tasks, valid cooperation with other persons and units within the Company, developing own initiative, acquiring teamwork skills. The program is addressed to 4th and 5th year university students.
TAURON Group Open University. TAURON Group Open University is a cycle of lectures conducted since 2014 by the most outstanding experts specializing in various disciplines of science, politics, business, culture and personal development. Through participation in the
lectures we want to provide Employees with access to current knowledge and information. In addition, this initiative allows to create a platform for the exchange of ideas and experience among employees from various companies and, consequently, to provide even better support for the implementation of TAURON Capital Group's strategic objectives.
TAURON Group Open University was launched in order to offer the following opportunities to employees:
So far, 17 lectures have been provided, attended by over 3 000 employees of all TAURON Capital Group's subsidiaries. 6 lectures were organized in 2017, attended by almost 1 000 employees in total.
Values: Partnership, Development, Courage - their implementation within the TAURON Capital Group companies. 2017 was devoted to implementing our core values: Partnership, Development and Courage ("PRO") at TAURON Capital Group's subsidiaries. Workshops introducing staff to the PRO Values program were held throughout the Group. 100% of the lines of business underwent. The workshops were conducted by the managers and HR representatives.
PRO Values are a symbol of, and determine TAURON Capital Group's organizational culture; hence it is importance for each employee to be guided by such values in performing his/her everyday duties.
Developing managers. The Managers Development Program comprises a comprehensive growth initiative the purpose of which is to support management level staff in both their business as well as personal efficiency, and to consciously develop model leadership attitudes within the entire TAURON Capital Group. Core values of TAURON Capital Group, i.e.
Partnership, Development and Courage, guide individual actions within the program and constitute its second foundation. Developed competence enables the participants to become even more efficient leaders, whereas values determine the areas and objectives where their efficiency attains best results. The Program has been prepared and implemented based on globally proven solutions and expertise of coaches and experts involved in the Program. The development process is practical in nature and at the same time delivers inspiration and nurtures uniqueness. More than 70 key managers at TAURON Capital Group participate in the Program.
International Family Day festivities at TAURON Capital Group. 2017 marked the fourth year in which TAURON participated in public festivities associated with the International Family Day, the purpose of which is to strengthen family ties through sincere discussion and by building and strengthening identity of the young generation. All TAURON Capital Group companies participated in the 2017 festivities.
On the agreed day, employees were allowed to work 2 hours less on full pay, and free time was to be devoted to their families and friends. The companies also organized competitions promoting leitmotif of the campaign, which this year read "Cooking within the family circle". The festivities continued at TAURON, TAURON Dystrybucja and TAURON Ciepło where visits of children, and even grandchildren, at parent workplaces were organized. Visits were accompanied by entertainment and attractions.
Management by Objectives training for management staff. In 2017 TAURON held a series of workshop course dedicated to management staff, devoted to the Management by Objectives methods, particularly principles of setting and cascading objectives based on the SMART model.
The goal of the workshops was to make the participants familiar with the principles of evaluating attaining of objectives and giving constructive return information. Also, tools used to support employees in attaining their objectives and tools for assessment of subordinates were presented. More than 60% of the Company's management staff participated in the twoday workshops.
Policies combating Mobbing and Discrimination at the TAURON Group. The Policy of combating Mobbing and Discrimination at the TAURON Group was developed in the second half of 2017. The policy document applies throughout the entire TAURON Capital Group. The policy defines principles for counteracting mobbing and discrimination at the workplace and
in relation to performing duties, ensures implementation of labor law provisions and includes internal regulations enforced by the employer. Intervening activities and actions aimed at alleviating abusing mobbing or discrimination behaviors against employees were presented, as well as consequences awaiting perpetrators.
The Management Board of TAURON conducts a constructive and open dialogue with the workforce (social party), mainly aimed at maintaining high quality and effectiveness of mutual cooperation. During regular meetings and consultations, the workforce representatives are informed about issues associated with:
As part of the conducted social dialogue the Management Board of TAURON provided many answers to the correspondence from the trade union organizations and the Ministry of Energy. In parallel, ongoing communication is maintained at TAURON Capital Group's subsidiaries between Management Boards and trade union organizations operating at the given employer. TAURON takes an active part in meetings at the national level with the representatives of the government, employees and employers (within the activities of the Tri-party Team for the Energy Sector).
TAURON's average headcount reached 434 FTEs in 2017 which means an increase versus the headcount in 2016, when the average employment was 369 FTEs.
The below figure presents TAURON's average headcount in FTEs (rounded up to the full FTE) in 2016 and in 2017.
The below figure presents the structure of employment at TAURON by education level as of December 31, 2016 and December 31, 2017.
The below figure presents the structure of employment at TAURON by age as of December 31, 2016 and December 31, 2017.
The below figure presents the structure of employment at TAURON by gender as of December 31, 2016 and December 31, 2017.
Undertakings commenced in 2016 were continued in 2017 in order to strengthen TAURON Capital Group's position as a leading, innovative and modern enterprise that is steadfastly implementing its Strategy and Business Model.
On August 1, 2017 TAURON's Management Board adopted the updated TAURON Group's 2017-2025 Sustainable Development Strategy (Sustainable Development Strategy) that was developed based on TAURON Group's 2016- 2025 Strategy, taking into account feedback of the stakeholders, and also the current challenges facing the energy sector. Sustainable Development Strategy constitutes the framework of actions with respect to TAURON Capital Group's Corporate Social Responsibility.
Sustainable Development Strategy is based on 5 directions. Two of them are of leading nature as they are related to the operations on the market - "Orientation towards the customer and his/her needs" and "Reliability and quality of the supply of products and services for customers". The other three are the supporting directions and they include "Labor safety, ethical culture and employee engagement", "Environment protection" and "Social and business partnership". For each direction obligations (18 in total) that TAURON is intending to fulfill by the end of 2025 were defined. For each obligation key initiatives were formulated that support their implementation and they were assigned to the individual organizational units (business units) of TAURON Capital Group.
Sustainable Development Strategy is directly associated with all of TAURON Capital Group's lines of business. It streamlines both the approach to the CSR as well as the methodology for assessing the effectiveness of measures undertaken based on Global Reporting Initiative (GRI) indicators.
In 2017 TAURON Capital Group published its integrated report for the second time. Apart from the financial data the document presented the complete view of the company's operations, including its impact on the economy, society and environment.
The integrated formula provided a clear way to show the relationships and dependencies between the financial and nonfinancial aspects of the operations of all of TAURON Capital Group's subsidiaries and thus constituted a comprehensive and transparent document, presenting the company's operations, its Business Model, Strategy, most important changes, opportunities and risks, and also the results from the point of view of all stakeholder groups. Combining the financial data with the non-financial aspects of the company was also aimed at showing the potential reached due to the synergies between the core operations and the non-business activities.
The report was prepared in accordance with the highest reporting standards – GRI G.4, and it was subjected to external verification by an independent auditor. The Company was also audited in connection with joining the RESPECT Index the index comprising companies listed on the stock exchange, operating in accordance with the rules of sustainable development. In 2017, TAURON achieved, for the fifth time, a positive result and was included in this most prestigious ranking of socially responsible companies.
One of the directions of the Sustainable Development Strategy is the social and business partnership. The resulting goals are implemented, among others, through the activities of TAURON Foundation which allows for even more effective implementation of CSR goals with respect to taking care of safety of local communities and actions for public benefit.
TAURON Capital Group, operating in the south of Poland, holds the leading position in electricity distribution and its supply on the territory of the Lower Silesia, Opole, Silesia and Małopolska regions. Because of that the range of actions conducted for the benefit of the communities in which TAURON Capital Group's subsidiaries are operating, is very broad. Many projects are supported which are important for the inhabitants of the Upper and Lower Silesia, Opole, Małopolska and Podkarpacie tegions. Among others, TAURON is cooperating with the Mountain Voluntary Emergency Service (GOPR), with the goal to improve safety in the mountains.
In 2017 TAURON continued also its cooperation, commenced in 2014, with the SIEMACHA Association - one of the leading NGOs in the country focusing on the implementation of projects in the area of education, sports and therapy, providing systemic assistance to children and teenagers. As part of this cooperation TAURON's patronage covered sports activities of the association, gaining the title of TAURON - SIEMACHA's sports partner. In 2017 such projects were supported as Football Children's Day with TAURON and Juliada.
Activities carried out by TAURON Capital Group's subsidiaries are also worth mentioning. In 2017 the campaign, implemented by TAURON Sprzedaż, called: TAURON does not go door to door to sell electricity or gas was continued. Its stage focused on raising awareness of customers on the energy market, in particular, in order to protect them against
practices of unfair salesmen. On the other hand, TAURON Dystrybucja has been conducting, since 2013, an educational program for children and teenagers called TAURON fuses. Switch on for the kid's benefit. Its main goal is to improve safety by popularizing the rules of safe electricity use.
In 2017 TAURON Foundation, the Company and TAURON Dystrybucja implemented the thirteenfth edition of the Houses of Positive Energy campaign, addressed to 24-hour custody and caretaking facilities, aimed at improving the living conditions of children from orphanages and educating, motivating them to act, opening prospects and enabling to set themselves apart in a positive manner. Since refreshing the campaign's formula, i.e. since 2011, 523 orphanages have taken part in the campaign. Young persons taking part in the campaign are competing for a financial prize every year in order to fulfill their youth passions, dreams and wishes.
In 2017 the Foundation also accomplished its goals, in particular, through supporting private individuals and legal entities, institutions and organizations in their activities consistent with the Foundation's goals, transferring by way of donations PLN 3 074 896.41.
TAURON is a signatory of the declaration signed on June 17, 2009 during the national conference as part of the cycle Responsible Energy, comprising the principles of sustainable development in the energy sector in Poland.
In 2013, the Company joined a group of signatories of the Business declaration for the sustainable development, consequently undertaking to get involved in the implementation of strategic goals of the Vision of sustainable development for the Polish business 2050.
Since 2014, TAURON has also been a member of the Responsible Business Forum.
Ensuring energy security to customers is the first of the obligations included in the Sustainable Development Strategy. As an essential element of Poland's energy system, TAURON optimizes processes in individual lines of its business operations: generation, distribution and supply of electricity and heat, in order to ensure stable power supplies with high quality parameters to customers. In order to ensure continuity of power supply, TAURON not only implements new investment projects but also conducts ongoing maintenance works and upgrades of its infrastructure held as well as actively searches for new solutions.
In 2017 TAURON Dystrybucja upgraded almost 1 300 km of existing grids and 36 main power supply points. The Company also built 2 500 km of new lines including the connections. Also 4 new main power supply points were built. Investment projects are also conducted by TAURON Ciepło. In 2017 the total capacity under the agreements with customers on new connections to the heating network reached 47.2 MW.
On August 30, 2017 an agreement on financing the Low Emission Elimination Program (Program Likwidacji Niskiej Emisji - PLNE) in 8 cities of the Silesia and Dąbrowa metropolitan area covered by the low emission, i.e.: Będzin, Chorzów, Czeladź, Dąbrowa Górnicza, Katowice, Siemianowice Śląskie, Sosnowiec, Świętochłowice, was signed. TAURON Ciepło is planning to connect, under PLNE, by the end of 2022, approximately 1300 buildings which represents approximately 183 MW of heat capacity in total. Ultimately, as a result of the construction and refurbishment of the heating networks under PLNE, 100 km of modern heating networks (pre-insulated) will be built.
Under PLNE, by the end of 2017 TAURON Ciepło concluded, additionally, agreements with customers on connecting building to the heating networks with the total capacity of 14 MW.
At the same time, in order to guarantee stable supplies, TAURON Dystrybucja conducts ongoing measures minimizing the risk of failure as well as shortening the response time necessary to find the place of failure and to remedy it. It is fostered, inter alia, by the implementation of the modern system of Grid Assets Management or the increase of the grid automation level. For several years, rules of prioritization of investment needs have been applicable in TAURON.
They are aimed at addressing the expenditure to places that have the strongest impact on the improvement of electricity supplies and effectiveness of the distribution grid performance, including the enhancement of the qualitative electricity indicators.
Moreover, taking care for comfort and security of persons having contact with electricity and the equipment supplied by it, TAURON Dystrybucja has been carrying out the educational and information campaign called TAURON Fuses addressed to children and teenagers. In 2017 a multimedia educational platform was developed and launched, providing teachers, pupils and parents with access to educational materials. Some of them are adapted to the needs of disabled pupils. The Company is also the initiator and co-organizer of other social campaigns enhancing the level of energy supply reliability (e.g. "Stop the illegal electricity intake" campaign).
Innovative technological solutions represent an important element of the energy supply process. Accordingly, TAURON Capital Group puts strong emphasis on activities in the area of research and development, resulting not only in innovative solutions with respect to, inter alia, reducing the emission of hazardous substances from combustion processes but also innovative products and services for individual customers (e.g. Electricity with an electrician 24 h, offering "Your 300", Preferential 0 percent interest rate for those buying boilers from TAURON).
Since 2016 the Zone of Innovation has been operating in TAURON Capital Group's intranet, within which competitions for employees are organized. Its objective is to promote innovative organizational culture and encourage employees to submit innovative solutions optimizing daily work. After the announcement of the competition results, the proposals are archived and available in the Zone of Innovation to all users. The first competition launched in the Zone of Innovation was related to safety at work place. In 2017 all projects that won prizes in the "Safe at work" competition were implemented. They included, e.g. representing a compendium of Occupational Health and Safety, safety boards and books at TAURON Wydobycie's Janina Coal Mine and the boards promoting the slogan "Always in good form!", presenting simple exercises dedicated to office workers, placed at all TAURON Capital Group's subsidiaries' sites nest to network printers. The Research and Development Team was also conducting Works on further initiatives aimed at engaging the workforce to be innovative.
At the time of intense changes in the market environment, progressing digitization and mobility of the society also a visible change of customer expectations is taking place who are becoming more active and aware, expect a broad and comprehensive offering and modern service channels. Meeting the needs of almost 5.3 mln customers, and also orientation towards their needs is reflected in the Sustainable Development Strategy in which customer related issues represent the two leading directions: "Reliability and quality of the supply of products and services for customers" and "Orientation towards the customer and his/her needs".
Efforts aimed at accomplishing the assumed obligations in this respect are based on many measures in each of the value chain areas, inter alia, through grid modernization, searching for solutions enhancing customer satisfaction, ensuring security of customer interests, care for vulnerable customers and disadvantaged groups as well as through continuous education in the area of effective use electricity and its safe utilization.
TAURON analyses market trends on an on-going basis as well as conducts cyclical customer satisfaction surveys concerning the services and products offered. Owing to such activities the Company endeavors to meet customers' expectations, satisfying their current and future needs, to the largest extent possible. At the same time, complaint handling procedures are improved, allowing for prompt and efficient response in situations reported by customers. All measures constituting the customer service process are conducted in compliance with the highest ethical standards.
Seeking not to limit the relations with customers only to the provision of products and services, as well as having the awareness of many threats which may potentially affect a customer in various aspects of electricity purchase or use, TAURON conducts educational campaigns addressed to electricity users.
The educational and informational functions are fulfilled, inter alia, by the action "Energy for the senior", implemented by the Team of Customer Rights Ombudsman operating within the customer area in TAURON. The initiative is addressed to the elderly who are most exposed to activities of unfair energy vendors (salesmen). Its aim is to educate customers how to move across the energy market. The action is based on the inter-sectoral cooperation of business, public administration represented by consumer rights ombudsmen and non-governmental organizations, i.e. universities of third age, senior clubs as well as associations of retired and pensioners. Within the workshops, both lectures for a broad group of audience and intimate educational meetings are organized.
One of key tools of customer satisfaction evaluation at TAURON Capital Group is the CSI survey (poll). This survey is conducted on a regular basis, once a year, at the turn of the 2nd and 3rd quarter, by an independent research agency. The said survey is conducted on a random basis for the selected group of TAURON customers and for a group of customers of other energy companies, such as: ENEA, ENERGA S.A. (ENERGA) and PGE.
In accordance with the adopted plan the CSI poll, representing one of key tools of customer satisfaction evaluation at TAURON Capital Group, was conducted in June - August 2017 by an independent research agency - TNS Polska S.A.
The survey covered randomly selected customers of the Household segment (1 000 customers), Small enterprises (200 customers) and Corporations and large enterprises (300 customers) and a group of customers of other energy companies, such as: ENEA, ENERGA and PGE.
As a result of conducted surveys the CSI was determined to be at the following level:
The below figure presents results of surveys conducted in the Household segment, achieved by TAURON in the period from 2011 to 2017, and the level of the CIS indicator reached in 2017, as compared to other energy groups
The below figure presents the results of the TAURON survey as compared to other Energy Groups in 2017.
Environmental protection in the energy sector is the area controlled and regulated by the EU and national legal regulations as well as the local law, therefore, it is strongly associated with the business operations of TAURON Capital Group, in particular, in the context of contemporary challenges related to minimizing the environmental impact throughout the value chain: from mining, through generation and distribution, up to the supply of electricity and heat to final consumers. Considering the sustainable development rules, TAURON Capital Group's subsidiaries are optimizing the processes of management of the resources used (water, raw materials and materials) and are also conducting an active policy of waste management (both process related waste as well as the other waste arising as a result of the operations conducted).
The pro-ecological education conducted by the individual TAURON Capital Group's subsidiaries, addressed both to children and youth as well as to adults, also plays an important role in the area of environmental protection.
TAURON Capital Group's subsidiaries are actively engaging in many information and educational programs concerning environmental protection and energy saving and conservation which are addressed both to employees, local communities and to customers. Such actions include the educational campaign to combat low emission called "Breathe with Air", launched in 2016 and continued in 2017.
A confirmation of the above actions was the adoption in July 2017 of TAURON Group's Environmental Policy, in which it was stated that TAURON Capital Group accepts responsibility for taking care of natural environment and the consequences of the use of its resources for the benefit of the current and future generations, recognizing as important the social obligation to ensure environment protection both in its operations, as well as among its customer partners.
TAURON Capital Group's subsidiaries are conducting responsible environmental protection policy and apply due diligence to ensure that both the operations conducted as well as the implemented investment projects are compliant with the requirements and include technological advancements with respect to environment protection.
The most important actions with respect to environment protection conducted by TAURON Capital Group in 2017 included:
14) Reconstruction of the Dumping Station with construction of dust removal system for reducing random emissions (KW Czatkowice),
15) Pro-ecological initiatives educational campaign developing ecological awareness of young people: "Clean up of the Pilchowski Reservoir", where 159 students of partner schools within operating area of TAURON EKOENERGIA together with teachers and employees of TAURON EKOENERGIA completed the 19th campaign of cleaning shores of the Pilchowski Reservoir. Over 400 120-liter bags of refuse were collected (TAURON EKOENERGIA),
The exemplified above actions are aimed at ensuring the compliance of TAURON Capital Group operations with regulations applicable in protection of the environment, with consideration of local circumstances, specific nature of our business, striving at the same time to improve efficiencies.
Minimizing of the negative impacts on the environment is effectively implemented the specifics of the sector, technology advancements and access to the environmentally friendly technologies.
TAURON Capital Group is monitoring on an ongoing basis the main aspects of the direct and indirect impact on the environment of its operations.
The effects of implementing the capex plan over many years, related to adapting TAURON Wytwarzanie's conventional sources to comply with the tightened emission requirements allowed, in 2017, for the operations of the generation units at values well below the NOX, SO2, dust emission standards currently in force and in many cases close to the values of the future environmental requirements.
The below table presents the estimated levels of NOX, SO2, dust and CO2 emissions from fuel combustion for electricity generation purpose for selected TAURON Capital Group's subsidiaries in 2017.
| No. | Subsidiary name | SO2 emission (Mg) |
NOX emission (Mg) |
Dust emission (Mg) |
CO2 Emissions (Mg) |
|---|---|---|---|---|---|
| 1. | TAURON Wytwarzanie, including: | 13 385 | 13 701 | 733 | 14 654 964 |
| Oddział Jaworzno III | 3 423 | 5 438 | 143 | 6 919 502 | |
| Oddział Łaziska | 3 430 | 3 302 | 182 | 3 879 920 | |
| Oddział Łagisza | 2 343 | 2 294 | 161 | 1 869 428 | |
| Oddział Siersza | 2 686 | 1 706 | 177 | 1 538 045 | |
| Oddział Stalowa Wola | 1 503 | 961 | 70 | 448 069 | |
| 2. | TAURON Ciepło, including: | 3 522 | 1 610 | 217 | 1 913 711 |
| ZW Bielsko-Biała | 979 | 278 | 29 | 500 989 | |
| ZW Kamienna Góra3 | 52 | 17 | 6 | 17 2083 | |
| ZW Katowice | 1 572 | 660 | 84 | 877 950 | |
| ZW Tychy | 591 | 543 | 18 | 422 857 | |
| CC Olkusz | 143 | 39 | 10 | 40 239 | |
| CC Zawiercie | 127 | 43 | 9 | 36 079 | |
| Other (local heating plants3 | 58 | 30 | 61 | 18 38 | |
| 3. | KW Czatkowice | 3 | 6 | 14 | 5 909 |
| Total | 16 910 | 15 317 | 964 | 16 574 584 |
Table no. 7. Annual levels of NOX, SO2, dust and CO2 emissions from fuel combustion for electricity generation purpose for 2017
1Total emission of dust from fuel combustion
2CO2 emission within the meaning of EU ETS - according to Annual Reports on CO2 Emission (status in January 2017, the level of emission prior to verification)
3 Installations not covered by EU ETS. Estimated value, prior to verification at the end of the 1st quarter of 2017
TAURON Capital Group accepts responsibility for taking care of natural environment and the consequences of the use of its resources. In 2017 TAURON Capital Group's subsidiaries accrued fees in the total amount of approximately PLN 38.6 million, i.e. approximately 8% more than in 2016.
The below table presents the level of fees for the use of the environment for business purposes due for 2017 at selected TAURON Capital Group's subsidiaries.
| No. | Subsidiary name | Fees for use of the environment for business purposes due for 2017 (PLN thous.) |
|---|---|---|
| 1. | TAURON Wytwarzanie | 21 012 |
| 2. | TAURON Wydobycie | 13 372 |
| 3 | TAURON Ciepło | 4 074 |
| 4. | TAURON Dystrybucja | 1002 |
| 5. | KW Czatkowice | 50 |
| 6. | TAURON Dystrybucja Serwis | 122 |
| 7. | TAURON Obsługa Klienta | 1,9 |
| 8. | TAURON EKOENERGIA1 | < 0,8 |
| 9. | TAURON Sprzedaż | 1,6 |
| Total | 38 623,5 |
1Total amount below PLN 800 a year is not subject to the statutory exemption from paying fees for the use of the environment for business purposes. 2Estimate data, the annual settlement has not been closed.
TAURON Capital Group is taking actions aimed at improving energy efficiency in order to reduce or not increase the consumption of fuels and monitoring climate impact.
In 2017 within TAURON Capital Group a number of investment projects were submitted, associated with the improvement of energy efficiency in the Distribution and Mining lines of business, whose direct environmental effect is the reduction of CO2 emission. This effect was partly confirmed through the allocation of the so-called "white" certificates as a result of the tender, resolved in July 2017, carried out by the President of ERO based on the rules in force before, i.e. 2016 rules. The remaining part of the effect will only be confirmed in 2018 through the allocation of the property rights certificates according to the new principles of the amended energy efficiency law.
Furthermore, in 2017 an energy efficiency audit was completed for all of TAURON Capital Group's Lines of Business in order to identify optimization areas.
Although the core production of TAURON Capital Group is based on the traditional energy relying on solid fossil fuel, TAURON Capital Group, in its basic volume of production, includes high efficiency generation of electricity and heat in the co-generation system and supplements its offering with electricity generated from renewable sources or in generation based on gas which is reflected in the quantity of property rights to the certificates of origin of electricity generated:
The below figure presents the structure of the property rights to the certificates of origin obtained by TAURON Capital Group in 2017.
TAURON Capital Group, caring for the natural environment, minimises the quantity of waste deposited in the environment through their introduction to the market, to be used as substitutes for natural materials.
Waste generated by TAURON Capital Group is mainly used in the construction, road building and mining sector. The waste is broadly used by cement and concrete plants. It was also used as the material for reclamation of unfavourably transformed areas.
In 2017 TAURON Capital Group's conventional power generation segment generated approximately 2.2 million Mg of furnace waste, including 99.76% that was managed on the market and only 0.24% was deposited directly at the dumping sites.
Figure no. 31. Structure of energy waste management
The below figure presents the structure of energy waste management.
In 2017 hard coal mining at TAURON Capital Group generated 1.1 million Mg of mining waste and 1.4 Mg of full value aggregate products. The products obtained were used in various industries, among others in the construction and mining. waste comprised aggregate and sludge originating from coal processing and preparation. 100% of the waste generated was used for the business purposes.
The below figure presents the structure of mining waste management.
TAURON Capital Group is seeking to implement the model of closed circuit (circular) economy. It is planned that the maximum of generated process waste is used within TAURON Capital Group, consequently reducing the consumption of natural resources and the product's carbon footprint.
In 2017 TAURON introduced significant changes to its internal regulations related to the sponsoring activities. New Rules of conducting sponsoring activities by TAURON Group taking into account the Best practice with respect to conducting the sponsoring activities by companies with the State Treasury shareholding. TAURON Group's 2018-2025 sponsoring strategy was adopted. The sponsoring activities were conducted based on the Plan of conducting the sponsoring activities by TAURON Group in 2017, adopted by the Management Board and granted a positive opinion by the Supervisory Board.
The main objective of TAURON Capital Group's sponsoring activities is to support its business and communications goals in reference to TAURON Group's 2016-2025.
The sponsoring activity was carried out based on negotiated agreements, according to standardized provisions. Moreover, this activity was monitored, analyzed and reported on an on-going basis, through detailed reports on the implementation of sponsoring agreements, surveys and analyses conducted in quarterly and annual cycles by specialized external entities and the supervision of companies of TAURON Capital Group.
In accordance with the implemented procedures, the assessment of effectiveness of the activities conducted was carried out, through opinion surveys, measurement of the value and size of brand exposure in media, in the context of the activities conducted, measurement of implementation of sales targets, with reporting of the obtained results. As a result of the promotion effectiveness measurement, an independent research entity initially estimated the advertising equivalent in relation to activities completed in 2017. Comparing the summarized value obtained in this way to the sum of all expenditure arising from sponsoring agreements the ROI ratio at a level of approximately PLN 7.2. was obtained. It means that each zloty (PLN) spent for that purpose generated promotional benefits to TAURON Capital Group whose preliminary value is independently estimated at approximately PLN 7.2. The ongoing verification of the aforementioned value should not significantly change the value of this ratio.
The confirmation of the financial effectiveness of the activities conducted is the high positioning of TAURON brand in an independent research report, Sponsoring Monitor 2017, which is the only source of this type of information on the Polish market. According to this report, TAURON is ranked seventh in the TOP 10 list of sponsors and it is the most recognized (noticeable) sponsor versus its direct competitors. More than 200 brands were classified In the ranking, which is the result of opinion polls. In spite of relatively lower outlays on sponsoring versus some of its direct competitors, TAURON achieved a better result, being ranked 3 positions higher than the next group and finding itself among the very top group of the most recognized (noticeable) sponsors. Because of a relatively low level of TAURON Capital Group's sponsoring expenditures its position in this ranking can be regarded as truly very high. Taking into account an indicative value of Poland's sponsoring market according to the Sponsoring Insight data and the data from the above mentioned ranking it can be extrapolated that the effect achieved gives TAURON Capital Group a 9-11% market share – which in comparison to other power sector entities is a result that puts TAURON in a position of the leader of efficiency and effectiveness of the funds invested in these activities.
In 2017 sponsoring activities were carried out by TAURON and TAURON Sprzedaż. Both companies implemented 24 projects with 16 customers in total. The preliminary data related to accomplished advertising equivalents referring to activities ended in 2017 indicate that the best results were achieved by activities under projects related to professional sports, i.e. KS Vive TAURON Kielce, Lang Team (among others Tour de Pologne) and Polish Ski Association. Among projects underway such activities as sponsoring of TAURON Arena Kraków were characterized by a strong potential.
Risk at TAURON Capital Group is understood as an uncertain occurrence or a group of occurrences that, in case of materializing, will have an impact on achieving by TAURON Capital Group of its defined strategic goals, both negatively (threat), as well as positively (opportunity).
In line with its Strategy the Company is implementing the process of managing the risk related to the operations of TAURON Capital Group. The primary goals of risk management include ensuring the broadly understood security of TAURON Capital Group's operations. In particular, risk management is to ensure increased predictability of TAURON Capital Group achieving its strategic goals, including sustainable financial generation of its financial results.
TAURON Capital Group's risk management:
In order to ensure security of the functioning of the organization the "Three Defence Lines Model" is implemented by TAURON Capital Group, comprising internal control (audit), independent control (audit) within the second defence line and institutional control (audit). In particular, the risk management function co-creates a system of internal control (audit) at TAURON Capital Group, constituting an element of the second defence line, next to the function of ensuring the compliance and security management.
The below figure presents the "Three Defence Lines Model"
| Body responsible for corporate governance/Board/Audit Committee | ||||||||
|---|---|---|---|---|---|---|---|---|
| Higher level management | ||||||||
| Externa | ||||||||
| 1st line of defense 2nd line of defense |
3rd line of defense | |||||||
| Management control |
Internal control | Security | Risk control | Compliance | Inernal audit | Ā | Regulator |
Functions of the individual defence lines:
The below figure presents risk management as a function of the second defence line.
The process of enterprise risk management ensures the comprehensive and consistent risk management rules linked with each other in terms of methodology and information. The process of enterprise risk management means continuous measures comprising risk identification, risk assessment, planning of risk response, implementation of the adopted risk response and communication between risk management process participants.
The below figure presents the risk management process.
Risk identification - consisting in determining the potential events that may affect the implementation of business goals of TAURON Capital Group.
Risk assessment - consisting in determining of potential financial and non-financial effects of risk materialisation influencing the implementation of specific goals.
Planning - consisting in preparation of the dedicated response to the risk identified in order to achieve the desirable goals.
Implementation of risk response - consisting in practical implementation of the responses to identified risk prepared in the planning process.
Communication - consisting in continuous information flow among participants of the process which should ensure full knowledge concerning the current risk status and effectiveness of activities conducted within the response to risk. The periodical risk reporting is also an element of this process
The below figure presents the risk management process.
The enterprise risk management system (ERM), implemented at TAURON Capital Group's level, constitutes a set of rules, standards and tools allowing for implementing the primary goal of risk management which is, broadly understood, ensuring safety (security) of TAURON Capital Group's operations. This system is governed by the document entitled Corporate risk management strategy at TAURON Group that defines TAURON Capital Group's corporate risk management rules and its goal is to ensure the consistency of managing the individual risk categories that were detailed in separate regulations, aligned with the specifics of the individual threat groups.
The below figure presents the ERM system.
3 Enterprise Risk Managment
The detailed description of the rules and tools for managing the individual risk categories is provided further on in this section,
The risk management process described in detail in section 3.3 of this report is the center (core) of the system. Moreover, the architecture of the ERM system comprises elements to ensure effective functioning of the process, including:
The below figure presents the architecture of the ERM system,
Risk management tools comprise elements allowing for effective implementation of individual stages of the process, such as risk identification questionnaire, risk card, risk register, risk model, risk map, risk tolerance
Within the framework of ERM system organization, roles and responsibilities of risk management process at TAURON Capital Group were defined. Participants of the process include, in particular: TAURON Supervisory Board, Audit Committee of TAURON Supervisory Board, Management Board of TAURON, Risk Committee, Executive Director for Risk at TAURON, Executive Director for Audit at TAURON, management boards of subsidiaries, Risk Owners, Risk Management Coordinators and Executors of risk response.
The below figure presents the organizational structure and documentation of the risk management process.
| Figure no. 39. Organizational structure and documentation of the risk management process | ||||||
|---|---|---|---|---|---|---|
| -- | -- | -- | ------------------------------------------------------------------------------------------ | -- | -- | -- |
| Supervisory Board | |||||||
|---|---|---|---|---|---|---|---|
| Audit Committee | |||||||
| Management Board | |||||||
| Risk Committee | |||||||
| Management | Commercial (Trade) Risk Financial and Credit Risk Management Team Managment Team |
Internal Audit | |||||
| TAURON Group's corporate risk management strategy | |||||||
| Organizational by-laws | TAURON Group's commercial risk (trade) management policy |
TAURON Group's operational risk management policy |
TAURON Group's project management risk policy |
TAURON Group's credit risk management policy |
TAURON Group's fnancial area specific risk management policy |
Internal audit regulations |
|
| Market Risk Team | Corporate Risk Team Credit Risk Team Executve Director for Finance |
Internal Audit Team | |||||
| Executive Director for Risk | Executive Director for Internal Audit |
||||||
| Reporting to Supervisory Board, Management Board of TAURON, Members of Risk Committee | Reporting to President of Management Board |
Risk model defines a consistent risk classification, enabling a consistent and comprehensive capturing of risk across TAURON Capital Group. Each risk identified is assigned to specific categories and sub-categories.
The below figure presents the main risk categories defined by TAURON Capital Group, including the number of key threats:
Figure no. 40. Number of risks monitored, broken down into categories
As part of the implementation of the risk control and monitoring rules the Management Board of TAURON approves risk tolerance, taking into consideration the specific nature and scope of operations of TAURON Capital Group. The level of the tolerance defines the value of the maximum permitted risk exposure at TAURON Capital Group and the rules of measurement of individual risks in the organization ensure the consistency of risk measurement with the applied tolerance definition. The risk tolerance constitutes basis for allocation of its level to the global limits dedicated to a single risk or many key risks. Subsequently global limits are allocated to operating limits within the key risk management.
A supplementary tool used for risk monitoring and control comprises the Early Warning System based on the catalogue of Key Risk Indicators - KRI and Early Warning Indicators - EWI. The system functioning based on the KRI and EWI indicators enables an appropriately early identification of threats by measuring the causes of the individual threats. At the same time this system Allows for an appropriately early ta king of remedy actions, before the individual threats actually materialize.
TAURON Capital Group's commercial (trading) risk management is understood as reducing unplanned volatility of its operating result, due to price fluctuations on the commodity markets and volume deviations in the individual areas of TAURON Capital Group's commercial (trading) operations. The commercial (trading) risk, due to the specifics of the operations conducted, constitutes one of TAURON Capital Group's key risks. TAURON Capital Group is made up of subsidiaries operating both in the Mining and the Generation Lines of Business as well as in the Supply Line of Business. Due to the opposing positions in these Lines of Business the risk is, to a certain degree, naturally diversified. However since these Lines of Business do not fully offset each other, and due to the diverse nature of the exposures, TAURON Capital Group is displaying sensitivity to the volatility of the prices of electricity, gas and related products.
In order to efficiently manage this group of risks the commercial (trading) risk management system was established, tied on the organizational and information level to TAURON Capital Group's process used to develop a commercial (trading) position hedging strategy. In particular TAURON Group's commercial (trading) risk management policy introduces an early warning system and a system used to limit risk exposure in the individual commercial areas. The basic operating measure of TAURON Capital Group's market risk is Value at Risk, defining the maximum admissible change of the position's value over the given time horizon and at a specific probability level. Value at Risk represents a dynamic risk measure which in contrast to static measures allows for determining potential negative effects before their factual occurrence. Due to the limitations of the statistical measures the commercial (trading) risk management system also uses a number of supplementary risk measures enabling a safe operation of the commercial (trading) areas.
The organizational structure of the commercial (trading) risk management system envisages a strict split of competences as part of which risk management is decentralized, where the supervision and risk control are performed centrally at TAURON's level. In particular an element of the organizational structure of the commercial risk management system is the split of TAURON Capital Group's trading operations into: Front Office, Middle Office and Back Office. The goal of such a split of tasks is to guarantee the independence of the operating functions carried out by the Front Office from the risk control carried out by the Risk Area, and it ensures an appropriate level of operational flexibility. For the needs of of the risk management process such placement of responsibility is assumed in order to ensure an optimal approach to the given type of threat, especially taking advantage of the economy of scale and the synergy effect. Such approach ensures efficiency of the commercial processes conducted and appropriate supervision over one of the main business processes conducted by TAURON Capital Group.
The below figure presents a breakdown of TAURON Capital Group's trading operations.
As part of financial risk management TAURON Capital Group is managing the FX risk and interest rate risk, based on the rules and standards in line with the best practices in this respect. The main goal of managing these risks is to minimize the sensitivity of TAURON Capital Group's cash flows to the financial risk factors and to minimize the financial costs and the hedging costs as part of a transaction with the use of derivative instruments. In cases when it is possible and economically justified TAURON Capital Group uses the derivative instruments the characteristics of which allows for applying the hedging accounting.
With respect to the financial risks TAURON Capital Group also identifies and actively manages the liquidity risk understood as a potential loss or limitation of the ability to pay current expenses, due to an inadequate value or structure of liquid assets in relation to short term obligations or an insufficient level of the actual net inflows from the operations. TAURON Capital Group's liquidity position is monitored on an ongoing basis for any potential deviations from the assumed plans and the availability of external sources of financing the amount of which substantially exceeds the expected short term demand, mitigates the risk of losing liquidity. For this purpose TAURON applies specific rules of determining the liquidity position, both of the individual subsidiaries, as well of entire TAURON Capital Group, which allows for securing funds to cover a potential liquidity gap, both by allocating funds among subsidiaries (cash pool mechanism), as well as with the use of external financing, including overdrafts.
Risk associated with financing is identified at three levels:
Within the mitigation of risk associated with financing TAURON Capital Group Company conducts a policy of funding acquisition at least 24 months in advance in relation to the planned date of its use. It means that TAURON Capital Group should hold signed programs of guaranteed financing or hedge this financing through collection of funds on TAURON Capital Group's accounts. Such a policy is mainly aimed at ensuring a higher comfort in acquisition of external financing and reducing the risk of incurring new liabilities under unfavorable market conditions. At the same time, the Company
diversifies financing sources by active measures with respect to the acquisition of various debt instruments, also outside the Polish market.
Credit risk is understood as a possibility to incur a loss due to trade partners (counterparties) failing to fulfill their contractual obligations (default). TAURON Capital Group is using a decentralized credit risk management system, however the control, limiting and reporting of this risk category is carried out centrally, on the parent Company level. TAURON Group's Credit Risk Management Policy in place defines credit risk management principles on TAURON Capital Group's level, aimed at effectively minimizing the impact of this risk on achieving TAURON Capital Group's goals.
Credit risk management is carried out by controlling the credit exposure generated upon the conclusion of contracts by TAURON Capital Group's subsidiaries. The general rule is that prior to concluding a contract every entity is subjected to an examination of its financial standing and receives a credit limit which caps the maximum exposure due to the given trade. Credit exposure is, in this context, understood as an amount that may be lost if a counterparty fails to fulfill its obligations (defaults) within a certain time (taking into account the value of collaterals contributed thereby). Credit exposure is calculated as of the current day and is split into exposure due to payment (payment exposure) and replacement exposure.
The below figure presents credit exposure components.
Based on the exposure value and the evaluation of the financial standing of specific customers the credit risk value that TAURON Capital Group is exposed to is calculated using the Credit Value at Risk method. It is an analytical method that, based on the mathematical Monte Carlo simulation model, calculates the exposure value based on the total loss probability distribution.
Operational risk is understood as a possibility to incur a loss due to inappropriate or unreliable internal procedures, human and system errors or as a consequence of external events. It also includes legal risk, reputational risk and non-compliance risk. Operational risk, due to the specific nature of the threats and the ability to manage them, constitutes a separate group of risks affecting TAURON Capital Group's operations. This risk is a complex issue, occurs in every process and type of operations, it is multi-dimensional and applies to various types of activities and operations. In particular, the exposure to the operational risk factors is related to the size and complexity of the organizational structure, the number and complexity of IT systems and to the number of business processes conducted. The operational risk is characterized by the lack of the ability to totally eliminate its sources, and the analysis of its factors and parameters (among others, frequency and severity), and also the evaluation thereof requires the use of complex measurement and analysis methods.
In order to effectively manage the operational risk TAURON Capital Group is using appropriate tools, presented on the below diagram. In particular, they include the operational risk profile, operational events database, global operational risk limit and the related system of operational limits and also the early warning system operating on a large scale.
The below figure presents risk management system tools.
Global operational risk limit is the basic tool for the operational risk control and represents the allocation of risk tolerance adopted by TAURON Capital Group. The global operational risk limit can be subsequently allocated to TAURON Capital Group's individual lines of business, the operational risk sub-categories as well as to the specific operational risks.
Operational risk profile is aimed at identifying areas, processes or activities with an excessive exposure to threats stemming from specific operational risk factors. Operational risk profile is expressed in particular in the structural dimension that includes types of operational events, TAURON Capital Group's organizational structure and processes, in the scale dimension that includes estimated potential losses, taking into account especially historical values of actual losses, as well as the tools used to mitigate the threats. For the needs of measuring the operational risk and defining the operational risk Profile the individual types of the operational risk are broken down (due to the nature of the occurrence thereof) into continuous and one-off risks.
Early warning system is defined in order to monitor the operational risk level for each identified threat. Early Warning Indicators (EWI) are selected from the Key Risk Indicators (KRI) set as the ones that are subject to continuous control with respect to the caution thresholds set for them, i.e. acceptance, mitigation and escalation thresholds.
Operational events database is created for the needs of identifying new risk factors, and in parallel in order to define the risk profile for TAURON Capital Group. It allows for keeping the records of cases that are characterized by a potential or actual loss for the organization. The goal of maintaining the operational events database is to determine the frequency and severity of the individual operational risk factors, as well as the areas and processes they occur in.
Risk identification questionnaire is a document in the form of a table form that constitutes a tool supporting the performance of the risk management process with respect to risk identification, specifying the detailed information that should be collected in this process.
TAURON Capital Group is conducting a number of investment projects in many lines of its business operations. These projects, due to their scale and often very complicated nature of implementation, represent a source of threats that may have an impact on the schedule, budget or quality of the final products. Systematic use of the provisions of TAURON Group's Project Risk Management Policy is aimed at mitigating these risks, supporting at the same time the accomplishment of the organization's strategic goals. This regulation, in particular, defines the basic principles of project risk management, ensuring coherence, comprehensive approach and unequivocal understanding in this area. The goal of the actions taken is to achieve the required probability of the project's completion while complying with the defined schedule, budget and quality of the products received. The overall objective is to obtain the expected benefits from the project's completion and to achieve TAURON Capital Group's strategic goals.
Project risk management is also applicable to managing the risk stemming from the projects and having an impact on the organization. The process of managing the risk stemming from the projects includes identification, valuation of such risks, defining and monitoring early warning indicators as well as planning and implementing actions related to managing such risks. In case of risks having an impact on the organization the risk valuation is made as the absolute value of the impact including indicating the impact period broken down into individual accounting periods, in reference to the assumed EBITDA or the assumptions made in the organization for the long term projections. In case of the most important risks having an impact on the organization the Plans of reactions to the risk and back-up Plans are developed. The evaluation of project risks and risks stemming from the projects for the organization is taken into account when making the key decisions related to launching and implementing such projects.
The below figure presents the project risk management model
Figure no. 44. Project risk management model
The below table presents the most significant risks identified for TAURON Capital Group.
| Table no. 9. Most significant risks identified for TAURON Capital Group | ||
|---|---|---|
| # | Risk name | Risk description | Risk trend |
Risk response |
|---|---|---|---|---|
| Finance and credit | ||||
| 1. | Interest rate and FX rate risk |
Risk related to an unfavorable impact of interest rates and FX rates on TAURON Capital Group's financial results. |
| • Ongoing monitoring of risk exposure in order to minimize negative impact of changes to the market factors, • Transfer of risk through the use of derivative instruments |
| 2. | Liquidity / financing risk |
Risk related to the manner of financing operations, due to the enterprise's capital structure. |
| • Diversification of the sources of financing including arranging guaranteed financing programs and securing alternative sources of financing. • Implementing the central financing policy. • Analyzing the market and the availability of the sources of financing. • Monitoring the schedules and the date of announcing the financing program. |
| 3. | Credit risk | Risk related to a potential occurrence of overdue accounts payable or a conclusion of a contract with a counterparty that will turn out to be insolvent. |
| • Regular monitoring of the counterparties' financial standing. • Periodic customer scoring, credit rating of each customer prior to submitting an offer/concluding a contract. • Use of protection mechanisms (hedging) in commercial agreements |
| Trade | ||||
| 4. | Market risk | Risk related to an unfavorable change of prices on the electricity market and on the related products markets, having a negative impact on TAURON Capital Group's financial results. |
| • Monitoring and updating the hedging strategy. • Ongoing monitoring of exposure to the above mentioned risk in order to minimize negative impact of changes to the market factors. • Limits (caps) on trade positions within risk mandates. |
| Workforce and organizational culture | ||||
| 5. | Social dispute risk | Risk related to collective disputes, strikes, social conflicts being the |
| • Conducting social consultations with respact to the planned changes. |
| # | Risk name | Risk description | Risk trend |
Risk response |
|---|---|---|---|---|
| consequence of a lack of the personnel's satisfaction with the economic and social situation. |
• Conducting a policy of dialogue with the workforce. • Preparing and implementing motivational solutions for the personnel. • Standardizing the tasks and requirements towards the personnel. • Developing organizational culture based on values. • Conducting active internal communications on personnel matters. |
|||
| 6. | Human resources risk |
Risk related to the temporary or permanent loss of specialized staff and difficulties in its restoration. |
| • Taking measures aimed at developing a model that would enhance workforce motivation • Developing competences by training the personnel. |
| 7. | Occupational Health and Safety Risk |
Risk related to accidents at work resulting from non-compliance with the Occupational Health and Safety as well as Fire Protection regulations |
| • Implementing manuals and rules defining safe organization of work. • Stimulating workforce development by conducting periodic Occupational Health and Safety and additional specialist training. • Analyzing and updating, based on needs, the evaluation of the professional risk at individual work stations (positions). • Maintaining a high standard of equipping the personnel with protection means and enforcing the appropriate use thereof. • Performing measurements of harmful factors in the work environment. |
| Customers and contractors | ||||
| 8. | Customer service risk |
Risk related to non-compliance with the customer service standards. |
| • Monitoring and analyzing external customer satisfaction indicators and indicators related to complaints • Taking additional measures, e.g. with respect to internal regulations, defining standards of conduct as a result of the analysis of indicators. • Developing key account managers' competences and skills. • Continued raising of customer service standards. |
| 9. | Risk related to performance of agreements by subcontractors |
Risk related to improper performance by subcontractors of the works commissioned, termination of the agreement and delays, changes to the budget, scope related thereto |
| • Concluding agreements with subcontractors in accordance with TAURON Capital Group's standards. • Analyzing the performance of the subject of the agreement, examining the quality of services provided by subcontractors. • Evaluating the financial standing and credibility of the subcontractors. |
| 10. | Purchasing process risk |
Risk related to the volatility of the situation on the supplies/services market, volatility of demand for the given type of product/supply/service on the market, decline of the availability of supplies/services of appropriate quality, leading to the purchase order value increase risk. |
| • Preparing a plan of purchase orders and updating thereof. • Aggregating purchases of selected product groups. • Consolidating purchase orders. • Concluding long term agreements. • Taking into account the price risk related to commodity prices/FX rate fluctuations in contracts with contractors |
| 11. | Volume and margin risk |
Unfavorable changes or terminations of commercial agreements by customers, leading to the declining revenue from operations; loss and lack of acquiring new customers. |
| • Conducting marketing campaigns, acquiring new customers. • Taking actions focused on retaining the existing customers and recovering the lost ones. • Ongoing updating of the offering, launching sales of multi package type products. |
| Compliance risk | ||||
| 12. | Internal fraud risk | Appropriation or temporary use of the company's assets, destruction of TAURON Capital Group's property, abuse of work position to derive various types of personal gain by forcing specific behavior of customers while performing work related activities. |
| • Strict adherence to internal procedures aimed at achieving protection against abuse (security procedures, reviews of authorizations). • Conducting compliance type activities. • Promoting best practices, improving procedures, training. • Enforcing and promoting the provisions of TAURON Group's Code of Responsible Business in force. |
| 13. | External fraud risk | Third party actions aimed at, among others, theft, robbery, physical burglary, computer hacking, information theft, forgery |
| • Monitoring potential and actual security incidents. • Anti-virus protection of workstations. • Physical protection of facilities. • Conducting security tests. |
| 14. | Risk of unethical behaviors |
Risk related to the occurrence of behaviors not in line with the generally accepted by the society |
| • Functioning of the whistleblowing system in the organization. • Lack of organizational culture based on TAURON Capital Group's values and principles. |
| # | Risk name | Risk description | Risk trend |
Risk response |
|---|---|---|---|---|
| social coexistence rules, moral standards and lobbing. |
• Training, building awareness through meetings, TAURONET, press materials. • Functioning of Ethics Committees in the organization operating based on the adopted regulations. |
|||
| 15. | Legal risk | Risk related to non-compliance with the legal regulations, misinterpretation of the new provisions and regulations, court disputes (litigations), requirements imposed by URE/UOKiK/KNF/GIODO, etc. |
| • Continuous monitoring of the legal environment and changes to the legal regulations. • Implementing the required changes to internal regulations. • Appointing working groups tasked with preparing and implementing the required changes stemming from the legal environment. • Continuous cooperation with the authorities overseeing the energy market and the capital market. • Training for the personnel on the changes being introduced. |
| 16. | Risk of breaching contractual provisions (default) |
Risk related to the possibility of being in default in performing the obligations under agreements concluded with counterparties. |
| • Optimizing the sales and service processes. • Updating and adapting agreement samples to the changes to the law. • Monitoring complaints and proceedings of URE/UOKiK. |
| Environment | ||||
| 17. | Reputational risk | Current and future impact on the company's revenue and capital due to the negative public opinion backlash. |
| • Continuous monitoring of the Company's external and internal threats. • Media monitoring, developing contacts and relationships with the media within TAURON Capital Group. • Preparing procedures for the Company's communications with the external and internal environment (stakeholders). |
| 18. | Regulatory risk | Unfavorable impact of the domestic and European level legislation due to the need to pass or adapt to the legal regulations and to incur the required financial costs in order to comply therewith. |
| • Continuous monitoring of the legal environment and changes to the regulations. • Analyzing draft legal acts and planning the required adaptation steps. • Implementing the required changes into internal regulations. • Cooperation with the regulator. |
| 19. | License risk | No ability to conduct operations as a result of a prolonged process of obtaining a license or amending the licenses held. Unfavorable legal changes with respect to licensed operations. |
| • Ongoing control of the correct performance of licensing obligations. • Monitoring changes to the legal acts with respect to licensing obligations. • Legal support for the license extension and obtaining process |
| Technology and infrastructure | ||||
| 20. | Environmental risk | Potential negative impact of the operations on the environment and of non-alignment to and non-compliance with the environmental requirements of the domestic and community law. |
| • Ongoing supervision over compliance with the conditions of the environmental decisions. • Maintaining the required efficiency of the devices reducing the emission of pollutants. • Frequent evaluation of the compliance of actions with the legal requirements with respect to environment protection. • Implementing investment projects in environment protection in order to minimize the adverse impact of the mining and processing operations conducted. |
| 21. | Weather risk | Impact of weather conditions on the operations of the enterprise, both with respect to technological aspects as well as the commercial ones. |
| • Upgrading (refurbishing) hydroelectric structures aimed at optimizing the utilization of water resources. • Preparing plans of overhauls, inspections and maintenance activities with flexible provisions on deadlines for completing the works. • Continuous monitoring of wind conditions and icing on the wind farms' blades. • Continuous technical oversight over the operation of individual wind farms, conducted by the companies operating the farms. • Monitoring and analyzing new technological solutions that reduce the impact of adverse weather conditions on the volume of electricity generated. • Increase in acquisitions and takeovers. |
| 22. | Company asset failure risk |
Impact of failures of machines and devices, overhauls, upgrades (refurbishments), maintenance and management of production and non production assets on achieving the company's goals. |
| • Optimizing capital expenditures on asset replacements, ongoing monitoring of the condition of machines, devices and installations. • Raising professional qualifications and work culture of the personnel by organizing courses and training. |
| # | Risk name | Risk description | Risk trend |
Risk response |
|---|---|---|---|---|
| • Responding to an emergency situation by the technical personnel and automatic process safety interlocks. • Insuring assets against fortuitous events (excluding underground assets). • Introducing IT tools with respect to improving the monitoring and managing failure indicators (ratios). |
||||
| 23. | IT risk | Risks related to the IT infrastructure security, failures of the IT infrastructure |
| • Developing and maintaining plans aimed at ensuring continuity of IT infrastructure's operation. • Periodic identifying and categorizing IT resources based on the service restoration targets. • Use of IT solutions with appropriate technical parameters, providing an acceptable level of reliability and efficiency of operation (including also UPS devices, GSM modem, mobile phones). • Planning and conducting training on IT continuity. • Storing and protecting the back-up data. |
| 24. | Asset security and protection risk |
Risk related to compromising the integrity of machines/devices and to the security of information, including its improper processing and unauthorized disclosure. |
| • Monitoring the implementation of the developed plans to protect the facilities that are subject to mandatory protection. • Maintaining and updating contingency procedures/plans. • Implementing/updating and oversight over compliance with the information security rules in force. • Regular personnel training with respect to security procedures in force. |
| 25. | Geological risk | Impact of geological factors on the mining operations. |
| • Making test drillings for the better intelligence on the positioning of coal deposits. • Continuing to take preventive measures in areas under threat in order to improve the geological and mining conditions and to provide protection against natural threats (including, among others, long-drilled blasting hole shooting in order to break the rock mass) |
The below table presents the annual standalone statement of comprehensive income. .
| Statement of comprehensive income prepared in accordance with the IFRS (PLN thousand) |
2017 | 2016 | 2015 | Change in % (2017/2016) |
|---|---|---|---|---|
| Continued operations | ||||
| Sales revenue | 7 792 025 | 7 995 328 | 9 062 246 | 97% |
| Own cost of goods, materials and services sold | (7 414 707) | (7 837 567) | (9 073 869) | 95% |
| Gross profit (loss) from sales | 377 318 | 157 761 | (11 623) | 239% |
| Cost of sales | (23 309) | (19 326) | (21 372) | 121% |
| Overheads | (88 751) | (81 368) | (96 341) | 109% |
| Other operating revenues and costs | (2 470) | (91 670) | 4 969 | 3% |
| Operating profit (loss) | 262 788 | (34 603) | (124 367) | - |
| Operating profit margin (%) | 3,4% | (0,4)% | (1,4)% | - |
| Revenue from dividend | 560 832 | 1 485 152 | 1 510 624 | 38% |
| Interest revenue from bonds and loans | 456 426 | 503 897 | 449 437 | 91% |
| Interest costs on debt | (334 638) | (356 947) | (357 055) | 94% |
| Revaluation write-offs of stocks and shares | (134 372) | (1 610 396) | (4 931 147) | 8% |
| Other financial revenues and costs | 108 529 | (136 237) | 1 714 | - |
| Gross profit (loss) | 919 565 | (149 134) | (3 450 794) | - |
| Gross profit margin (%) | 11,8% | (1,9)% | (38,1)% | - |
| Income Tax | (65 214) | (17 119) | 3 114 | 381% |
| Net profit (loss) from continuing operations | 854 351 | (166 253) | (3 453 908) | - |
| Net profit margin (%) | 11,0% | (2,1)% | (38,1)% | - |
| Other total income | (6 713) | 104 024 | 69 720 | - |
| Total income | 847 638 | (62 229) | (3 384 188) | - |
| EBITDA | 268 220 | (27 078) | (115 856) | - |
| EBITDA margin (%) | 3,4% | (0,3)% | (1,3)% | - |
In 2017 the Company posted operating profit of PLN 263 mln, among others due to dissolving, in full, of the provisions, set up in 2015 and updated in 2016, stemming from the agreements involving charges related to the joint venture. Dissolving of the above provisions is related to the fulfillment of the suspending conditions under the conditional agreement signed on October 27, 2016 on establishing the basic boundary conditions of the restructuring of the "Construction of the CCGT unit in Stalowa Wola" project. The suspending conditions were fulfilled by making by EC Stalowa Wola, on March 31, 2017 of the payment of all accounts payable due to all the existing financing institutions, i.e. European Investment Bank, European Bank for Reconstruction and Development, Polska Kasa Opieki S.A.
Better 2017 earnings are also a consequence of TAURON achieving positive margins, first of all on trading in electricity, coal and CO2 emission allowances.
In 2017, similar to 2016, impairment write-offs for the value of stocks and shares in subsidiaries were recognized in the financial results, due to the completed impairment tests related to stocks and shares in subsidiaries as well as bonds and loans as of December 31, 2017 and as of June 30, 2017.
The below table presents the Company's sales revenue in 2017 - 2015.
Table no. 11. Company's sales revenue
| Item (PLN thous.) | 2017 | 2016 | 2015 Change in % (2017/2016 |
|
|---|---|---|---|---|
| Sales Total | 8 963 044 | 10 011 343 | 11 053 252 | 90% |
| Sales revenue | 7 792 025 | 7 995 328 | 9 062 246 | 97% |
| Revenue from sales of goods and materials: | 7 664 715 | 7 899 621 | 8 963 672 | 97% |
| Electricity (without excluding excise tax) | 7 117 988 | 7 255 819 | 8 558 477 | 98% |
| Greenouse gas emission allowances | 336 566 | 363 500 | 94 031 | 93% |
| Gas | 190 507 | 236 215 | 119 774 | 81% |
| Property rights related to origin of electricity | 14 939 | 36 137 | 186 358 | 41% |
| Other | 4 715 | 7 950 | 5 032 | 59% |
| Revenue from sales of services | 127 310 | 95 707 | 98 574 | 133% |
| Sales of commercial (trading) services | 52 711 | 54 517 | 56 703 | 97% |
| Other | 74 599 | 41 190 | 41 871 | 181% |
| Revenue form other operations | 1 427 | 1 041 | 7 103 | 137% |
| Revenue from financial operations | 1 169 592 | 2 014 974 | 1 983 903 | 58% |
| Revenue from dividend | 560 832 | 1 485 152 | 1 510 624 | 38% |
| Revenue from bonds and loans interest | 456 426 | 503 897 | 449 437 | 91% |
| Other financial revenue | 152 334 | 25 925 | 23 842 | 588% |
Revenue from sales of goods and materials represents 86% of the total revenue, while financial revenue represents 13%, which is a consequence of the implemented Business Model and centralizing of functions by TAURON.
The goal of the adopted solution is to hedge the buy and sell positions of TAURON Capital Group's entities, to perform the function of the Market Operator and entity responsible for the commercial (trading) balances of TAURON Capital Group's subsidiaries and to optimally manage, among others, the property rights and the CO2 emission allowances.
A relatively large share of revenue from bonds and loans interest is a consequence of the implemented central financing model and the Policy for managing TAURON Group's liquidity including the cash pooling functioning at TAURON Capital Group, which allows for efficient management of the finances of all of TAURON Capital Group's subsidiaries.
The lower revenue from the sales of goods and materials achieved in the reporting period was impacted by the lower revenue from the sales of:
Under the revenue from sales of services TAURON recognizes revenue from:
Due to its holding operations the Company is reporting material financial revenue. Its decline is mainly a consequence of lower revenue from dividends by 62% and lower bonds and loans interest by 9%. The increase of the other financial revenue is a result of a surplus of positive FX differences over the negative ones in the amount of PLN 127.5 mln. The positive FX differences were to a large extent due to the FX differences related to the Company's obligations under its EUR debt, i.e. the loans received from the subsidiary, the subordinate bonds issued in December 2016 and the euro bonds issued in July 2017. The surplus of positive FX differences over the negative ones resulting from that reached PLN 128.3 mln.
The Company's operations are primarily conducted on the territory of Poland. Sales to foreign customers in the years ended on December 31, 2017 and December 31, 2016 reached, respectively, PLN 170.0 mln and PLN 190,8 mln zł.
The below table presents the level and structure of the costs incurred by the Company in 2017 – 2015.
| Item (PLN thous.) | 2017 | 2016 | 2015 | Change in % (2017/2016 |
|---|---|---|---|---|
| Total costs | (8 043 479) | (10 160 477) | (14 504 046) | 79% |
| Cost of goods, materials and services sold | (7 414 707) | (7 837 567) | (9 073 869) | 95% |
| Costs of sales and overheads | (112 060) | (100 694) | (117 713) | 111% |
| Costs of other operations | (3 897) | (92 711) | (2 134) | 4% |
| Costs of financial operations | (512 815) | (2 129 505) | (5 310 330) | 24% |
In 2017 the total costs of the Company's operations represented 79% of the level of costs in 2016, mainly as a result of recognizing, in the financial costs in 2017, of the consequences of setting up and reversing the impairment write-offs for the value of stocks and shares in subsidiaries in the amount much lower than the amount recognized in 2016. The costs of goods, materials and services sold constitute the largest share of the total cost (92%).
Cost of goods, materials and services sold in 2017 is lower by 5% as compared to 2016, which was mostly due to lower costs of electricity purchase arising from the lower electricity purchase price.
In relation to 2016, the costs of sales and overheads were higher in 2017 by approximately 11%. The rise was mainly related to the costs of compensation (due to increased headcount), stock market services and rent which is associated with centralizing of functions by TAURON in accordance with the implemented Business Model.
Costs of other operations include mainly premiums paid to external organizations and donations, and the decrease of the costs by 96% is due to setting up, in 2016, of a provision related to tax risks in conjunction with an audit (inspection) proceeding underway and recognizing the liability arising as a result of the Company having declared its contribution to the founding fund of the Polish National Foundation (Polska Fundacja Narodowa).
The financial costs include the results of revaluation of stocks and shares associated with the completion of impairment tests and reversal of write-offs on the value of stocks and shares in subsidiaries and loans granted to the subsidiaries:
Furthermore, under financial costs in the item related to revaluation of shares, stocks and loans the write-off on the value of shares in the PEPKH subsidiary in the amount of PLN 55.06 mln, booked in the year ended on December 31, 2017, was recognized.
Lower financial costs are primarily the result of recognizing, in 2017, the write-offs on the value of stocks and shares in the amount much lower (by 90%) than in 2016, and also recognizing, in 2016, of the negative result on the sale of the shares in Nowe Brzeszcze Grupa TAURON sp. z o.o. subsidiary, booking a write-off revaluating the loan granted to a subsidiary and negative FX differences, which did not occur in the current reporting period.
The below table presents the Company's annual standalone statement of financial position.
| Statement of financial standing prepared in accordance with the IFRS (PLN thousand) |
As of December 31, 2017 |
As of December 31, 2016 |
As of December 31, 2015 |
Change in % (2017/2016) |
|---|---|---|---|---|
| ASSETS | ||||
| Fixed assets | 27 371 425 | 25 855 329 | 24 866 370 | 106% |
| Stocks and shares | 20 912 679 | 14 874 418 | 15 933 194 | 141% |
| Bonds | 6 009 920 | 9 615 917 | 7 451 601 | 62% |
| Loans granted | 382 989 | 1 292 800 | 1 417 165 | 30% |
| Current assets | 2 901 667 | 1 817 047 | 1 607 786 | 160% |
| Inventory | 198 428 | 284 799 | 249 492 | 70% |
| Trade receivables and other receivables |
755 227 | 961 242 | 623 209 | 79% |
| Bonds | 562 776 | 242 465 | 215 040 | 232% |
| Cash and equivalents | 721 577 | 198 090 | 168 255 | 364% |
| TOTAL ASSETS | 30 273 092 | 27 672 376 | 26 474 156 | 109% |
| LIABILITIES | ||||
| Equity | 17 377 906 | 16 530 268 | 16 592 497 | 105% |
| Long-term liabilities | 9 530 528 | 8 969 976 | 5 069 118 | 106% |
| Liabilities due to debt | 9 472 454 | 8 754 047 | 4 876 546 | 108% |
| Short-term liabilities | 3 364 658 | 2 172 132 | 4 812 541 | 155% |
| Liabilities due to debt | 2 725 763 | 1 433 929 | 4 057 048 | 190% |
| Liabilities towards suppliers and other liabilities | 475 855 | 585 396 | 517 220 | 81% |
| Derivatives | 9 226 | 560 | 96 942 | 1 648% |
| TOTAL LIABILITIES | 30 273 092 | 27 672 376 | 26 474 156 | 109% |
As of December 31, 2017 fixed assets represented the biggest share of the total assets (90%), where the dominating item is the value of stocks and shares (69% of the total assets) and bonds (20% of the total assets).
The following events had the biggest impact on an increase of the value of stocks and shares by 41% year on year:
Additional factors that led to a change of this balance sheet item were impairment write-offs on the value of stocks and shares booked, updated or dissolved as a result of impairment tests conducted due to the loss of value of stocks and shares of subsidiaries. The impairment tests completed proved the need for booking or increasing the already booked write-offs in the following subsidiaries:
and also dissolving of the write-offs on the value of stocks and shares in:
Furthermore, due to the repayment of the loan by TAURON EKOENERGIA and taking up of shares in this subsidiary, the impairment write-off related to the loan in the amount of PLN 258.5 mln was reclassified (converted) as the value of shares in TAURON EKOENERGIA. At the same time, an impairment write-off on the value of shares in the PEPKH subsidiary in the amount of PLN 55.06 mln was booked in the year ended on December 31, 2017.
Under the Bonds item the value of bonds issued by the subsidiaries and purchased by TAURON is provided. A year on year decline is the result of redeeming of the bonds issued in previous years by the subsidiaries.
As of December 31, 2017 and December 31, 2016, equity represented, respectively, 57% and 60% of total liabilities.
The liabilities of the Company due to loans and credits received and due to bonds, as of December 31, 2017, were related to bonds issued under the bond issue program worth PLN 7 940.3 million, loans from related entities drawn under the Agreement on cash pool services, in the amount of PLN 2 377.0 million, loans received from the European Investment Bank (EIB) in the amount of PLN 1 042.1 million (including interest), the loan from a subsidiary in the amount of PLN 721,3 mln, financial lease in the amount of PLN 23.9 mln and an overdraft in the amount of PLN 93.5 million drawn in order to finance security deposits (margins) for the commodity product transactions and pollution emission allowances transactions.
The table below presents the statement of cash flows prepared according to the IFRS.
| Table no. 14. Statement of cash flows (material items) | ||||
|---|---|---|---|---|
| -- | -------------------------------------------------------- | -- | -- | -- |
| Statement of Cash Flows prepared in accordance with the IFRS (PLN thousand) |
2017 | 2016 | 2015 | Change in % (2017/2016) |
|---|---|---|---|---|
| Cash flows from operating activities | ||||
| Gross profit (loss) | 919 565 | (149 134) | (3 450 794) | - |
| Adjustments | (673 538) | (83 753) | 3 608 403 | - |
| Net cash from operating activities | 246 027 | (232 887) | 157 609 | - |
| Cash flows from investing activities | ||||
| Purchase of stocks and shares | (6 169 590) | (543 603) | (53 377) | - |
| Purchase of bonds | (350 000) | (2 770 000) | (4 155 000) | - |
| Redemption of bonds | 3 547 110 | 540 000 | 2 267 266 | 657% |
| Repayment of loans grantem | 1 000 000 | 142 024 | 14 500 | 704% |
| Loans grantem | (307 132) | (23 575) | (168 124) | - |
| Dividends received | 359 787 | 1 485 152 | 1 510 624 | 24% |
| Interest received | 642 017 | 474 126 | 267 464 | 135% |
| Net cash from investing activities | (1 353 288) | (619 543) | (318 640) | - |
| Cash flows from financing activities | ||||
| Issue of debt securities | 2 707 462 | 4 284 607 | 310 000 | 63% |
| Redemption of debt securities | (1 650 000) | (3 300 000) | (450 000) | - |
| Credits/ loans drawn | 0 | 0 | 322 358 | - |
| Credits/ loans repayment | (175 695) | (132 818) | (132 818) | - |
| Dividends paid | 0 | 0 | (262 882) | - |
| Interest paid | (265 223) | (351 147) | (344 332) | - |
| Net cash from financing activities | 593 470 | 486 164 | (587 079) | 122% |
| Increase/(decrease) in net cash and equivalents | (513 791) | (366 266) | (748 110) | - |
| Statement of Cash Flows prepared in accordance with the IFRS (PLN thousand) |
2017 | 2016 | 2015 | Change in % (2017/2016) |
|---|---|---|---|---|
| Net FX exchange differences | 2 038 | 1 179 | 1 147 | 173% |
| Cash opening balance | (1 045 441) | (679 175) | 68 935 | - |
| Cash closing balance | (1 559 232) | (1 045 441) | (679 175) | - |
The balance of cash received from operating, investing and financing activities of the Company for 2017, taking into account the opening cash balance, was PLN (1 559.2) million. The closing cash balance results from the adjustment of cash by the balance of loans granted and received under cash pooling transactions, due to the fact that they do not constitute cash flows from investing or financing activities, as they are used mainly for current liquidity management.
The Management Board of the Company did not publish any forecasts of the earnings of TAURON for 2017. This decision was due to the considerable volatility of the market and a substantial number of factors affecting its predictability.
The below table presents key financial ratios of TAURON.
| No. | Item | 2017 | 2016 | 2015 | Change in % (2017/2016) |
|---|---|---|---|---|---|
| 1. | Gross Profitability (gross profit / sales revenue) |
11,8% | (1,9)% | (38,1)% | - |
| 2. | Net Profitability (net profit / sales revenue) |
11,0% | (2,1)% | (38,1)% | - |
| 3. | Return on equity (gross profit / equity) |
5,3% | (0,9)% | (20,8)% | - |
| 4. | Return on assets (net profit / total assets) |
2,8% | (0,6)% | (13,0)% | - |
| 5. | EBIT (PLN thou.) (operating profit) |
262 786 | (34 603) | (124 367) | - |
| 6. | EBIT Margin (EBIT / sales revenue) |
3,4% | (0,4)% | (1,4)% | - |
| 7. | EBITDA (PLN thou.) (operating profit before depreciation) |
268 218 | (27 078) | (115 856) | - |
| 8. | EBITDA Margin (EBITDA / sales revenue) |
3,4% | (0,3)% | (1,3)% | - |
| 9. | Current liquidity ratio (current assets / short-term liabilities) |
0,86 | 0,84 | 0,33 | 103% |
The Company's 2017 EBIT was primarily affected by the dissolving of the provision related to the agreements involving charges stemming from EC Stalowa Wola joint venture in the amount of PLN 203.4 mln.
In 2016 the negative value of EBIT was a consequence of recognizing the liability arising as a result of the Company having declared its contribution to the founding fund of the Polish National Foundation (Polska Fundacja Narodowa) and setting up a provision related to tax risk in conjunction with an audit (inspection) proceeding underway.
The 2017 gross and net profits were impacted by the booked and reversed write-offs on the value of stocks and shares in subsidiaries and the value of loans granted for the total amount of PLN 134 million. On the other hand, negative values of the 2016 gross and net profit were primarily due to booking and dissolving write-offs on the value of stocks and shares in subsidiaries in the amount of PLN 1 412,4 mln and recognizing the result on the sale of shares in Nowe Brzeszcze GT in the amount of PLN 88.3 mln.
The operating profit's level is typical for a company conducting operations involving managing a holding entity (costs related to managing TAURON Capital Group are included in operating activities while revenues gained from dividends are recognized under financial activities).
The Company's ability to pay its accounts payable was not in jeopardy in 2017.
The non-financial ratios (indicators) in TAURON Capital Group are closely associated with the specific nature of its operations, its resources and the adopted Strategy, including:
The description of the monitoring of the implementation (performance) of the above mentioned indicators (ratios) is provided in the individual sections of the report, while the summary of the key non-financial efficiency indicators (ratios) associated with the operations of TAURON Capital Group is provided in section 8.2. of this report.
Under the bond issue program concluded on 24 November 2015 between the Company and the consortium of banks In 2017 TAURON conducted bond issues and redemptions under the existing program (i.e the bond issue program concluded with the consortium of banks on November 24, 2015), and also completed the eurobond issue.
On July 5, 2017 TAURON issued eurobonds with the nominal value of EUR 500 mln. Eurobonds are unsecured, senior, coupon bearing securities. Eurobonds' maturity date is 10 years from the date of issue. The interest rate is based on a fixed rate of 2.375% per annum. The yield as of the date of issuance was 2.439% per annum with the issue price equal to 99.438% of the nominal value. In accordance with the eurobond issue prospectus the proceeds from the issue were to be used to refinance the costs of the construction and acquisition of wind farms by one of TAURON Capital Group's subsidiaries, financing of TAURON Capital Group's investment projects in the distribution segment and for general corporate purposes. Eurobonds were granted BBB rating by Fitch rating agency. Fulfilling this obligation in Q4 2017 TAURON completed the redistribution of the funds obtained from the bond issue by recapitalizing the following subsidiaries: TAURON EKOENERGIA and TAURON Dystrybucja, as a result of which TAURON EKOENERGIA made a repayment of a substantial portion of the debt related to the construction and acquisition of wind farms and TAURON Dystrybucja received funds to cover the expenditures related to the investment projects implemented by this subsidiary.
Eurobonds were admitted to trading on the regulated market of the London Stock Exchange.
Information on the eurobond issue was disclosed in detail in the regulatory filings (current reports) described in section 2.8. of this report.
The bonds issue program signed on 24 November 2015 between TAURON and a consortium of banks led to issue in 2017 by TAURON of bonds having the total part value of PLN 600 mln, according to the following specification:
Funds received from the above bonds issue were used as stated in issue documents, i.e. to cover investment outlays of the TAURON Capital Group and for general corporate purposes.
Also, TAURON redeemed early the following bonds issued within the bonds issue program signed on 24 November 2015:
The below table presents the summary of issued and non-redeemed bonds as of December 31, 2017.
| No. | Value of bonds issues (thou.) |
Type and level of interest rate | Redemption term of the last series |
Balance as of 31 December 2016 (thou.) |
|---|---|---|---|---|
| 1. | 1 750 000 PLN | WIBOR 6M + fixed margin | 04.11.2019 | 1 750 000 PLN |
| 2. | 1 700 000 PLN | WIBOR 6M + fixed margin | 20.12.2029 | 1 700 000 PLN |
| 3. | 1 600 000 PLN | WIBOR 6M + fixed margin | 29.12.2020 | 1 600 000 PLN |
| 4. | 190 000 EUR | Fixed interest rate | 16.12.2034 | 190 000 EUR |
| 5 | 500 000 EUR | Fixed interest rate | 05.07.2027 | 500 000 EUR |
As part of financial risk management in 2017 TAURON Capital Group continued to hedge the risk of volatility in cash flows resulting from its debt based on WIBOR reference rate. Moreover, in 2017 TAURON Capital Group hedged the currency exposure arising from the trading operations (mainly due to the purchase of CO2 emission allowances) by concluding forward contracts. In 2017 TAURON Capital Group was also implementing the strategy of hedging its foreign currency exposure generated by interest payments on the financing obtained in EUR by concluding forward contracts and CIRS transactions. The goal of these transactions was to hedge against the risk of cash flow volatility resulting from currency rate fluctuations.
The below table presents active forward derivative transactions as of December 31, 2017 (due to the adopted centralized model of financial risk management, the data refers only to TAURON)
| Type of No. transaction concluded |
Total denomination of the specific |
Currency | Maturity date of the specific type of transaction |
Valuation of transaction of the specific type as of December 31, 2017 |
||||
|---|---|---|---|---|---|---|---|---|
| type of transaction (thou.) |
PLN | EUR | other | up to one year | above one year |
(thou.) | ||
| 1. | IRS | 2 100 000 | X | X | 24 482 | |||
| 2. | CIRS | 1 262 120 | X | X | - 9 299 | |||
| 3. | Forward | 6 610 | X | X | - 346 |
Table no. 17. Information on forward transactions and derivatives as of December 31, 2017
With respect to hedging the risk arising from price volatility and the credit risk TAURON Capital Group did not use financial instruments.
On the other hand, as part of liquidity loss risk management debt instruments referred to in section 4.6 are used.
The objectives and methods of financial risk management at TAURON are presented in section 3.4.2 of this report.
TAURON has a centralized financial management function in place and thus effective management of finance of entire TAURON Capital Group is possible. The main tools enabling effective management include: the implemented central financing model and the appropriate internal corporate regulations as well as the cash pooling implemented by TAURON Capital Group. Additionally, the financial management system is supported by the central policy of managing the financial risk at TAURON Capital Group and the central Insurance policy of TAURON Capital Group. In these areas TAURO plays the role of the management body and decision maker with respect to the directions of measures undertaken, enabling determining the relevant limits of risk exposure.
In accordance with the adopted central model of financing TAURON is responsible for acquiring the financing for TAURON Capital Group's subsidiaries. Funds acquired both internally (from TAURON Capital Group's subsidiaries generating financial surpluses), as well as externally (from the financial market) are subsequently transferred to TAURON Capital Group's subsidiaries, reporting the requirement for financing (for this purpose, besides cash pooling, the intra-group bond issue program is implemented).
Such model of acquiring the funding sources enables, first of all, decreasing of the cost of capital, increasing the possibility to obtain financing, reduces the number and form of hedges established on assets of TAURON Capital Group and covenants required by financial institutions, as well as reduces the administrative costs. The central model of financing also enables acquiring financing sources unavailable for individual subsidiaries, such as, for example, issue of eurobonds.
Another key element influencing the efficiency of financial management is the policy of financial liquidity management. Through implementation of relevant forecasting standards it becomes possible to establish the precise liquidity position allowing for optimizing the moment of fund raising as well as the maturity term and types of deposit instruments as well as the appropriate level of the liquidity reserve. The above factors lead to both, cost reduction as well as liquidity safety improvement. The current liquidity management is supported by the implemented cash pooling mechanism. Its overriding goal is to provide for current financial liquidity at TAURON Capital Group, while at the same time limiting the costs of short term external financing and maximizing the financial revenue due to investing cash surpluses. Owing to the cash pooling structure TAURON Capital Group's subsidiaries facing short term deficits of funds, may use funds of the subsidiaries generating financial surpluses, without the need to acquire external financing.
Moreover, a unified program of bank guarantees was implemented at TAURON. Under the agreements concluded by TAURON with banks it is possible to issue guarantees to secure the liabilities of TAURON Capital Group's subsidiaries companies within the centralized limit. The above mentioned measure reduced the cost of guarantees acquired, made their acquisition independent of the individual subsidiaries' financial standing and limited the total number of actions required to obtain a guarantee.
In 2017 TAURON demonstrated full capacity to pay its accounts payable with the payment deadlines thereof.
Financial statements have been drawn up in accordance with the IFRS approved by the EU.
The IFRS comprise standards and interpretations approved by the International Accounting Standards Board as well as the International Financial Reporting Interpretation Committee.
The financial statements have been prepared with the assumption of the continuation of business operations by TAURON in the foreseeable future. As of the date of approval of the consolidated financial statements for publication, no circumstances have been detected, indicating any risk for business continuity by TAURON.
The accounting principles (policy) adopted for drawing up of the consolidated financial statements are presented in note 9 of the Consolidated financial statements for the year ended on December 31, 2017.
On April 27, 2017 TAURON concluded the agreement with Ernst & Young Audyt Polska Limited Liability Company Limited Joint-Stock Partnership on conducting an audit of:
The Agreement also covers conducting a review of the interim, half year financial statements of the Company and the consolidated financial statements of TAURON Capital Group, prepared in accordance with the IFRS requirements for the period ending on June 30, 2017.
The above audit company was also selected, on February 26, 2018 by TAURON's Supervisory Board to audit the standalone and consolidated financial statements of TAURON for the financial year 2018 and the review of the interim standalone and consolidated financial statements of TAURON for the period ending on June 30, 2018. The detailed information on the conclusion of the amendment to the agreement with the above audit company is provided in section 2.7. of this report.
The audit of the standalone and consolidated financial statements of TAURON for the financial year 2016, the financial statements of selected TAURON Capital Group's subsidiaries for the financial year 2016 and the review of the interim standalone and consolidated financial statements of TAURON for the period ending on June 30, 2016 were conducted by Deloitte Polska Limited Liability Company Limited Joint-Stock Partnership.
The compensation of the certified auditors for the services provided for TAURON Capital Group's subsidiaries is shown in the below table.
| No. | Year ended on December 31, 2017 (PLN thou.) |
Year ended on December 31 2016 (PLN thou.) |
|
|---|---|---|---|
| 1. | Mandatory audit | 178 | 105 |
| 2. | Other certifying services provided to TAURON Capital Group, including reviews of financial statements |
77 | 45 |
| 3. | Tax advisory services | 0 | 0 |
| 4. | Other services (including training) provided for TAURON Capital Group |
3 | 158 |
| Total | 258 | 308 | |
As of December 31, 2017 and as of the day of drawing up this report the Company's share capital was, in accordance with an entry in the National Court Register, PLN 8 762 746 970 and was split into 1 752 549 394 shares with a nominal value of PLN 5 per share, including 1 589 438 762 ordinary AA series bearer shares and 163 110 632 registered BB series shares.
The below figure presents the structure of shareholding as of December 31, 2017 and as of the day of drawing up this report.
Figure no. 45. Structure of shareholding as of December 31, 2017 and as of the day of drawing up this report
As part of its Strategy adopted on September 2, 2016 the Company adopted its dividend policy. In the long term TAURON is planning to pay out a dividend of minimum 40 percent of the consolidated net profit. The Company's intention is to provide a dividend yield that would be competitive versus the yield offered by long term debt instruments issued on the Polish market by investment grade rated companies. The final recommendation on the dividend will be impacted by additional factors, including in particular
The forecasts that are the basis for the Strategy indicate that 2020 will be the first year in which the dividend payout will be possible.
The below table presents the dividends paid out in 2010-2014.
| Dividends paid out in 2010-2014 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| # | Financial year for which the dividend was paid out |
Dividend amount paid out (PLN) |
Net profit % |
Dividend per share (PLN) |
Dividend record date |
Payment date | |||
| 1. | 2010 | 262 882 409,10 | 31% | 0.15 | 30.06.2011 | 20.07.2011 | |||
| 2. | 2011 | 543 290 312,14 | 44% | 0.31 | 02.07.2012 | 20.07.2012 | |||
| 3. | 2012 | 350 509 878,80 | 24% | 0.20 | 03.06.2013 | 18.06.2013 | |||
| 4. | 2013 | 332 984 384,86 | 25% | 0.19 | 14.08.2014 | 04.09.2014 | |||
| 5. | 2014 | 262 882 409,10 | 23% | 0.15 | 22.07.2015 | 12.08.2015 |
As of December 31, 2017 and as of the day of drawing up this report members of the Management Board and members of the Supervisory Board did not have any TAURON shares, nor they held any shares in units related to the Company.
Management Board has no information on the existence of agreements (including also the ones concluded past the balance sheet date), as a result of which changes in the proportions of shares held by the existing shareholders and bondholders may occur in the future.
In 2017 and as of the day of drawing up this report the Company did not own any of its shares.
In 2017 no employee stock award programs were implemented by the Company.
TAURON shares have been listed on the Main Market of the Warsaw Stock Exchange since June 30, 2010. In 2017 TAURON share price fluctuated between PLN 2.76 and PLN 4.12 (at closing prices). During the last session of 2016 the share price was PLN 2.85, while a year later the price reached PLN 3.05. This means that the rate of return4 on the investment in TAURON shares was 7 percent in 2017.
Performance of shares listed on WSE in 2017 was impacted by favorable, both global as well as local factors. Investors were convinced that the government's economic policy allowed for a further strong GDP growth, while PLN was one of the strongest currencies on the market. Also energy sector companies became more attractive for investors, which led to a 15% rise of the WIG-Energia index.
Apart from very good economic conditions and the growing demand for electricity TAURON share price last year was also positively impacted by activities with respect to obtaining financing aimed at ensuring TAURON Capital Group's financial stability, in particular the July 2017 issue of 10-year Eurobonds worth EUR 500 mln.
As of December 31, 2017 TAURON shares were included in the following stock exchange indices:
4 Rate of return calculated taking into account the investor's income from the dividend and assuming that the additional income realized is reinvested. Methodology in accordance with WSE Statistical Bulletin.
The below table presents key data on the Company's shares in 2011-2017.
Table no. 20. Key data on TAURON shares in 2011-2017
| # | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |
|---|---|---|---|---|---|---|---|---|
| 1. | Share price high (PLN) | 6.81 | 5.61 | 5.39 | 5.69 | 5.29 | 3.19 | 4.12 |
| 2. | Share price low (PLN) | 4.65 | 4.08 | 3.85 | 4.04 | 2.37 | 2.31 | 2.75 |
| 3. | Last share price (PLN) | 5.35 | 4.75 | 4.37 | 5.05 | 2.88 | 2.85 | 3.05 |
| 4. | Capitalization at the end of the period (PLN m) |
9 376 | 8 325 | 7 659 | 8 850 | 5 047 | 4 995 | 5 345 |
| 5. | Capitalization at the end of the period (%) |
2.1 | 1.59 | 1.29 | 1.5 | 0.98 | 0.9 | 0.8 |
| 6. | Book value (PLN m) | 15 922.47 | 16 839.41 | 17 675,34 | 18 106.79 | 18 837 | 16 348.99 | 17 880 |
| 7. | P/E | 8.1 | 5.5 | 5,5 | 7.8 | 4.2 | x | 3.02 |
| 8. | P/BV | 0.59 | 0.49 | 0,43 | 0.49 | 0.27 | 0.31 | 0.31 |
| 9. | Rate of return ytd1 (%) |
-16.73 | -5.03 | -3,64 | 20.07 | -40.78 | -1.04 | 7.02 |
| 10. | Dividend yield (%) | 2.8 | 6.5 | 4,6 | 3.8 | 5.2 | - | - |
| 11. | Trading volume (PLN m) | 5 574.82 | 3 198.94 | 3 103,56 | 3 134.81 | 3 062.52 | 3 199.02 | 2 737.33 |
| 12. | Trading volume share (%) | 2.21 | 1.7 | 1.41 | 1.53 | 1.5 | 1.69 | 1.16 |
| 13. | Average volume per session | 3 721 539 | 2 667 725 | 2 793 020 | 2 489 329 | 3 190 195 | 4 662 087 | 3 261 765 |
| 14. | Average number of transactions per session |
1 373 | 960 | 1 022 | 1 106 | 1 431 | 1 465 | 1 323 |
Source: WSE Statistical Bulletin
1Rate of return calculated taking into account the investor's income from the dividend and assuming that the additional income realized is re-invested. Methodology in accordance with WSE Statistical Bulletin.
The below graphs present historical TAURON share price performance and trading volumes, including against WIG20 and WIG-Energia indices.
Figure no. 47. TAURON share price and trading volumes since the market debut until December 31, 2017
Figure no. 48. TAURON share price versus WIG20 and WIG-Energia indices since the market debut until December 31, 2017
In 2017 analysts from brokerage houses and investment banks issued 11 recommendations for TAURON shares in total, including:
The below table presents a list of recommendations issue in 2017.
| # | Date of issuing recommendation | Institution issuing recommendation | Recommendation / target price |
|---|---|---|---|
| 1. | 15.11.2017 | Societe Generale | Buy / PLN 4.50 |
| 2. | 21.03.2017 | Societe Generale | Buy / PLN 4.00 |
| # | Date of issuing recommendation | Institution issuing recommendation | Recommendation / target price |
|---|---|---|---|
| 3. | 10.01.2017 | Pekao Investment Banking | Buy / PLN 4.00 |
| 4. | 20.11.2017 | DM BZ WBK | Hold / PLN 3.40 |
| 5. | 14.09.2017 | Exane BNP Paribas | Hold / PLN 4.00 |
| 6. | 27.06.2017 | mBank | Hold / PLN 3.67 |
| 7. | 20.03.2017 | Raiffeisen Centrobank | Hold / PLN 3.50 |
| 8. | 08.08.2017 | DM PKO BP | Sell / PLN 3.40 |
| 9. | 26.01.2017 | DM BOŚ | Sell / PLN 2.50 |
| 10. | 08.02.2017 | DM Banku Handlowego (Citi) | Sell / PLN 2.50 |
| 11. | 07.07.2017 | DM Banku Handlowego (Citi) | Sell / PLN 2.50 |
Accurate and regular communications is one of the key priorities of TAURON with respect to conducting the dialogue with investors. It is provided both in the form of mandatory activities required by law (e.g. by disclosing information in the current and periodic regulatory filings) but also using many additional tools addressed directly to institutional and individual investors. The Company organizes itself as well as participates in many investor conferences and roadshows organised by entities operating on the capital market, both in Poland and abroad.
During meetings with investors, the Strategy, the investment projects underway, the financial situation of TAURON Capital Group is presented as well as information on the current standing and outlook of the energy sector.
In connection with the publishing of periodical reports the Company organized conferences for investors and analysts during which members of the Management Board discussed financial results and presented the most important events in the reported periods. The conferences were broadcast on the Internet in Polish and in English. A possibility listening via telephone was also provided. This way all interested investors were able to receive the information at the same time. Separate meetings devoted to discussion of financial results are also regularly arranged for representatives of key media, so that information concerning the standing of TAURON Capital Group could reach all investors via diverse channels.
Besides meetings accompanying the publication of periodical reports, in 2017 members of the Management Board and representatives of the Investor Relations Team took part in 16 conferences and roadshows, during which approximately 100 meetings with managers and capital market analysts were held. Representatives of TAURON met institutional investors not only in Poland, but also in the US, Great Britain, Austria, Germany, Holland, France and Czech Republic.
In connection with the growing role of Internet channels and social media, much emphasis was put on their development with respect to the communications with investors. Via the YouTube service broadcasts of events important for investors are provided: earnings conferences, GMs, Investor Days and comments of the President of the Management Board on the financial results. On the other hand, on Facebook, announcements of significant events are published by the Company, including links to websites where the broadcasts may be followed or participation in an investor chat is possible. TAURON also launched a corporate profile on Twitter where entries related to investor relations appear. Being aware of the fact that the website is a significant source of information for investors, in particular, the Investor Relations tab; the Company takes cares of its content and validity of the content provided therein. Investor Relations section contains a lot of useful information on the current events, financial results or GMs. It also provides presentations and video broadcasts of conferences summarising the financial results.
In 2017, similar to 2016, TAURON participated in events addressed to individual investors. The company was, inter alia, a partner of the "WallStreet" conference in Karpacz, as well as winter and summer sports competitions of the capital market "Capital Market Games". As party of the regular communications with this sizeable group of investors, 4 chats with a representative of the Management Board took place in 2017, in which approximately 100 investors took part each time.
Activities with respect to investor relations are appreciated by participants of the capital market and investors. In 2017 the Company was awarded successive prizes for the high quality of investor relations.
In March 2017, the Company was awarded a special prize in the competition for the best investor relations among WIG30 index companies, organized by the Stock Market and Investors Paper "Parkiet" and the Chamber of Brokerage Houses.
In June 2017 TAURON was awarded the "Hero of the capital market 2017" title in the company category. The winner in the competition organized by the Individual Investors Association was selected based on the vote of the investors who appreciated TAURON's high standards in the field of investor relations and applying the best practice with respect to the communications address to the individual investors.
In the past year TAURON was among the laureates of the "2016 Transparent Company of the Year" ranking for business transparency and quality of the market communications. The ranking, organized by the Stock Market and Investors Paper "Parkiet" and the Institute of Accounting and Taxes (Instytut Rachunkowości i Podatków), was based on a survey in which three most important market communications area were evaluated, i.e. financial statements and reporting, investor relations and corporate governance rules.
TAURON is also regularly awarded prizes in the top annual report competitions. The Company finished first in the previous three editions of "The Best Annual Report" competition organized by the Institute of Accounting and Taxes (Instytut Rachunkowości i Podatków), qualifying, in 2017, to the elite "The Best of the Best" category. In last year's edition of the competition TAURON was also awarded the top prize for the integrated annual report.
Company is maintaining high quality of reporting to meet the expectations of the broadest possible group of recipients of its communications - customers, shareholders, analysts, as well as media representatives. This is why in 2017 the team working on the design of the integrated annual report focused on the compliance of its structure and content with the international integrated reporting standards. The result of these works is a modern, multimedia online report online presenting the most important information on TAURON Capital Group.
TAURON has been included in the RESPECT Index since 2013, and in December 2017, for the fifth time, the Company found itself in the group of stock market listed entities that apply the highest sustainable growth standards
2017 investor relations highlights and activities are presented in the below table.
| Table no. 22. Highlights and activities performed as part of investor relations in 2017 |
|---|
| ----------------------------------------------------------------------------------------- |
| # | Date | Highlight (event) |
|---|---|---|
| 1. | 15.03.2017 | Full year 2016 stand-alone and consolidated earnings reports published |
| 2. | 16.03.2017 | Management Board's meeting with analysts and fund managers to present FY 2016 earnings, Warsaw |
| 3. | 16.03.2017 | Chat for individual investors as part of cooperation with the Individual Investors Association |
| 4. | 21-22.03.2017 | Participation in DM PKO BP CEE Capital Markets Conference, London |
| 5. | 27-28.03.2017 | Participation in Raiffeisen Centrobank Investor Conference, Austria, Zürs |
| 6. | 10.05.2017 | Q1 2017 earnings report published |
| 7. | 11.05.2017 | Management Board's meeting with analysts and fund managers to present Q1 2017 earnings, Warsaw |
| 8. | 11.05.2017 | Chat for individual investors as part of cooperation with the Individual Investors Association |
| 9. | 25.05.2017 | Meetings with fund managers following Q1 2017 earnings, DM Banku Handlowego (Citi), Warsaw |
| 10. | 29.05.2017 | TAURON's Ordinary GM |
| 11. | 20.06.2017 | Eurobond Roadshow, Germany |
| 12. | 21.06.2017 | Eurobond Roadshow, Netherlands |
| 13. | 22.06.2017 | Eurobond Roadshow, Great Britain |
| 14. | 23.06.2017 | Eurobond Roadshow, France |
| 15. | 26.06.2017 | Eurobond Roadshow, Warsaw |
| 16. | 17.08.2017 | H1 2017 earnings report published |
| 17. | 18.08.2017 | Management Board's meeting with analysts and fund managers to present H1 2017 earnings, Warsaw |
| 18. | 18.08.2017 | Chat for individual investors as part of cooperation with the Individual Investors Association |
| 19. | 24.08.2017 | Meetings with fund managers following H1 2017 earnings, Societe Generale, Warsaw |
| # | Date | Highlight (event) |
|---|---|---|
| 20. | 11-12.09.2017 | Participation in 14th Annual Emerging Europe Investment Conference, Pekao Investment Banking, Warsaw |
| 21. | 26-27.09.2017 | Participation in Mining&Energy Conference, DM PKO BP, Katowice |
| 22. | 11-12.10.2017 | Participation in Erste Group Investor Conference, Austria, Stegersbach |
| 23. | 08.11.2017 | Q3 2017 earnings report published |
| 24. | 09.11.2017 | Management Board's meeting with analysts and fund managers to present Q3 2017 earnings, Warsaw |
| 25. | 09.11.2017 | Chat for individual investors as part of cooperation with the Individual Investors Association |
| 26. | 15.11.2017 | Meetings with fund managers following Q3 2017 earnings, DM mBanku, Warsaw |
| 27. | 20-21.11.2017 | Participation in Poland Investment Forum NY, JP Morgan, New York |
| 28. | 01.12.2017 | Participation in BZ WBK Energy & Mining Conference, Warsaw |
| 29. | 05.12.2017 | Participation in Wood's Winter Conference in Prague, Prague |
Pursuant to § 91(5)(4) of the Regulation of the Minister of Finance of 19 February 2009 on current and periodical information submitted by issuers of securities and conditions to acknowledge as equivalent information required by legal regulations of a country not being a member state (Journal of Laws no.33 item 259 as amended), and the Best Practice of GPW Listed Companies 2016 (Best Practice 2016), the Company's Management Board submits the statement on application of corporate governance in 2017.
In 2017 the Company was subject to the corporate governance rules, described in the document Best Practice of GPW Listed Companies(Best Practice 2016), adopted by the Supervisory Board of the GPW Board no. 27/1414/2015 of 13 October 13, 2015, which came into force on January 1, 2016.
The text of the Best Practice 2016 the Company is subject to is published on the GPW website at the address: www.gpw.dobre-praktyki.pl.
In 2017 the Company did not apply the following detailed rules provided in Best Practice 2016:
In 2017 the following rules did not apply to the Company:
Furthermore, the Management Board of the Company, adopting the detailed rules of Best Practice 2016 designated as: I.Z.1.3, I.Z.1.15, I.Z.1.16, II.Z.1, II.Z.6, II.Z.10.1, II.Z.10.2, II.Z.10.3, II.Z.10.4, V.Z.5, V.Z.6, VI.Z.4., indicated the manner of applying them. The detailed description of the manner of applying the above rules is provided in the Information on the status of applying by the Company of the recommendations and rules provided in Best Practice 2016, constituting an appendix to the above mentioned report on not applying the detailed rules provided in Best Practice 2016 and provided on the Company's website.
In 2017 the Company developed and introduced into use the document Diversity Policy at TAURON Group, that was described in detail in section 6.12. of this report. Before that the Company had not had a single document describing the applied policy of diversity in relation to the authorities of the Company and its key managers, referred to in the rule designated as I.Z.1.15. of Best Practice 2016, in the report published on February 1, 2016 concerning the abandoned detailed rules of corporate governance contained in Best Practice 2016, the Company indicated the method of applying the diversity policy. It was indicated at then that the rules on diversity management were introduced for application under many documents constituting internal legal acts.
In 2017 the Company did not apply only the recommendation provided in Best Practice 2016, designated as IV.R.2 concerning ensuring a possibility to shareholders to participate in the GM using electronic communication means, due to the lack of such shareholders' expectation. This decision is expressed by the failure of the Company GM on 8 June 2016 to adopt the relevant amendments to the Company Articles of Association ensuring publicly available real-time broadcast of general meetings.
The other recommendations provided in Best Practice 2016 were applied by the Company in 2017. W 2017 r.
The internal audit and risk management system with respect to the process of drawing up the financial statements and consolidated financial statements is implemented on three levels:
General principles of management at the Company and TAURON Capital Group. TAURON Capital Group's subsidiaries operate based on organizational regulations and
possess defined organizational structures based on internal documents adopted for the entire Group. These define the business units responsible for preparing financial statements and consolidated financial statements. Such units have the duty to perform regular control of the tasks vested and functional control of their activities. Business Model of the TAURON Capital Group resulted in implementation of Process Documentation of Megaprocess 3.4 Accounting, containing procedures associated with financial reporting of the Company and the TAURON Capital Group. Process documents define responsibilities of business units within the reporting processes.
Risk management. TAURON Capital Group implemented a Risk Area managed by the Executive Director for Risk Management, whose role is to oversee and establish the risk
management process for the entire TAURON Capital Group. These functions are implemented within the Company by Corporate, Market and Credit Risk Management Teams. The purpose of risk management is to improve the predictability of attaining strategic objectives by the TAURON Capital Group, including stable creation of the financial result through early identification of threats allowing preventive activities to commence. Risk management standards applicable at the TAURON Capital Group have been defined in the Strategy for corporate risk management at the TAURON Group and in policies for managing specific risks. The ERM system encompasses all spheres of TAURON Capital Group business and business processes within the Group, including the process of preparing financial statements. Risks associated with his process are managed, monitored and reported within the ERM system. Standardization aims to ensure coherence in managing the individual risk categories, defining general principles, standards and tools of system architecture. Oversight of the ERM system at TAURON Capital Group is performed by the Risk Committee.
Internal Audit. Internal Audit Department is functioning in the Company. The goal of the Internal Audit is planning and implementing audit tasks, including performance of commissioned ad-hoc inspections, and also activities of advisory and opinion (feedback) providing nature. Methods and rules of implementing the Internal Audit function are defined by the Process Documentation of the Megaprocess 1.5 Audit along with the related document Regulations of Internal Audit at TAURON Group. The introduction of Megaprocess 1.5 Audit was a consequence of the adoption of the Business Mode by the Management Board of TAURON. In implementing the internal audit function the Company shall be acting in compliance with the TAURON Group's Corporate Social Responsibility Code and the International Standards for the Professional Practice of Internal Auditing.
In order to ensure consistent accounting principles based on International Financial Reporting Standards (IFRS) approved by the European Union the Accounting Policy of TAURON Polska Energia S.A. Capital Group (Accounting Policy) was developed and implemented in TAURON Capital Group. This document shall be accordingly updated in case there are changes to the regulations. The rules defined in the Accounting Policy shall be applicable to TAURON's stand-alone financial statements and TAURON Capital Group's consolidated financial statements. TAURON Capital Group's subsidiaries shall be obligated to apply the Accounting Policy when preparing the reporting packages that provide the basis for preparing TAURON Capital Group's consolidated financial statements.
Furthermore, TAURON Capital Group developed and implemented an intra-group regulation that comprehensively regulates issues related to the rules and deadlines for preparing the reporting packages for the purpose of consolidated financial statements. The reporting packages shall be validated by the holding company's Consolidation and Reporting Office and by an independent certified auditor during an audit or review of TAURON Capital Group's consolidated financial statements.
The Company has implemented financial statements' authorization procedures. Quarterly, half year and full year financial statements of the Company and TAURON Capital Group's consolidated financial statements shall be approved by the Company's Management Board before being published. Full year financial statements of TAURON and TAURON Capital Group's consolidated financial statements shall be additionally presented for evaluation to the Company's Supervisory Board before being published. Vice President of the Management Board for economic and financial affairs (Chief Financial Officer) shall oversee the preparation of financial statements, while the Management Boards of the subsidiaries included in the consolidation shall be responsible for preparing the reporting packages for TAURON Capital Group's consolidated financial statements.
Supervisory Board's structure includes the Audit Committee of the Supervisory Board of TAURON Polska Energia S.A., whose membership, competence and description of activities are provided in clause 6.11.3 of this report
TAURON Capital Group's subsidiaries maintain accounting books (ledgers) which constitute the basis for preparing financial statements using ERP financial and accounting computer systems, enabling system audits of the correctness of the document flow and classifying of the business events. Consolidated financial statements are prepared using an IT tool used to consolidate financial statements, providing system control with respect to the coherence (integrity) and timeliness of preparing the consolidation data.
TAURON Capital Group's subsidiaries have implemented IT and organizational solutions that provide control of access to the financial and accounting system and ensure adequate protection and archiving of the accounting books. Access to IT systems is restricted based on applicable access rights assigned to authorized personnel. Control mechanisms are applied in the process of granting and changing access rights to the financial and accounting systems. Granted rights are also subject to periodic verification.
Due to the integration of the accounting functions and the transfer of TAURON Capital Group's material subsidiaries' financial and accounting services to CUW-R (Shared Cervices Center – Accounting) TAURON Capital Group's financial and accounting processes were gradually unified. The subsidiaries adjusted their own procedures to the flow of the financial and accounting processes, taking into account the specifics of the individual segments.
TAURON Capital Group's Business Model clearly distributes responsibilities with respect to the financial and accounting processes between the Company (indicated as the Corporate Centre) and the subsidiaries and CUW R, indicating that the Corporate Centre is the owner of processes associated with accounting and reporting of TAURON Capital Group. With respect to the tasks of the Corporate Centre, strategic functions associated with the development of the model of operations and standards of TAURON Capital Group were indicated in the area of accounting and supervision of the implementation of standards in the accounting area in the subsidiaries and CUW R. Moreover, it was indicated that the Company as the Corporate Centre is responsible for drawing up the Company's financial statements and the consolidated financial statements of TAURON Capital Group. A clear split of responsibilities and strong emphasis on the fulfillment of the supervisory functions by the Corporate Centre in relation to CUW R and the subsidiaries is, inter alia, aimed at improving the process of preparing the financial statements.
Full year financial statements of the Company and full year consolidated financial statements of TAURON Capital Group are subject to an audit by an independent certified auditor. Half year financial statements of the Company and half year consolidated financial statements of TAURON Capital Group are subject to a review by a certified auditor. In 2017 the Company selected an entity authorized to audit and review the financial statements of the material subsidiaries of TAURON Capital Group and the consolidated financial statements. The agreement with the entity authorized to audit financial statements was concluded to conduct an audit and review of the 2017 financial statements. Due to the selection by TAURON's Supervisory Board on February 26, 2018 of an audit company to conduct an audit of the Company's and TAURON Capital Group's 2018 financial statements and a review of the Company's and TAURON Capital Group's 2018
financial statements for the period ended on June 30, 2018 it is planned that an amendment to the agreement with the audit company will be signed.
Due to the coming into force of the law of May 11, 2017 on certified auditors, audit companies and public supervision, the Audit Committee TAURON's Supervisory Board adopted the following regulations on October 16, 2017:
The above regulations in a clear manner define the principles and rules of the process of selecting an audit company to audit the Company's financial statements, as well as the principles of providing permitted services for the benefit of TAURON Capital Group's, in order to ensure independence of an audit company and certified auditors towards the Company and guarantee for the Company the provision of audit services of high subject matter quality, while meeting the required deadlines that the Company must comply with.
The principle of changing the Company's and TAURON Capital Group's audit company was changed in 2017. The following rule was established in the Policy of selecting an audit company to conduct an audit and review of the financial statements and consolidated financial statements of TAURON Polska Energia SA, adopted by the Audit Committee of the Company's Supervisory Board on October 16, 2017:
Before that the principle adopted by the Supervisory Board of the Company on August 27, 2010 had been in force according to which the rule was adopted concerning changing of the entity authorized to audit the financial statements of the Company and TAURON Capital Group at least once every five 5 financial years. The entity authorized to audit the financial statements of the Company and TAURON Capital Group was able to perform these activities again after the elapse of two financial years.
The below table presents shareholders holding, as of December 31, 2017 and as of the day of drawing up this report, directly or indirectly substantial blocks of the Company's shares.
| # | Shareholders | Number of shares held |
Percentage share in share capital |
Number of votes held |
Percentage share in the total number of votes |
|---|---|---|---|---|---|
| 1. | State Treasury | 526 848 384 | 30.06% | 526 848 384 | 30.06% |
| 2. | KGHM Polska Miedź S.A. |
182 110 566 | 10.39% | 182 110 566 | 10.39% |
| 3. | Nationale-Nederlanden Otwarty Fundusz Emerytalny |
88 742 929 | 5.06% | 88 742 929 | 5.06% |
Since the day of publishing the previous periodical report, i.e. since November 8, 2017, until the day of publishing this report the Company did not receive any notifications from its shareholders on any changes in the ownership structure of substantial blocks of TAURON shares.
The Company did not issue securities that would provide special control rights with respect to the Company.
Restrictions on exercising the right to vote are provided in § 10 of the Company's Articles of Association which are available on the Company's website http://www.tauron.pl/.
The above restrictions on exercising the voting right are formulated in the following way:
individual shareholders that are members of the Shareholders' Cluster hold (from the highest to the lowest one). The further reduction shall take place until the total number of votes held by shareholders that are members of the Shareholders' Cluster does not exceed 10% of the total votes in the Company,
As of December 31, 2017 and as of the day of drawing up this report TAURON's Articles of Association do not envisage limitations on the transfer of the Company's securities ownership right.
However, in accordance with the law of July 24, 2015 on the control of some investments an entity intending to purchase or achieve a material shareholding or purchase the dominating control over TAURON, which is an entity subject to protection, shall, each time, be obligated to submit a notification to the control body – Minister of Energy of its intention to do so, unless such obligation rests on other entities.
Management Board of the company shall be composed of one to six persons, including the President and Vice Presidents. Members of the Management Board shall be appointed and dismissed by the Supervisory Board for a common term of office lasting 3 years, except for the 1st term that lasted 2 years.
Each of the Management Board members can be dismissed or suspended in office by the Supervisory Board or the GM.
In order to recruit a person with whom an agreement on performing the management board level function at the Company, Supervisory Board announces the competition and conducts a qualification procedure for the position of the President or Vice President aimed at verifying and assessing the candidates' qualifications and selecting the best candidate. A candidate for a member of the Management Board must meet the requirements set forth in §16 clauses 3 and 4 of the Company's Articles of Association. The announcement of the qualification process is published on the Company's web site and in the Public Information Bulletin of the Ministry of Energy. The Company notifies the shareholders of the results of the qualification procedure.
Management Board shall conduct the company's affairs and represent the company in all court and out of court proceedings. Any matters related to conducting the Company's affairs, not assigned, based on the legal regulations or the provisions of the Articles of Association, to the scope of competence of the General Meeting of Shareholders or Supervisory Board, shall be within the scope of competence of the Management Board.
In accordance with the Articles of Association, all issues which go beyond the regular scope of the Company's activities shall require a resolution of the Management Board, in particular, the following issues listed in the below table:
Supervisory Board shall be composed of five to nine persons, appointed for a common term of office lasting three years, except for the first term that lasted 1 year. In accordance with the Company's Articles of Association members of the Supervisory Board shall be appointed and dismissed by the General Meeting of Shareholders, subject to the following:
b) shall be excluded from the voting at the General Meeting of Shareholders on appointing and dismissing other members of the Supervisory Board, including independent members of the Supervisory Board; this shall not, however, apply to the case when the Supervisory Board cannot act due to its membership being smaller than required by the Articles of Association, and the shareholders present at the General Meeting of Shareholders, other than the State Treasury, do not supplement the membership of the Supervisory Board in accordance with the distribution of seats in the Supervisory Board defined in this section;
2) during the time when the State Treasury, together with the State Treasury controlled entities in the understanding of § 10 clause 5 of the Articles of Association, hold a number of the company's shares that entitle them to exercise less than 25% of the total number of votes in the company, the State Treasury, represented by the minister competent to handle the State Treasury's affairs, shall be entitled to appoint and dismiss one member of the Supervisory Board.
In accordance with the Best Practice at least two members of the Supervisory Board shall meet the criteria of independence. Phrase an "independent member of the Supervisory Board" shall denote an independent member of the Supervisory Board in the understanding of Appendix II to the European Commission's Recommendation of February 15, 2005 related to the role of non-executive directors or members of a supervisory board of publicly listed companies and a supervisory board's committee (2005/162/EC).
Members of the Supervisory Board shall submit to the Company, prior to their appointment as members of the Supervisory Board, a written statement on compliance with the independence criteria. In case a situation occurs where the independence criteria are not complied with a member of the Supervisory Board shall be obligated to forthwith inform the company thereof. The company shall inform shareholders of the up to date number of independent members of the Supervisory Board.
Supervisory Board shall continuously oversee the Company's activities in all areas of its operations.
According to the Company's Articles of Association the Supervisory Board's tasks and competences shall include in particular the matters listed in the below table.
Matters that require a resolution of the Supervisory Board
as of December 31, 2017 and as of the day of drawing up this report
Competences that include
Amendments to the Company's Articles of Association in accordance with the provisions of the Ksh, in particular: amendments to the Company's Articles of Association take place by means of resolution of the GM, at the majority of two thirds of the votes, and then requires issuing a decision by a proper court on entering the change into the register of entrepreneurs. The consolidated text of the Company's Articles of Association, including amendments passed by the General Meeting, shall be adopted by the Supervisory Board by means of a resolution.
In accordance with the Company's Articles of Association, a material amendment to the subject of activities requires two thirds of votes under the presence of persons representing at least a half of the share capital.
Ordianary GM on May 29, 2016 adopted the resolutions concerning amendments to the Company's Articles of Association; the relevant information s provided in section 2.8. of this report.
The Company's General Meeting of Shareholders' procedures and its empowerments are defined in the company's Articles of Association and in the Regulations of the General Meeting of Shareholders of TAURON Polska Energia S.A. which are available on the Company's website http://www.tauron.pl/.
General Meeting of Shareholders shall be convened by a notice published on the company's website and in a manner defined for providing current information by public companies. In case the General Meeting is convened by an entity or a body other than the Management Board on the basis of regulations of the Code of Commercial Companies, as convening a General Meeting of Shareholders requires the Management Board's cooperation, the Management Board shall be obligated to perform any activities required by law in order to convene, organize and conduct General Meetings of Shareholders that take place either at the Company's seat or in Warsaw.
General Meeting of Shareholders shall be opened by the Chairperson of the Supervisory Board, and in case he/she is absent the following persons shall be entitled to open the General Meeting of Shareholders in the given order: Vice Chairperson of the Supervisory Board, President of the Management Board, a person designated by the Management Board or the shareholder who registered at the General Meeting of Shareholders such number of shares that provide the right to exercise the highest number of votes. Then, the chairperson of the General Meeting of Shareholders shall be elected from among persons entitled to participate in the General Meeting of Shareholders.
General Meeting of Shareholders shall pass resolutions irrespective of the number of shares represented at the Meeting, unless regulations of the Code of Commercial Companies, as well as provisions of the company's Articles of Association state otherwise. General Meeting of Shareholders may order a break in the meeting by the majority of two thirds of votes. The breaks shall not exceed 30 days in total.
A break in the GM session may take place only in exceptional situations indicated on a case-by-case basis in the justification to the resolution, prepared based on reasons presented by a shareholder requesting the announcement pf the break.
The GM resolution concerning a break shall clearly indicate the date of resumption of the session, however, such a date must not create a barrier for participation of the majority of shareholders in resumed meeting, including minority shareholders.
In accordance with the Company's Articles of Association the matters listed in the below table shall require a resolution of the General Meeting of Shareholders.
Matters that require a resolution of the General Meeting of Shareholders
In accordance with the provisions of the CCC the decision on issue and repurchase of shares in included within the competence of the General Meeting.
Description of the Company's shareholders' rights related to the General Meeting of Shareholders in accordance with the Company's Articles of Association, Code of Commercial Companies and the Regulations of the General Meeting of Shareholders of TAURON Polska Energia S.A. is presented in the below table.
| # | Shareholders' rights | Description of shareholders' rights |
|---|---|---|
| 1. | Convene a General Meeting of Shareholders |
Shareholders representing at least one twentieth of the share capital, may request convening of an Extraordinary General Meeting of Shareholders. Such request should include a concise justification. It may be submitted to the Management Board in writing or in an electronic form, to the company's e-mail address, provided by the company on its website under the "Investor Relations" tab. Shareholders representing at least a half of the share capital or at least a half of all votes in the company may convene an Extraordinary General Meeting of Shareholders and appoint a chairperson of such General Meeting. |
| 2. | Include matters (items) in the agenda of the General Meeting of Shareholders |
Shareholders representing at least one twentieth of the share capital, may request that certain matters (items) be included in the agenda of the forthcoming General Meeting of Shareholders. Such request, including a justification or a draft resolution related to the proposed item of the agenda, should be submitted to the Management Board not later than 21 days prior to the set date of the General Meeting of Shareholders in electronic form to the company's e-mail address or in writing to the company's address. |
| 3. | Become acquainted with the list of shareholders |
Shareholders may become acquainted with the shareholders' list at the company's Management Board's seat for three weekdays preceding directly the General Meeting of Shareholders. Shareholders may also request that the list of shareholders be sent to them free of charge by electronic mail, providing the address to which the list should be sent. |
| 4. | Participate in the General Meeting of Shareholders |
Only persons who are Shareholders sixteen days before the date of the General Meeting of Shareholders (date of registering to participate in the General Meeting of Shareholders) shall have the right to take part in the General Meeting of Shareholders. In order to participate in the General Meeting shareholders should submit a request to issue a name bearing affidavit on the right to take part in the General Meeting of Shareholders to an investment (brokerage) company running their securities account. Such request should be submitted not earlier than following the announcement on convening of the General Meeting of Shareholders and not later than on the first weekday following the day of registering the participation in the General Meeting of Shareholders. |
| 5. | Represent a shareholder by a proxy |
Shareholders may take part in the General Meeting of Shareholders as well as exercise the voting right in person or through a proxy. Shares' co-owners may take part in the General Meeting of Shareholders and exercise the voting right only through a joint representative (proxy). A proxy may represent more than one shareholder and vote differently based on shares of each shareholder |
| 6. | Elect the Chairperson of the General Meeting of Shareholders |
Shareholders shall elect the Chairperson of the General Meeting of Shareholders from among the persons entitled to take part in the General Meeting of Shareholders. Each of the participants of the General Meeting of Shareholders shall have the right to propose one candidate for the post of the Chairperson. Chairperson shall be elected by a secret ballot, by an absolute majority of votes. In case there is just one candidate for the Chairperson, election can take place by acclamation. |
| 7. | Elect the Returning Committee | Each shareholder may propose no more than three candidates for members of the Returning Committee to be elected by the General Meeting of Shareholders, and vote for three candidates maximum. |
| 8. | Submit a draft resolution | During the General Meeting of Shareholders a shareholder shall have the right, until the discussion on a certain item of the agenda is closed, to submit a proposal of changes to the content of a draft resolution proposed for adoption by the General Meeting of Shareholders, as part of the given item of the agenda, or put forward his/her own draft of such resolution. Proposals of changes or draft resolutions, including justifications, may be submitted in writing to the Chairperson or verbally to be recorded in the minutes of the meeting. |
| 9. | Raise an objection | Shareholders who voted against a resolution and, after the General Meeting of Shareholders has adopted it, want to raise their objection, should, immediately after the results of the voting have been announced, raise their objection and request it be included in the minutes of the meetings before proceeding to the next item of the agenda. In case such objection is raised later, which however shall not take place later than by the time the General Meeting of Shareholders is closed, the shareholders shall indicate against which resolution passed by the General Meeting they are raising their objection. Shareholders raising their objection against a resolution of the General Meeting may request their concise justification of the objection be recorded in the minutes of the meeting. |
The current, fifth term of office of the Management Board began its run on March 16, 2017, i.e. on the day of appointing the Management Board of the Company for the fifth common term of office. In accordance with the Company's Articles of Association the common term of office shall last 3 years.
As of January 1, 2017 the Management Board was composed of the following members: Filip Grzegorczyk (President of the Management Board), Jarosław Broda (Vice-President of the Management Board), Kamil Kamiński (Vice-President of the Management Board), Marek Wadowski (Vice-President of the Management Board) and Piotr Zawistowski (Vice-President of the Management Board).
On March 15, 2017 the Company's Supervisory Board dismissed, effective as of the end of day on March 15, 2017, all members of the Company's Management Board. On the same day Piotr Zawistowski up to then performing the function of Vice-President of the Management Board for Customer and Trade provided the Supervisory Board with the information on the resignation from applying for being selected to be a member of TAURON's Management Board of the 5th common term of office. The other members of the Management Board were appointed as of March 16, 2017 to the Company's Management Board of the 5th common term of office.
There were no other changes to the composition of the Management Board by the day of publishing this report
A graduate of the Faculty of Law and Administration and the Faculty of International and Political Studies of the Jagiellonian University in Cracow where the obtained a PhD degree in the EU law, and then a post-PhD degree in the business law.
He also completed the Summer Advanced Course program in the European Law at the University of London, King's College, Centre of European Law as well as the International Business and Trade Summer School program at Catholic University of America – Columbus School of Law and the Ecole de droit français Université d'Orléans. He holds the position of Professor at the University of Economics in Cracow, where he is a lecturer at the Faculties of Management and Economics and International Relations.
He has broad professional experience in the energy and fuel sector. In 2011-2013 he was associated with Kompania Węglowa as a management board proxy for energy sector development at Kompania Węglowa S.A. In 2007-2008 he was a member of the Management Board of TAURON. From November 2015 he served as the Undersecretary of State at the Ministry of State Treasury. He speaks fluent English and French.
He has been holding the position of the President of the Management Board of TAURON Polska Energia S.A. since November 15, 2016. He is currently overseeing the following areas of the operations: strategic management and regulatory solutions, relationships with the environment (stakeholders), legal support and investor relations, risk management, legal and internal audit, security and compliance as well as human resources development and social dialogue policy.
A graduate of the Warsaw School of Economics, a holder of a postgraduate diploma in project management from the Kozmiński University.
He has experience in the area of consolidation and operation of the energy sector, privatization of state-owned utility groups, developing processes associated with the restructuring and strategy building as well as energy entities' expansion projects.
Since the beginning of his professional career he has been associated with the energy sector's entities, holding senior executive and managerial positions. He gained his professional experience working at the Ministry of State Treasury as well as at TAURON
and GDF Suez Energia Polska. Recently associated with GDF Suez Energia Polska – Katowice and GDF Suez (Branch Energy Europe) where he was responsible for market analyses and developing the company's expansion strategy, regulatory management and M&A projects. He was also involved in developing the sales and marketing expansion strategy in Europe. Since mid-2015 he was responsible for developing the commercial strategy and the contract for difference related to the nuclear project in Great Britain.
He has been holding the position of the Vice-President of the Management Board of TAURON Polska Energia S.A. since December 8, 2015. He is currently overseeing the following areas of the operations: asset management, research and innovation, investment projects and programs as well as occupational health and safety.
A graduate of the Faculty of Management and Social Communications of the Jagiellonian University. A holder of the MBA Executive diploma (Stockholm University School of Business/ Cracow University of Economics) and the Post-MBA Diploma in Strategic Financial Management (Rotterdam School of Management, Erasmus University/ GFKM).
He has experience in the area of building company value, mergers and acquisitions, business integration and strategy operationalization as well as management of comprehensive projects in the public and private sectors. He was involved in complex transformation and restructuring processes of enterprises in the energy and fuel as well as transportations logistics sectors.
He gained his professional experience acting in the capacity of the President or Vice-
President of the Management Board and holding senior managerial positions. From the beginning of 2014 he was associated with Węglokoks Capital Group where, within the structures of Węglokoks Energia, he participated in the consolidation of electricity and heat generation assets of Kompania Węglowa and Węglokoks. At that time he was the head of the Management Committee. Previous professional experience includes, among others, work at the Research and Development Centre of the Refining Industry (OBR) in Płock or Jan Paweł II International Cracow-Balice Airport. He also managed the operations of John Menzies PLC in Poland. For many years he cooperated with Lotos Group where he supported the development of the aviation fuel segment which resulted in the joint venture with Air BP Ltd. and the establishment of Lotos Air BP.
He has been holding the position of the Vice-President of the Management Board of TAURON Polska Energia S.A. since December 8, 2015. He is currently overseeing the following areas of the operations: corporate management, human resources, marketing strategy and customer relations, IT systems functioning and management, personal data protection as well as procurement and administration.
A graduate of the Faculty of Economics of the University of Economics in Katowice. He also completed post graduate studies at École Supérieure de Commerce Toulouse where he obtained Mastère Spécialisé en Banque et Ingéniere Financière diploma and the Executive MBA studies at the Kozminski University in Warsaw.
He has professional experience in the field of financial, controlling and accounting process management in industry (power sector, mining, steel industry), as well as in financing of investment projects and international commercial transactions. He was involved in the implementation of the due diligence projects and valuations of many enterprises (using income-based, equity and comparison valuation methods).
From the beginning of his professional career he was associated with the energy, mining and steel sector entities, acting
in the capacity of the President or the Vice-President of the Management Board and holding senior managerial positions. He gained his professional experience working at BRE Corporate Finance S.A., Huta Cynku Miasteczko Śląskie S.A. and at Jastrzębska Spółka Węglowa S.A. Capital Group's subsidiaries. From 2008, acting in the capacity of the Vice-President of the Management Board in charge of the financial division at Jastrzębska Spółka Węglowa S.A. Capital Group's subsidiaries, he was responsible, inter alia, for structuring commercial transactions, implementing the foreign exchange risk hedging policy, financial costs reduction, liquidity management, acquiring funds from the consortium of banks in the form of a bond issue program. He was also involved in the IPO of JSW S.A. (implementation of the International Accounting Standards, modification of the management information system, preparing the IPO prospectus, talks with investors). He held the position of the President of the Management Board at Towarzystwo Finansowe Silesia where he was involved in the bond issue program for Kompania Węglowa and was dealing with the acquisition of debt financing from the consortium of banks.
He has been holding the position of the Vice-President of the Management Board of TAURON Polska Energia S.A. since January 29, 2016. He is currently overseeing the following areas of the operations: finance and insurance policy, controlling and planning, analyses, accounting and tax policy. Additionally, until the Vice-President of the Management Board for Commercial Affairs is appointed, he also oversees the following areas: electricity and property rights trading, fuel trading, portfolio management and electricity tradinginance, controlling, business analyses, accounting and taxes, risk and IT.
The description of the experience and competences of the members of the Management Board is published on the Company's website http://www.tauron.pl/.
Management Board of the company shall act on the basis of the Code of Commercial Companies and other legal regulations, provisions of the company's Articles of Association and provisions of the Bylaws of the Management Board of TAURON Polska Energia Spółka Akcyjna with its seat in Katowice which are available on the company's website http://www.tauron.pl/. When performing their duties members of the Management Board shall be acting in accordance with the principles included in Best Practice 2016.
2 members of the Management Board or one member of the Management Board together with a proxy shall be entitled to make valid statements on behalf of the Company. In case the Management Board includes one person, one member of the Management Board or a proxy shall be entitled to make valid statements on behalf of the Company.
Meetings of the Management Board shall be convened by the President of the Management Board or a Vice President of the Management Board designated thereby. Meetings of the Management Board shall also be convened on the motion of the majority of Vice Presidents of the Management Board as well as on the motion of the Chairperson of the Supervisory Board. The meetings shall be held at the company's seat on the date set by the person that convened the meeting. In justified cases the Management Board's meetings may be held outside the company's seat. The President of the Management Board or a Vice President of the Management Board designated thereby shall chair the meetings of the Management Board.
Management Board shall vote in an open ballot. The result of the ballot shall be recorded in the minutes of the meeting. President of the Management Board shall order a secret ballot at the request of any Vice President of the Management Board.
Resolutions of the Management Board shall be passed by an absolute majority of votes in the presence of 3/5 of the members of the Management Board. In case of an equal number of votes the President of the Management Board shall have a casting vote. Management Board may pass resolutions by voting in writing or using means of direct remote communications. Voting in accordance with the above procedures shall be ordered by the President of the Management Board or a Vice President of the Management Board designated thereby, including setting the deadline for casting votes by members of the Management Board. Submission of a dissenting opinion shall be allowed. Such dissenting opinion shall be recorded in the minutes of the meeting, including the justification thereof. Decisions of the Management Board related to ongoing issues that do not require passing of a resolution shall be recorded solely in the minutes of the meeting.
In case there are fewer members of the Management Board than the foreseen number of divisions (areas of responsibility), members of the Management Board may combine performing duties related to managing two divisions or introduce a different split of competences that would not be in conflict with the assignment of competences made by the Supervisory Board.
The internal divisi on, among members of the Management Board, of the tasks and responsibilities for the individual areas of the Company's operations (Divisions) defined in the Organizational Regulations of TAURON Polska Energia S.A. and including the independent work positions (jobs) as well as organizational units reporting to the individual Members of the Management Board and supervised thereby, shall be defined by the above Organizational Regulations, while the diagram showing the above mentioned division is published on the Company's website.
The structure of the divisions reporting to the individual Members of the Management Board is defined on the diagram (flowchart) of the Company's organizational structure, described in section 8.1.2. of this report.
The current, fifth term of office of the Supervisory Board, began on May 29, 2017, i.e. on the day of holding the Ordinary GM of the Company approving the financial statements for the last full financial year of the tenure of the members of the Supervisory Board of the fourth term, i.e. for the financial year 2016. In accordance with the Company's Articles of Association it shall be a common term of office and it shall last for 3 years.
As of January 1, 2017 the Supervisory Board was composed of the following members: Beata Chłodzińska (Chair of the Supervisory Board), Anna Mańk (Vice-Chair of the Supervisory Board), Jacek Szyke (Secretary of the Supervisory Board), Stanisław Bortkiewicz (Member of the Supervisory Board), Leszek Koziorowski (Member of the Supervisory Board), Jan Płudowski (Member of the Supervisory Board), Jacek Rawecki (Member of the Supervisory Board), Stefan Świątkowski (Member of the Supervisory Board) and Agnieszka Woźniak (Member of the Supervisory Board).
On May 25, 2017 Jacek Rawecki submitted a statement on the resignation, as of May 26, 2017, from the function of a member of the Company's Supervisory Board.
On May 29, 2017 the State Treasury, acting within its personal powers defined in § 23, clause 1, sections 1) and 3) of the Company's Articles of Association, appointed the following persons to be the members of the Company's Supervisory Board of the 5th common term of office: Beata Chłodzińska, Teresa Famulska, Barbara Katarzynę Łasak-Jarszak, Jan Płudowski i Agnieszka Woźniak.
On May 29, 2017 the Ordinary GM of the Company appointed the following persons to be the members of the Company's Supervisory Board of the 5th common term of office: Radosław Domagalski – Łabędzki, Paweł Pampuszko and Jacek Szyke.
There were no other changes to the composition of the Supervisory Board by the day of publishing this report.
The independence requirements defined in the Best Practice and Appendix II to the European Commission's Recommendation of February 15, 2005 related to the role of non-executive directors or members of a supervisory board of publicly listed companies and a supervisory board's committee (2005/162/EC) are met by the following members of the Supervisory Board:
The other members of the Supervisory Board do not meet the independence requirements defined in the Best Practice.
As of the day of drawing up this report a member of the Supervisory Board, Beata Chłodzińska, met the independence requirements defined in the Best Practice.
A graduate of the Faculty of Law and Administration of the Warsaw University. She is a licensed legal counsel.
In 2001-2016 she was associated with the Ministry of State Treasury where she was providing legal services, most recently as the Deputy Director at the Legal and Litigation Department. She is currently working at PKN Orlen S.A. in the legal area.
She gained professional experience associated with supervising the operations of the State Treasury owned companies by, among others, holding seats on the supervisory boards of the following companies: Polska Agencja Prasowa S.A. with its seat in Warsaw, Centrum Techniki Okrętowej S.A. with its seat in Gdańsk, Chemia Polska sp. z o.o. with its seat in Warsaw, Międzynarodowa Korporacja Gwarancyjna sp. z o.o. with its seat in Warsaw.
She has been a member of the Supervisory Board of TAURON Polska Energia S.A. since August 12, 2015. In the Supervisory Board of the 5th common term of office she is the Chair of the Supervisory Board, the Head of the Nominations and Compensation Committee of the Supervisory Board, as well as a member of the Audit Committee of the Supervisory Board and a member of the Strategy Committee of the Supervisory Board.
A graduate of the University of Economics in Katowice, a Professor of economics appointed by the President of the Republic of Poland at the request of the Board of the Faculty of Finance and Insurance of the University of Economics in Katowice.
She has been associated with the University of Economics in Katowice since 1981. She is currently the Head of the Public Finance Department holding the full Professor's position. In 1998-2013 she was working at the School of Banking and Finance, recently as a dean, holding the full Professor's position.
An author of approximately 150 domestic and foreign publications in the field of finance, mainly public finance (including taxes and tax systems) and corporate finance. Apart from academic work she is continuously involved in business practice, participating, among others, in several dozen science and research projects. She conducts numerous lectures and training courses for the finance and management personnel of enterprises and for the tax authorities staff as part of the postgraduate studies and in cooperation with, among others, the Polish Economic Society (Polskie Towarzystwo Ekonomiczne) and the Accountants Association in Poland (Stowarzyszenie Księgowych w Polsce). Since 2007 she has been working at the State Examination Commission on Tax Advisory Services, where she has been the Head of the Commision since 2010. Since 2007 a member of the Financial Ediucation Committee of the Polish Academy of Science, where she was a member of the Board of the Committee in 2011-2015. Furthermore, she is a member of the Main Board of the Polish Finance and Banking Association (Zarząd Główny Polskiego Stowarzyszenia Finansów i Bankowości), International Fiscal Association, Center for Information and Organization of Public Finance and Tax Law Research of Central and Eastern European Countries (Centrum Informacji i Organizacji Badań Finansów Publicznych i Prawa Podatkowego Krajów Europy Środkowej i Wschodniej) and Polish Economic Society (Polskie Towarzystwo Ekonomiczne).
She was awarded the following orders and accolades: Silver Cross of Merit (Srebrny Krzyż Zasługi), Silver Medal for Long-term Service (Srebrny Medal za Długoletnią Służbę), Medal of the Commission of National Education (Medal Komisji Edukacji Narodowej), awards of the Minister of National Education and of the President of the University of Economics in Katowice.
She has been a member of the Supervisory Board of TAURON Polska Energia S.A. since May 29, 2015. In the Supervisory Board of the 5th common term of office she is the Vice-Chair of the Supervisory Board and the Head of the Audit Committee of the Supervisory Board
A graduate of Faculty of Economics of Łódź University and of the Faculty of Electric Engineering of the Technical University in Poznań where he also obtained a PhD in technical science.
He has yearslong professional experience associated with the utility scale power industry where he climbed up all levels of the career ladder, starting with an intern, through foreman, Head of the Safety and Instrumentation and & Control Department (Zakład Energetyczny Kalisz and Łódź), Engineer On Duty Responsible for the Operation (Elektrociepłownia Łódź), up to the position of the Chief Engineer (Zakład Energetyczny Łódź and Płock) and General Manager (Zakład Energetyczny Płock and Elektrociepłownia Siekierki). He also worked as the Contract Manager in Libya. The owner and President of the JES ENERGY consulting company.
State orders awarded: Golden Cross of Merit (Złoty Krzyż Zasługi), Knight's Order (Krzyż Kawalerski). Industry orders awarded: Distinguished for the following sectors: Power, Construction, Communications, Firefighting, Culture and Heat industry.
The author of more than 100 articles, publications and books, including: "Wspomnienia o tradycji i zwyczajach pracy w energetyce" (Memories of traditions and customs related to working in the power utilities sector), "O energetyce z sentymentem" (About electric utilities sector with a sentiment), "Historia Polskiej Elektroenergetyki" (History of Poland's Power Industry), "Złota Księga Elektroenergetyki" (Golden Book of Power Industry), "Grupa TAURON - monografia" (TAURON Group – monograph).
He has been a member of the Supervisory Board of TAURON Polska Energia S.A. since September 14, 2010. In the Supervisory Board of the 5th common term of office he is the Secretary of the Supervisory Board and the Head of the Strategy Committee of the Supervisory Board as well as a member of the Audit Committee of the Supervisory Board.
A graduate of Łódź University (master's degree in law). Completed Executive MBA studies at Rutgers University in New Jersey. Visiting fellow at the German Munster and Mannheim Universities.
A manager with a broad practical experience in managing complex international business projects. He prepared and effectively implemented an expansion strategy in Asia for one of Poland's largest capital groups.
In 2006-2013 the President of the Management Board of Magellan Trading Shanghai Co. Ltd in China. Prior to that he worked as a lawyer at GSP Group Sp. z o.o. in Łódź, and also at American Enterprise Institute in Washington – one of the largest American think-thanks.
Between December 2015 and October 2016 the Undersecretary of State at the Ministry of Development, responsible, among others, for promoting the Polish economy, a member of the Financial Supervision Commission (Komisja Nadzoru Finansowego).
Since October 2016 until March 10, 2018 he was the President of the Management Board of KGHM Polska Miedź S.A.
Co-founder of the Polish-Chinese Chamber of Industry and Commerce in Shanghai. An author of many business publications.
He has been a member of the Supervisory Board of TAURON Polska Energia S.A. since May 29, 2017. In the Supervisory Board of the 5th common term of office he is a member of the Audit Committee of the Supervisory Board.
A graduate of the Faculty of Law and Administration of the Warsaw University.
Between January 1997 and February 2017 she was working at the Legal Department of the Ministry of State Treasury. Between April 1998 and February 2017 she headed an organizational unit of the Legal Department providing legal services for the Ministry. Since March 1 2017 the Head of the State Property and Finance Division of the State Treasury Department of the Chancellery of the Prime Minister where she is dealing with. among others, with the issues related to the new principles of managing the state owned property.
In 1999-2001 a member of the Disciplinary Commission of the Ministry of State Treasury. In 1999-2005 deputy public finance auditor for the Minister of State Treasury.
He has yearslong professional experience of holding seats on supervisory boards of State Treasury owned companies, including: ZPP "Lenora" sp. z o.o., Koneckie Zakłady Odlewnicze S.A., Uzdrowisko Busko-Zdrój S.A., ŚWWG Polmos S.A., Stocznia Gdynia S.A., Archimedes S.A., PSO "Maskpol" S.A., ZG "Dom Słowa Polskiego" S.A. in liquidation, Fundusz Rozwoju Spółek S.A., Zakłady Mięsne Nisko S.A.
She has been a member of the Supervisory Board of TAURON Polska Energia S.A. since May 29, 2017. In the Supervisory Board of the 5th common term of office she is a member of the Nominations and Compensation Committee of the Supervisory Board.
A graduate of the Faculty of Law and Administration of the University of Silesia in Katowice, a lawyer entered on the list of lawyers maintained by the Solicitors Regulation Authority (Izba Adwokacka) in Katowice.
During his yearslong professional career he gained significant experience with respect to negotiating contracts as part of major industrial and business undertakings, and also preparing and conducting significant court disputes where it was necessary to become familiar with non-legal specialist issues and close cooperation with specialists in other fields. He was also actively involved in identifying and eliminating deficiencies in the operations of the corporations' authorities.
He gained professional experience related to providing legal services for business entities by working in 2005-2009, among others, at Kancelaria Biura Prawne Babula i Wspólnicy sp. k., Kancelaria Adwokatów i Radców Prawnych Ślązak, Zapiór & Partnerzy, SILEGE S.C. and Woszym Technologies sp.j. In 2009-2011 he was running his own legal practice. Since 2011 till now he has been a founding partner at law firm Kuś-Zielińska, Pampuszko i Wspólnicy – Adwokaci i Radcy Prawni sp.j.
He was a member of supervisory authorities in the non-government organizations and corporations: CHK S.A. and Medicina Pro Humana Foundation.
He is an author of publications on medical law.
He has been a member of the Supervisory Board of TAURON Polska Energia S.A. since May 29, 2017. In the Supervisory Board of the 5th common term of office he is a member of the Strategy Committee of the Supervisory Board.
A graduate of the Faculty of Electric Engineering of the Silesian University of Technology in Gliwice. He also completed post-graduate studies at the Faculty of Electric Engineering of the Gdańsk University of Technology, at the University of Economics (formerly K. Adamiecki Academy of Economics) in Katowice in the field of corporate finance management and at the Faculty of Management and Services Economics of the University of Szczecin in the field of marketing and corporate management.
Professionally associated with the power sector, he gained professional experience by climbing up all levels of the career ladder. He was working, among others, as the Regional Chief Power Engineer (PKP Śląska Dyrekcja Okręgowa Kolei Państwowych (Polish State Railways' Silesian Regional Board) in Katowice), Director of Zakład Energetyki Kolejowej (Railways' Power Unit) in Katowice and the Head of the Power Management Department (PKP Dyrekcja Energetyki Kolejowej (Polish State Railways' Power Unit Board) in Warsaw), Director of the Cash Flow Office ("PKP Energetyka" sp. z o.o. in Warsaw). He is currently holding the position of the Project Coordinator Director at "PKP Energetyka" S.A. in Warsaw.
In 2007-2008 he was a member of the Supervisory Board of Spółka Energetyczna Jastrzębie S.A.
He has been a member of the Supervisory Board of TAURON Polska Energia S.A. since December 30, 2016. In the Supervisory Board of the 5th common term of office he is a member of the Audit Committee of the Supervisory Board and a member of the Strategy Committee of the Supervisory Board.
A graduate of the Faculty of Law and Administration of the UMCS University in Lublin. A lawyer by education.
In 2001-2015 she worked at the Ministry of Economy where she climbed up all levels of the career ladder, starting from a referendary, through the positions of a specialist, chief specialist, head of division, deputy director and director. Since 2005 an appointed civil servant. She has been associated with the Ministry of Energy since it was formed, i.e. since November 2015, where she is currently holding the position of the Director of the Minister's Office.
She has yearslong experience in personnel management. She was dealing with matters related to audits, organizational affairs of the office, public procurement, personnel issues. She was also holding the position of the Plenipotentiary of the General Director for the Integrated Management System.
She has experience related to supervising the operations of State Treasury owned companies. Between January 2009 and June 2014 a member of the Supervisory Board of Węglokoks S.A. with its seat in Katowice.
She has been a member of the Supervisory Board of TAURON Polska Energia S.A. since December 16, 2016. In the Supervisory Board of the 5th common term of office she is a member of the Nominations and Compensation Committee of the Supervisory Board and a member of the Strategy Committee of the Supervisory Board.
The detailed description of the experience and competences of the members of the Supervisory Board is published on the Company's website http://www.tauron.pl/.
Detailed description of the Supervisory Board's operations is provided in the Code of Commercial Companies, the company's Articles of Association which are available on the company's websitehttp://www.tauron.pl/ and in the Regulations of the Supervisory Board of TAURON Polska Energia S.A. with its seat in Katowice.
The main form of the Supervisory Board overseeing the Company's operations shall be the meetings of the Supervisory Board. Supervisory Board shall perform its obligations collectively. Meetings of the Supervisory Board shall be convened by the Chairperson of the Supervisory Board or Vice Chairperson of the Supervisory Board by presenting a detailed agenda:
Meetings of the Supervisory Board shall be held at the Company's seat. In justified cases a meeting may be convened at a different venue.
In order to convene a meeting all members of the Supervisory Board must be invited in writing at least 7 days before the date of the Supervisory Board's meeting. For important reasons the Chairperson of the Supervisory Board may shorten this period to 2 days, defining the way the invitations should be distributed. Notifications of the Supervisory Board's meeting shall be sent by fax or electronic mail and confirmed by phone. In the notification of the Supervisory Board's meeting the Chairperson shall define the date of the meeting, venue of the meeting and the detailed draft agenda. Supervisory Board shall meet on as needed basis, however not less frequently than once every 2 months. Supervisory Board may hold meetings without convening a formal meeting if all members of the Supervisory Board are present and nobody objects against the fact of holding the meeting or against the agenda.
A change of the proposed agenda may occur when all members of the Supervisory Board are present at the meeting and no one raises an objection against the agenda. An issue not included in the agenda should be included in the agenda of the next meeting.
Participation in a meeting of the Supervisory Board shall be a Supervisory Board member's duty. A member of the Supervisory Board shall provide information on the reason for his/her absence in writing. Excusing an absence of a member of the Supervisory Board shall require a resolution of the Supervisory Board. Members of the company's Management Board may take part in the Supervisory Board's meetings unless the Supervisory Board raises an objection. Participation of the Management Board's members in the Supervisory Board meetings shall be mandatory if they have been invited by the Chairperson of the Supervisory Board. Other persons may also take part in the meetings if they have been invited in the above mentioned way.
Supervisory Board may seek opinions of legal counsels who provide regular legal advice for the company, as well as, in justified cases, it may appoint and invite to meetings of the Supervisory Board appropriate experts in order to seek their opinion and make the right decision. In the above mentioned cases the Supervisory Board shall pass a resolution on commissioning the selected expert (auditing, consulting company) to carry out the work, obligating the Company's Management Board to conclude an applicable agreement.
Meetings of the Supervisory Board shall be chaired by the Chairperson of the Supervisory Board, and in case of his/her absence by the Vice Chairperson. For important reasons, with the consent of the majority of members of the Supervisory Board present at the meeting, the chairperson chairing the meeting shall be obligated to subject to a vote a motion to interrupt the meeting and set the date of resuming the meeting of the Supervisory Board. Supervisory Board shall make decisions in the form of resolutions. Supervisory Board's resolutions shall be passed mainly at its meetings. Supervisory Board shall pass resolutions if at least half of its members are present at the meeting and all its members have been invited in the appropriate way defined in the Regulations. Subject to the mandatory legal regulations in force, including the Code of Commercial Companies and the provisions of the company's Articles of Association, the Supervisory Board shall pass resolutions by an absolute majority of votes of the persons present at the meeting where the absolute majority of votes shall be understood as more votes cast "for" than "against" and "abstain". Resolutions shall not be passed on matters not included in the agenda unless all members of the Supervisory Board are present and nobody raises an objection. This shall not apply to resolutions on excusing a Supervisory Board's member's absence at the meeting. Resolutions shall be voted on in an open ballot. A secret ballot shall be ordered:
In accordance with the company's Articles of Association the Supervisory Board may pass resolutions in writing or using means of direct remote communications. Passing a resolution in such way shall require a prior notification of all members of the Supervisory Board of the content of the draft resolution. Passing resolutions this way shall not apply to appointing the Chairperson, the Vice Chairperson and the Secretary of the Supervisory Board, appointing or suspending from office a member of the Management Board and dismissing these persons, as well as other matters that require a secret ballot vote. When voting on a resolution in the aforementioned way a member of the Supervisory Board shall indicate his/her vote, i.e. "for", "against" or "abstain". In case a member of the Supervisory Board fails to indicate his/her vote by the time defined by the Chairperson the resolution shall not be passed. A resolution with a note that it has been passed in writing or by voting using means of direct remote communications shall be signed by the Chairperson of the Supervisory Board.
Resolutions passed this way shall be presented at the forthcoming meeting of the Supervisory Board along with the result of the voting.
Members of the Supervisory Board shall be allowed to take part in the meeting and vote on resolutions during such meeting using means of direct remote communications, i.e. a conference call or a video conference, subject to a proviso that at least half of its members are present at the meeting's venue indicated in the notification of the meeting and a secure communications link is technically possible.
Members of the Supervisory Board shall take part in meetings and exercise their rights and responsibilities in person, and while performing their duties they shall be obliged to act with due diligence. Members of the Supervisory Board shall be obliged to keep confidential information related to the company's activities that they have acquired in connection with holding their seat or on another occasion. Supervisory Board shall perform its activities collectively.
Supervisory Board may, for important reasons, delegate its individual members to perform certain supervision actions on their own for a defined period of time. Supervisory Board may delegate its members, for a period not longer than three months, to temporarily perform duties of members of the Management Board who have been dismissed, submitted their resignation or if for other reasons they cannot perform their functions. The above mentioned delegation shall require obtaining a consent of the member of the Supervisory Board who is to be delegated.
The detailed description of the activities of the Supervisory Board in the last financial year is provided in the Report on the Activities of the Supervisory Board, submitted on annual basis to the General Meeting of Shareholders and then published on the company's website http://www.tauron.pl/.
Supervisory Board may appoint from among its members permanent or temporary (ad-hoc) working groups, committees to perform specific actions. Supervisory Board's standing committees shall be:
Membership, tasks and rules of operation of the above mentioned committees shall be defined in the regulations thereof passed by the Supervisory Board.
Due to the changes to the membership of the Supervisory Board of the Company introduced in 2017, the Supervisory Board also made changes to the membership of the Audit Committee.
As of January 1, 2017 the Audit Committee was composed of the following members: Beata Chłodzińska (Head of the Audit Committee), Jacek Rawecki and Jacek Szyke.
On January 30, 2017 the Supervisory Board appointed the following members of the Audit Committee: Stanisław Bortkiewicz and Jan Płudowski. On the same day the Audit Committee elected, from among its members, Stanisław Bortkiewicz as the Head of the Audit Committee.
On May 25, 2017 Jacek Rawecki submitted a statement on the resignation, as of May 26, 2017, from the function of a member of the Company's Supervisory Board. Consequently, his membership in the Audit Committee also expired.
On May 29, 2017, due to the end of the 4th term of the Supervisory Board mandates of members of the Supervisory Board expired and consequently their membership in the Audit Committee expired.
On June 20, 2017, due to the appointment, as of May 29, 2017, of members of the Supervisory Board of the 5th term, the Supervisory Board appointed the Audit Committee with the following members: Beata Chłodzińska, Radosław Domagalski - Łabędzki, Teresa Famulska, Jan Płudowski and Jacek Szyke. On the same day the Audit Committee, during the first meeting of the 5th term, elected Teresa Famulska as the Head of the Audit Committee.
No other changes to the membership of the Audit Committee had been made as of the day of disclosing this report.
The membership (composition) of the Audit Committee is in compliance with the requirements defined in the law of May 11, 2017 on certified auditors, audit companies and public supervision. The evaluation of independence and the statutory requirements with respect to the knowledge and skills of the individual members of the Audit Committee was made by the Supervisory Board Rada based on the relevant statements submitted by the members of the Audit Committee. Three members of the Audit Committee comply with the statutory requirements related to independence, including the Head of the Audit Committee who also has knowledge and skills in the field of accounting and auditing financial statements. Two members of the Audit Committee: Jacek Szyke and Jan Płudowski, knowledge and skills in the field of energy, i.e. the Company's industry.
The independence requirements defined for the members of the Audit Committee by the above law are met by the following members of the Audit Committee:
The other members of the Audit Committee do not meet the independence requirements defined by the above law.
As of the day of drawing up this report a member of the Supervisory Board, Beata Chłodzińska, met the independence requirements defined by the above law.
The tasks and competence of the Audit Committee with the coming into force on June 21, 2017 of the law of May 11, 2017 on certified auditors, audit companies and public supervision, have been verified and aligned with the current legal regulations in force and adopted by the Supervisory Board at the motion of the Audit Committee in the form of the new Regulations of the Audit Committee of the Supervisory Board of TAURON Polska Energia S.A.
The tasks and competence of the Audit Committee as of the day of drawing up this report are presented in the below table.
Competence of the Audit Committee
The detailed description of the activities of the Audit Committee in the last financial year is provided in the report on the activities of the Supervisory Board submitted on annual basis to the General Meeting of Shareholders and published on the Company's website http://www.tauron.pl/.
Due to the changes to the membership of the Supervisory Board of the Company introduced in 2017, the Supervisory Board also made changes to the membership of the Nominations and Compensation Committee
As of January 1, 2017 the Nominations and Compensation Committee was composed of the following members: Beata Chłodzińska (Head), Leszek Koziorowski i Agnieszka Woźniak.
On May 29, 2017, due to the end of the 4th term of the Supervisory Board mandates of members of the Supervisory Board expired and consequently their membership in the Nominations and Compensation Committee expired.
On June 20, 2017, due to the appointment, as of May 29, 2017, of members of the Supervisory Board of the 5th term, the Supervisory Board appointed the Nominations and Compensation Committee with the following members: Beata Chłodzińska, Barbara Łasak - Jarszak and Agnieszka Woźniak. On the same day the Nominations and Compensation Committee, during the first meeting of the 5th term, elected Beata Chłodzińska as the Head of Nominations and Compensation Committee.
No other changes to the membership of the Nominations and Compensation Committee had been made as of the day of disclosing this report.
The tasks and competence of the Nominations and Compensation Committee did not change in 2017. The tasks and competence of the Nominations and Compensation Committee as of December 31, 2017 and as of the day of drawing up this report are presented in the below table.
Competence of the Nominations and Compensation Committee
The detailed description of the activities of the Nominations and Compensation Committee in the last financial year is provided in the Report on the activities of the Supervisory Board submitted on annual basis to the General Meeting of Shareholders and published on the Company's website http://www.tauron.pl/.
Due to the changes to the membership of the Supervisory Board of the Company introduced in 2017, the Supervisory Board also made changes to the membership of the Strategy Committee
Jacek Szyke - Head of the Strategy Committee,
As of January 1, 2017 the Strategy Committee was composed of the following members: Jacek Szyke (Head), Beata Chłodzińska, Anna Mańk i Stefan Świątkowski.
On March 15, 2017 the Supervisory Board passed a resolution on appointing as members of the Strategy Committee: Stanisław Bortkiewicz and Jan Płudowski.
On May 29, 2017, due to the end of the 4th term of the Supervisory Board mandates of members of the Supervisory Board expired and consequently their membership in the Strategy Committee expired.
On June 20, 2017, due to the appointment, as of May 29, 2017, of members of the Supervisory Board of the 5th term, the Supervisory Board appointed the Strategy Committee with the following members: Jacek Szyke, Beata Chłodzińska, Paweł Pampuszko, Jan Płudowski i Agnieszka Woźniak. On the same day the Strategy Committee, during the first meeting of the 5th term, elected Jacek Szyke as the head of the Strategy Committee.
No other changes to the membership of the Strategy Committee had been made as of the day of disclosing this report.
The tasks and competence of the Strategy Committee did not change in 2017. The tasks and competence of the Strategy Committee as of December 31, 2017 and as of the day of drawing up this report are presented in the below table.
Competence of the Strategy Committee
as of December 31, 2017 and as of the day of drawing up this report
The detailed description of the activities of the Strategy Committee in the last financial year is provided in the report on the activities of the Supervisory Board submitted on annual basis to the General Meeting of Shareholders and published on the Company's website http://www.tauron.pl/.
The detailed description of the operations of the Committees of the Supervisory Board is provided in the Regulations of individual Committees of the Supervisory Board of TAURON Polska Energia S.A.
The Committees of the Supervisory Board are advisory and opinion-making bodies acting collectively as a part of the Supervisory Board and perform support and advisory functions towards the Supervisory Board. The tasks of the Committees of the Supervisory Board are carried out by submitting motions, recommendations, opinions and statements on the scope of its tasks to the Supervisory Board, by means of resolutions. The Committees of the Supervisory Board are independent of the Management Board of the Company. The Management Board may not issue binding orders to the Committees of the Supervisory Board concerning performing their tasks.
The Audit Committee and the Nominations and Compensation Committee of the Supervisory Board are composed of three to five members, while the Strategy Committee is composed of three to seven members. The activities of the individual Committees are managed by their Chairpersons (Heads).
Meetings of the Committees are convened by the Chairperson of the specific Committee on his/her own initiative or upon the motion of a member of the Committee or Chairperson of the Supervisory Board and they are held on as needed basis. In case of the Audit Committee the meetings are convened at least on a quarterly basis. The Chairpersons of the Committees may invite members of the Supervisory Board, who are not members of the specific Committee, members of the Management Board and employees of the Company as well as other persons working or cooperating with the Company to the meetings of the Committees. The Chairperson of the specific Committee or a person appointed by him/her submits motions, recommendations and reports to the Supervisory Board .
The Committees of the Supervisory Board pass resolutions if at least a half of their members were present at the meeting and all their members have been duly invited. The resolutions of the Committees of the Supervisory Board are adopted by an absolute majority of votes present at the meeting, where the absolute majority of votes is understood as more votes given "for" than "against" and "abstain". The Committees of the Supervisory Board may pass resolutions in writing or by using means of direct remote communication.
Members of the Committees of the Supervisory Board may also participate in meetings and vote of the adopted resolutions by using means of direct remote communication, i.e. tele- or videoconferences.
The Company's Management Board shall be informed about recommendations and assessments submitted to the Supervisory Board by the given Committee of the Supervisory Board. Every year, the Committees of the Supervisory Board provide public record information, through the Company, on their memberships, the number of meetings held and participation in the meetings during the year as well as on their main activities. In addition, the Audit Committee performs an assessment of the independence of the certified auditor and expresses its consent for the provision thereby of the permitted services that are not an audit of the Company.
The Company's Management Board provides the possibility to use the services of external advisers by the Committees to the extent required for performing the obligations of the Committees.
Diversity and openness are an integral part of both, TAURON Capital Group's business operations, as well its management policy. All of TAURON Capital Group's subsidiaries apply the policy of equal treatment and strive to ensure diversity in terms of gender, educational background, age and professional experience in relation to all employees and key managers.
With respect to the members of the corporate bodies of TAURON, i.e. the Management Board and the Supervisory Board, persons acting as Members of the Management Board are selected by the Supervisory Board, while Members of the Supervisory Board are selected by the Minister of Energy. In 2017, acting within its statutory powers, the State Treasury appointed 5 Members of the Supervisory Board and the Ordinary GM of TAURON on May 29, 2017 elected 3 Members of the Management Board. Information concerning qualifications and professional experience of persons appointed to the Management Board and the Supervisory Board is published in the relevant regulatory filings (current reports) as well as on the Company's website.
Members of the Management Board are appointed by the Supervisory Board after conducting a qualification procedure designed for verifying and assessing their qualifications and selected the best candidates. Announcement of qualification process is published on the Company's web page and in the Public Information Bulletin of the Ministry of Energy. The competition is open for any person meeting requirements set forth in the Company's By-laws and formal requirements specified in the announcement. Candidates are required to possess university level education, at least five years of employment and minimum three years of experience as managers, and have to meet requirements set forth in other legislation. No special requirements are placed on features such as sex, type of education, age and professional expertise, to the Supervisory Board is capable of assessing candidates to the Management Board with consideration of their overall capabilities and diversity requirements.
The Diversity Policy of the TAURON Group was implemented in 2017, the purpose of which is to strengthen awareness and organizational culture open to diversity. Implementation of the Diversity Policy enables employees to full realize their individual potential in the job environment.
Also, actions have been undertaken to prevent any discrimination by structuring the appropriate atmosphere and culture at the workplace based on key PRO corporate values - Partnership, Development and Courage, confirmed through the Policy of combating Mobbing and Discrimination at the TAURON Group.
In 2017 the principles of compensation of members of the Company's Management Board defined in the Resolution of the Extraordinary GM of TAURON of December 15, 2016 on the principles for determining compensation of members of the Management Board (Principles for determining compensation) were in force at the Company, as subsequently amended and detailed by the Supervisory Board of the Company pursuant to the resolution of December 19, 2016 on the principles for determining compensation of members of the Management Board TAURON Polska Energia S.A. as subsequently amended. The above principles for determining compensation are in line with the provisions of the Act of June 9, 2016 on the principles for determining compensation of persons managing certain companies.
The adopted principles for determining compensation define the compensation system for members of the Management Board in connection with outstanding tasks aimed at the implementation of the adopted Strategy, directions of expansion and financial plans. The overriding objective of the adopted compensation system is to ensure an incentive-based compensation of the senior management staff and to create basis for their development.
Overall objectives of the compensation policy are:
Model of compensation for members of the Management Board is based on a two-component system for determining compensation, composed of a fixed part constituting the monthly base wage and a variable part constituting the supplementary compensation for the Company's financial year, dependent on achieving specific management objectives.
System of compensation for members of the Management Board assumes linking the variable part of the compensation with the outstanding management goals stemming from the provisions of the Act of June 9, 2016 on the principles for determining compensation of persons managing certain companies and set, based upon these provisions, by the GM the Supervisory Board of the Company. The goal of adopting in the system of compensation, of the dependence of the compensation's variable part on achieving the management goals set is, in particular, to implement the adopted Strategy, the directions of the Company's expansion and financial plans, it also shapes a new organizational culture of the Company.
Taking into account the applicable regulations, the level of compensation for members of the Management Board is defined by the Supervisory Board, within the brackets determined by the Company's GM.
Members of the Management Board of the Company are neither covered by the bonus program based on the capital of the Company, nor do they receive any compensation or awards due to fulfilment of their functions in governing bodies of TAURON Capital Group's subsidiaries.
In 2017 the Supervisory Board updated the Policy of compensation for Members of the supervision and management authorities (bodies) including the description of the principles for the determination thereof at TAURON Polska Energia S.A., in force since February 24, 2011.
The rules concerning compensation and bonus system for key managers and other employees are defined in the Regulations on Compensation of Employees of TAURON Polska Energia S.A., adopted for application by the Management Board of the Company.
In 2017 the Principles of Compensation at TAURON Group were developed representing the guidelines for TAURON Capital Group's subsidiaries with respect to the personnel compensation systems, particularly taking into account the bonus system for key managers based on the management by objectives system consistent throughout TAURON Capital Group, representing a combination of the planning process, efficiency measurement process and evaluation process.
The compensation and bonus system for key managers stipulates that the level of compensation should be tied to the financial situation of TAURON Capital Group in an annual perspective, in connection with the implementation of strategic goals.
The overriding assumption of the compensation system in force is to ensure the optimum and motivating compensation level, depending on the value and type of work on a given position as well as the quality of work and effects achieved by employees.
The structure of the compensation consists of the following elements:
The MBO bonusing system based on market principles of awarding bonuses ensures focusing activities of key management staff on attaining objectives defined within the Strategy, as well as individual strategic objectives and development directions of individual companies within the TAURON Capital Group. This system also ensures cascading of objectives defined by the Company's Management Board at the TAURON Capital Group level and at the Company level, down to concrete, parametric tasks vested with employees of lower structural levels. The MBO bonusing system has been tied with the management by process style of operations at the TAURON Capital Group, inter alia by aligning the objectives with Megaprocesses defined within the TAURON Capital Group. Therefore, the introduced culture of Management by Objectives reflects the specific features of each function implemented in the Company and allows use of dialogue mechanisms between the superior and subordinate during the process of setting and assessing objectives, leading to attaining overall efficiency throughout the entire organization.
At the same time, this took enables precise correlating of KPIs defined for members of the Management Board with objectives defined for the given year for key managers of the Company. Initial assessment of accomplished objectives takes place after end of the first 6 months and after end of the year, members of the Management Board conduct final assessment of KPI performance by key managers.
Moreover, in March 2017 the bonus system for the trading area aimed at motivating to generate higher revenue for TAURON Capital Group. The trading bonus covered key managers in the trading area, however the bonus system sets an additional bonus for them only once they have topped annual trade plans.
Employees of the Company do not receive any compensation or awards on account of functions fulfilled in governing bodies of TAURON Capital Group's subsidiaries.
The below figure presents the structure of compensation for key manager positions.
The total amount of compensation understood as the value of salaries, awards and benefits received in cash, in kind or in any other form, due or paid by the Company to the Management Board members in 2017 reached the gross amount of PLN 4 534 thousand.
The compensation of members of the Company's Management Board in 2017, broken down into components, is presented in the below table.
| # | Name | Period of holding the position in 2017 |
Compensation1 (PLN '000) |
Bonus1 (PLN '000) |
Other benefits1 (PLN '000) |
Total (PLN '000) |
|---|---|---|---|---|---|---|
| 1. | Filip Grzegorczyk2 | 01.01.2017 - 31.12.2017 | 793 | - | 24 | 817 |
| 2. | Jarosław Broda3 | 01.01.2017 - 31.12.2017 | 803 | 226 | 79 | 1 108 |
| 3. | Kamil Kamiński3 | 01.01.2017 - 31.12.2017 | 792 | 181 | 77 | 1 050 |
| 4. | Marek Wadowski3 | 01.01.2017 - 31.12.2017 | 863 | 181 | 36 | 1 080 |
| 5. | Piotr Zawistowski | 01.01.2017 - 15.03.2017 | 186 | 226 | 69 | 481 |
| Total | 3 437 | 812 | 285 | 4 534 |
| Table no. 31. Compensation of members of the Company's Management Board in 2017 broken down into components | ||
|---|---|---|
1excluding markups (surcharges)
2compensation in accordance with the agreement on the provision of management services in force
3 from January 1, 2017 till March 15, 2017 the compensation in accordance with the labor agreement, while from March 16, 2017 till December 31, .2017 the compensation in accordance with the agreement on the provision of management services
Members of the Management Board did not receive compensation or bonuses for performing functions in the corporate bodies of TAURON Capital Group's subsidiaries in 2017.
From January 1, 2017 till March 15, 2017 members of the Management Board received the compensation in accordance with the labor agreement (except for the President of the Management Board who received the compensation in accordance with the agreement on the provision of management services). From March 16, 2017 all members of the Management Board appointed for the 5th term received the compensation in accordance with the agreement on the provision of management services, prepared in accordance with the law of June 9, 2016 on the principles of determining the compensation of persons managing certain companies.
Model of compensation for members of the Management Board, defined in the agreements on the provision of management services is based on a two-component system for determining compensation, composed of a fixed part (monthly base wage) and a variable part (supplementary compensation for the Company's financial year), dependent on fulfiling specific result-based criteria, i.e. achieving management objectives.
System of compensation for members of the Management Board assumes linking the variable part of the compensation with the outstanding management goals stemming from the provisions of the Act of June 9, 2016 on the principles for determining compensation of persons managing certain companies and set, based upon these provisions, by the GM the Supervisory Board of the Company. The goal of adopting in the system of compensation, of the dependence of the compensation's variable part on achieving the management goals set is, in particular, to implement the adopted Strategy, the directions of the Company's expansion and financial plans, it also shapes a new organizational culture of the Company.
The variable part of the compensation represents up to 60% of the fixed part of the compensation for the financial year, assuming the management goals set by the Supervisory Board for the given financial year have been achieved.
The Supervisory Board determines the percentage level of the variable part of the compensation for each of the following management goals:
The variable part of the compensation for achieving the financial management goals is allocated based on the data derived from the audited consolidated financial statements of the Company for the given financial year.
The variable part of the compensation for achieving the non-financial management goals is allocated based on the achievement of specific objectives in the given financial year, based on the assessment of their performance by the Supervisory Board.
According to the agreements on the provision of management services concluded with the members of the Management Board on March 15, 2017 envisage, in case of termination or dissolution of the agreement by the Company for reasons other than defined therein, a payout of the severance payment at a level of three–fold fixed part of the compensation, under the condition of fulfilment of the function by them over a period of at least 12 months prior to the termination of the agreement.
Furthermore, due to the access of members of the Management Board to confidential information the disclosure of which could expose the Company and TAURON Capital Group's subsdiaries to losses, the aforementioned agreements on the provision of management services include non-competition provisions applicable after the expiry of the term of office. Under the aforementioned agreements members of the Management Board undertook to refrain from conducting competitive activities in the specified period in return for compensation.
Members of the Company's Management Board did not hold positions of members of Management Boards of subsidiaries (companies included) in TAURON Capital Group prior to being appointed as members of the Company's Management Board.
Members of the Management Board, in accordance with the agreements on provision of management services, are entitled to:
Staff members employed at key positions by the Company are entitled to use the following benefits and non-financial components of the compensation offered by the Company:
On May 29, 2017 the Ordinary GM amended resolution no. 5 of the Extraordinary GM of TAURON of December 15, 2016 on the principles for determining compensation of members of the Management Board, by adding an extra management goal to be achieved by members of the Management Board by December 31, 2017, making the payment of the variable part of the compensation contingent, covering the performance of the obligations mentioned in art. 17-20, art. 22 and art. 23 of the law of December 16, 2016 on the state assets management principles.
With a view to implement the principles to determine compensation passed by the GM in December 2016 r., on March 15, 2017 agreements on the provision of management services were concluded with the members of the Management Board appointed for the common 5th term in office. The agreement on the provision of management services with the President of the Management Board had been concluded earlier, meanwhile labor contracts had been concluded earlier with the other members of the Management Board.
The applied compensation system for members of the Management Board is compliant with the Act of June 9, 2016 on the principles for determining compensation of persons managing certain companies. The incentive-based and consistent system is provided, linked with the monitoring of annual financial plans and the adopted Strategy and development (expansion) directions
The form, structure and level of compensation correspond to market conditions and are oriented towards enabling the recruitment and maintaining of individuals fulfilling the criteria required for running the Company in the manner taking into account shareholders' interests (building the Company's value for shareholders), as well as prevent conflicts of interest from arising among members of the Management Board and shareholders. At the same time, they are constructed in the manner which is transparent for investors, so that their trust towards the Company is built and they are able to express their opinions using the applicable procedures.
Information policy on the form, structure and level of compensation of members of the Management Board and the Supervisory Board is conducted by the Company in communication with the Supervisory Board in a manner that is in compliance wth the regulations in force and best market practice.
The disbursement of variable components of compensation is linked with the pre-defined, measurable management goals. The set management goals should foster long-term stability of the Company.
The indicators (criteria) determining obtaining and level of variable components of the compensation are defined in accordance with the SMART principle, thus, they also display such features as: precision, measurability, achieveability, materiality and defining in time.
The compensation and bonus system for both Members of the Management Board of the Company as well as the key managers in force at TAURON supports the implementation of strategic goals and determines the compensation depending on the financial situation of the Company and TAURON Capital Group in an annual perspective.
In 2017 the system of compensation for members of the Supervisory Board of the Company defined in the Resolution of the Extraordinary GM of TAURON of December 15, 2016 on the principles for determining compensation for members of the Supervisory Board of TAURON Polska Energia S.A. was in force, adopted as the implementation of the provisions of the Act of 9 June 2016 concerning principles for determining compensation of persons managing certain companies (Journal of Laws of 2016, item 1202).
In accordance with the aforementioned Resolution of the Extraordinary GM a monthly compensation of Supervisory Board members is determined as a product of the average monthly compensation in the enterprise sector, excluding payment of profit distribution bonuses in the fourth quarter of the preceding year, announced by the President of the Central Statistics Office and the multiplier:
Members of the Supervisory Board are entitled to receive the compensation irrespective of the frequency of formally convened meetings.
The compensation does not apply for a month in which a member of the Supervisory Board was not present at any of the formally convened meetings, for unjustified reasons. The decision on excusing or failure to excuse the absence of a member of the Supervisory Board at its meeting is taken by the Supervisory Board by means of a resolution.
The compensation is calculated on a pro rata basis, in relation to the number of days when the function was fulfilled in case if the appointment or dismissal occurred during the calendar month.
The Company covers costs incurred in connection with the fulfilment of functions assigned to members of the Supervisory Board, in particular: costs of return transfer between the place of residence and the venue of the Supervisory Board meeting or meeting of the Supervisory Board Committee, costs of individual supervision and costs of accommodation and board.
The compensation of members of the Company's Supervisory Board in 2017 is presented in the below table.
| # | Name | Period of holding the position in 2017 |
Compensation (PLN '000) |
|---|---|---|---|
| 1. | Beata Chłodzińska | 01.01.2017 - 31.12.2017 | 89 |
| 2. | Teresa Famulska | 29.05.2017 - 31.12.2017 | 47 |
| 3. | Jacek Szyke | 01.01.2017 - 31.12.2017 | 79 |
| 4. | Radosław Domagalski - Łabędzki | 29.05.2017 - 31.12.2017 | 47 |
| 5. | Barbara Łasak - Jarszak | 29.05.2017 - 31.12.2017 | 47 |
| 6. | Paweł Pampuszko | 29.05.2017 - 31.12.2017 | 47 |
| 7. | Jan Płudowski | 01.01.2017 - 31.12.2017 | 79 |
| 8. | Agnieszka Woźniak | 01.01.2017 - 31.12.2017 | 79 |
| 9. | Jacek Rawecki | 01.01.2017 - 26.05.2017 | 32 |
| 10. | Leszek Koziorowski | 01.01.2017 - 29.05.2017 | 33 |
| 11. | Stefan Świątkowski | 01.01.2017 - 29.05.2017 | 33 |
| 12. | Anna Mańk | 01.01.2017 - 29.05.2017 | 33 |
| 13. | Stanisław Bortkiewicz | 01.01.2017 - 29.05.2017 | 33 |
| TOTAL | 677 |
The Company does not have any liabilities towards former the Members of the Management Board and the Supervisory Board arising from pensions and similar benefits.
At the same time, it is indicated that due to the Company's liabilities towards former members of TAURON Management Board, in 2017 the total amount of PLN 2 258 thousand was paid due to bonuses for the accomplishment of KPIs in 2016 and compensations for compliance with the non-competition clause.
TAURON Capital Group comprises selected companies managed jointly as a uniform economic body consisting of independent commercial law companies, led by TAURON as the parent entity.
In 2017 the Business Model of TAURON Group adopted by the Management Board of the Company on May 4, 2016 was in force. In order for TAURON Capital Group to effectively carry out the tasks the above document was updated by the Management Board of TAURON. A document called Business and Operational Model of TAURON Group (Business Model) adopted on January 23, 2018 defines TAURON Capital Group's management model, defines the high-level architecture of processes and contains guidelines concerning key performance indicators of units constituting TAURON Capital Group.
The key assumptions of the Business Model include building of TAURON Capital Group value, focusing on customers, transparent distribution of duties and responsibilities, effective information exchange, use of employees' knowledge, volatility of the Business Model, organisational integrity of TAURON Capital Group.
In accordance with the provisions of the By-laws of the Management Board of TAURON Polska Energia Spółka Akcyjna with its seat in Katowice, the Management Board conducts the affairs of the Company and represents it in all judicial and extra-judicial proceedings. All issues connected with managing the Company, which are not restricted by legal regulations and provisions of the Company's Articles of Association to the competence of the General Meeting or the Supervisory Board lie within the competence of the Company's Management Board. Cooperation of two members of the Management Board or one member of the Management Board together with a proxy is required for submitting statements on behalf of the Company.
Issues covered within the competence of the Management Board as a collective body are described in detail in section 6.8.1. of this report.
In accordance with the Organisational Regulations of TAURON Polska Energia S.A. (Organisational Regulations), the Company is managed directly by the Management Board of the Company as well as through proxies, Executive Directors, Managing Directors or power of attorneys.
The Company implements its tasks through:
The main regulatory act of TAURON Group is the Code of TAURON Group adopted by the Management Board of the Company which regulates its operations, ensuring the implementation of the goals through tailored solutions in the area of management of TAURON Capital Group's entities, including, in particular, setting the operating objectives of companies, enabling the achievement of effects assumed in the new Strategy.
Regulations implemented in 2016 together with the Business Model led to introduction of the management by processes structure within the entire TAURON Capital Group, consisting in establishing of process subordination running horizontally within all companies of the Group. Members of the Management Board are responsible for the allocated to them process streams which are subsequently divided into Megaprocesses. Megaprocesses are owned by named managing and executive directors at TAURON. Process documentation (maps, diagrams and process sheets) defines and describes decision authorities and actions to be undertaken by individual organizational units within companies of the TAURON Capital Group. Owners of Megaprocesses decompose these into lower level processes and appoint their owners. Each process has its owner and process metrics defined by the higher level process owner. Process documentation defines the decision dependences and authorities for repeatable processes.
Management by processes model has been implemented to benefit from operating synergies between companies of the TAURON Capital Group, share and use best practices, standardize and automate processes, and to ensure coherence of actions taken within Group companies to support implementation of Group Strategy.
The essence of management by processes lies in unending search for and implementation of efficiencies along with clear and transparent division of authorities and responsibilities. Processes are modified to improve their efficiencies. Process documentation is published in the Intranet and available to all employees.
Authorities and process dependences described in process documentation supplement authorities set forth in the organizational structure of individual companies and support operations of TAURON Capital Group companies as a single organism.
Within TAURON Capital Group the Standing Committees of TAURON Capital Group are operating, including:
The aforementioned Committees were established in order to enable performing of operations in accordance with the principles of operating consistency, in compliance with the law and interests of TAURON Capital Group and its stakeholders.
The below figure presents process streams cutting across TAURON Capital Group's Lines of Business
| CORPORATE CENTER | ||||||
|---|---|---|---|---|---|---|
| Strategy | Finance | Asset Management and Development |
Customer and Corporate Support |
Trading | ||
| Mining Generation |
RES | Distribution Heat |
Supply | |||
| Process streams: | Trading (Line of Business) |
(Line of Business) Line of Blusinessi |
(Line of Business) | (Line of Business) 0.Inc of Businessi |
(Line of Business) | |
| Strategy | * Impactig external and internal environment, communications and setting expansion directions taking into account regulatory, business and technology changes. Supervision over strategy implementation in the organization. Risk and security management |
|||||
| Finance | · Finance management | |||||
| Asset Management and Development |
- Consisten and efficient asset management aiming to ensure the required efficiency level in the most cost effective way. - Expanding the Group's operations through research, development and innovations. |
|||||
| Customerand Corporate Support |
- Managing sales, customer relationship and experience in contacts with Tauron Group and developing cooperation between Lines of Business in order to meet customer needs. - Developing corporate governance and Group management rules. - Supervision over quality and effeiciency of the support processes, including IT management. |
|||||
| Trading | · Planning electricity wholesale and production. Optimizing the Group's trading operations on wholesale markets. · Trading, as well as trading and technical balancing. - Securing fuels for electricity and heat production. |
Figure no. 50. Process streams
Business Model identifies 23 mega processes cutting across all units of TAURON Capital Group.
The below figure presents the structure of TAURON Capital Group's processes (mega processes).
| Management processes | |
|---|---|
| 1.1 Strategy | 1.5 Audit |
| 1.2 Controlling | 1.6 Asset management |
| 1.3 Corporate communications | 1.7 Research and innovations |
| 1.4 Risk management | |
| Operational processes | |
| 2.1 Mining | 2.4 Electricity and heat distribution |
| 2.2 Electricity and heat production | 2.5 Supply and customer service |
| 2.3 Trading | |
| Support processes | |
| 3.1 Corporate management | 3.7 IT support |
| 3.2 Mergers and acqusitions | 3.8 Legal services (support) |
| 3.3 Finance management | 3.9 Purchasing |
| 3.4 Accounting | 3.10 Ensuring security |
| 3.5 Tax management | 3.11 Project implementation |
| 3.6 Human capital management |
In accordance with the Business Model in force activities are underway aimed at fully implementing the distribution of roles and responsibilities base on assigning the process competences, among:
TAURON Capital Group's business operations are conducted based on seven Lines of Business defined in accordance with the links of the electricity and heat production value chain: Mining, Generation, Renewable Energy Sources (RES), Heat, Trading, Distribution and Supply.
The below figure presents the structure of TAURON Capital Group's Lines of Business.
| Lines of Business | |||||
|---|---|---|---|---|---|
| Trading | |||||
| Mining | Generation | RES | Heat | Distribution | Supply |
Centralizing of the support services is aimed at relieving the Corporate Centre and Lines of Business from execution of processes which are not directly associated with the conducted business operations (so-called support processes) as well as at reducing costs of the implementation of such processes due to the economy of scale and increase of the operational efficiency. Within the formal structure of TAURON Capital Group, CUWs were placed in TAURON Obsługa Klienta, TAURON Ubezpieczenia sp. z o.o. and Wsparcie Grupa TAURON subsidiaries.
Three amendments were introduced in 2017 in the Organizational By-laws at TAURON aimed to optimize management processes, i.e.:
b) Vice-president of the Management Board for Clients and Corporate Support was vested with:
a) overseeing the formulation of the IT area functioning and management model by subordinating to him the sphere of the Executive Director for IT, who was previously subordinated to the Vice-president of the Management Board for Finance,
At the time, due to the vacancy on position of Vice-president of the Management Board for Trade, these functions were temporarily vested as from 14 April 2017 to the Vice-president of the Management Board for Assets Management and Development, and as from 25 October 2017 temporarily to the Vice-president of the Management Board for Finance.
The below figure presents the diagram of the split of responsibilities of members of the Management Board.
Introducing the above changes to the Organizational By-laws the required modifications of the scopes of the individual business units in the Company's structure were made.
In the general part of the Organizational By-laws provisions on establishing additional reporting lines and prinicples of proceeding in case of conflicting instructions were modified. Furthermore, the power to issue intra corporate regulatory acts was also granted to the Vice President of the Management Board empowered by the Management Board.
Changes to the organisational structure of the Company were aimed at optimizing the operations of the Company and TAURON Capital Group. Areas assigned to the individual divisions managed by members of the Management Board of the Company were revised.
The below figure presents the divisions assigned to the individual members of the Management Board, down to the level of business units and independent work positions reporting directly to members of the Management Board, as of the day of drawing up this report.
Activities undertaken in implementing the management by processes structure resulted in updating of the Business Model. Scope of authorities and functions attributed to individual Megaprocesses were specified in further detail and supplemented to fully reflect the performed activities in the documents and to ensure possibly high effectiveness. Most important changes include allocation of activities in occupational safety, hygiene and environmental protection to the assets management Megaprocess, transfer of activities related with market forecasting from the trade Megaprocess to the controlling Megaprocess and including public aid activities into the controlling Megaprocess. Some other minor modifications and changes were made in line with the Business Model Structure.
Owners of the Megaprocesses were defined in course of 2017 implementation processes of the Business Model and the Megaprocesses devolved to lower level processes being implemented in their entirety in all companies of the TAURON Capital Group. Full documentation of processes active within TAURON was prepared and published.
Process documentation (maps, diagrams and sheets) were developed, implemented and published in H2 2017 in key companies of the TAURON Capital Group, i.e. at TAURON Wydobycie S.A., TAURON Wytwarzanie S.A., TAURON EKOENERGIA sp. z o.o., TAURON Ciepło sp. z o.o., TAURON Dystrybucja S.A., TAURON Sprzedaż sp. z o.o. and TAURON Obsługa Klienta sp. z o.o.
Process design activities led to identification and elimination of much inefficiency and products of processes not generating added value, as well as added were actions necessary and required for effective implementation of objectives and assumptions resulting from the Strategy. These activities were supported through workshops and training courses for employees participating in process modeling and creating process documentation.
New statutes and company deeds were adopted in 2017 within the TAURON Capital Group companies, implementing principles of management set forth in the Act of 16 December 2016 on principles of managing State-owned assets. Provisions defining scope of authorities of corporate bodies that were described in process documents were removed form the deeds. This served to avoid overlaps and prolonging of decision processes in the scope that has been allocated in process documents to other units and persons.
Implementation of the Business Model redefined, redesigned all repeatable processes unifying descriptions that were published in implemented through process documentation. Implemented process documents and tool as well as acquired within the TAURON Capital Group competences in process management and process optimization throughout the Group have become a starting point for attaining further efficiencies and operating effectiveness.
Activities associated with design and implementing of key processes in remaining operating companies of the TAURON Capital Group shall be continued in 2018.
Being among the biggest energy sector holdings in Central and Eastern Europe, with operations along the entire energy value chain, the TAURON Capital Group is aware of the influence it has on its broad surroundings – natural environment, stakeholders (employees, customers, shareholders, local communities, suppliers, representatives of authorities and institutions), the micro- and macroeconomic situation and the industry it operates in. While studying its social influence and impacts on the economy, lives of employees, customers, natural environment and communities, the TAURON Capital group is continuously monitoring the non-financial indicators of its operations and presents the results annually in its integrated report.
The integrated formula allows a clear presentation of relations and dependencies between the financial and non-financial aspects of the operations of all companies of the TAURON Capital Group. This makes it a comprehensive and transparent document presenting the company operations, its business model, strategy, key changes, opportunities and risks as well as results from the point of view of all stakeholder groups. Combining the financial data with the non-financial aspects of the TAURON Capital Group is also intended to demonstrate the potential achieved through synergy of the core business with non-business operations, based on the Strategy.
Within the 5 directions set by the Strategy, 18 commitments were made, and due to the need to monitor the extent of their achievement, each commitment was assigned a metric and initiatives.
The key non-financial performance metrics of the TAURON Capital Group include, in line with the Sustainable Development Strategy, the system average interruption frequency index (SAIDI), number of innovative R&D initiatives submitted in employee competitions, the level and monitoring of the Customer Satisfaction Index (CSI), the complaints index as well as offering match indicator.
Striving for the customer relations not to be limited only to providing products and services, while being aware of the numerous threats that may be encountered by customers in various aspects of using or purchasing electricity, TAURON is conducting educational campaigns targeted at electricity consumers, while the performance indicator of these activities is, e.g., the number of delivered initiatives such as "Energy for Seniors".
The non-financial indicators also concern TAURON Capital Group's impact on natural environment. Having in mind the sustainable development principles, the companies of the TAURON Capital Group are optimising their resource management processes (water, raw materials and materials) and are executing active waste management policies (with respect to process and communal waste). Important role in environment protection is also played by the pro-environmental education conducted by individual companies of the TAURON Capital Group, addressed to children as well as to adults.
The non-financial performance metrics of environmental operations of the companies of the TAURON Capital Group also include the number and reach of information and education programmes about environment protection addressed to the customers, employees and the local communities.
The non-financial performance metrics of the TAURON Capital Group operations in employee dimension are, for example, indices of injuries, vocational diseases, days lost and absences, as well as fatal work accidents according to regions and gender, as well as the average number of training hours per year per employee according to gender and job category.
The non-financial performance indicators included in the integrated report of the TAURON Capital Group also presented the dual benefits indicators (dual indicators), i.e. non-financial indicators that are clearly related to financial indicators. An example here is energy consumption dynamics. Reduction of electricity consumption is good for the environment (first benefit) and at the same time reduces costs and improves the results of an entity.
The use of non-financial performance indicators allows the TAURON Capital Group a more comprehensive company mapping in the annual integrated reports, presenting processes and events taking place, as well as including in the analyses the factors impacting its success in a longer time horizon.
Non-financial indicators presented in the annual report of the TAURON Capital Group comprehensively present the social impact, characterise the way in which TAURON intends to remedy its negative impact on the natural and social environment and the ways it contributed to its improvement.
For the purpose of implementation in the national legislation of the Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014, amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups (Non-financial Information Disclosure Directive), the Polish act of 29 September 1994 on accounting (the Accounting Law) was amended.
According to Article 49 b (2) and (3) of the Accounting Law, the scope of information contained in a non-financial report was extended with the description of policies applied with respect to social, employee, natural environment, respect for
human rights and corruption countering issues, as well as with description of due diligence procedures applied under these policies and their results.
To assure compliance of the operations of the TAURON Capital Group with the new regulatory requirements, the Management Board of TAURON has in 2017 adopted for use throughout the TAURON Group the following regulations:
Each of the above documents comprehensively presents its subject matter along with an exhaustive description of measures taken by TAURON Capital Group's subsidiaries to achieve the targets adopted in the relevant areas.
The responsibilities taken on by the TAURON Capital Group in the area of social issues are governed by the adopted Customer Oriented Social Policy (PRO), aimed at assuring appropriate organisational and business conditions required for achievement of the strategic goals of the TAURON Capital Group concerning its customer and market environment relations. The Customer Oriented Social Policy defines the measures taken by TAURON under a customer dialogue, stresses the importance of building lasting relations both with the customers and the market environment.
Diversity and openness constitute an integral part of both the business operations of the TAURON Capital Group as well as of its Human Resources Management Policy of the TAURON Group. The companies of the TAURON Capital Group observe the equal treatment policy and strive to assure diversity with respect to gender, education type, age and professional experience with respect to all employees, and in particular Company authorities and its key managers.
Streamlining of the above measures is supported by the Diversity Policy implemented at the TAURON Capital Group with the key objective of strengthening organisational awareness and culture welcoming diversity.
In employee related matters the TAURON Capital Group also takes measures to prevent discrimination by creating appropriate working atmosphere and culture based on corporate values (Partnership, Development and Courage), as confirmed by implementation of the Counter Mobbing and Counter Discrimination Policy at the TAURON Group.
TAURON Capital Group takes on responsibility for caring for the natural environment and the consequences of using its resources. Considering it an important social responsibility, since many years TAURON has been commencing a range of measures aimed at minimising the negative impact of its operations on natural environment.
All companies of TAURON Capital Group have adopted the Environmental Policy that defines the approach to environmental management, including the general direction of environmental operations of the organisation and the principles it follows in environment related matters. The environmental policy is the benchmark for assessing the operation of all companies in the area of environment protection and environmental management; it also documents the values and the vision followed by TAURON Capital Group in its influence on the natural environment.
The principles followed by the TAURON Capital Group in the context of respect for human rights and measures taken to prevent their violation as well as support for a climate of dignity and mutual respect are expressed in the Human Rights Respect Policy. This document defines the rules for actions and conduct with respect to human rights that are dedicated to all stakeholders of the TAURON Capital Group, in particular the employees, trading partners and business partners, and include: prohibition of mobbing and discrimination, observing employment and remuneration conditions, work health and safety (WHS).
Due to the nature of operations of the TAURON Capital Group, the area of respect for human rights gives prominent place to aspects relating to work safety assurance. For this reason a separate document was developed that defines the values, rules of conduct and principles of actions concerning the WHS. The goal of the WHS Policy is to achieve the four fundamental goals of work health and safety, being:
Provisions contained in the WHS Policy bind all employees of the TAURON Capital Group as well as all contractors and suppliers of products and services, and any other persons present at the premises of the TAURON Capital Group. The WHS reporting procedures at the TAURON Capital Group are compliant with the Labour Law regulations governing the operation of work place accidents register and informing external authorities about work related accidents and vocational diseases.
Without a business based on respect for human rights there is no possibility to collaborate with the market at the top level. The TAURON Capital Group also expects its business partners to observe the rules and respect human rights of their own employees and to abstain from any forms of breach. As a consequence of supporting the responsible and ethical business conduct, the Code of Conduct of Business Partners was implemented.
The goal of the Anticorruption Policy in force is to define uniform rules and standards of conduct that allow identifying, countering and mitigating the risk of occurrence of corrupt practices and other kinds of fraud at the companies of the TAURON Capital Group. TAURON has a zero tolerance policy towards corruption and other fraud with respect to all aspects of business and non-business operations of the TAURON Capital Group.
The Anticorruption Policy defines acts of corruption and other practices contrary to the legal regulations in force, internal regulations and corporate regulations of the TAURON Capital Group or ethics. The document defines the obligations relating to countering corruption, potential areas of corruption risk as well as the warning signals the employees should be paying attention to in their daily work. According to the provisions of the Anticorruption Policy, the TAURON Capital Group operates appropriate communication channels allowing the employees to immediately and securely (including anonymous) report potential cases of breach.
The basic premise of the Customer Oriented Social Policy is an ongoing survey of general customer satisfaction. At the TAURON Capital Group, one of the key tools for their satisfaction evaluation is the Customer Satisfaction Index (CSI). The survey is performed every Q2/Q3 by an independent research agency. It includes a randomly selected group of customers of TAURON and a group of customers of other energy utilities, such as: ENEA, ENERGA and PGE.
The effects of application of the Customer Oriented Social Policy also include educational initiatives oriented at disadvantaged groups, primarily energy sensitive customers and seniors. The range of topics of these initiatives includes the commercial dangers on the energy market, consumer rights, ways to overcome difficulties with paying the electricity bills, assistance in understanding the bill, etc. In this way TAURON is helping the disadvantaged groups in informed and safe use of the energy market. Educational activities take the form of:
The results of implementation of the assumptions of the Customer Oriented Social Policy also include simplification of the marketing communication of products and services as well as providing the customers with an option to pay their distribution service fees and connection charges using electronic payments. Moreover, the partners TAURON collaborates with in the offerings (suppliers of specialised equipment) and in expanding the sales channels (at present, sales through real estate agencies – over 10 partners in total) are selected according to the procedures for establishing collaboration.
Presently the TAURON Capital Group is working on operationalization of the principles of the implemented employee related policies. The measures taken are targeted at creating a culture based on corporate values of Partnership, Development and Courage that support dialogue, openness, mutual tolerance and teamwork.
Moreover, in 2017 an e-learning training was launched on countering mobbing and discrimination at the TAURON Capital Group, which supports the procedures of reporting incidents that may indicate occurrence of mobbing or discrimination.
The result of application of the Environmental Policy by the TAURON Capital Group is a gradual reduction of both the direct and indirect influence on the environment and conducting relevant communication assuring understanding of the operations of the TAURON Capital Group that may be impacting the environment.
The TAURON Capital Group observes all the internationally recognized human rights and supports their protection, while at the same time preventing situations where these rights would be directly or indirectly violated. The Human Rights Respect Policy is binding on all employees, and with the implementation of the Code of Conduct of Business Partners – also on TAURON's business partners. Currently the process of operationalization of the document is under way. Due to the above it is not possible to comprehensively present the results of application of the above policy at present.
The WHS Policy streamlines the rules on the WHS that the TAURON Capital Group has been observing long before the development of this document. The expected result of operationalisation of the WHS Policy is a continuing improvement of work health and safety standards that is to result in, among others, elimination of work related accidents and minimisation of occurrence of vocational diseases and potentially accident prone incidents.
Each and every employee of the TAURON Capital Group is required to study the content of the Anticorruption Policy, respect it unconditionally and sign a statement on having studied its content. Introduction of the Anticorruption Policy at the TAURON Capital Group contributes towards continued improvement of awareness concerning identification of corrupt practices and promotion of honesty and transparent conduct.
One of the key metrics of due diligence used in the Customer Oriented Social Policy are the cyclically determined Key Performance Indicators (KPIs) concerning, for example, the number of complaints submitted to the TAURON Capital Group. In its operations TAURON pays particular attention to the procedures aimed at raising customer awareness, thus preventive measures are developed and implemented after post-collection reconnection of electricity supply, i.e. the customers are informed about the need to prepare their premises for renewed electricity supply so as to prevent occurrence of hazards to people and property.
TAURON is planning further delivery of information campaigns, trainings and other initiatives facilitating understanding of the Customer Oriented Social Policy by the employees and developing customer oriented attitudes with:
With respect to employee issues under the policies applied at the TAURON Capital Group, regulations are in force on remuneration and labor law, as well as a standardized Human Resources Management Policy at the TAURON Group and Rules of Compensation at TAURON Group.
Moreover, respecting the freedom of association, the TAURON Capital Group has a Social Council and dozens of trade union organizations.
The general direction of environmental measures at the TAURON Capital Group includes minimising the negative impact on the environment taking into account the specifics of the sector, technical progress and access to environmentally friendly technologies, achieved by:
4) ongoing monitoring of the main aspects of direct and indirect environmental impact of operations.
TAURON Capital Group strives to respect human rights and to understand the values of local communities by holding open dialogues with those affected by the company operations. When making business decisions, TAURON analyses the extent of their potential impact on the local communities of the region and seeks to balance its impact on the environment, which is reflected in its Human Rights Respect Policy, with its provisions also defining the path for reporting violation of its rules.
Under the due diligence procedures in operation under the human rights respect policies, changes were introduced to the template TOR and detailed TOR documents that constitute attachments to the Rules for Awarding Contracts at the TAURON Group, resulting in the requirement on every business partner of the companies of the TAURON Capital Group to submit the statement on having reviewed the Code of Conduct of Business Partners.
Under the due diligence procedures aimed at improving the WHS standards, the TAURON Capital Group measures and benchmarks its results with respect to the WHS both internally and externally, and uses the best identified practices. Moreover it seeks to develop its own best practices in the WHS and conducts internal and external audits with participation of the management staff, employees and their representatives, WHS services and contractors. TAURON also works on initiatives raising the awareness of the WHS among employees, including information and training activities, as well as campaigns oriented at increasing the employee engagement in shaping the work health and safety system at the TAURON Capital Group.
TAURON Capital Group encourages its employees and third parties to come forward with any information on breaches of the Anticorruption Policy and other violations using the dedicated communications channels. The employees and third parties may submit their doubts or request the assistance of the Compliance Officer in case of doubt as to whether a justified suspicion arises in specific situation of breach of provisions of the Anticorruption Policy or other legal regulations, internal company regulations or corporate regulations of the TAURON Capital Group or of ethical standards. All submissions are treated with confidence and studied with due diligence.
TAURON is taking measures to raise employee knowledge and awareness of combating corruption. In 2017, TAURON has organized workshops for the members of the management staff on topics of corruption. Similar trainings particularly dedicated to the staff from procurement and investments areas took place also at the other companies of the TAURON Capital Group. In 2018, TAURON is planning to deliver information initiatives, trainings and other measures facilitating correct understanding of the Anticorruption Policy by the employees and following its principles in their daily work.
Under the risk management process employed by the TAURON Capital Group, risks related to operations of the companies were identified that could exert adverse impact on the social, employee, natural environment, respect for human rights and anticorruption issues as well as on policies employed by TAURON.
According to regulations in force, for every identified risk its Risk Owner is appointed and made responsible for this risk management, risk records are developed containing descriptions of mitigation measures conducted, risk measurement parameters and early warning indicators are defined and in particular cases separate risk response and backup plans are developed. These risks are included in the risk model that defines the categories of risks present in the operations of TAURON.
The key risks include: social risk, human capital management risk, WHS risk, internal communication risk, environmental risk, procurement process risk, legal risk and compliance risk.
The below table below characterizes the risks related to the operations of TAURON that could exert adverse impact on the policies employed by TAURON.
| # | Risk name | Risk description | Risk response |
|---|---|---|---|
| 1. | Social risk | The risk includes failing to meet customer service standards, to deliver on sales agreements, external communications and marketing activities and the personal data protection related risk. Risk materialisation could result in loss of reputation and customer trust, customer disputes, non-achievement of goals including sales targets and possible penalties for legal noncompliance concerning personal data protection. |
• Adoption and execution of Customer Oriented Social Policy. • Holding a dialogue with customers, including customer satisfaction surveys, tailoring the product offering to their needs, looking after high customer service levels. • Building relations with the customers and market environment. • Responsibility for the product including quality and security of supply, tailoring the product offering to customer needs. • Customer personal data privacy and security protection. |
Table no. 33. Risks related to the operations of TAURON that could exert adverse impact on the policies employed by TAURON
| # | Risk name | Risk description | Risk response |
|---|---|---|---|
| • Implementing tools supporting execution of customer focused social policy. • Standardisation of customer agreement templates and their adaptation to legislation changes and optimisation of sales and service processes. • Delivery of promotional activities in line with the adopted TAURON brand strategy and TAURON Group sponsoring strategy for 2018-2025, taking into account respect for human rights and conducting responsible marketing. |
|||
| 2. | Human capital management risk |
Risk relating to employee issues including diversity, inclusion, employment conditions and respect of right of association, capital management, career paths and recruitment management, training system, work health and safety management. Risk materialisation results in employee complaints, collective disputes, strikes, loss of specialised staff and problems with its restoration. |
• Adoption and execution of the Employee Recruitment, Selection and Adaptation Policy. • Adoption and execution Counter Mobbing and Counter Discrimination Policy. • Looking after development of employee competences, including through participation in trainings. • Holding consultations with social organisations within the TAURON Capital Group. • Execution of the staffing policy based on the Competence Model and Rules of Compensation, and Rules of Work. • Adoption and implementation of the Diversity Policy. • Adoption and implementation the Human Rights Respect Policy. |
| 3. | Work Health and Safety (WHS) risk |
Risk relating to ensuring health and safety at work. Risk materialisation result is employee injury, health loss or excessive employee exposure to hazards. |
• Prioritisation of employee, customer, contractor and stakeholder safety in the business activities performed. • Adoption and execution of the Work Health and Safety Policy of the TAURON Group. • Assuring optimal working conditions. • Raising employee qualifications with respect to work safety improvements. • Conducting trainings, implementation and improvement of WHS management system. |
| 4. | Internal communication risk |
Risk relating to assuring optimal and effective communication within the TAURON Group and transmission of honest information to employees of the TAURON Capital Group while observing confidentiality of sensitive information. Risk materialisation result is a loss of trust in the employer, increased social unrests, loss of reputation and negative impact on the TAURON brand. |
• Building relations with the social side at the TAURON Capital Group and close cooperation with the Social Dialogue Spokesperson. • Use and development of available communications tools to provide significant information to the employees of the TAURON Capital Group. • When providing significant information – organisation of fact to face meetings of the management staff with the employees. • Ongoing monitoring of situation and events at companies of the TAURON Capital Group that could result in social unrests. • Regular meetings with the representatives of companies dealing with internal communication to exchange information. • Developing the Communication Strategy for the TAURON Group. |
| 5. | Environmental risk |
Risk relating to impact of business operations on natural environment and the use of its resources, pollution control and prevention, protection of water sources and waste management. Risk materialisation result is a degradation of natural environment and penalties for failing to meet environmental requirements, the need to remedy them, to limit production, possibility of benefiting from subsidy programmes and loss of image of the TAURON Capital Group. |
• Adoption and implementation of Environmental Policy of the TAURON Group. • Conducting business operations impacting the natural environment according to sustainable development principles. • Identification of areas of environmental impact and assuring the operation of the TAURON Capital Group in compliance with the environment protection laws. • Continuing development of knowledge and environmental responsibility culture among the employees, customers and business partners of the TAURON Capital Group. • Seeking solutions aimed at implementing circular economy principles at the TAURON Capital Group and actively seeking technical and organisational solutions that minimise the negative impact of operations on the environment. • Improvement of energy efficiency and efficient water management. • Offering products / services that take into account the aspect of limiting the negative environmental impact. |
| # | Risk name | Risk description | Risk response |
|---|---|---|---|
| • Promoting conservation of nature and relevant collaboration with local government and central government administration bodies. |
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| 6. | Procurement process risk |
Risk relating to the exercised procurement procedures, taking into account prevention of violation of human rights by business partners, countering corruption and fraud in procurement processes and observing ethical and moral standards in their progress. Risk materialisation result are non-optimal purchase contracts, need to annul tendering procedures, loss of image of the TAURON Capital Group and credibility to stakeholders. |
• Adoption and implementation of the Code of Conduct of Business Partners of the TAURON Group. • Adoption and execution of the Anticorruption Policy of the TAURON Group. • Adoption and execution of the Human Rights Respect Policy. • Standardisation of conducting procurement processes and their transparency. • Building lasting business partner relationships based on trust and mutual respect. • Expecting the business partners to observe the legal regulations, ethics standards and fair trading practices, including work health and safety, prevention of discrimination and unequal treatment, respecting employee human rights and dignity, transparent HR policy, environment protection, fair competition, fraud prevention and combating, as well as information security and protection. • Use of standard template agreements and standard clauses in contracts providing for respect for human rights by the business partners of the TAURON Capital Group. |
| 7. | Legal risk | Risk relating to non-observance of legal regulations, misinterpretation of new rules and regulations, requirements imposed by the regulator and the supervisory bodies. |
• Ongoing monitoring of the legal environment and amendments to legal regulations, including in scope of social issues, respect for human rights, countering corruption, environment protection and employee issues. • Implementation of the required amendments to the in house regulations. • Appointing working parties tasked with developing and implementing the required changes resulting from the legal environment. • Ongoing cooperation with the bodies supervising the energy market and the capital market. • Training the employees in legal regulations and in-house regulations. |
| 8. | Compliance risk | Compliance risk includes the risk of internal fraud, external fraud and non-ethical conduct. Risk relating to misappropriation or improper use of Company assets, their devastation, abuse of official position for personal gains, acts by third parties aimed at theft, burglary, counterfeiting and related to occurrence of conduct violating generally accepted social coexistence standards, moral standards and mobbing. |
• Adoption and implementation of Code of Conduct of Business Partners of the TAURON Group. • Adoption and execution of the Anticorruption Policy of the TAURON Group. • Adoption and execution of the Human Rights Respect Policy. • Adoption and execution of the Counter Mobbing and Counter Discrimination Policy. • Adoption and implementation of the Diversity Policy. • Use of internal procedures aimed at fraud prevention (security procedures, reviews of authorisations), their testing and improvement. • Promoting best practices, improvement of procedures, conducting trainings and observing the Code of Business Ethics of the TAURON Group and operation of a fraud reporting system. • Building an organisational culture based on values and |
principles of the TAURON Group.
During the reporting period no proceedings were pending before any court, competent arbitration authority or public administration authority, related to the Company, the standalone or aggregate value of which would represent at least 10% of TAURON's equity.
Furthermore, during the reporting period no proceedings were pending before any court, competent arbitration authority or public authority body, related to the subsidiaries of TAURON Group, the standalone or aggregate value of which would represent at least 10% of TAURON's equity.
In the financial year 2017 and until the day of drawing up this report TAURON Capital Group's subsidiaries concluded the following agreements significant for the operations of TAURON Capital Group:
On March 1, 2017 the Management Board of TAURON's subsidiary - TAURON Wytwarzanie (Ordering Party) signed with the RAFAKO S.A. - MOSTOSTAL WARSZAWA S.A. consortium (Contractor) an amendment to the agreement on the construction of a 910 MWe power generation unit for super critical parameters at Jaworzno III Power Plant - Elektrownia II, currently carried out by the Ordering Party's spun off branch – Oddział Jaworzno 910 MW in Jaworzno, with respect to: steam boiler, turbine set, main building, electric part and the unit's instrumentation and control (I&C).
Under the amendment the agreement's net price was increased by PLN 71.05 mln, i.e. to PLN 4 470 mln, and the deadline for completing the subject of the agreement was extended by 8 months, i.e. until the 67th month from the date of concluding the agreement at the latest which means that the new assumed date of handing over the unit for operation is November 2019.
The decision to sign by TAURON Wytwarzanie of the above mentioned amendment was taken on February 28, 2017. On the same day also the Management Board of TAURON issued a positive opinion on the conclusion of the amendment on the above mentioned terms.
Amendments to the agreement were due to the need to change the unit's facilities' foundations to the deep foundations, and also due to the parties to the agreement agreeing on additional works beneficial to the Ordering Party for technical and economic reasons (erecting the foundation for the fifth electrofilter (EF) zone and extending the EF switchgear building). The additional works will allow the Ordering Party to achieve savings during the planned outage of the unit in 2021 in order to partly adapt the unit to comply with the future BAT conclusions requirements. The Ordering Party partly accepted the Contractor's claims related to the above circumstances and the change necessity protocols as justified. The claims due the change of the design standards – EUROKODY, were not accepted as justified by the Ordering Party.
Due to the above the warranties granted by the Contractor were extended:
The Contractor will also ensure an appropriate extension of the agreement's performance bond.
Signing of the amendment changed the terms of the agreement with the Contractor, however it had no impact on the change of the entire investment project's budget.
The Company provided information on the amendment to the above mentioned agreement in the regulatory filings (current reports): no. 5/2017 of February 28, 2017 and no. 7/2017 of March 1, 2017.
On March 31, 2017, in reference to the earlier concluded agreements and amendments on the terms of further implementation of the "CCGT unit's construction at Stalowa Wola" project (Project), as described in the regulatory filing (current report) no. 36/2016 of October 27, 2016 ECSW issued an instruction to make the payment to the institutions so far providing the financing for ECSW, i.e. European Investment Bank, European Bank for Reconstruction and Development, Bank Polska Kasa Opieki S.A. (Financing Institutions) of PLN 581.4 mln as the repayment of all of ECSW's liabilities towards the Financing Institutions. Upon the crediting of the Financing Institutions' bank accounts the suspending conditions were met and at the same time the documents described in the above mentioned report (filing) came into force, i.e.:
The agreement governs, first of all, the conditions of settling the liquidated damages, making the so far used pricing formulas market based and the Project's financial restructuring issues and it constitutes a reflection of the will of the Project's sponsors, i.e.: TAURON and PGNiG (Sponsors) with respect to the continuation of the CCGT unit's construction, making changes to the Gas Agreement and the Electricity Sale Agreement and changing Project's financing formula from project finance to corporate finance.
Changes to the Gas Agreement and the Electricity Sale Agreement envisage in particular making the pricing formulas used in these agreements market based. Furthermore, due to the delay in the Project's implementation, the amendment to the Gas Agreement envisages a change with respect to amounts, deadlines and methodology used to assess liquidated damages.
ECSW acquired the funds for the bank loans' repayment under loan agreements according to which each of the Sponsors granted ECSW a PLN 290.7 mln loan.
In accordance with the provisions of the standstill agreement mentioned in the regulatory filing (current report) no. 36/2016 the Financing Institutions were obligated to return the bank guarantees received from the Sponsors for the total amount of approx. PLN 629m, where the total amount of bank guarantees provided by TAURON was PLN 314.5 mln.
Irrespective of the above the Sponsors, along with ECSW, are continuing joint works aimed at acquiring new financing for the CCGT unit's construction project at Stalowa Wola the terms and the structure of which would be more favorable than the existing agreements.
The Company disclosed information on the above event in the regulatory filing (current report) no. 11/2017 of March 31, 2017.
The bank guarantees for PLN 314.5 mln issued at TAURON's instruction in order to guarantee the banks' liabilities under the loans granted to ECSW mentioned in the above regulatory filing (current report) expired in April 2017.
In reference to the Strategy that assumes an implementation of the construction of a 910 MW power generation unit project at Jaworzno (Project) under the new financing formula, envisaging spinning off of an organized part of an enterprise including the above mentioned investment project into a new special purpose vehicle, and then external partners joining the company, on June 1, 2017 TAURON signed the Agreement on the preliminary terms of potential cooperation as part of the Project with Fundusz Inwestycji Infrastrukturalnych – Kapitałowy Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych and Fundusz Inwestycji Infrastrukturalnych – Dłużny Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych (Funds), managed by Towarzystwo Funduszy Inwestycyjnych BGK S.A. A part of the investment portfolio of the above mentioned Funds is managed by Polski Fundusz Rozwoju S.A.
Under the Agreement the Funds expressed a preliminary interest in investing in the Project PLN 880 mln in total, by way of the Funds taking up new shares in the Nowe Jaworzno GT special purpose vehicle, that is currently TAURON's wholly owned company currently implementing the Project. The Funds' share in the share capital of Nowe Jaworzno GT cannot be higher than 50% minus one share. The other shares in Nowe Jaworzno GT will be held by the Company or by the Company and an additional Investor (Investors), where the Company will own at least 50% plus one share in Nowe Jaworzno GT. The Agreement expresses the will of the parties to conduct, in good faith, negotiations aimed at defining the rules of potential cooperation in implementing the Project. The joining of the Project by the Funds will be dependent on the results of the detailed analysis of the Project by the Funds, the parties agreeing and fulfilling the conditions defined in the documentation of the transaction and the Funds obtaining the required investment consents to take part in the Project. The Agreement shall be valid until December 31, 2017.
At the same time on June 1, 2017 an agreement was signed between TAURON Wytwarzanie and PFR under which the investment agreement concluded between the above mentioned entities aimed at the joint implementation of the project "Construction of a 413 MWe CCGT unit at TAURON Wytwarzanie Spółka Akcyjna Oddział Elektrownia Łagisza in Będzin" was terminated. The Company provided information on the conclusion of the investment agreement in the regulatory filing (current report) no. 17/2015 of July 13, 2015. The termination of the investment agreement is in line with the assumptions of the Strategy envisaging stopping of the investment in the CCGT unit at Łagisza Power Plant which translates into the reduction of capital expenditures for this purpose by approximately PLN 1.5 bln.
In reference to the term (expiration date) of the above mentioned Agreement, on December 29, 2017 TAURON signed an amendment under which the Agreement on potential cooperation in the implementation of the 910 MW power generation unit construction project in Jaworzno was extended until February 28, 2018.
The other provisions of the above mentioned Agreement were not changed.
On February 28, 2018 TAURON informed of the will, expressed by the parties to the Agreement, to continue activities aimed at signing agreements that will define the terms of the Funds' equity investment in the Special Purpose Vehicle.
The intention of the parties is to have the Funds join the Special Purpose Vehicle and participate in the successive recapitalizations of the Special Purpose Vehicle, by taking up the newly created shares in exchange for financial contributions up to the total maximum amount of PLN 880 mln.
The Funds' share in the Special Purpose Vehicle's share capital, as of the day the Unit is commissioned, should reach approx. 14%, while TAURON's share should reach at least 50% + 1 share. Joining the Special Purpose Vehicle by the Funds will be contingent on the fulfillment of the conditions that will be defined in the agreements.
The Company disclosed information on the above events in the regulatory filings (current reports): no. 25/2017 of June 1, 2017, no. 43/2017 of December 29, 2017 and no. 4/2018 of February 28, 2018.
On June 20, 2017 amendments were signed to the agreements related to the bond issue program (Program), i.e. agency and custody agreement and underwriting agreement of the conclusion of which the Company provided information in the regulatory filing (current report) no. 49/2015 of November 20, 2015. Under the above amendments the following extension of the Program was made:
Until December 31, 2020 the Program amount will not change and will be PLN 6.27 bln maximum. The margin of the financing under the Program did not change due to the extension made.
On the other hand on March 9, 2018 amendments to the agency and custody agreement as well as the underwriting agreement were signed, the result of which is an extension by some banks of the period of availability of the funds under the Program.
This means that the maximum value of the Program:
The amendments were signed with the following banks taking part in the Program: Bank Handlowy in Warsaw S.A., Bank BGŻ BNP Paribas S.A., Bank Zachodni WBK S.A., CaixaBank S.A. (Joint Stock Company) Branch in Poland, Industrial and Commercial Bank of China (Europe) S.A. Branch in Poland, ING Bank Śląski S.A., mBank S.A., MUFG Bank (Europe) N.V., MUFG Bank (Europe) N.V. S.A. Branch in Poland and Powszechna Kasa Oszczędności Bank Polski S.A.
The information on the above events was disclosed by the Company in the regulatory filings (current reports) no. 29/2017 of June 20, 2017 and no. 6/2018 of March 9. 2018.
On January 18, 2018 a coal purchase agreement was signed between TAURON and Polska Grupa Górnicza S.A. with the subject of the agreement being the purchase of thermal coal for the production needs of TAURON Capital Group's power generating units. The estimated value of coal supplies in the 2018-2021 time frame, based on the coal price agreed for 2018, will reach the net amount of approximately PLN 2.15 bln. The coal price was agreed for the first year of the agreement's term, while in the subsequent years the coal price will be indexed based on the formula included in the agreement, taking into account changes of the market conditions. The above agreement was concluded for an indefinite period of time and it provides for liquidated damages in the amount of 10 percent of the value of unrealized deliveries in the given year.
The information on the above event was disclosed by the Company in the regulatory filing (current report) no. 1/2018 of January 18, 2018.
On March 8, 2018 in reference to the current report no. 11/2017 of March 31, 2017 with respect to the information on actions related to obtaining new financing for the CCGT unit construction project at Stalowa Wola, EC Stalowa Wola (Loan Taker), i.e. entity in which the TAURON holds indirectly, via its TAURON Wytwarzanie S.A. subsidiary, a 50% stake in the share capital; signed a loan agreement with BGK and PGNiG.
Under the above mentioned agreement BGK and PGNiG will grant the Loan Taker a loan in the amount of PLN 450 mln each, to be used to refinance the Loan Taker's debt towards the Issuer and PGNiG (PLN 600 mln) and to cover the Loan Taker's further capital expenditures (PLN 300 mln). The agreement was concluded for the period lasting until June 14, 2030.
As of March 8, 2018 the Loan Taker's current loan liabilities towards the Issuer were approximately PLN 610 mln.
The loan agreement provides for the funds to be paid out to the Loan Taker after the suspending conditions have been met, with one of them being presenting to BGK of a bank guarantee issued at the Issuer's instruction and securing the Loan Taker's debt towards BGK. The bank guarantee will be renewed annually, and its value will not exceed PLN 517.5 mln.
The information on the above event was disclosed by the Company in the regulatory filing (current report) no. 5/2018 of March 8, 2018.
All transactions with related entities are concluded at arm's length.
The detailed information on the transactions with related entities is provided in note 49 of the consolidated financial statements for the year ended on December 31, 2017.
In accordance with the financing model adopted by TAURON Capital Group, only TAURON may act as a party to working capital credits and short-term loans raised with external institutions.
TAURON Capital Group is using a true cash pooling structure, implemented under the cash management agreement concluded with PKO BP (the former agreement expired on December 17, 2017, while the new agreement came into force on December 18, 2017, valid until December 17, 2020). The cash pooling structure is based on daily limits granted to individual participants by the agent managing the service, i.e. TAURON. As a result of implementing the cash pooling mechanism, cash transfers are performed between accounts of participants of the service and the agent's account. Within the cash pooling structure TAURON uses at PKO BP:
As part of financing its ongoing operations following agreements were also in force:
The use of above described foreign currency loans is aimed at mitigating the FX risk related to the trade transactions concluded.
The EUR 6 600 thou. loan agreement concluded with TAURON Sweden Energy, valid until July 30, 2017, expired in 2017. The loan was repaid in full by the deadline stated in the agreement.
The below table presents a detailed summary of the working capital loan and credit agreements effective as of December 31, 2017.
| No. | Type of agreement | Interest rate | Amount of credit/loan (thou.) |
Period of financing | Balance as of December 31, 2017 (thou.) |
|---|---|---|---|---|---|
| 1. | Overdraft facility | LIBOR 1M + fixed margin |
2 000 USD | 16.04.2015 - 30.03.2018 | 417 USD |
| 2. | Overdraft facility | EURIBOR 1M + fixed margin |
45 000 EUR | 09.05.2017 - 31.12.2018 | 22 060 EUR |
| 3. | Overdraft facility | WIBOR O/N + fixed margin |
300 000 PLN | 30.12.2017 - 29.12.2020 | 0 PLN |
| 4. | Intraday limit | None | 500 000 PLN | 18.12.2017 r. - 17.12.2020 | 0 PLN |
The Company did not take on new credit and loan agreements and did not terminate any existing credit and loan agreements in 2017.
The below table presents a detailed summary of investment credit and loan agreements as of December 31, 2017.
| Table no. 35. Summary of investment credit and loan agreements as of December 31, 2017 | |||
|---|---|---|---|
| -- | ---------------------------------------------------------------------------------------- | -- | -- |
| No. | Parties to the agreement | Type of agreement and interest rate |
Amount of credit/loan (thou.) |
Period of financing | Balance as of December 31, 2017 (thou.) |
|---|---|---|---|---|---|
| 1. | EIB loan | fixed margin | 210 000 PLN | 30.01.2012 - 15.12.2021 | 84 000 PLN |
| 2. | EIB loan | fixed margin | 300 000 PLN | 20.02.2012 - 15.12.2021 | 120 000 PLN |
| 3. | EIB loan | fixed margin | 450 000 PLN | 16.07.2012 - 15.06.2024 | 265 909 PLN |
| 4. | EIB loan | fixed margin | 200 000 PLN | 25.01.2013 - 15.09.2024 | 127 273 PLN |
| 5. | EIB loan | fixed margin | 250 000 PLN | 22.02.2013 - 15.09.2024 | 159 091 PLN |
| No. | Parties to the agreement | Type of agreement and interest rate |
Amount of credit/loan (thou.) |
Period of financing | Balance as of December 31, 2017 (thou.) |
|---|---|---|---|---|---|
| 6. | EIB loan | fixed margin | 295 000 PLN | 17.07.2015 - 15.03.2027 | 280 250 PLN |
| 7. | Loan from TAURON Sweden Energy |
fixed margin | 166 572 EUR | 03.12.2014 - 29.11.2029 | 166 572 EUR |
In 2017 TAURON granted financing to its co-subsidiary, EC Stalowa Wola, in the form of loans to be used for the current operations of EC Stalowa Wola and the repayment of loan instalments of this subsidiary towards the European Investment Bank, European Bank for Reconstruction and Development and Pekao S.A. Furthermore, the agreement consolidating ECSW's debt due to the loans granted to the company before was signed in 2017.
In 2017 the PLN 1 120 000 thou. loan agreement concluded with TAURON EKOENERGIA was still in force. Under amendment no. 2 to this agreement, signed on February 22, 2017, the repayment date was extended until February 27, 2018. In the meantime, in November 2017, a partial early loan repayment was made in the amount of PLN 1 000 000 thou.
On November 8, 2017 the Company concluded, with PGE EJ 1 sp. z o.o., an agreement on a PLN 2 940 thou. loan for the period of 3 years from the date of concluding the agreement, i.e. until November 6, 2020.
The below table presents a summary of loans granted by TAURON and effective as of December 31, 2017.
| No. | Type of agreement/Beneficiary |
Interest rate type | Loan amount under the agreement (thou.) |
Effective term |
Balance as of December 31, 2017 (thou.) |
|---|---|---|---|---|---|
| 1. | Loan EC Stalowa Wola |
WIBOR 3M + fixed margin |
177 000 PLN | 20.06.2012 - 31.12.2032 | 177 000 PLN |
| 2. | Loan EC Stalowa Wola |
WIBOR 3M + fixed margin |
15 850 PLN | 14.12.2015 - 31.12.2027 | 15 850 PLN |
| 3. | Loan EC Stalowa Wola |
WIBOR 6M + fixed margin |
15 300 PLN | 15.12.2016 - 31.12.2027 | 11 000 PLN |
| 4. | Loan EC Stalowa Wola |
WIBOR 6M + fixed margin |
150 000 PLN | 30.06.2017 - 28.02.2018 | 150 000 PLN |
| 5. | Loan EC Stalowa Wola |
WIBOR 6M + fixed margin |
175 157 PLN | 01.11.2017 - 28.02 2018 | 175 157 PLN |
| 6. | TAURON EKOENERGIA | fixed interest rate | 1 120 000 PLN | 27.02.2015 - 27.02.2018 | 120 000 PLN |
| 7. | PGE EJ 1 | fixed interest rate | 2 940 PLN | 08.11.2017 - 06.11.2020 | 2 940 PLN |
Table no. 36. Summary of loans granted by TAURON and effective as of December 31, 2017
TAURON Capital Group's principles of granting collaterals are based on TAURON Capital Group's regulation in force.
The below table presents a summary of collaterals granted by TAURON effective as of December 31, 2017.
| Table no. 37. Summary of collaterals granted by TAURON, effective as of December 31, 2017 | ||
|---|---|---|
| No. | Beneficiary | Agreement/Collateral | Entity whose liabilities constitute the subject of collateral |
Amount (thou.) |
Effective date |
|---|---|---|---|---|---|
| 1. | WFOŚiGW | Bills of exchange with a promissory note |
TAURON Wytwarzanie | 40 000 PLN | 15.12.2022 |
| 2. | WFOŚiGW | Bills of exchange with a promissory note |
TAURON Ciepło | 30 000 PLN | 15.12.2022 |
| 3. | WFOŚiGW | Surety agreement | KW Czatkowice | 914 PLN | 15.06.202. |
| 4. | PSG | Surety agreement | TAURON Sprzedaż | 15 000 PLN | 31.03.2018 |
| No. | Beneficiary | Agreement/Collateral | Entity whose liabilities constitute the subject of collateral |
Amount (thou.) |
Effective date |
|---|---|---|---|---|---|
| 5. | PSE | Surety agreement | TAURON Wytwarzanie | 5 000 PLN | 04.08.2019 |
| 6. | GAZ-SYSTEM | Surety agreement | EC Stalowa Wola | 1 667 PLN | 30.07.2020 |
| 7. | Doradcy Funduszu (Fund (Advisors) |
Surety agreement | Nowe Jaworzno GT | 2 350 PLN | 28.09.2025 |
| 8. | Businesses and consumers that concluded an agreement TAURON Ekoenergia based on the electricity trading license granted by the President of ERO |
Corporate guarantee | TAURON EKOENERGIA | 16 400 PLN | 31.12.2030 |
| 9. | NCBiR | Bills of exchange with a promissory note |
TAURON | 1 869 PLN | 31.03.2026 |
| 10. | NCBiR | Bills of exchange with a promissory note |
TAURON | 2 375 PLN | 31.07.2024 |
| 11. | Bondholders | Corporate guarantee | TAURON Sweden Energy | 168 000 EUR | 03.12.2029 |
The following framework (master) agreements, under which bank guarantees were issued, continued to be in force in 2017:
Within the bank guarantee limit obtained from BZ WBK in 2017 TAURON was ordering issuing of bank guarantees for the benefit of IRGIT as a security for the transactions made on TGE, with the effective term of less than one year.
The below table presents a summary of bank guaranties granted under the agreements effective as of December 31, 2017. Table no. 38. Summary of bank guaranties granted under the agreements effective as of December 31, 2017
| No. | Bank | Company | Beneficiary | Type of guarantee |
Amount (thou.) |
Launch date | Effective date |
|---|---|---|---|---|---|---|---|
| 1. | BZ WBK | TAURON | IRGIT | payment | 30 000 PLN | 11.08.2016 | 31.03.2018 |
| 2. | BZ WBK | TAURON | IRGIT | payment | 20 000 PLN | 14.12.2016 | 31.03.2018 |
| 3. | CaixaBank | TAURON | PSE | performance bond |
4 041 PLN | 01.01.2017 | 11.02.2018 |
| 4. | CaixaBank | TAURON | GAZ-SYSTEM | performance bond |
2 661 PLN | 01.12.2017 | 30.11.2018 |
| 5. | CaixaBank | KW Czatkowice |
PGE | performance bond |
147 PLN | 09.09.2016 | 31.01.2018 |
| 6. | CaixaBank | TAURON Dystrybucja Serwis |
Strabag Infrastruktura Południe |
performance bond |
116 PLN | 09.09.2016 | 15.06.2019 |
| 7. | CaixaBank | TAURON Wydobycie |
Polskie Koleje Państwowe |
performance bond |
103 PLN | 01.01.2017 | 31.12.2018 |
| 8. | CaixaBank | TAURON Ciepło |
Elektrobudowa | payment | 12 300 PLN | 02.01.2017 | 31.12.2018 |
| No. | Bank | Company | Beneficiary | Type of guarantee |
Amount (thou.) |
Launch date | Effective date |
|---|---|---|---|---|---|---|---|
| 9. | CaixaBank | KW Czatkowice |
PGE Paliwa (formerly EDF Paliwa) |
performance bond |
187 PLN | 12.01.2017 | 30.01.2018 |
| 10. | CaixaBank | KW Czatkowice |
PGE Paliwa (formerly EDF Paliwa) |
performance Bond |
412 PLN | 01.07.2017 | 30.01.2018 1 |
| 11. | CaixaBank | TAURON Dystrybucja |
Gmina Sosnowiec | performance Bond |
53 PLN | 06.10.2017 | 06.10.2018 |
| 12. | CaixaBank | KW Czatkowice |
PGE Górnictwo i Energetyka Konwencjonalna |
performance bond |
515 PLN | 24.10.2017 | 30.01.2020 |
1As of January 1, 2018 by way of amendment no. 1 to the guarantee the guarantee value was increased to PLN 761 thou. and the term was extended to January 31, 2019
The below table presents a summary of collaterals received by TAURON effective as of December 31, 2017.
| Table no. 39. Summary of collaterals received by TAURON, effective as of December 31, 2017 | |
|---|---|
| -------------------------------------------------------------------------------------------- | -- |
| No. | Entity whose liabilities constitute the subject of collateral |
Entity issuing collateral | Type of collateral | Amount in currency (thou.) |
Effective date |
|---|---|---|---|---|---|
| 1. | Polenergia Obrót S.A | PKO BP | Bank guarantee | 750 EUR | 28.02.2019 |
| 2. | Ezpada s.r.o. | Ezpada A.G. | Corporate guarantee | 1 000 EUR | 28.02.2018 |
| 3 | Interenergia S.A. | NDI S.A. | Corporate guarantee | 10 000 PLN | 06.11.2019 |
On February 1, 2017 a multi-year agreement on coal sales for electricity generation purposes was concluded between TAURON and TAURON Wydobycie the subject of which was the purchase of coal by the Company for the needs of the generation units of TAURON Wytwarzanie and TAURON Ciepło. The agreement was concluded for the period until 31 December 31, 2019.
On September 6, 2017 the Company and Bank Gospodarstwa Krajowego (BGK) signed the documentation of the subordinate bond issue program, constituting the basis for conducting a hybrid bond issue worth up to PLN 400 000 thousand.
The Company may carry out the hybrid bond issue in several series, and the period of the availability of funds was set as up to June 30, 2019. The financing period is 12 years from the issue date, however in accordance with the characteristic of the hybrid financing the first period of financing was defined as 7 years (the so-called non-call period), during which an early redemption of the hybrid bonds by TAURON will not be possible BGK will not be able to sell them to third parties (in both cases subject to the exceptions defined in the documentation). The agreement also provides for an option to defer payment of interest on the hybrid bonds, until the hybrid bonds' redemption day as a maximum. Due ot the subordinate nature of the hybrid bonds, in case of TAURON's bankruptcy or liquidation the obligations under the hybrid bonds will have a priority of being satisfied only ahead of TAURON's shareholders' liabilities. A potential hybrid bond issue will have a positive impact on TAURON's financial stability because the bonds are excluded from calculating the leverage ratio (net debt/EBITDA ratio) which constitutes a covenant in some of TAURON's financing programs. Furthermore, 50% of the hybrid bonds amount will be classified by Fitch rating agency as equity in the rating model, which will have a positive impact on TAURON's rating. The hybrid bonds were granted BB+ rating by Fitch rating agency. In 2017 the Company did not conduct a bond issue under the above mentioned program. , and the hybrid financing, due to its cost, is treated as an option in case of potential implementation of new investment projects and represents a financial security for the Group.
Due to the elapse, on December 31, 2017, of the three-year period of PGK's operation, on September 26, 2017 selected TAURON Capital Group's subsidiaries concluded the PGK agreement in the form of a notary authenticated deed. On
October 30, 2017 the Head of the First Silesian Tax Office in Sosnowiec issued a decision on PGK's registration for the period of subsequent tax years 3, i.e. from January 1, 2018 until December 31, 2020. The new PGK includes the following subsidiaries: TAURON, TAURON Wytwarzanie, TAURON Dystrybucja, TAURON Sprzedaż, TAURON Sprzedaż GZE, TAURON Ciepło, TAURON Wydobycie, TAURON EKOENERGIA, TAURON Obsługa Klienta, TAURON Serwis, KW Czatkowice, Biomasa GT, TAURON Dystrybucja Serwis, Marselwind, Magenta GT, TAURON Ubezpieczenia sp. z o.o., En-Energia I sp. z o.o., En-Energia II sp. z o.o., En-Energia III sp. z o.o. and En-Energia IV sp. z o.o. Setting up of a new PGK will allow for taking advantage of the tax settlements synergy effect, i.e. deducting the tax loss of the subsidiaries that are members of the PGK from the income of the other subsidiaries. At the same time it will allow for continuing a unified system of settlements and for ensuring consistent interpretation of the tax regulations at the PGK level.
As of September 30, 2017, at TAURON's request the President of the Energy Regulatory Office (ERO-URE), by way of the decision no. DRG.DRG-1.4112.38.2017.KL, revoked TAURON'S license for trading of natural gas abroad.
The revoking of the license involves obtaining an exemption from the need to maintain mandatory natural gas inventory (stock), beginning as of October 1, 2017, in connection with the coming into force of the amendment to the law of February 16, 2007 on the inventory (stock) of oil products and natural gas.
At the same time, taking into account the nature of its operations related to supplying TAURON Capital Group's subsidiaries with gas and the active participation in wholesale trading, TAURON has an option to purchase gas on the domestic market under its license for trading gas fuels. Gas contracting is conducted directly on the Polish Power Exchange (Towarowa Giełda Energii S.A.), both by way of futures market contracts, as well as SPOT market transactions. Furthermore, the Company contracts gas purchases and sales on the OTC market, based on commercial agreements concluded. Therefore, it should be pointed out that purchasing of gas fuel for the wholesale trading purpose as well as the security of supply and securing of the gas needs of TAURON Capital Group's subsidiaries are not in jeopardy.
Acting in accordance with the resolution of the Extraordinary GM PEPKH of March 1, 2018 on imposing on TAURON as a sole shareholder an obligation to make additional payments, on March 7, 2018 TAURON contributed additional payments to the share capital of the above mentioned company in the total amount of PLN 6 000 thou. The resolution of the Extraordinary GM as passed in order to ensure financing for the operations of PEPKH.
Katowice, March 12, 2018
| Filip Grzegorczyk | - President of the Management Board | ………………………………… |
|---|---|---|
| Jarosław Broda | - Vice-President of the Management Board | …………………………………. |
| Kamil Kamiński | - Vice-President of the Management Board | …………………………………. |
| Marek Wadowski | - Vice-President of the Management Board | ………………………………… |
The glossary of trade terms and the list of abbreviations and acronyms most commonly used in this report is presented below.
| Table no. 40. Explanation of abbreviations and acronyms and trade terms used in the report | |||
|---|---|---|---|
| # | Abbreviation and trade term |
Full name/explanation |
|---|---|---|
| 1. | BGK | Bank Gospodarstwa Krajowego with its seat in Warsaw |
| 2. | Biomasa GT | Biomasa Grupa TAURON sp. z o.o. with its seat in Stalowa Wola |
| 3. | BZ WBK | Bank Zachodni WBK S.A. with its seat ine Wrocław |
| 4. | B2B | B2B (business-to-business) an acronym denoting transactions between two or more business entities |
| 5. | CC | Central heating plant (Centralna Ciepłownia) in Olkusz lub Zawiercie |
| 6. | Cash pooling | Cash pooling used by the Company – the consolidation of balances of bank accounts through physical transferring of cash from the accounts of TAURON Capital Group's subsidiaries in the bank in which cash pooling is operated to the bank account of the Pool Leader whose function is performed by the Company. At the end of each working day, cash is transferred from the bank accounts of TAURON Capital Group's subsidiaries which show positive balance to the bank account of the pool leader. At the beginning of each working day the bank accounts of TAURON Capital Group's subsidiaries are credited from the bank account of the pool leader with the amount required to maintain the financial liquidity of the TAURON Capital Group's subsidiary on the given working day. |
| 7. | Color certificates | Property rights resulting from the certificates of origin of electricity generated in the way subject to support, the so-called colored certificates: 1) green - certificates of origin of electricity from RES, 2) violet - certificates of origin of electricity generated in co-generation fired using methane released and captured during underground mining works in active, in liquidation or liquidated hard coal mines, or using gas obtained from biomass processing, 3) red - certificates of origin of electricity from co-generation (CHP certificates - Combined Heat and Power), 4) yellow - certificates of origin of electricity generated in co-generation from gas-fired sources or with the total installed capacity below 1 MW, 5) blue - certificates of origin of electricity generated from agricultural biogas. White - energy efficiency certificates (mechanism stimulating and forcing pro-savings behaviors. |
| 8. | CIRS | Transaction involving a swap between counterparties of interest payments assessed on amounts denominated in various currencies and determined according to various interest rates |
| 9. | CSI | Customer Satisfaction Index – index used in marketing to determine the level of customer satisfaction with the products or services offered by a company |
| 10. | CSR | Corporate Social Responsibility |
| 11. | CUW | Shared Services Center (Centrum Usług Wspólnych), np. CUW R – accounting services |
| 12. | DM | Brokerage House (Dom Maklerski) |
| 13. | Good Practices 2016 | Good Practices of WSE Listed Companies 2016, in force as of January 1, 2016 |
| 14. | EIB | European Investment Bank with its seat in Luxembourg |
| 15. | EBIT | Earnings Before Interest and Taxes |
| 16. | EBITDA | Earnings Before Interest, Taxes, Depreciation and Amortization |
| 17. | EC Stalowa Wola/ECSW | Elektrociepłownia (Combined Heat and Power Plant – CHP) Stalowa Wola S.A. with its seat in Stalowa Wola |
| 18. | ENEA | ENEA S.A. with its seat in Poznań |
| 19. | ENERGA | ENERGA S.A. with its seat in Gdańsk |
| 20. | ERM | Enterprise Risk Management system |
| 21. | EU ETS | European Union CO2 Emission Allowances Trading System |
| 22. | EUA | European Union Allowance – an allowance to introduce the carbon dioxide (CO2) equivalent to the air, within the meaning of Article 2 section 4 of the Act of July 17, 2009 on the management system of emissions of greenhouse gases and other substances, which is used for settlements of emission level within the system and which can be managed under the rules provided in the Act of April 28, 2011 on the system of greenhouse gases emission allowances trading (Journal of Laws No. 122, item 695) |
| # | Abbreviation and trade term |
Full name/explanation |
|---|---|---|
| 23. | EUR | Euro - a common European currency introduced in some EU member states |
| 24. | GAZ-SYSTEM | Transmission Pipelines Operator GAZ-SYSTEM S.A. with its seat in Warsaw |
| 25. | GPW | Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie S.A.) with its seat in Warsaw |
| 26. | TAURON Capital Group | TAURON Capital Group Polska Energia S.A. |
| 27. | GZE | Górnośląski Zakład Elektroenergetyczny |
| 28. | IRGIT | Izba Rozliczeniowa Giełd Towarowych S.A. with its seat in Warsaw |
| 29. | IRS | Interest Rate Swap, one of basic derivatives that is the subject of trading on the interbank market |
| 30. | KGHM | KGHM Polska Miedź S.A. with its seat in Lubin |
| 31. | KIC InnoEnergy | Knowledge and Innovations Community KIC InnoEnergy with its seat in Kraków |
| 32. | Audit Committee | Audit Committee of the Supervisory Board of TAURON Polska Energia S.A. |
| 33. | Nominations and Compensation Committee |
Nominations and Compensation Committee of the Supervisory Board of TAURON Polska Energia S.A. |
| 34. | Strategy Committee | Strategy Committee of the Supervisory Board of TAURON Polska Energia S.A. |
| 35. | KPI | Key Performance Indicators, financial and non-financial indicators used as ways to measure progress of achieving goals of an organization |
| 36. | KSE | National Power System (Krajowy System Elektroenergetyczny) |
| 37. | Ksh | Commercial companies code |
| 38. | KW Czatkowice | Kopalnia Wapienia (Limestone Mine) "Czatkowice" sp. z o.o. with its seat in Krzeszowice |
| 39. | Model Biznesowy | Document entitled TAURON Group's Business and Operational Model (which is an update of TAURON Group's Business Model adopted by the Management Board on May 4, 2016) |
| 40. | mBank | mBank S.A. with its seat in Warsaw |
| 41. | Marselwind | Marselwind sp. z o.o. with its seat in Katowice |
| 42. | Mg | Mega gram – million grams (1 000 000 g) i.e. a ton |
| 43. | MSR | CO2 Emission Allowances Market Stability Reserve |
| 44. | ISSR | International Financial Reporting Standards |
| 45. | Nowe Jaworzno GT | Nowe Jaworzno Grupa TAURON sp. z o.o. with its seat in Jaworzno |
| 46. | Line of Business | Seven areas of TAURON Capital Group's core operations set up by the Company: Trading, Mining, Generation, RES, Heat, Distribution and Supply |
| 47. | OPEC | Organization of the Petroleum Exporting Countries with its seat in Vienna |
| 48. | ORM | Operational Capacity Reserve (OCR) |
| 49. | OSD | Distribution System Operator (DSO) |
| 50. | OSP | Transmission System Operator (TSO) |
| 51. | OTC (OTC market) | Over The Counter Market |
| 52. | OZE | Renewable Energy Sources (RES) |
| 53. | OZEX_A | Green certificates index price |
| 54. | Efficiency Improvement Program |
TAURON Group's 2016-2018 Efficiency Improvement Program |
| 55. | PEPKH | Polska Energia - Pierwsza Kompania Handlowa sp. z o.o. with its seat in Warsaw |
| 56. | PGE | PGE Polska Grupa Energetyczna S.A. with its seat in Warsaw |
| 57. | PGE EJ 1 | PGE EJ 1 sp. z o.o. with its seat in Warsaw |
| 58. | PGNiG | Polskie Górnictwo Naftowe i Gazownictwo S.A. with its seat in Warsaw |
| 59. | PKB | Gross Domestic Product (GDP) |
| # | Abbreviation and trade term |
Full name/explanation |
|---|---|---|
| 60. | PKO BP | Powszechna Kasa Oszczędności Bank Polski S.A. with its seat in Warszawie |
| 61. | PLN | Polish zoty currency symbol - zł |
| 62. | PMEC | Property rights for certificates of origin confirming generation of electricity in the other co generation sources |
| 63. | PMEF | Property rights for energy efficiency certificates |
| 64. | PMGM | Property rights for certificates of origin confirming generation of electricity in co-generation, from gas-fired sources or sources with the total installed capacity below 1 MW |
| 65. | PMMET | Property rights for certificates of origin confirming generation of electricity in co-generation fired using methane released and captured during underground mining works in active, in liquidation or liquidated hard coal mines, or using gas obtained from biomass processing |
| 66. | PMOZE_A | Property rights for certificates of origin confirming generation of electricity in RES after March 1, 2009 |
| 67. | PMOZE-BIO | Property rights for certificates of origin confirming generation of electricity from agricultural biogas from July 1, 2016 |
| 68. | PSE | Polskie Sieci Elektroenergetyczne S.A. with its seat in Konstancin-Jeziorna |
| 69. | PSG | Polska Spółka Gazownictwa sp. z o.o. with its seat in Warsaw |
| 70. | RB | Balancing Market (Rynek Bilansujący) |
| 71. | RDN | Day Ahead Market (Rynek Dnia Następnego) |
| 72. | RESPECT Index | Stock market index grouping stock market companies operating in accordance with the sustainable growth principles |
| 73. | RTT | Futures Commodity Market (Rynek Terminowy Towarowy) |
| 74. | Segment, Segments of operations |
TAURON Capital Group's segments of operations used in the statutory reporting process. TAURON Capital Group's results from operations are allocated to the following five Segments (also called Line of Business or Areas in this report): Mining, Generation, Distribution, Supply and Other. |
| 75. | SPOT (SPOT market) | With respect to electricity, it is the place where trade transactions for electricity are concluded for which the period of delivery falls, at the latest, three days after the date of the transaction's conclusion (usually it is one day before the date of delivery). Operation of the SPOT market for electricity is strongly tied to the operation of the balancing market run by the TSO |
| 76. | Company/TAURON | TAURON Polska Energia S.A. with its seat in Katowicach |
| 77. | Strategy | Document entitled TAURON Group's 2016 – 2025 Strategy adopted by the Management Board on September 2, 2016 |
| 78. | Sustainable development strategy |
Document entitled TAURON Group's 2017 – 2025 Sustainable development strategy adopted by the Management Board on August 1, 2017, which is an update of the document entitled TAURON Group's 2016 – 2018 Sustainable development strategy with an outlook until 2020 |
| 79. | TAMEH Czech | TAMEH Czech s.r.o. with its seat in Ostrava, Czech Republic |
| 80. | TAMEH HOLDING | TAMEH HOLDING sp. z o.o. with its seat in Dąbrowa Górnicza |
| 81. | TAMEH POLSKA | TAMEH POLSKA sp. z o.o. with its seat in Dąbrowa Górnicza |
| 82. | TAURON/Company | TAURON Polska Energia S.A. with its seat in Katowice |
| 83. | TAURON Ciepło | TAURON Ciepło sp. z o.o. with its seat in Katowice |
| 84. | TAURON Czech Energy | TAURON Czech Energy s.r.o. with its seat in Ostrava, Czech Republic |
| 85. | TAURON Dystrybucja | TAURON Dystrybucja S.A. with its seat in Kraków |
| 86. | TAURON Dystrybucja Pomiary |
TAURON Dystrybucja Pomiary sp. z o.o. with its seat in Tarnów |
| 87. | TAURON Dystrybucja Serwis |
TAURON Dystrybucja Serwis S.A. with its seat in Wrocław |
| 88. | TAURON EKOENERGIA | TAURON EKOENERGIA sp. z o.o. with its seat in Jelena Góra |
| 89. | TAURON Obsługa Klienta | TAURON Obsługa Klienta sp. z o.o. with its seat in Wrocław |
| 90. | TAURON Serwis | TAURON Serwis sp. z o.o. with its seat in Katowice |
| 91. | TAURON Sprzedaż | TAURON Sprzedaż sp. z o.o. with its seat in Kraków |
| # | Abbreviation and trade term |
Full name/explanation |
|---|---|---|
| 92. | TAURON Sprzedaż GZE | TAURON Sprzedaż GZE sp. z o.o. with its seat in Gliwice |
| 93. | TAURON Sweden Energy | TAURON Sweden Energy AB (publ) with its seat in Stockholm, Sweden |
| 94. | TAURON Ubezpieczenia | TAURON Ubezpieczenia sp. z o.o. with its seat in Katowice |
| 95. | TAURON Wydobycie | TAURON Wydobycie S.A. with its seat in Jaworzno |
| 96. | TAURON Wytwarzanie | TAURON Wytwarzanie S.A. with its seat in Jaworzno |
| 97. | TAURON Wytwarzanie Serwis |
TAURON Wytwarzanie Serwis sp. z o.o. with its seat in Jaworzno |
| 98. | TGE | Towarowa Giełda Energii S.A. with its seat in Warsaw |
| 99. | EU | European Union |
| 100. | UOKiK | Office of Competition and Consumer Protection (Urząd Ochrony Konkurencji i Konsumentów) |
| 101. | USD | United States Dollar – US dollar's international acronym |
| 102. | ERO (URE) | Energy Regulatory Office (Urząd Regulacji Energetyki) |
| 103. | WFOŚiGW | Regional Environment Protection and Water Management Fund (Wojewódzki Fundusz Ochrony Środowiska i Gospodarki Wodnej) in Katowice or in Kraków |
| 104. | Wsparcie Grupa TAURON | Wsparcie Grupa TAURON sp. z o.o. with its seat in Tarnów (formerly KOMFORT-ZET sp. z o.o.) |
| 105. | WZ/ZW | General Meeting (GM) / Shareholders' Meeting |
| 106. | ZG | Coal Mine (Zakład Górniczy) (Sobieski, Janina or Brzeszcze) |
| 107. | ZW | Generation Plants (Zakłady Wytwarzania) in Bielsko-Biała, Kamienna Góra, Katowice or Tychy |
The list of tables and figures presented in this report is provided below.
| Table no. 1. General information on TAURON 6 | |
|---|---|
| Table no. 2. List of material subsidiaries subject to consolidation as of December 31, 2017 7 | |
| Table no. 3. List of material joint subsidiaries subject to consolidation as of December 31, 2017 8 | |
| Table no. 4. Opportunities and threats for TAURON Capital Group's operations 16 | |
| Table no. 5.Statement of comprehensive income for the financial year 2017 broken down into the Company's main lines of | |
| business 40 | |
| Table no. 6. Quantity of coal purchased in 2017 43 | |
| Table no. 7. Annual levels of NOX, SO2, dust and CO2 emissions from fuel combustion for electricity generation purpose for | |
| 2017 63 | |
| Table no. 8. The level of fees for the use of the environment for business purposes due for 2017. 64 | |
| Table no. 9. Most significant risks identified for TAURON Capital Group 75 | |
| Table no. 10. Annual standalone statement of comprehensive income in 2017 - 2015 79 | |
| Table no. 11. Company's sales revenue 80 | |
| Table no. 12. Level and structure of the costs 81 | |
| Table no. 13. Annual standalone statement of financial position (material items) 82 | |
| Table no. 14. Statement of cash flows (material items) 83 | |
| Table no. 15. Key financial ratios of TAURON 84 | |
| Table no. 16. Summary of issued and non-redeemed bonds as of December 31, 2017 86 | |
| Table no. 17. Information on forward transactions and derivatives as of December 31, 2017 86 | |
| Table no. 18. Compensation of the certified auditors for the services provided for TAURON 88 | |
| Table no. 19. Dividends paid out in 2010-2014 89 | |
| Table no. 20. Key data on TAURON shares in 2011-2017 91 | |
| Table no. 21. Recommendations issued in 2017 92 | |
| Table no. 22. Highlights and activities performed as part of investor relations in 2017 94 | |
| Table no. 23. Shareholders holding, directly or indirectly, substantial blocks of shares 99 | |
| Table no. 24. Management Board's competence 102 | |
| Table no. 25. Supervisory Board's competence 103 | |
| Table no. 26. Competence of the General Meeting of Shareholders 106 | |
| Table no. 27. Description of the shareholders' rights related to the General Meeting of Shareholders 107 | |
| Table no. 28. Competence of the Audit Committee 117 | |
| Table no. 29. Competence of the Nominations and Compensation Committee 118 | |
| Table no. 30. Competence of the Strategy Committee 119 | |
| Table no. 31. Compensation of members of the Company's Management Board in 2017 broken down into components 123 | |
| Table no. 32. Compensation of members of the company's Supervisory Board in 2017 126 | |
| Table no. 33. Risks related to the operations of TAURON that could exert adverse impact on the policies employed by TAURON | |
| 137 | |
| Table no. 34. Summary of TAURON Capital Group's working capital loan and credit agreements as of December 31, 2017144 | |
| Table no. 35. Summary of investment credit and loan agreements as of December 31, 2017 144 | |
| Table no. 36. Summary of loans granted by TAURON and effective as of December 31, 2017 145 | |
| Table no. 37. Summary of collaterals granted by TAURON, effective as of December 31, 2017 145 | |
| Table no. 38. Summary of bank guaranties granted under the agreements effective as of December 31, 2017 146 | |
| Table no. 39. Summary of collaterals received by TAURON, effective as of December 31, 2017 147 | |
| Table no. 40. Explanation of abbreviations and acronyms and trade terms used in the report 150 |
| Figure no. 1. TAURON's share capital (paid up) as of December, 2017, by the number and type of shares 6 Figure no. 2. TAURON Capital Group's structure, including the subsidiaries subject to consolidation, as of December 31, 2017 |
|
|---|---|
| 7 | |
| Figure no. 3. TAURON Capital Group's 2025 Vision 11 | |
| Figure no. 4. Prospects of TAURON Capital Group's segments 12 | |
| Figure no. 5. Implementation of priorities based on the pillars of TAURON Capital Group's Strategy 13 | |
| Figure no. 6. Capital expenditures by segments in 2016-2020 14 | |
| Figure no. 7. Key challenges facing TAURON Capital Group 15 | |
| Figure no. 8. 2016-2018 Efficiency Improvement Program 18 | |
| Figure no. 9. Strategic Initiatives and CAPEX rationalization in 2017-2020 18 | |
| Figure no. 10. Oulook for CAPEX directions beyond 2020 20 | |
| Figure no. 11. 2025 EBITDA outlook taking into account the risks and the implementation of the Strategy as well as the effects | |
| of the implementation of the Strategy 20 | |
| Figure no. 12. Priority directions of innovations as well as research and development activities 22 | |
| Figure no. 13. Average monthly electricity prices on the SPOT and RB markets, as well as average temperatures 26 | |
| Figure no. 14. BASE Y-18 contracts performance 27 | |
| Figure no. 15. Average monthly SPOT and Y-18 contract prices on TGE in 2017 29 | |
|---|---|
| Figure no. 16. The impact of the legislative works and the environment on the EUA SPOT product price in 2017 30 | |
| Figure no. 17. Property rights indices 31 | |
| Figure no. 18. Timeline 43 | |
| Figure no. 19. Prizes and accolades (honorable mentions) 51 | |
| Figure no. 20. Assumptions of the Policy of Human Resources Management at TAURON Group 52 | |
| Figure no. 21. Forms of development activities of employees of TAURON Capital Group's subsidiaries 52 | |
| Figure no. 22. TAURON Capital Group's key 2017 training statistics 53 | |
| Figure no. 23. The average number of training hours per employee, broken down into job (work position) groups 53 | |
| Figure no. 24. TAURON's average headcount in 2016 and in 2017 (FTEs) 56 | |
| Figure no. 25. Structure of employment at TAURON as of December 31, 2016 and December 31, 2017 (by education level) 57 | |
| Figure no. 26. Structure of employment at TAURON as of December 31, 2016 and December 31, 2017 (by age) 57 | |
| Figure no. 27. Structure of employment at TAURON as of December 31, 2016 and December 31, 2017 (by gender) 57 | |
| Figure no. 28. Results of the survey covering households in 2011-2017 61 | |
| Figure no. 29. Results of the TAURON survey as compared to other Energy Groups in 2017 61 | |
| Figure no. 30. Structure of the property rights to the certificates of origin (MWh) 64 | |
| Figure no. 31. Structure of energy waste management 65 | |
| Figure no. 32. Structure of mining waste management 65 | |
| Figure no. 33. Three Defense Lines Model 67 | |
| Figure no. 34. Risk management as a function of the second defense line 68 | |
| Figure no. 35. Risk management process 68 | |
| Figure no. 36. Diagram of the management risk communication 69 | |
| Figure no. 37. ERM system 69 | |
| Figure no. 38. Architecture of the ERM System 70 | |
| Figure no. 39. Organizational structure and documentation of the risk management process 70 | |
| Figure no. 40. Number of risks monitored, broken down into categories 71 | |
| Figure no. 41. Breakdown of TAURON Capital Group's trading operations 72 | |
| Figure no. 42. Credit exposure components 73 | |
| Figure no. 43. Risk management system tools 74 | |
| Figure no. 44. Project risk management model 75 | |
| Figure no. 45. Structure of shareholding as of December 31, 2017 and as of the day of drawing up this report 89 | |
| Figure no. 46. TAURON share price and trading volumes in 2017 91 | |
| Figure no. 47. TAURON share price and trading volumes since the market debut until December 31, 2017 92 | |
| Figure no. 48. TAURON share price versus WIG20 and WIG-Energia indices since the market debut until December 31, 2017 | |
| 92 | |
| Figure no. 49. Structure of compensation for key manager positions 122 | |
| Figure no. 50. Process streams 128 | |
| Figure no. 51. Structure of TAURON Capital Group's processes (megaprocesses) 129 | |
| Figure no. 52. Structure of TAURON Capital Group's Lines of Business 129 | |
| Figure no. 53. Diagram of the split of responsibilities of members of the Management Board 131 | |
| Figure no. 54. TAURON's organizational diagram (flowchart) as of the day of drawing up this report 132 |
I, the undersigned, represent that, to the best of my knowledge, the financial statements of TAURON Polska Energia S.A. and comparable figures were prepared in accordance with the applicable set of accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of TAURON Polska Energia S.A.
I also certify that the Management Board's report on the operations of TAURON Polska Energia S.A. includes a fair review of the development and performance of the business and the position of TAURON Polska Energia S.A., together with a description of the principal risks and uncertainties that TAURON Polska Energia S.A. faces.
Management Board Members:
| Filip Grzegorczyk | – President of the Management Board | |
|---|---|---|
| Jaros³aw Broda | – Vice-President of the Management Board | |
| Kamil Kamiñski | – Vice-President of the Management Board | |
| Marek Wadowski | – Vice-President of the Management Board |
12 March 2018 date
I, the undersigned, represent that the entity authorized to audit financial statements and examining the financial statements of TAURON Polska Energia S.A. was appointed in accordance with legal regulations, and this entity and auditors examining the statements have met conditions for developing an impartial and independent report on the review of the audited financial statements in accordance with applicable regulations and professional standards.
Management Board Members:
| Filip Grzegorczyk | – President of the Management Board | |
|---|---|---|
| Jaros³aw Broda | – Vice-President of the Management Board | |
| Kamil Kamiñski | – Vice-President of the Management Board | |
| Marek Wadowski | – Vice-President of the Management Board |
12 March 2018 date
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