Management Reports • Nov 8, 2017
Management Reports
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November 8, 2017
| 1. | TAURON Capital Group's organization and structure 3 | ||
|---|---|---|---|
| 1.1 | Basic information on TAURON Capital Group 3 | ||
| 1.2 | Units subject to consolidation 4 | ||
| 1.3 | TAURON Capital Group and material changes to its structure 5 | ||
| 2. | Basic information on TAURON Polska Energia 7 | ||
| 2.1 Energia 7 |
Composition of the Management Board and the Supervisory Board of TAURON Polska | ||
| 2.2 | Structure of the share capital 8 | ||
| 2.3 | Shareholders holding at least 5% of the total number of votes 8 | ||
| 2.4 | List of shareholdings by members of the Management Board and the Supervisory Board 9 | ||
| 2.5 | Subject of TAURON Polska Energia's operations 9 | ||
| 3. | TAURON Capital Group's operations 12 | ||
| 3.1 | TAURON Capital Group's lines of business (segments) 12 | ||
| 3.2 | Implementation of TAURON Capital Group's capital expenditures program 14 | ||
| 4. | Analysis of TAURON Capital Group's financial standing and assets 18 | ||
| 4.1 | Selected financial data of TAURON Polska Energia and TAURON Capital Group 18 | ||
| 4.2 | Key operating data of TAURON Capital Group 20 | ||
| 4.3 | Sales structure by lines of business 20 | ||
| 4.4 | TAURON Capital Group's financial standing after Q3 2017 22 | ||
| 4.4.1 | Analysis of the financial standing 22 | ||
| 4.4.2 | Financial results by lines of business 26 | ||
| 4.4.2.1 Mining segment 27 | |||
| 4.4.2.2 Generation segment 29 | |||
| 4.4.2.3 Distribution segment 30 | |||
| 4.4.2.4 Supply segment 32 | |||
| 4.4.2.5 Other operations 34 | |||
| 4.4.3 | Assets 35 | ||
| 4.4.4 | Cash flows 38 | ||
| 4.5 | Factors and events, including those of unusual nature, significantly affecting the abbreviated | ||
| financial statements 40 | |||
| 4.6 | Factors that according to the Issuer may impact its earnings over at least the next quarter 41 | ||
| 4.7 | Management Board's position on the ability to meet forecasts of results for the given year 42 | ||
| 5. | Other information and events that occurred in Q3 2017 42 | ||
| 5.1 | Significant achievements or failures of the Issuer which occurred in Q3 2017 42 | ||
| 5.2 | Other events that occurred in Q3 2017 45 | ||
| 5.3 | Market and regulatory environment 46 | ||
| 6. | Information and events that occurred after the balance sheet day 50 | ||
| 7. | Proceedings pending before the court, competent arbitration authority or public administration | ||
| 8. | authority 50 Information on transactions with related entities 51 |
||
| 9. | Information on granted guarantees, loan or credit co-signings (sureties, endorsements) 51 | ||
| 10. | Other information that, according to the Issuer, could be significant for the evaluation of the | ||
| staffing, assets, financial standing, financial result and changes thereof as well as information that | |||
| is essential to evaluate the ability of the Issuer's Capital Group to meet its obligations 51 |
As of September 30, 2017, TAURON Polska Energia Capital Group (TAURON Capital Group) included the parent company, TAURON Polska Energia S.A. (hereinafter referred to as TAURON, TAURON Polska Energia, the Company or the Issuer), and 19 units (subsidiaries) subject to consolidation. Furthermore, as of September 30, 2017 the Company held, directly or indirectly, shares in 39 other companies.
The main companies subject to consolidation included: TAURON Wydobycie S.A. (TAURON Wydobycie) dealing with hard coal mining, TAURON Wytwarzanie S.A. (TAURON Wytwarzanie) dealing with generation of electricity from conventional sources and biomass co-firing, TAURON Ekoenergia sp. z o.o. (TAURON Ekoenergia) dealing with generation of electricity from renewable sources, TAURON Dystrybucja S.A. (TAURON Dystrybucja) providing electricity distribution services, TAURON Sprzedaż sp. z o.o. (TAURON Sprzedaż) and TAURON Sprzedaż GZE sp. z o.o. (TAURON Sprzedaż GZE) dealing with the supply of electricity to retail customers, TAURON Obsługa Klienta sp. z o.o. (TAURON Obsługa Klienta), dealing with customer service as well as providing intra-group services in the area of accounting, HR and IT, and TAURON Ciepło sp. z o.o. (TAURON Ciepło) dealing with generation, distribution and supply of heat. Furthermore, TAURON Capital Group included 11 other subsidiaries subject to consolidation, dealing, inter alia, with electricity trading as well as extraction of limestone and stone (rocks) for construction purposes.
TAURON Capital Group has put into place TAURON Group's Business Model that defines TAURON Capital Group's operational (management) assumptions and outlines the split of tasks and responsibilities among the defined units:
Corporate Center – the superior organizational unit responsible for managing TAURON Capital Group's operations and taking the most important decisions affecting TAURON Capital Group, Lines of Business, Shared Services Centers and TAURON Capital Group's subsidiaries;
Lines of Business – TAURON Capital Group's seven core lines of business defined in accordance with the electricity and heat production value chain's links, i.e.: Trading, Mining, Generation, Renewable Energy Sources (RES), Heat, Distribution and Supply;
Shared Services Centers – units responsible for the provision of specific support services (e.g. accounting, IT, HR and payroll, insurance, customer service) for the benefit of the Group's other units.
The Business Model's structure is underpinned by five defined process streams that TAURON Group's operations are to focus on, i.e.: Strategy, Finance, Asset Management and Development, Customer, Corporate Governance and Support. The objective of defining such process streams is to place more emphasis on cross-sectional issues, relating to more than one Line of Business.
TAURON Group's primary normative act is TAURON Group's Code adopted by the Company's Management Board that governs its performance, ensuring the accomplishment of its goals based on specially designed solutions with respect to managing TAURON Group's entities, including in particular, defining the objectives of the subsidiaries' operations that would enable achieving the results assumed.
Additional information to the extended and consolidated Q3 2017 report
The companies listed below obtained the TAURON Group member status as of the date of adopting the resolutions on joining TAURON Group by their general meetings/ shareholder meetings.
As of September 30, 2017, the following subsidiaries were included in TAURON Group:
| Table no. 1. List of subsidiaries included in TAURON Group | |||
|---|---|---|---|
| # | Subsidiary name | Date of joining TAURON Group |
|---|---|---|
| 1. | TAURON Sprzedaż sp. z o.o. | 26.10.2010 |
| 2. | TAURON Obsługa Klienta sp. z o.o. | 26.10.2010 |
| 3. | TAURON EKOENERGIA sp. z o.o. | 26.10.2010 |
| 4. | TAURON Wytwarzanie S.A. | 28.10.2010 |
| 5. | TAURON Czech Energy s.r.o. | 10.11.2010 |
| 6. | TAURON Dystrybucja S.A. | 6.12.2010 |
| 7. | Kopalnia Wapienia "Czatkowice" sp. z o.o. | 5.01.2011 |
| 8. | TAURON Wydobycie S.A. | 13.01.2011 |
| 9. | TAURON Sprzedaż GZE sp. z o.o. | 24.01.2012 |
| 10. | TAURON Ubezpieczenia sp. z o.o. | 17.09.2013 |
| 11. | TAURON Ciepło sp. z o.o. | 16.10.2013 |
| 12. | TAURON Dystrybucja Pomiary sp. z o.o. | 19.11.2013 |
| 13. | TAURON Ekoserwis sp. z o.o. | 19.11.2013 |
| 14. | Spółka Usług Górniczych sp. z o.o. | 4.12.2013 |
| 15. | TAURON Wytwarzanie Serwis sp. z o.o. | 26.02.2014 |
| 16. | SCE Jaworzno III sp. z o.o. | 19.12.2014 |
| 17. | Biomasa Grupa TAURON sp. z o.o. (formerly: Energopower sp. z o.o.) | 1.07.2015 |
| 18. | TAURON Serwis sp. z o.o. | 22.12.2016 |
As of the day of publishing this quarterly report additionally the following companies obtained the TAURON Group member status: Nowe Jaworzno Grupa TAURON sp. z o.o. (on 6.10.2017), Marselwind sp. z o.o. (on 6.10.2017) and Wsparcie Grupa TAURON sp. z o.o. (on 16.10.2017).
TAURON Group's standing Committees are operating within TAURON Group, including:
The above Committees were established in order to enable conducting of the operations in accordance with TAURON Group's operational integrity assumptions, in compliance with the law and interests of TAURON Group and those of its stakeholders.
The Committees' primary task is to oversee the implementation by all of TAURON Group's members of consistent actions in compliance with TAURON Group's Code and in the interest of TAURON Group. The Committees' detailed tasks are defined in the by-laws of their operations adopted by the Company's Management Board.
As of September 30, 2017, the parent company, TAURON Polska Energia, and the following subsidiaries were subject to consolidation:
Additional information to the extended and consolidated Q3 2017 report
TAURON Polska Energia Capital Group also holds stakes in joint ventures: Elektrociepłownia Stalowa Wola S.A. and TAMEH HOLDING sp. z o.o. Capital Group (composed of TAMEH HOLDING sp. z o.o., holding a 100% stake in the capital and the governing body of the subsidiaries: TAMEH POLSKA sp. z o.o. and TAMEH Czech s.r.o.), that are valued using the equity method in the consolidated financial statements.
The below figure presents the subsidiaries whose earnings are consolidated within TAURON Capital Group as of September 30, 2017.
Material changes to the structure of TAURON Capital Group's subsidiaries and the consequences of changes that occurred in Q3 2017 and after the balance sheet day are described below:
An increase of the share capital of Nowe Jaworzno Grupa TAURON sp. z o.o. from PLN 31 850 000 to PLN 35 850 000, i.e. by PLN 4 000 000.00, by way of issuing 80 000 new shares worth PLN 50.00 each, passed by the Extraordinary General Meeting of the Company's Shareholders on June 29, 2017, was registered in the National Court Register on July 13, 2017. All the new shares were taken up by the existing sole shareholder of the company, i.e. TAURON Polska Energia S.A.
Komfort Zarządzanie Aktywami sp. z o.o. with its seat in Katowice, established on May 25, 2017, was registered in the National Court Register on August 1, 2017. Its share capital is PLN 5 000.00 and is split into 100 shares with a nominal value of PLN 50.00 each, that were taken up in the following manner:
The company was established in order to concentrate therein minority shares held by TAURON Capital Group's subsidiaries in commercial law companies that are not subsidiaries, joint subsidiaries and associated companies, including companies undergoing liquidation and bankruptcy proceedings, and then sell the company outside of TAURON Group.
On August 1, 2017 TAURON Polska Energia S.A. established four limited liability companies with their seats in Katowice, under the following names:
In each of the above-mentioned companies all 100 shares with a nominal value of PLN 50 per share and the total nominal value of PLN 5 000 were taken up by TAURON Polska Energia S.A. The above-mentioned companies were established in conjunction with the restructuring, both underway and planned by TAURON Group.
Conversion of Komfort – ZET sp. z o.o. with its seat in Tarnów into Wsparcie Grupa TAURON sp. z o.o. was registered in the National Court Register on September 6, 2017.
In conjunction with the August 9, 2017 conclusion of the agreement between TAURON Polska Energia S.A. and TAURON Dystrybucja S.A. on the transfer of shares in TAURON Dystrybucja Serwis S.A. in order to release TAURON Dystrybucja S.A. from the obligation to pay out a dividend to TAURON Polska Energia S.A. (datio in solutum), TAURON Polska Energia S.A. became the owner of 5 101 003 shares in TAURON Dystrybucja Serwis S.A., used up to now from TAURON Dystrybucja S.A., representing 100% of shares in its share capital, worth PLN 201 045 thousand.
An increase of the share capital of Marselwind sp. z o.o. from PLN 105 000 to PLN 110 000, i.e. by PLN 5 000.00, by way of issuing 100 new shares worth PLN 50.00 each, with the total nominal value of PLN 5 000.00, passed by the Ordinary General Meeting of the Shareholders of Marselwind sp. z o.o. on June 28, 2017, was registered in the National Court Register on October 13, 2017. All the new shares were taken up by the existing sole shareholder of the company, i.e. TAURON Polska Energia S.A.
Additional information to the extended and consolidated Q3 2017 report
On October 24, 2017, the Extraordinary General Meeting of the Shareholders of TAURON EKOENERGIA sp. z o.o. passed a resolution on increasing the share capital 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, i.e. TAURON Polska Energia S.A.
On October 24, 2017, the Extraordinary General Meeting of the Shareholders of Magenta Grupa TAURON sp. z o.o. passed a resolution on increasing the share capital from PLN 500 000 to PLN 1 500 000, i.e. by PLN 1 000 000.00, by way of issuing 20 000 new shares with the nominal value of PLN 50 each, with the total nominal value of PLN 1 000 000. All the new shares were taken up by the existing sole shareholder of the company, i.e. TAURON Polska Energia S.A.
On October 26, 2017, the Extraordinary General Meeting of TAURON Dystrybucja S.A. passed a resolution on increasing the share capital 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 shares with the nominal value of PLN 0.02 each. All the new shares will be offered to be taken up by way of a private placement to TAURON Polska Energia S.A.
As of the day of drawing up this information the increases of the share capitals of: TAURON EKOENERGIA sp. z o.o., Magenta Grupa TAURON sp. z o.o., TAURON Dystrybucja S.A. were not registered in the National Court Register.
No changes to the Management Board's composition took place in Q3 2017 and by the day of publishing this information.
Additional information to the extended and consolidated Q3 2017 report
No changes to the Supervisory Board's composition took place in Q3 2017 and by the day of publishing this information.
As of September 30, 2017, the share capital of TAURON Polska Energia S.A. amounted to PLN 8,762,746,970.00 and it was divided into 1,752,549,394 shares with the nominal value of PLN 5.00 per share, including 1,589,438,762 ordinary bearer shares of AA series and 163,110,632 ordinary registered shares of BB series.
In accordance with the notifications received from the Company, as of the date of publishing this interim report, i.e. as of November 8, 2017, the structure of shareholders holding at least 5 per cent of the total number of votes at the General Meeting of the Company, either directly or indirectly, through subsidiaries, is as follows:
| Shareholders | Number of shares held |
Percentage share in share capital |
Number of votes held |
Percentage share in the total number of votes |
|---|---|---|---|---|
| State Treasury | 526 848 384* | 30.06% | 526 848 384 | 30.06% |
| KGHM Polska Miedź S.A. |
182 110 566** | 10.39% | 182 110 566 | 10.39% |
| Nationale-Nederlanden Otwarty Fundusz Emerytalny (Open Pension Fund) |
88 742 929*** | 5.06% | 88 742 929 | 5.06% |
*in accordance with the shareholder's notification of February 28, 2013
**in accordance with the shareholder's notification of March 23, 2011
***in accordance with the shareholder's notification of December 28, 2011
Since the day of publishing the previous periodical report, i.e. since August 17, 2017, until the day of publishing this report there were no changes in the ownership structure of substantial blocks of the Company's shares.
As of the day of publishing this quarterly report i.e. as of November 8, 2017, the members of TAURON Polska Energia's Management Board did not hold any shares or rights to the Company's shares. Since the day of publishing the previous periodical report, i.e. since August 17, 2017, until the day of publishing this report there were no changes to the number of shares or rights to the Company's shares held by the members of the Management Board.
As of the day of publishing this quarterly report i.e. as of November 8, 2017, the members of TAURON Polska Energia's Supervisory Board did not hold any shares or rights to the Company's shares. Since the day of publishing the previous periodical report, i.e. since August 17, 2017, until the day of publishing this report there were no changes to the number of shares or rights to the Company's shares held by the members of the Supervisory Board.
TAURON Polska Energia's core business operations include:
As a parent entity TAURON is performing the consolidation and management function in TAURON Capital Group.
The Company's core operations, besides managing TAURON Capital Group, include wholesale trading of electricity, related products, gas, CO2 emission allowances and production fuels in order maximize the financial results from the operations conducted in this area.
As a result of implementing its business model and centralizing functions TAURON concentrated many competences related to TAURON Capital Group's subsidiaries' operations and it currently carries out operations, among others, in the following areas:
The above functions are gradually downsized at TAURON Capital Group's subsidiaries. The centralization is aimed at improving TAURON Capital Group's efficiency.
The Company is focusing on purchasing and selling of electricity for the needs of hedging the buy and sell positions of TAURON Capital Group's subsidiaries and on proprietary wholesale electricity trading. Electricity
sales performed by the Company during the first three quarters of 2017 were mainly to the following subsidiaries: TAURON Sprzedaż and TAURON Sprzedaż GZE.
Electricity trading, both for the needs of entities that are members of TAURON Capital Group as well as proprietary trading, is carried out mainly on the Polish Power Exchange (Towarowa Giełda Energii S.A.) and on brokerage platforms operating on the Polish market. Additionally, the Company is trading in electricity contracts on the European Energy Exchange (EEX) and carrying out electricity trading on the available international links as well as it is present on the most important European spot and intraday wholesale markets - EPEX spot and NordPool spot.
TAURON's competences also include management, for the needs of TAURON Capital Group, of certificates of origin that constitute a confirmation of electricity generation from renewable sources, including from sources that use agricultural biogas, using high-efficiency co-generation, gas-fired co-generation, mining methane-fired or biomass gas-fired co-generation.
The Company is the competence center with respect to management and trading in CO2 emission allowances for TAURON Capital Group's subsidiaries. Due to the centralization of trading in emission allowances a synergy effect was obtained that involves optimizing the costs of using the resources of entities that are members of TAURON Capital Group. Along with the centralization of this function at TAURON the Company is responsible for clearing CO2 emission allowances on behalf of its subsidiaries, securing the emission needs of its subsidiaries taking into account the allowances allocated and the support in the process of acquiring the allowance quotas for the subsequent periods. While accomplishing the above mentioned goals the Company is an active participant of trading in CO2 emission allowances.
In addition, TAURON also acts as Market Operator (maker) and the entity responsible for trade balancing for TAURON Capital Group's subsidiaries and for external customers with respect to electricity. The function of Market Operator and the Entity responsible for trade balancing is performed based on the transmission Agreement concluded with the Transmission System Operator (TSO) – PSE. The Company currently holds exclusive generation capacity with respect to meeting trading and technical requirements, is responsible for optimizing generation, i.e. selecting generation units for operation as well as for the relevant distribution of loads in order to perform the contracts concluded, taking into account technical conditions of the generation units, grid constraints and other factors, under various time horizons. As part of services provided for the Generation segment the Company participates in preparing overhaul schedules, available (dispatchable) capacity schedules as well as production plans for the generation units, under various time horizons, as well as in agreeing them with the relevant grid operator.
In accordance with the adopted business model TAURON is performing the management function with respect to production fuel procurement management for the needs of TAURON Capital Group's generation entities.
In the first three quarters of 2017 approximately 53% of coal supplies for electricity and heat production was satisfied by coal from TAURON Capital Group's own coal mines. The balance of the demand was covered from external sources.
The Company is expanding its operations with respect to trading in gas fuel. With respect to gas wholesale trading TAURON has been an active participant of the gas market since obtaining the license in 2012. It is actively conducting trading operations on the domestic market, i.e. on the Polish Power Exchange (Towarowa Giełda Energii S.A.) and on the OTC market. The Company is also conducting trading operations on the European natural gas market.
Furthermore, the Company is conducting trading operations in the Gasoil Futures contracts based on the valuations of the diesel oil. The product is available on the ICE Futures Europe platform that TAURON has been a member of since 2012. The Gasoil contracts can be used by the market participants both as a hedging instrument as well as a trading tool. The Gasoil products are characterized by high liquidity and contract prices are a price reference for all the trade distillates in Europe and beyond.
Moreover, the Company is trading in crude oil market products: Brent Crude, WTI Crude, the pricing of which is tied to oil prices and Heating Oil – a product priced based on the heating oil quotations. With respect to the above mentioned products trading is focused not only on trading in individual contracts (outright) but also on trading in spreads, created both between given products as well as calendar spreads that correspond to the dates of settling (clearing) individual contracts.
The Company is present on the most important European wholesale gas markets within the areas of Gaspool, New Connect Germany (NCG) and Tittle Transfer Facility (TTF) hubs. Through PRISMA and GSA auction platforms the Company purchases interconnector capacity enabling cross-border trading in gas and physical deliveries of gas for the needs of TAURON Capital Group's subsidiaries and consumers. TAURON Capital Group's competences with respect to gas sales are split: TAURON conducts wholesale gas trading on the domestic and European markets through access to exchanges and sources of gas, while TAURON Sprzedaż conducts comprehensive gas sales to the final consumers.
Due to the implementation of the new Strategy the mass market has become an important area of the Company's operations: coordinating the Customer Area. The Company is expanding its competences by planning the retail market sales, developing a range of products and services and tools to support the sales process on this market. An important element associated with this area are also activities related to research and development.
TAURON Polska Energia 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.
Figure no. 2. TAURON Capital Group
• limestone mining for the needs of power generation, steel, construction and road building industries • acquiring, transporting and processing of biomass for the needs of utility scale power generation
• financial activities
• Other segment's Q1-3 2017 EBITDA: PLN 115 mln
12
For the needs of reporting TAURON Capital Group's results from operations TAURON Group's operations are split into the following five Segments, hereinafter also referred to as Lines of Business:
Mining segment, comprising mainly hard coal mining, enriching and selling in Poland with such operations conducted by TAURON Wydobycie S.A. (TAURON Wydobycie). As of December 1, 2016, Nowe Brzeszcze Grupa TAURON sp. z o.o. (Nowe Brzeszcze GT) subsidiary was merged with TAURON Wydobycie.
Generation Segment, comprising mainly electricity generation using conventional sources, including cogeneration, as well as electricity generation from renewable energy sources, including biomass burning and cofiring, and hydroelectric power plants and wind farms. The Segment also includes heat generation, distribution and supply. This Segment's operations are conducted by TAURON Wytwarzanie S.A. (TAURON Wytwarzanie), TAURON Ciepło sp. z o.o. (TAURON Ciepło) and TAURON EKOENERGIA sp. z o.o. (TAURON EKOENERGIA). The Segment also includes TAURON Serwis sp. z o.o. (TAURON Serwis) subsidiary, dealing primarily with the generation equipment's overhauls and Nowe Jaworzno Grupa TAURON Sp. z o.o. (Nowe Jaworzno GT) subsidiary responsible for the construction of the new power generation unit at Jaworzno.
Distribution segment, comprising electricity distribution using distribution grids located in southern Poland. The operations are conducted by TAURON Dystrybucja S.A. (TAURON Dystrybucja). This segment also includes the following subsidiaries: TAURON Dystrybucja Serwis S.A. (TAURON Dystrybucja Serwis) and TAURON Dystrybucja Pomiary sp. z o.o. (TAURON Dystrybucja Pomiary).
Supply segment, comprising electricity supply to the final consumers and electricity wholesale trading, as well as trading and management of CO2 emission allowances and property rights arising from certificates of origin as well as fuels. The operations in this segment are conducted by the following subsidiaries: TAURON Polska Energia S.A. (TAURON or the Company), TAURON Sprzedaż sp. z o.o. (TAURON Sprzedaż), TAURON Sprzedaż GZE sp. z o.o. (TAURON Sprzedaż GZE) and TAURON Czech Energy s.r.o. (TAURON Czech Energy).
Other operations, comprising operations with respect to customer service for TAURON Capital Group and provision of support services for TAURON Capital Group's subsidiaries with respect to accounting, HR and ICT, conducted by TAURON Obsługa Klienta sp. z o.o. (TAURON Obsługa Klienta) subsidiary, as well as operations related to extraction of stone, including limestone, for the needs of the power generation, steel, construction and road building industries as well as production of sorbing agents for wet flue gas desulphurization installations and for use in fluidized bed boilers, carried out by Kopalnia Wapienia "Czatkowice" sp. z o.o. (KW Czatkowice) subsidiary. This segment also includes the following subsidiaries: TAURON Sweden Energy AB (publ) (TAURON Sweden Energy), dealing with financial operations, Biomasa Grupa TAURON sp. z o.o., (Biomasa Grupa TAURON), dealing mainly with biomass acquisition, transportation and processing, KOMFORT-ZET sp. z o.o. (KOMFORT-ZET) dealing primarily with real estate administration as well as the technical support of vehicles and Polska Energia - Pierwsza Kompania Handlowa sp. z o.o. (PEPKH).
TAURON Capital Group conducts its operations and generates its revenue mainly from electricity and heat supply and distribution, electricity and heat generation, as well as from hard coal sales.
The below figure presents the location of TAURON Capital Group's key assets as well as the distribution area where TAURON Dystrybucja conducts operations as a Distribution System Operator.
Additional information to the extended and consolidated Q3 2017 report
The below table below presents the activities carried out by TAURON Capital Group by the end of Q3 2017, in connection with the implementation of the key strategic investment projects.
| Table no. 3. Key strategic investment projects' work progress | |||
|---|---|---|---|
| # | Investment project | Work progress |
|---|---|---|
| 1. | Construction of a 449 MWe CCGT unit, including a 240 MWt heat generation component at Stalowa Wola (Project implemented jointly with the strategic partner - Polskie Górnictwo Naftowe i Gazownictwo S.A. (PGNiG)). Contractor: the contract with Abener Energia S.A. was |
On March 31, 2017, all liabilities under ECSW's loan agreements towards the financing banks (EIB, EBR&D, PEKAO) were totally repaid. Once the financing institutions' bank accounts were credited the suspending conditions were met and at the same time the following documents came into force, i.e. the agreement on establishing the basic boundary conditions of the Project's restructuring among TAURON, PGNiG and ECSW, the amendment |
| terminated. The Project's completion is envisaged under the EPCM formula (contract manager). EPCM – consortium of Energoprojekt Katowice – Energopomiar Gliwice. |
to the electricity sale agreement among TAURON, PGNiG and ECSW and the amendment to the gas supply agreement between PGNiG and ECSW. |
|
| Planned project completion date: 2019 | Talks aimed at acquiring the financing required to complete the investment project are continued. |
|
| Work progress: 86% Expenditures incurred: PLN 977.5 mln |
Maintenance works on the machines and devices installed are continued on an ongoing basis. Also works related to the startup of |
| # | Investment project | Work progress |
|---|---|---|
| auxiliary devices and talks with suppliers and sub-suppliers of the main devices are underway. Concept of the project's completion under the contract manager - |
||
| EPCM and contracting of contractors formula was prepared. The proceeding aimed at selecting the EPCM was completed. Energoprojekt Katowice – Energopomiar Gliwice consortium was selected as the project's EPCM. |
||
| The proceeding aimed at selecting the Contractor to construct the cooling water's duct was completed. IDS-BUD S.A. was selected. The contractor is providing the compiled design documentation to be agreed with ECSW on an ongoing basis. Preparations to commence the construction works are underway. The project's scope was extended by adding the construction of the back-up source of heat for the CCGT unit – preparation works – technical and commercial ones – are underway. |
||
| 2. | Construction of a new 910 MWe power generation unit for supercritical parameters at Jaworzno III Power Plant (TAURON Wytwarzanie). Contractor: consortium of RAFAKO S.A. and Mostostal Warszawa S.A. Planned project completion date: 2019 Work progress: 45% Expenditures incurred: PLN 3 012 mln |
The project's implementation was transferred to Nowe Jaworzno GT company (SPV) that was established in April 2017 as a result of the spin-off out of TAURON Wytwarzanie. The main implementation works in Q3 2017 focused on installing the boiler room's and machine room's process part. Works completed: installation of the boiler room's building's main steel structure, installation of the cooling water pump station's enclosure, welding of the feeding water tank, heavy installation of the burners and the rotating air heater (LUVO). Benson cylinder that constitutes a key component of the boiler was also lifted. Works continued included, among others: cooling tower painting (coating), installation of the coal mills (pulverizers), electric switchgears, roof and enclosure of the boiler room, turbine and condenser building. With respect to the carburization system technology supplies and installations of the skew bridge enclosure and the steel structure of the distribution tower no. 2 were underway. Earth works related to the compressor building and foundation laying for the office building were continued. Works with respect to the de-ashing system, ignition oil installation, water supply system, water treatment station and pipeline flyovers were continued at the construction site. The contractor for the construction of the telecommunications network and the water and sewage Network was selected. The project's due diligence was commenced as a result of the agreement between TAURON and the Polish Fund for Development (Polski Fundusz Rozwoju S.A. - PFR) concluded in June this year, defining the preliminary terms of engagement in the construction of the new 910 MW power generation unit in Jaworzno. The Company is continuing its efforts aimed at attracting another external partner to join Nowe Jaworzno GT company and thus obtain financing to carry out the investment project. |
| 3. | Construction of the "Grzegorz" shaft including the infrastructure and the accompanying headings (TAURON Wydobycie). Contractor: Consortium KOPEX Przedsiębiorstwo |
The general contractor of the works: "Construction works performed by the General Contractor of Stage I of Grzegorz shaft construction, including the construction of the above the ground infrastructure for TAURON Wydobycie S.A." was selected – |
| Budowy Szybów S.A. FAMUR Pemug Sp. z o.o. (main task – Stage I), LINTER S.A. |
consortium of KOPEX Przedsiębiorstwo Budowy Szybów S.A. and FAMUR Pemug Sp. z o.o. The agreement with the general contractor of the works was signed |
|
| Planned project completion date: 2023 | in May and the construction site was handed over in September. As part of the project works related to drilling the horizontal headings |
|
| Work progress: 20% Expenditures incurred: PLN 93.7 mln |
to the "Grzegorz" shaft on level 540 m were continued. | |
| 4. | Construction of the 800 m level at ZG Janina (TAURON Wydobycie). |
Works associated with shaft drilling and furnishing as well as the installation of the shaft pipe to the ultimate depth were completed in H1 2017. The bottom stopper was installed, whereby the works |
| Contractor: Tender proceeding aimed at selecting the contractor for the ultimate above the ground and underground infrastructure including the mine shaft elevator is underway (GWSZ), KOPEX |
connected with deepening of the shaft were completed – project's milestone was achieved. The infrastructure used to deepen the shaft was dismantled and the area where the works had been conducted was cleaned up and secured. |
|
| Planned project completion date: 2020 |
Additional information to the extended and consolidated Q3 2017 report
| # | Investment project | Work progress |
|---|---|---|
| Expenditures incurred: PLN 277.3 mln | Works associated with horizontal heading drilling on the 800 m level are continued – ventilation system on the 800 m level was closed – project's milestone was achieved. Also, works aimed at contracting the further scope of works are continued. Therefore, among others, an open public tender to select the contractor to complete the task: "Construction of the ultimate above the ground and underground infrastructure including the Janina VI shaft Mine Shaft Elevator" was announced and conducted. The contractor selection process is currently underway. Also, a tender on drilling the headings as part of the project's 4th stage was announced. |
|
| 5. | Brzeszcze Investment Program Contractors: TRANS-JAN, FAMUR and KOPEX Machinery Consortium, FAMUR and KPRGiBSz Consortium, MAS and Carbospec Consortium, Elektrometal Cieszyn Planned Program completion date: 2025 Work progress: 25% Expenditures incurred: PLN 114.9 mln |
Planned shipments of powered roof supports with the operational range adjusted to the 510 deposit were completed. A longwall shearer (mining system) was installed in the 05 wall – program's milestone was achieved. As part of revitalizing and shortening of the main ventilation routes works related to the alteration and reconstruction of the ventilation excavations on the 900 m level were continued – stage I and stage II of the works. As part of adjusting the technical infrastructure to the specific operational needs the construction of the fine coal (nut coal and pea coal) sales facility and the construction of the water and ash blending station were underway. The mine's upgraded mining rescue station was commissioned - project's milestone was achieved. |
| 6. | Low Emission Elimination Program Contractors: Contractors selected to carry out individual projects Planned Program completion date: 2023 Work progress: 2% Expenditures incurred: PLN 1.4 mln |
Program carried out by TAURON Ciepło sp. z o.o. The program's objective is to eliminate non-ecological sources of heat and replace them with district heating. Connecting of more than 180 MWt of thermal capacity to the district heating network in 8 cities of the Silesia and Dąbrowa conurbation is planned as part of the program's implementation. This will allow for achieving an annual reduction of carbon dioxide by 50 thousand tons and approximately 250 tons less dust suspended in the atmosphere. construction or upgrade of more than 100 km long district heating networks based on the modern pre-insulated networks standard is planned as part of the program's scope. The entire Program covering all 8 cities of the Silesia and Dąbrowa conurbation was co-financed (subsidized) using the funds of the Regional Environment Protection and Water Management Fund (Wojewódzki Fundusz Ochrony Środowiska i Gospodarki Wodnej) in Katowice amounting to more than PLN 141 mln in total. The total funds envisaged to carry out the program amount to approximately PLN 250 mln. In Q3 of this year the first construction works were commenced, i.e. connecting of the buildings at ul. Modrzejowska in Sosnowiec. The project works are carried out on as needed basis. |
On September 3, 2014 PGE Polska Grupa Energetyczna S.A. (PGE), TAURON, ENEA S.A. and KGHM Polska Miedź S.A. concluded the Partners' Agreement governing the rules of cooperation among Business Partners in the implementation of Poland's first nuclear power plant construction project.
On April 15, 2015 TAURON, KGHM Polska Miedź S.A. (KGHM) and ENEA S.A., as Business Partners and PGE Polska Grupa Energetyczna S.A. (PGE) concluded the agreement on the purchase of shares in PGE EJ 1 1 sp. z o.o. (PGE EJ 1) - the special purpose vehicle responsible for preparing and implementing of an investment project involving the construction and operation of Poland's first nuclear power plant with the capacity of approximately 3 thousand MWe (Nuclear Power Plant Project). Each Business Partner acquired a 10% stake (30% of shares in total) in the PGE EJ 1 special purpose vehicle.
In accordance with the Partners' Agreement the Parties made a commitment to jointly, in proportion to the stakes held, finance the operations of the PGE EJ 1 special purpose vehicle at the Nuclear Power Plant Project Development Stage. In accordance with the 2017 schedule PGE EJ 1 was conducting design works encompassing mainly performance of environmental and siting research.
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 (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.
TAURON has declared its participation in the Coal Gasification Project 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 Coal Gasification Project's estimated value will reach between EUR 400 mln and EUR 600 mln, depending on the selected technology version.
Currently Grupa Azoty is at the stage of accepting the preFeed (Preliminary Front End Engineering Design) works and accompanying analyses, including market research related to the Coal Gasification Project. A group of licensors of the main technology islands was initially selected.
Having received the products (outcomes) of the commissioned works from Grupa Azoty TAURON will carry out a detailed analysis and evaluation thereof aimed at assessing the possibility of signing further agreements, including agreements related to establishing a joint special purpose vehicle (SPV).
The letter of intent shall be valid until December 31, 2017. Either Party shall have the right to terminate the letter of intent with one month's notice.
After 3 quarters of 2017 TAURON Capital Group's capital expenditures reached PLN 2 217 mln and were 9.5% lower than the expenditures incurred in the same period of last year (after 3 quarters of 2016 capex reached PLN 2 450 mln). This is primarily due to the reduced capex in the Distribution and Mining segments.
The below table presents selected capital expenditures incurred in Q1-3 2017, highest by value, by TAURON Capital Group's business segments:
| Item | Capital expenditures (PLN m) |
|---|---|
| Distribution | |
| Grid assets' upgrades (refurbishments) and replacements | 463 |
| Construction of new connections | 397 |
| Generation | |
| Construction of new capacity at Jaworzno III Power Plant (910 MW) | 957 |
| Investment projects related to the maintenance and development of district heating networks | 12 |
| Connecting new facilities | 10 |
| Mining | |
| Construction of the 800 m level at Janina Coal Mine | 24 |
| Brzeszcze Coal Mine's Investment Program | 14 |
| Construction of the "Grzegorz" shaft, including the infrastructure and the accompanying headings | 9 |
Table no. 4. Selected capital expenditures incurred in Q1-3 2017 by Lines of Business
| in PLN '000 | in EUR '000 | |||||
|---|---|---|---|---|---|---|
| SELECTED FINANCIAL DATA | 2017 period from 01.01.2017 to 30.09.2017 |
2016 period from 01.01.2016 to 30.09.2016 (converted data) |
2017 period from 01.01.2017 to 30.09.2017 |
2016 period from 01.01.2016 to 30.09.2016 (converted data) |
||
| Selected consolidated financial data of TAURON Polska Energia S.A. Capital Group | ||||||
| Sales revenue | 12 871 320 | 12 991 590 | 3 023 850 | 2 973 720 | ||
| Operating profit | 1 579 740 | 525 955 | 371 127 | 120 389 | ||
| Pre-tax profit | 1 481 655 | 369 786 | 348 084 | 84 642 | ||
| Net profit | 1 194 230 | 276 328 | 280 560 | 63 250 | ||
| Net profit attributable to shareholders of the parent company |
1 192 197 | 274 479 | 280 082 | 62 827 | ||
| Net profit attributable to non-controlling shares |
2 033 | 1 849 | 478 | 423 | ||
| Other total income | 3 278 | 70 393 | 770 | 16 113 | ||
| Total aggregate income | 1 197 508 | 346 721 | 281 330 | 79 363 | ||
| Total aggregate income attributable to shareholders of the parent company |
1 195 466 | 344 872 | 280 850 | 78 940 | ||
| Total aggregate income attributable to non-controlling shares |
2 042 | 1 849 | 480 | 423 | ||
| Profit per share (in PLN/EUR) (basic and diluted) |
0.68 | 0.16 | 0.16 | 0.04 | ||
| 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 activities | 2 921 491 | 2 405 354 | 686 344 | 550 575 | ||
| Net cash flows from investing activities | (2 990 224) | (2 730 803) | (702 491) | (625 069) | ||
| Net cash flows from financing activities | 1 851 827 | 129 191 | 435 048 | 29 571 | ||
| Increase/(decrease) in net cash and equivalents |
1 783 094 | (196 258) | 418 901 | (44 923) | ||
| As of 30.09.2017 | As of 31.12.2016 | As of 30.09.2017 | As of 31.12.2016 | |||
| Fixed assets | 29 927 056 | 29 148 253 | 6 945 083 | 6 588 665 | ||
| Current assets | 5 692 852 | 4 308 641 | 1 321 123 | 973 924 | ||
| Total Assets | 35 619 908 | 33 456 894 | 8 266 206 | 7 562 589 | ||
| Share capital | 8 762 747 | 8 762 747 | 2 033 545 | 1 980 729 | ||
| Equity attributable to shareholders of the parent company |
17 844 827 | 16 649 266 | 4 141 196 | 3 763 396 | ||
| Equity attributable to non-controlling shares |
31 315 | 30 052 | 7 267 | 6 793 | ||
| Total equity | 17 876 142 | 16 679 318 | 4 148 463 | 3 770 189 | ||
| Long-term liabilities | 13 691 332 | 11 968 719 | 3 177 307 | 2 705 407 | ||
| Short-term liabilities | 4 052 434 | 4 808 857 | 940 436 | 1 086 993 | ||
| Total liabilities | 17 743 766 | 16 777 576 | 4 117 743 | 3 792 400 |
Additional information to the extended and consolidated Q3 2017 report
| Selected financial data of TAURON Polska Energia S.A. on a standalone basis | ||||||
|---|---|---|---|---|---|---|
| in PLN '000 | in EUR '000 | |||||
| 2017 period from 01.01.2017 to 30.09.2017 |
2016 period from 01.01.2016 to 30.09.2016 (converted data) |
2017 period from 01.01.2017 to 30.09.2017 |
2016 period from 01.01.2016 to 30.09.2016 (converted data) |
|||
| Sales revenue | 5 394 681 | 5 678 707 | 1 267 369 | 1 299 832 | ||
| Operating profit (loss) | 227 348 | 14 204 | 53 411 | 3 251 | ||
| Gross profit | 913 354 | 503 401 | 214 574 | 115 226 | ||
| Net profit | 859 815 | 499 159 | 201 996 | 114 255 | ||
| Other total income | (6 663) | 68 025 | (1 565) | 15 571 | ||
| Total aggregate income | 853 152 | 567 184 | 200 431 | 129 826 | ||
| Profit per share (in PLN/EUR) (basic and diluted) |
0.49 | 0.28 | 0.12 | 0.06 | ||
| 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 activities | 285 687 | 90 032 | 67 116 | 20 608 | ||
| Net cash flows from investing activities | (920 065) | 27 389 | (216 150) | 6 269 | ||
| Net cash flows from financing activities | 1 757 575 | 52 611 | 412 906 | 12 042 | ||
| Increase/(decrease) in net cash and equivalents |
1 123 197 | 170 032 | 263 872 | 38 919 | ||
| As of 30.09.2017 | As of 31.12.2016 | As of 30.09.2017 | As of 31.12.2016 | |||
| Fixed assets | 27 062 336 | 25 855 329 | 6 280 276 | 5 844 333 | ||
| Current assets | 3 904 862 | 1 817 047 | 906 190 | 410 725 | ||
| Total Assets | 30 967 198 | 27 672 376 | 7 186 466 | 6 255 058 | ||
| Share capital | 8 762 747 | 8 762 747 | 2 033 545 | 1 980 729 | ||
| Equity | 17 383 420 | 16 530 268 | 4 034 118 | 3 736 498 | ||
| Long-term liabilities | 10 665 977 | 8 969 976 | 2 475 222 | 2 027 572 | ||
| Short-term liabilities | 2 917 801 | 2 172 132 | 677 125 | 490 988 | ||
| Total liabilities | 13 583 778 | 11 142 108 | 3 152 347 | 2 518 560 |
The above Q3 2017 and Q3 2016 financial data was converted into EUR according to the following principles:
Additional information to the extended and consolidated Q3 2017 report
In the first three quarters of 2017 and in Q1 2017 TAURON Capital Group posted the following key operating data:
| Key operating data | Unit | Q1-3 2017 |
Q1-3 2016 |
% change 2017/2016 |
Q3 2017 |
Q3 2016 |
% change 2017/2016 |
|---|---|---|---|---|---|---|---|
| Commercial coal production | m Mg | 4.68 | 4.21 | 11.2% | 1.36 | 1.73 | (21.1)% |
| Electricity generation (gross production) | TWh | 14.03 | 12.45 | 12.7% | 4.57 | 4.00 | 14.3% |
| Generation of electricity from renewable sources |
TWh | 0.94 | 1.00 | (6.7)% | 0.28 | 0.23 | 20.8% |
| Production from biomass | TWh | 0.29 | 0.45 | (34.9)% | 0.11 | 0.08 | 42.0% |
| Production from hydroelectric power plants and wind farms |
TWh | 0.65 | 0.56 | 15.9% | 0.17 | 0.16 | 10.1% |
| Heat generation | PJ | 7.91 | 7.00 | 13.1% | 0.82 | 0.57 | 45.3% |
| Electricity distribution | TWh | 38.31 | 36.82 | 4.0% | 12.61 | 12.05 | 4.6% |
| Electricity supply (by the Supply and Generation Segments) |
TWh | 33.44 | 35.46 | (5.7)% | 10.88 | 11.40 | (4.6)% |
| - retail sales | TWh | 25.56 | 23.19 | 10.2% | 8.35 | 7.61 | 9.7% |
| - wholesale | TWh | 7.89 | 12.27 | (35.7)% | 2.53 | 3.80 | (33.3)% |
| Number of customers - Distribution | '000 | 5 517 | 5 458 | 1% | 5 517 | 5 458 | 1% |
The below table presents TAURON Capital Group's Q1-3 2017 and Q3 2017 sales volumes and structure broken down into individual lines of business (segments).
| Table no. 7. TAURON Capital Group's sales volumes and structure broken down into individual lines of business (segments) | |
|---|---|
| -------------------------------------------------------------------------------------------------------------------------- | -- |
| Item | Unit | Q1-3 2017 |
Q1-3 2016 |
% change 2017/2016 |
Q3 2017 |
Q3 2016 |
% change 2017/2016 |
|---|---|---|---|---|---|---|---|
| Mining segment's hard coal sales | m Mg | 5.01 | 4.10 | 22.1% | 1.45 | 1.64 | (11.2)% |
| Generation segment's electricity and | TWh | 14.58 | 11.48 | 27.0% | 4.99 | 3.72 | 34.1% |
| heat sales | PJ | 10.66 | 9.56 | 11.5% | 0.86 | 0.69 | 24.2% |
| Distribution segment's distribution services sales |
TWh | 38.31 | 36.82 | 4.0% | 12.61 | 12.05 | 4.6% |
| Supply segment's electricity retail sales | TWh | 25.54 | 23.18 | 10.2% | 8.34 | 7.60 | 9.7% |
Core business operations conducted by TAURON Capital Group's Mining segment comprise mining, enrichment and sales of hard coal as well as sales of methane as accompanying fossil from the Brzeszcze deposit.
TAURON Capital Group operates three coal mines: ZG Sobieski, ZG Janina and ZG Brzeszcze. The above coal mines are the producers of the hard coal offered for sale on the market as large size lump coal, medium size lump coal and thermal coal dust.
Q1-3 2017 hard coal sales volume reached 5.01 million Mg, i.e. a 22% increase as compared to the same period of 2016, and was the consequence of higher production output and stronger demand on the coal market. Coal sales to TAURON Group reached 3.18 mln Mg.
53% of TAURON Capital Group's current demand for coal to be used to generate electricity and heat was covered with hard coal coming from its own coal mines in Q1-3 2017. The balance of the demand was covered from external sources.
Commercial coal production in the reported period was 11% higher than in the same period of last year as a result of increasing ZG Brzeszcze's extraction capabilities and a favorable setup of extraction coal faces at ZG Janina.
Core operations conducted by TAURON Capital Group's Generation segment comprise electricity and heat generation using:
Total achievable capacity of the Generation segment's generating units reached 5.0 GW of electric capacity and 2.4 GW of thermal capacity at the end of September 2017. Generation segment is also conducting heat transmission and distribution operations.
In the first three quarters of 2017 the Generation segment produced 14.0 TWh of electricity, i.e. 13% more than last year (12.4 TWh) which was due to higher sales under contracts year on year.
Production from RES reached 0.94 TWh, i.e. 7% less as compared to last year (1.00 TWh) which was due to the reduction of biomass burning.
Sales of electricity from own production, including electricity purchased for trading, reached 14.6 TWh in the first three quarters of 2017, i.e. a 27% increase in relation to the same period of 2016. Purchased electricity resale volume was higher than in 2016 (2.0 TWh in the first three quarters of 2017; 0.4 TWh in the same period of 2016).
Heat sales in the first three quarters of 2017 reached 10.7 PJ, i.e. 11% more versus the same period of 2016 which was due to lower outside temperatures year on year and higher consumer demand.
TAURON Capital Group is Poland's largest electricity distributor, both in terms of electricity volume delivered as well as revenue from distribution operations. Distribution segment is operating large area distribution grids, located in the south of Poland.
In the first three quarters of 2017 the Distribution segment delivered, in total, approximately 38.3 TWh of electricity, including 36.5 TWh to the final consumers. During this period the Distribution segment provided distribution services to 5.52 million consumers. In the same period of 2016 the Distribution segment delivered, in total, approximately 36.8 TWh of electricity to approx. 5.46 million consumers, including 35.3 TWh to the final consumers. The increase in the volume delivered to the final consumers year on year is due to the GDP growth and increased electricity consumption by industrial consumers.
Supply segment comprises operations with respect to retail sales of electricity as well as wholesale trading of electricity and other energy market products. The supply operations include electricity supply to final consumers, including also to key accounts.
While the wholesale trading operations include mainly wholesale trading of electricity as well as trading and managing CO2 emission allowances, property rights arising from certificates of electricity origin and fuels.
Additional information to the extended and consolidated Q3 2017 report
In the first three quarters of 2017 the Supply segment subsidiaries supplied, in total, 31.4 TWh of electricity, including 25.5 TWh to 5.3 million customers, both households as well as businesses, i.e. 0.5 TWh more than in the same period of last year. Higher sales are a consequence of a larger supply to business customers and the operations on the competitive market.
The below table presents an analysis of TAURON Capital Group's financial standing in Q1-3 2017 as compared to the end of 2016.
| Table no. 8. Structure of the interim abbreviated consolidated statements of the financial position | ||||
|---|---|---|---|---|
| Consolidated statements of the financial position |
As of September 30, 2017 |
As of December 31, 2016 |
% change (2017 / 2016) |
|---|---|---|---|
| ASSETS | |||
| Fixed assets | 84.0% | 87.1% | 96.4% |
| Current assets | 16.0% | 12.9% | 124.1% |
| TOTAL ASSETS | 100.0% | 100.0% | |
| LIABILITIES | |||
| Equity attributable to shareholders of the parent company |
50.1% | 49.8% | 100.7% |
| Non-controlling shares | 0.1% | 0.1% | 97.9% |
| Total equity | 50.2% | 49.9% | 100.7% |
| Long-term liabilities | 38.4% | 35.8% | 107.5% |
| Short-term liabilities | 11.4% | 14.4% | 79.1% |
| Total liabilities | 49.8% | 50.1% | 99.3% |
| TOTAL LIABILITIES | 100.0% | 100.0% | |
| Financial liabilities | 10 166 265 | 8 165 142 | 124.5% |
| Net financial liabilities | 7 919 103 | 7 730 238 | 102.4% |
| Net debt/EBITDA ratio | 2.11 | 2.32 | 91.1% |
| Current liquidity ratio | 1.40 | 0.89 | 157.1% |
In the structure of assets, as of September 30, 2017, fixed assets represent 84% of the balance sheet total which means a (3.6%) change versus the end of 2016.
The share of current assets rose to 16% of the total assets as of September 30, 2017.
In the structure of liabilities, as of September 30, 2017, liabilities represent approximately 49.8% of total liabilities, with long-term liabilities representing approximately 38.4% and short-term liabilities – approx. 11.4% of the balance sheet total, which means a change of the structure of liabilities versus the end of 2016 when the share of long- and short-term liabilities was, respectively: 35.8% and 14.4%.
In relation to 2016 in the first three quarters of 2017 net financial liabilities rose 2.4% which did not lead to the deterioration of the net debt/EBITDA ratio due to the increase of EBITDA - the ratio dropped to 2.11x (the ratio expressed in relation to EBITDA for the last 12 months).
The current liquidity ratio rose to 1.40. The Company's liquidity is not at risk, the indicators continue to stay at a high, safe level.
Additional information to the extended and consolidated Q3 2017 report
The below table presents selected items of the consolidated statement of comprehensive income of TAURON Capital Group for the period of 9 months ended on September 30, 2017, as well as the comparative data for the period of 9 months ended on September 30, 2016. These items are provided in accordance with the interim abbreviated consolidated financial statements of TAURON Capital Group, compliant with the International Financial Reporting Standards for the period of 9 months ended on September 30, 2017.
| Item (PLN '000) | Q1-3 2017 (unaudited) |
Q1-3 2016 (unaudited) |
% change (2017 /2016) |
|---|---|---|---|
| Sales revenue | 12 871 320 | 12 991 590 | 99.1% |
| Own cost of sales | (11 315 629) | (12 493 614) | 90.6% |
| Other operating revenues and costs | 24 049 | 27 979 | 86.0% |
| Operating profit (loss) | 1 579 740 | 525 955 | 300.4% |
| Operating profit margin (%) | 12.3% | 4.0% | 303.1% |
| Financial revenue | 50 245 | 48 937 | 102.7% |
| Financial expenses | (217 865) | (283 444) | 76.9% |
| Share in profit of the affiliate | 69 535 | 78 338 | 88.8% |
| Gross profit (loss) | 1 481 655 | 369 786 | 400.7% |
| Gross profit margin (%) | 11,5% | 2,8% | 404.3% |
| Income tax | (287 425) | (93 458) | 307.5% |
| Net profit (loss) for the period | 1 194 230 | 276 328 | 432.2% |
| Net profit margin (%) | 9.3% | 2.1% | 436.1% |
| Total income for the period | 1 197 508 | 346 721 | 345.4% |
| Profit attributable to: | |||
| Shareholders of the parent entity | 1 192 197 | 274 479 | 434.3% |
| Non-controlling shares | 2 033 | 1 849 | 110.0% |
| EBIT and EBITDA | |||
| EBIT | 1 579 740 | 525 955 | 300.4% |
| EBITDA | 2 877 185 | 2 460 526 | 116.9% |
The below figure presents TAURON Capital Group's Q1-3 2017 financial results as compared to the same period of 2016.
In the first three quarters of 2017 TAURON Capital Group generated slightly lower revenue than reported in the first three quarters of 2016, which was due to the following factors:
The below figure presents TAURON Capital Group's revenue structure in the first three quarters of 2017 as compared to the first three quarters of 2016.
In the first three quarters of 2017 the costs of TAURON Capital Group's operations reached PLN 11.3 bln, i.e. they were 9.4% lower than the costs incurred in the first three quarters of 2016.
The main cause of the decline is the write-down booked as of June 30, 2016 due to the loss on the Generation segment's generating units' carrying amount on the balance sheet, arising mainly from including in the impairment tests performed of the unfavorable for electricity generators changes in the market environment, such as the declining prices of certificates of origin for electricity coming from renewable energy sources and the new regulations related to the RES.
The amount of the write-down related to the conventional sources is based on the continued unfavorable trend in electricity prices and the forecast higher supply of electricity coming from sources competitive versus Polish coal-fired plants. At the same time the assumptions on which the forecasts are based take into account the estimated impact of the introduction of the so-called capacity market.
The above mentioned market conditions cause, on one hand, a decrease of cash flows that determine the recoverable value of the individual units, while on the other hand they lead to a reversal of the write-downs booked previously due to the loss on the carrying amount on the balance sheet of the electricity and heat generation units.
The impairment tests performed as of June 30, 2017 also indicated the need to book and reverse an impairment charge related to the carrying amount on the balance sheet of the Generations segment's generating units in the net amount of PLN 0.03 bln:
In Q3 2017 no factors occurred whose negative impact would have provided a justification for a change of long term forecasts versus the information available as of June 30, 2017. For this reason, it was decided that the results of the latest impairment tests related to the loss on the carrying amount on the balance sheet of the fixed assets and the company's goodwill performed as of June 30, 2017 were valid.
Excluding the above mentioned one-off events TAURON Capital Group's costs in the first three quarters of 2017 would have been 4% lower due to the following factors:
EBITDA margin generated in the first three quarters of 2017 reached 22.4% and was 3.5 pp higher than in the same period of last year. As a result of the booked write-downs, the amount of which in 2016 was significantly higher than the amount of the write-downs booked in 2017, the EBIT and net profit margins were significantly higher than the results generated a year ago and they reached 12.3% and 9.3%, respectively. Excluding the effects of the impairment charges the EBIT and net profit margins in Q1-3 2017 would have reached 12.5% and 9.5%, respectively, while in Q1-3 2016 they would have been 9.5% and 6.5%, respectively.
In accordance with the consolidated statement of comprehensive income presented, the total income of TAURON Capital Group, taking into account the net profit increased or decreased by the change in value of hedging instruments, FX differences arising from the conversion of a foreign unit and other revenues, after tax, reached PLN 1 197.9 mln in the first three quarters of 2017, as compared to PLN 346.7 mln generated in the same period of 2016.
Total income attributable to the shareholders of the parent company reached PLN 1 195.5 million, as compared to PLN 344.9 million posted in the first three quarters of 2016, while the profit attributable to the shareholders of the parent company was PLN 1 192.2 million, as compared to PLN 274.5 million posted in the same period of last year.
The below figure presents TAURON Capital Group's financial results and the margins generated in the first three quarters of 2017 as compared to the first three quarters of 2016.
Figure no. 6. TAURON Capital Group's financial results and the margins generated
The below table below presents TAURON Capital Group's EBITDA by individual lines of business (business segments) in Q1-3 2017 and in Q3 2017, compared to the same periods of 2016. The data for the individual segments do not include consolidation exclusions.
| EBITDA (PLN '000) |
Q1-3 2017 | Q1-3 2016 |
% change 2017/2016 |
Q3 2017 | Q3 2016 | % change 2017/2016 |
|---|---|---|---|---|---|---|
| Mining | (41 684) | (136 658) | - | (36 968) | 32 590 | - |
| Generation | 386 394 | 447 109 | 86.4% | 79 923 | 93 148 | 85.8% |
| Distribution | 1 794 598 | 1 709 660 | 105.0% | 591 288 | 562 063 | 105.2% |
| Supply | 690 978 | 400 133 | 172.7% | 145 582 | 110 560 | 131.7% |
| Other | 114 612 | 102 268 | 112.1% | 37 977 | 36 232 | 104.8% |
| Unassigned items and exclusions | (67 713) | (61 986) | - | (34 597) | (37 242) | - |
| Total EBITDA | 2 877 185 | 2 460 526 | 116.9% | 783 205 | 797 351 | 98.2% |
Table no. 10. TAURON Capital Group's EBITDA by individual lines of business (business segments)
The below figure presents TAURON Capital Group's EBITDA structure in the first three quarters of 2016 and the first three quarters of 2017.
Figure no. 7. TAURON Capital Group's EBITDA structure
The Distribution segment as well as the Supply and Generation segments make the biggest contributions to TAURON Capital Group's EBITDA.
The below table presents the Mining segment's results.
| Item (PLN '000) |
Q1-3 2017 | Q1-3 2016 | % change 2017/2016 |
Q3 2017 | Q3 2016 | % change 2017/2016 |
|---|---|---|---|---|---|---|
| Mining | ||||||
| Sales revenue | 1 118 467 | 887 524 | 126.0% | 336 783 | 375 392 | 89.7% |
| coal – large and medium size lump coal |
362 830 | 231 660 | 156.6% | 118 249 | 102 732 | 115.1% |
| thermal coal | 714 154 | 618 491 | 115.5% | 203 285 | 256 067 | 79.4% |
| other products, materials and services |
41 483 | 37 373 | 111.0% | 15 249 | 16 593 | 91.9% |
| EBIT | (135 236) | (228 703) | - | (69 420) | 1 833 | - |
| Depreciation and write-offs | 93 552 | 92 045 | 101.6% | 32 452 | 30 757 | 105.5% |
| EBITDA | (41 684) | (136 658) | - | (36 968) | 32 590 | - |
Mining segment's EBITDA and EBIT were better in the first three quarters of 2017 than in the same period of 2016. The results posted were affected by the following factors:
Additional information to the extended and consolidated Q3 2017 report
4) selling in the first three quarters of 2017 of a substantial part of coal inventory which led to recognizing the value of inventory as own cost in this period. The surplus of sales over production in the reported period reached 376 thousand Mg. In the same period of 2016 the situation was reverse and some unsold production (60 thousand Mg) was allocated as the Company's inventory and sold in the subsequent periods.
The below figure presents the Mining segment's Q1-3 2017 financial data versus Q1-3 2016.
The below figure presents the Mining segment's EBITDA including the significant factors impacting the change year on year.
EBITDA Increase Decrease
Figure no. 9. Mining segment's EBITDA
Additional information to the extended and consolidated Q3 2017 report
The below table presents the Generation segment's results.
| Table no. 12. Generation segment's results | |||||
|---|---|---|---|---|---|
| -- | -- | -- | -------------------------------------------- | -- | -- |
| Item (PLN '000) |
Q1-3 2017 | Q1-3 2016 | % change 2017/2016 |
Q3 2017 | Q3 2016 | % change 2017/2016 |
|---|---|---|---|---|---|---|
| Generation | ||||||
| Sales revenue | 3 324 832 | 3 243 691 | 102.5% | 1 042 661 | 901 057 | 115.7% |
| electricity | 2 593 215 | 2 323 340 | 111.6% | 901 272 | 739 254 | 121.9% |
| heat (incl. heat transmission) | 601 992 | 572 150 | 105.2% | 113 047 | 111 257 | 101.6% |
| property rights related to certificates of electricity origin |
88 751 | 306 270 | 29.0% | 20 062 | 36 646 | 54.7% |
| other | 40 874 | 41 931 | 97.5% | 8 280 | 13 900 | 59.6% |
| EBIT | 44 184 | (569 841) | - | (36 258) | (11 530) | - |
| Depreciation and write-offs | 342 210 | 1 016 950 | 33.7% | 116 181 | 104 678 | 111.0% |
| EBITDA | 386 394 | 447 109 | 86.4% | 79 923 | 93 148 | 85.8% |
In the first three quarters of 2017 the Generation segment's sales revenue was 3% higher as compared to the same period of last year due to higher revenue from electricity and heat sales. Lower revenue from the sales of property rights related to the certificates of electricity origin are due to lower PMOZE sales volume and lower price.
Generation segment's EBITDA was 14% lower in the first three quarters of 2017 than in the same period of 2016.
The results posted were affected by the following factors:
The below figure presents the Generation segment's Q1-3 2017 financial data versus Q1-3 2016.
The below figure presents the Generation segment's EBITDA including the significant factors impacting the change year on year.
The below table presents the Distribution segment's results.
| Item (PLN '000) |
Q1-3 2017 | Q1-3 2016 | % change 2017/2016 |
Q3 2017 | Q3 2016 | % change 2017/2016 |
|---|---|---|---|---|---|---|
| Distribution | ||||||
| Sales revenue | 4 986 910 | 4 676 098 | 106.6% | 1 618 916 | 1 531 592 | 105.7% |
| distribution services | 4 694 558 | 4 393 587 | 106.9% | 1 525 868 | 1 436 177 | 106.2% |
| connection fees | 88 313 | 68 863 | 128.2% | 25 349 | 21 831 | 116.1% |
| street lighting maintenance | 85 044 | 86 589 | 98.2% | 30 935 | 29 826 | 103.7% |
| other services | 118 995 | 127 058 | 93.7% | 36 764 | 43 757 | 84.0% |
Additional information to the extended and consolidated Q3 2017 report
| Item (PLN '000) |
Q1-3 2017 | Q1-3 2016 | % change 2017/2016 |
Q3 2017 | Q3 2016 | % change 2017/2016 |
|---|---|---|---|---|---|---|
| EBIT | 998 769 | 946 514 | 105.5% | 321 449 | 302 990 | 106.1% |
| Depreciation and write-offs | 795 829 | 763 146 | 104.3% | 269 839 | 259 073 | 104.2% |
| EBITDA | 1 794 598 | 1 709 660 | 105.0% | 591 288 | 562 063 | 105.2% |
In the first three quarters of 2017 the Distribution segment's sales revenue was approx. 7% higher as compared to the same period of 2016, while EBIT and EBITDA rose approx. 6% and 5%, respectively. The results posted were affected by the following factors:
The below figure presents the Distribution segment's Q1-3 2017 financial data versus Q1-3 2016.
Additional information to the extended and consolidated Q3 2017 report
The below figure presents the Distribution segment's EBITDA including the significant factors impacting the change year on year.
Figure no. 13. Distribution segment's EBITDA
The below table presents the Supply segment's results.
| Item (PLN '000) |
Q1-3 2017 | Q1-3 2016 | % change 2017/2016 |
Q3 2017 | Q3 2016 | % change 2017/2016 |
|---|---|---|---|---|---|---|
| Supply | ||||||
| Sales revenue | 9 807 209 | 10 154 828 | 96.6% | 3 130 213 | 3 269 473 | 95.7% |
| electricity, including: | 6 391 553 | 6 439 491 | 99.3% | 2 087 019 | 2 097 533 | 99.5% |
| electricity retail sales revenue |
5 541 550 | 5 188 166 | 106.8% | 1 799 249 | 1 701 073 | 105.8% |
| fuel | 837 436 | 1 164 270 | 71.9% | 215 448 | 406 577 | 53.0% |
| distribution service (transferred) | 2 531 511 | 2 354 821 | 107.5% | 810 106 | 759 273 | 106.7% |
| other services, incl. commercial services |
46 710 | 196 247 | 24% | 17 641 | 6 090 | 289.7% |
| EBIT | 683 919 | 391 825 | 174.5% | 143 502 | 108 166 | 132.7% |
| Depreciation and write-offs | 7 059 | 8 308 | 85.0% | 2 080 | 2 394 | 86.9% |
| EBITDA | 690 978 | 400 133 | 172.7% | 145 582 | 110 560 | 131.7% |
In the first three quarters of 2017 the Supply segment's sales revenue was 3% lower as compared to the same period of last year, mainly due to the lower electricity wholesale revenue (lower sales volume) along with an increase of electricity retail sales revenue (+7%). Also, the fuel sales revenue was lower (as a result of a change of the coal supply model). Lower revenue from the sales of other products and services was due to the change of the way the results on trading emission allowances and commodity related derivative financial instruments were presented.
Supply segment's EBITDA and EBIT were better in the first three quarters of 2017 than in the same period of 2016 which was primarily due to the dissolving of the ECSW provision in H1 2017 and the termination of the long term PMOZE contracts. The results posted were affected by the following factors:
The below figure presents the Supply segment's Q1-3 2017 financial data versus Q1-3 2016.
Figure no. 14. Supply segment's Q1-3 2016 and Q1-3 2017 financial data
The below figure presents the Supply segment's EBITDA including the significant factors impacting the change year on year.
Figure no. 15. Supply segment's EBITDA
4.4.2.5 Other operations
The below table presents the results of the subsidiaries assigned to the Other operations.
| Table no. 15. Other operations subsidiaries' results | ||||||
|---|---|---|---|---|---|---|
| ------------------------------------------------------ | -- | -- | -- | -- | -- | -- |
| Item (PLN '000) |
Q1-3 2017 |
Q1-3 2016 | % change 2017/2016 |
Q3 2017 | Q3 2016 | % change 2017/2016 |
|---|---|---|---|---|---|---|
| Other | ||||||
| Sales revenue | 598 362 | 616 896 | 97.0% | 205 774 | 188 053 | 109.4% |
| customer service, accounting and IT services |
408 403 | 426 426 | 95.8% | 136 089 | 143 709 | 94.7% |
| electricity and property rights arising from certificates of electricity origin |
9 472 | 8 307 | 114.0% | 2 523 | 2 009 | 125.6% |
| biomass | 59 822 | 100 188 | 59.7% | 22 589 | 15 123 | 149.4% |
| aggregates | 74 359 | 67 694 | 109.8% | 27 163 | 23 828 | 114.0% |
| other revenue | 46 306 | 14 281 | 324.2% | 17 410 | 3 384 | 514.5% |
| EBIT | 55 817 | 48 146 | 115.9% | 17 870 | 18 324 | 97.5% |
| Depreciation and write-offs | 58 795 | 54 122 | 108.6% | 20 107 | 17 908 | 112.3% |
| EBITDA | 114 612 | 102 268 | 112.1% | 37 977 | 36 232 | 104.8% |
Other operations' subsidiaries' Q1-3 2017 sales revenue was approx. 3% lower than in the same period of last year which was primarily due to the lower biomass volume sales at a lower price as a result of the substantial demand decline and lower revenue from the Shared Services Centre's sales to TAURON Group' subsidiaries. This decline was to a large degree offset by the rising revenue from the aggregates sales as a result of a change of the structure of sales and the increased other revenue, mainly due to real estate administration and technical maintenance of vehicles.
Additional information to the extended and consolidated Q3 2017 report
The below figure presents the Other segment's Q1-3 2017 financial data versus Q1-3 2016.
Figure no. 16. Other segment's Q1-3 2017 and Q1-3 2016 financial data
The below table presents the consolidated statements of financial position as of September 30, 2017, as compared to December 31, 2016.
| Statements of financial position (PLN '000) | As of September 30, 2017 |
As of December 31, 2016 | % change (2017 / 2016) |
|---|---|---|---|
| ASSETS | |||
| Fixed assets | 29 927 056 | 29 148 253 | 102.7% |
| Tangible fixed assets | 27 287 025 | 26 355 189 | 103.5% |
| Current assets | 5 692 852 | 4 308 641 | 132.1% |
| Cash and equivalents | 2 141 776 | 384 881 | 556.5% |
| Fixed assets and the group's assets for disposal, classified as held for trade |
17 262 | 19 612 | 88.0% |
| TOTAL ASSETS | 35 619 908 | 33 456 894 | 106.5% |
As of September 30, 2017, TAURON Capital Group's statement of financial position shows the balance sheet total that is 6.5% lower as compared to December 31, 2016.
The below figure presents the change in the assets and current assets as of September 30, 2017, as compared to December 31, 2016.
Fixed assets are the biggest item of assets at the end of September 2016, representing 84% of the balance sheet total. As compared to the end of last year the value of fixed assets is higher by PLN 779 million (2.7%) as a consequence of the changes in the below analytical fixed assets' items due to the following factors:
The following factors had an impact on the rise in the value of current assets by PLN 1 384 million (32.1%):
The below table presents interim consolidated statements of financial position - liabilities.
| Statements of financial position (PLN '000) | As of September 30, 2017 |
As of December 31, 2016 |
% change (2017 / 2016) |
|---|---|---|---|
| LIABILITIES | |||
| Equity attributable to shareholders of the parent entity |
17 844 827 | 16 649 266 | 107.2% |
| Non-controlling shares | 31 315 | 30 052 | 104.2% |
| Total equity | 17 876 142 | 16 679 318 | 107.2% |
| Long-term liabilities | 13 692 920 | 11 968 719 | 114.4% |
| Liabilities due to debt | 10 641 045 | 8 759 789 | 121.5% |
| Short-term liabilities | 4 050 846 | 4 808 857 | 84.2% |
Additional information to the extended and consolidated Q3 2017 report
| Statements of financial position (PLN '000) | As of September 30, 2017 |
As of December 31, 2016 |
% change (2017 / 2016) |
|---|---|---|---|
| Liabilities due to debt | 330 216 | 219 740 | 150.3% |
| Total liabilities | 17 743 766 | 16 777 576 | 105.8% |
| TOTAL LIABILITIES | 35 619 908 | 33 456 894 | 106.5% |
The below figure presents a change in the liabilities and equity as of September 30, 2017 and December 31, 2016.
Similar to previous years equity is still the dominating source of financing assets and its share in the balance sheet total increased to 50.2%.
The below figure presents a change in the liabilities as of September 30, 2017 and December 31, 2016.
Other short term liabilities and liabilities due to income tax
Prepayments, accruals and state subsidies
Provision for employee benefits and other
Accounts payable due to deliveries and services, other accounts payable and derivatives debt
The value of TAURON Capital Group's long-term liabilities in Q1-3 2017 rose by PLN 1 724 mln (14%) due to the following factors:
The value of TAURON Capital Group's short-term liabilities fell by 16% due to the following factors:
The below table presents the interim abbreviated statement of cash flows for the first 9 months of 2017 as compared to the same period of 2016.
Table no. 18. Interim abbreviated statement of cash flows (PLN '000)
| Statement of cash flows (PLN '000) | Q1-3 2017 | Q1-3 2016 | % change 2017/2016 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Gross profit / (loss) | 1 481 655 | 369 786 | 400.7% |
| Adjustments | 1 439 836 | 2 035 568 | 70.7% |
| Net cash from operating activities | 2 921 491 | 2 405 354 | 121.5% |
| Cash flows from investing activities | |||
| Sale of tangible fixed assets and intangible assets | 27 669 | 23 836 | 116.1% |
| Purchase of tangible fixed assets and intangible assets | (2 709 422) | (2 629 223) | 103.1% |
Additional information to the extended and consolidated Q3 2017 report
| Statement of cash flows (PLN '000) | Q1-3 2017 | Q1-3 2016 | % change 2017/2016 |
|---|---|---|---|
| Return of public aid | 0 | (131 077) | - |
| Net cash from investing activities | (2 990 224) | (2 730 803) | 109.5% |
| Cash flows from financing activities | |||
| Issuance of debt securities | 2 707 462 | 2 860 000 | 94.7% |
| Redemption of debt securities | (700 000) | (2 550 000) | 27.5% |
| Repayment of loans/credits | (81 959) | (66 959) | 122.4% |
| Interest paid | (52 810) | (114 419) | 46.2% |
| Net cash from financing activities | 1 851 827 | 129 191 | 1 433.4% |
| Increase/(decrease) in net cash and equivalents | 1 783 094 | (196 258) | - |
| Cash opening balance | 354 733 | 327 715 | 108.2% |
| Cash closing balance | 2 137 827 | 131 457 | 1 626.3% |
The total amount of all net cash flows from operating, investing and financing activities in the first three quarters of 2017 reached PLN 1 783.1 mln.
The below figure presents cash flows in the first three quarters of 2017 and of 2016.
Figure no. 20. Cash flows in Q1-3 2017 and in Q1-3 2016
Net cash flow from operating activities Net cash flow from investing activities
Net cash flow from financing activities
Cash flows from operating activities in the reporting period were higher by approximately 21.5% than the cash flows generated in the same period of last year. The following factors had the biggest impact on the change in this item of the statement of cash flows:
4) incurring a lower expenditure in the total amount of PLN 34 mln for the purchase of certificates of origin and paying a lower substitution fee in the 2017 reporting period than in the same period of 2016.
Expenditures for the purchase of tangible fixed assets have the biggest impact on the cash flows related to investing activities and they were higher by 3% in the reporting period than the expenditures incurred in the same period of 2016. In the current period the highest expenditures were incurred by the Generation and Distribution segments.
The positive cash balance related to financing activities is due to the issue of bonds with the nominal value of PLN 600 million, issue of eurobonds with the nominal value of EUR 500 million and the redemption of bonds with the nominal value of PLN 300 million carried out in the 2017 reporting period. Furthermore, TAURON Capital Group repaid loans and credits in the amount that was higher by PLN 15 mln than in the same period of 2016 and paid PLN 62 mln less in interest.
TAURON Capital Group continues its expansion process and keeps strengthening its market position. It should be noted that the value of operating cash flows is positive and therefore it allows TAURON Capital Group to finance its ongoing operations on its own, while investment projects carried out by TAURON Capital Group's subsidiaries are financed using the funds acquired from external sources. The current liquidity ratio and the net debt to EBITDA ratio continue to be at a safe level.
The below figure presents the liquidity and net debt to EBITDA ratios in the first three quarters of 2017 and of 2016.
TAURON Capital Group is effectively managing its financial liquidity using a central financing model put in place and the central financial risk management policy. The cash pooling mechanism is used in order to minimize potential cash flow disruptions and the risk of liquidity loss. TAURON Capital Group is currently using various sources of funding, such as, for example, overdrafts, bank loans, loans from environmental funds, bond issues, financial lease agreements and lease agreements with a purchase option.
In the third quarter of 2017 no factors or events of unusual nature occurred that would significantly affect the financial results achieved.
As in the past the following external factors will primarily impact the results from TAURON Capital Group's operations:
The following internal factors impacting the results from TAURON Capital Group's operations are most significant:
TAURON Capital Group's operations are characterized by seasonality which is applicable, in particular, to heat production, distribution and supply, electricity distribution and supply to individual consumers and hard coal sales to individual consumers for heating purposes. Heat sales depend on weather conditions, in particular on air temperature, and are higher in the autumn and winter season. Volume of electricity supply to individual consumers depends on the length of day which usually makes electricity supply to this group of consumers lower in the spring and summer season and higher in the autumn and winter season.
Hard coal sales to individual consumers are higher in the autumn and winter season. The seasonality of TAURON Capital Group's other lines of business is low.
The impact of the above mentioned factors on the financial result achieved in the first three quarters of 2017 is described in section 4 of this report. The effects of this impact are visible both in the short term perspective as well as in the long term outlook.
TAURON Capital Group did not publish any forecasts of 2017 financial results. TAURON Capital Group's financial standing is stable and no negative events which could pose any threat to the continuity of its business operations or cause a significant deterioration of its financial standing occurred.
The detailed description of the financial position understood as ensuring the provision of funds for both the operating as well as the investing activities is provided in section 4 of this document.
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 as well as consulting services related to management if the envisaged total net remuneration for the services provided exceeds PLN 500 000, on annualized basis, and 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 remuneration 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 (Katowice-East), 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 amendments to the Articles of Association entered into the National Court Register by the District Court for Katowice-Wschód (East) in Katowice, the 8th Commercial Division.
The information on the above events was disclosed 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 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 above mentioned meetings with investors. As a consequence, on June 28, 2017 the following parameters of the eurobonds were established:
On July 5, 2017, the Company issued eurobonds with the above indicated parameters that were subsequently 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 substantial part of TAURON Capital Group's EBITDA (72% in 2016). The full list of ratings includes:
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 July 20, 2017 TAURON received the lawsuit of June 29, 2017 of Gorzyca Wind Invest sp. z o.o. with its seat in Warsaw against TAURON for payment of damages in the amount of PLN 39.7 mln and determination of liability for damages that may arise in the future due to torts, including unfair competition acts, estimated by the plaintiff to be worth PLN 465.9 mln. 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 - TAURON's subsidiary, of the long term contracts for the purchase of electricity and property rights arising from certificates of origin, and the total amount of the future damages suffered by all of Wind Invest's subsidiaries will reach, according to the plaintiff, PLN 1 212.9 mln. 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 event in the regulatory filing (current report) no. 35/2017 of July 20, 2017.
On August 2, 2017 a submission was made to TAURON's power of attorney appointed in the lawsuit conducted before the Regional Court in Cracow, file reference no. IX GC 983/14, filed by Dobiesław Wind Invest sp. z o.o. with its registered office in Warsaw against TAURON and its subsidiary, i.e. PEPKH (to prevent the imminent danger of damage to Dobiesław Wind Invest sp. z o.o., by obligating TAURON and PEPKH and to revoke the liquidation of PEPKH), of a pleading of Dobiesław Wind Invest sp. z o.o. containing a change to the lawsuit.
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. is 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 Company disclosed information on the above event in the regulatory filing (current report) no. 37/2017 of August 3, 2017.
On August 21, 2017 TAURON received the lawsuit of June 30, 2017 of Pękanino Wind Invest sp. z o. o. with its seat in Warsaw against the Issuer for payment of damages in the amount of PLN 28.5 mln and determination of liability for damages that may arise in the future due to torts, including unfair competition acts, estimated by the plaintiff to be worth PLN 201.6 mln.
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 Company disclosed information on the above event in the regulatory filing (current report) no. 38/2017 of August 21, 2017.
On September 6 TAURON and Bank Gospodarstwa Krajowego (BGK) concluded an agreement based on which a hybrid bond issue worth PLN 400 mln was set up. The program envisages an option to carry out the issue in several series until June 30, 2019.
The financing period is 12 years from the issue date, however the first 7 years are the so-called non-call period. BGK also made a commitment to hold the bonds on its balance sheet for 7 years.
The hybrid bond debt, due to its subordinate nature, will not be be taken into account when calculating the net debt/EBITDA ratio. A feature of the hybrid financing is an option to classify a part thereof (typically 50%) as equity in the rating agencies' financial models, which reduces the debt level and has a positive impact on the rating. By the day of publishing this quarterly report 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.
As of September 30, 2017, the President of the Energy Regulatory Office (ERO-URE), by way of the decision no. DRG.DRG-1.4112.38.2017.KL, revoked the license of TAURON Polska Energia S.A. for trading of natural gas abroad.
The decision of the President of URE (ERO) was preceded by a motion submitted by TAURON on revoking this license. The revoking of the license involves obtaining an exemption from the need to maintain mandatory natural gas inventory (stock), beginning as of 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 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 Group's subsidiaries are not in jeopardy.
In the third quarter of 2017 energy consumption in the National Power System (KSE) amounted to 40 578 GWh and it was 2.6% higher as compared to the corresponding period of last year. Higher electricity consumption was a consequence of the strong GDP growth rate and increased use of air conditioning devices. Rising demand for electricity caused an almost 2.5% increase of electricity production by the domestic power plants that reached 39 624 GWh in the third quarter of 2017. Electricity imports were also 2.5% higher, reaching 953 GWh.
Lignite-fired power plants' electricity production decreased by 5.3% due to outages related to overhauls of generating units. While hard coal-fired power plants increased their production by 4.3% to 19 432 GWh. Gasfired power plants produced 1 609 GWh (up 24.4%) in the third quarter of 2017 more, mainly due to the operation of the new PKN Orlen's unit in Włocławek.
Tests of the new centrally dispatched generating unit (CDGU-JWCD) at the Kozienice Power Plant (KOZ24- 11) were commenced in September. The new unit, built by Enea Group in Kozienice, has a capacity of 1075 MW and its electricity generating efficiency is close to 46%.
It is worth noting that wind conditions were favorable in the third quarter of 2017 which was reflected in a 26.1% higher generation of electricity from the wind (2 531 GWh), despite the fact that an increase of the wind farms' achievable capacity year on year reached only 70 MW. As a consequence, wind power plants covered approx. 6,2% of KSE's demand for electricity (5.1% in the third quarter of 2016).
The average daily temperature recorded in Poland reached 18.6°C in July 2017 and it was only 0.3°C higher than the average daily temperature recorded in June. In spite of stable temperatures, the total demand for electricity rose, reaching 13.43 TWh in July, a 2.3% increase.
The average electricity price on the SPOT market reached 155.23 PLN/MWh in July 2017. On a monthly basis, it represents an increase by 2.16 PLN/MWh, while on an annualized basis the price increase reached 3.66 PLN/MWh. Based on the August 2015 experience when it was necessary to introduce electricity supply curtailments Polskie Sieci Elektroenergetyczne (Transmission System Operator) scheduled the generating units' 2017 overhauls accordingly, which allowed for maintaining capacity reserve in the system at an appropriately high level. As a consequence, electricity prices on the balancing market reached an average level of 150.68 PLN/MWh, i.e. they were PLN 4.56 lower than on the SPOT market.
The average daily temperature in August 2017 reached 19.5°C, i.e. it was 1.3°C higher than in 2016. KSE's demand for electricity rose to 13 586 TWh (an increase by 2.9% year on year). The electricity prices on the SPOT market in August 2017 reached 162.78 PLN/MWh and they were higher than the July average by 7.55 PLN/MWh, while as compared to August 2016 the price increase was significant, topping 22 PLN/MWh. The rise of the SPOT prices was caused mainly by the growing demand for electricity by KSE, which in combination with the lower dispatchability (availability) of the system sources, primarily the lignite-fired power plants, led to the higher prices on the spot market.
The need to operate more expensive centrally dispatched generating units (CDGU-JWCD) also contributed to the rising prices on the balancing market. The average price on the balancing market in August 2017 reached 174.76 PLN/MWh (an increase by 24.08 PLN/MWh versus July 2017).
The decline of the average monthly temperature to 13.7°C in September 2017, in spite of the large generation from the wind sources reaching 1 054 GWh, led to the higher prices on the spot market. The average price reached 171,42 PLN/MWh, which represents an increase by 16.18 PLN/MWh year on year. The price rise was due, among others, to the increased system demand for capacity, which was also reflected in the balancing market prices (CRO). The average CRO price reached 202.32 PLN/MWh in September 2017, i.e. it was higher by 39.02 PLN/MWh than last year.
The average SPOT market price reached 163,14 PLN/MWh (38.31 EUR/MWh) in the third quarter of 2017, which represents an increase by 14.05 PLN/MWh year on year (i.e. by 3.97 EUR/MWh). The electricity price increases were even stronger on the exchanges in the neighboring countries, first of all due to high commodity and coal prices. In Germany on the EPEX spot exchange the prices reached 32.74 EUR/MWh on average, i.e. they were higher by 4.45 EUR/MWh than last year. The prices on the Czech OTE market rose even more, i.e. by EUR 6.19 (to 36.37 EUR/MWh). On the Scandinavian NordPool platform the electricity price rose year on year by EUR 3.28 to 28.51 EUR/MWh. In spite of an increase of the renewable energy sources' installed capacity the electricity prices continue to be very strongly correlated to the costs of generation and availability of electricity from conventional sources.
In the third quarter of 2017 the forward contracts market was characterized by a relatively high price volatility. The average price of the reference BASE_Y-18 forward contract reached 164.35 PLN/MWh in July.
The price of the BASE_Y-18 contract reached 163.81 PLN/MWh in August 2018 in spite of the fact that electricity prices were supported by the commodity prices upward trend.
As a result, we were dealing with rising prices of forward contracts on electricity markets almost throughout Europe, particularly in France, Spain and Germany.
Forward contracts were in a clear upward trend in September 2017 due to problems with balancing of the system in France, rising ARA coal prices and CO2 emission allowances prices. The average price of the BASE_Y-18 forward contract reached 166.80 PLN/MWh in September this year, i.e. it was higher by 3.00 PLN/MWh than in August.
In July 2017 CO2 emission allowances (EUA) prices were in an upward trend that had commenced in June 2017. The prices were within the 4.99 EUR/Mg of CO2 – 5.62 EUR/Mg of CO2 range, with the average price for the period under review reaching 5.27 EUR/Mg of CO2. The rising prices were to a large degree a consequence of weather conditions in Europe. A prolonged period of high temperatures and low precipitation led to increased demand for electricity and lower generation of electricity from hydroelectric sources. The above mentioned factors increased the utilization of coal-fired power plants and thus contributed to the growth of demand for EUAs.
CO2 emission allowances (EUA) prices were within the 5.21 EUR/Mg of CO2 – 6.18 EUR/Mg of CO2 range in August 2017, with the average price reaching 5.66 EUR/Mg of CO2. It is worth noting that only 46 mln emission allowances were placed on the market as a result of auctions conducted during this period. For comparison, the auction volume was much higher in September and reached 91.7 mln emission allowances.
A strong growth of CO2 emission allowances (EUA) prices was observed in September 2017. Within only 8 session days the price went up by nearly 33% to 7.72 EUR/Mg of CO2. The average EUA price reached 6.81 EUR/t.
Such a significant growth of CO2 emission allowances (EUA) prices was brought about by factors that also impacted prices on other commodity markets. First of all, attention should be paid to the coal market on which, as in case of EUAs, prices reached new historic highs. Furthermore, the prices of coal, gas and EUAs were impacted by the failures of nuclear power plants in France. Other growth supporting factors included the works aimed at tightening the 4th phase of the European Union Emissions Trading System (EU ETS).
The renewable energy sources market was characterized by high volatility in the third quarter of 2017, both in the regulatory area, as well as with respect to the prices of green certificates (PM OZE_A). In July 2017, the Parliament passed the draft act on renewable energy sources prepared by the MPs and its primary goal was to tie a unit substitution fee to market prices stemming from the certificates of origin. The unit substitution fee is, in accordance with the passed law, equal to 125% of the average weighted annual property rights price from last year, both for the green as well as for the blue certificates, and the maximum price of this fee cannot exceed 300.03 PLN/MWh.
The ordinance on the change to the level of obligation to redeem green certificates in 2018 and 2019 came into force in the third quarter of 2017. In accordance with this regulation the redemption levels for the green
certificates shall be 17.5% in 2018 and 18.5% in 2019, while for the blue certificates they shall be 0.5% in each year. Changes to the redemption levels in the subsequent years are to result in the reduction of the PMOZE_A balance that, according to the data published by TGE, reached 29.5 TWh at the end of September 2017.
The prices of green certificates were rising sharply between July and August 2017, moving within the 23.07 PLN/MWh to 58.16 PLN/MWh range. As of the end of September 2017 the average weighted price of the OZEX_A index reached 36.34 PLN/MWh in 2017, with volume reaching 6 532 GWh.
In contrast to the green certificates market the blue property rights market was stable in the third quarter of 2017. TGEozebio index prices ranged between 300.23 PLN/MWh and 312.28 PLN/MWh, with the average weighted price between January and the end of September reaching 339.55 PLN/MWh, and the trading volume of almost 400 GWh. The balance of the blue certificates reached 242 GWh at the end of September 2017, while the value of the certificates to be redeemed was 73 GWh.
The co-generation property rights (red, yellow and violet certificates) market was stable. The average weighted contract prices were close to the substitution fees that currently are for the red, yellow and violet certificates, respectively: 10 PLN/MWh, 120 PLN/MWh and 56 PLN/MWh. The average weighted price since the beginning of 2017 until the end of September for the KECX (PMEC-2017) index was 9.70 PLN/MWh, for the KGMX (PMGM-2017) index it was 116.10 PLN/MWh, while for the KMETX (PMMET-2017) index it reached 54.56 PLN/MWh.
The index of the white property rights stemming from the energy efficiency certificates (PMEF) was in the downward trend in the third quarter of 2017, and the prices stayed within the 860.72 PLN/toe to 388.14 PLN/toe range. The average weighted value of the TGEef index between January and September 2017 r. was almost 870 PLN/toe, with volume reaching 136 672 toe.
The average price of gas on the Next Day Market of the Polish Power Exchange (TGE) reached PLN 75.25 PLN/MWh in the third quarter of 2017. An increase by PLN 11.74 PLN as compared to the corresponding period of 2016. The biggest price jump took place in the second half of September when the prices rose from 76 PLN/MWh to 82 PLN/MWh. It was due, first of all, to the forthcoming gas winter season (lasting from October to March) that brings cooling off and the growth of demand for gas.
The total trading volume of contracts with the delivery on the next day reached more than 2.1 TWh in the third quarter of 2017 versus 1.7 TWh posted in 2016. The forward market contract prices were sharply rising from the beginning of the quarter. The value of the reference one year contract with deliveries in 2018 went up by PLN 7.87 in the quarter under review.
This contract was priced at 85.35 PLN/MWh as of the end of September. According to the data of Gas Infrastructure Europe Polish gas storage facilities were approx. 98% (European Union's average: 85%) filled as of September 30.
On July 6, 2017, the government of the Republic of Poland submitted to the Parliament the approved draft capacity market law that will have a significant impact on the future of the Polish energy sector. The first reading of the law in the Parliament took place on October 25, 2017.
The draft law defines, among others:
The introduction of the capacity market law implies the need to make amendments to several other legal acts that include such acts as: the energy law, the environment protection law, the act on the principles of covering the costs incurred by electricity generators due to the early termination of long term capacity and electricity purchase agreements and the act on renewable energy sources.
Currently the energy sector is awaiting the publishing of the draft capacity market regulations. It is expected to be published in the coming months. 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 planned to be held in 2018 and they will be applicable to the 2021-2023 time frame.
On September 24, 2017, the act of July 20, 2017 on the amendment to the act on renewable energy sources, prepared based on the July 12, 2017 draft submitted by the MPs, came into force.
The goal of the Act of July 20, 2017 is to tie the unit substitution fee to the market property rights prices stemming from the certificates of origin by changing the algorithm used to determine the substitution fee for the green certificates PMOZE_A. Making the levels of the substitution fees more flexible is to counteract sharp changes of the certificate prices by making the substitution fee more closely tied to the actual market prices.
On August 3, 2017, the President of the Republic of Poland signed the Water Law Act that was published in the Journal of Laws on August 28, 2017.
The act implements into the Polish law, among others, the EU regulations defined in the Water Framework Directive, providing that all water users must incur the costs thereof. The fees are 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 (i.e. water taken, used and then discharged in the same quantity and with quality that is not worse) and for the intake of non-reclaimable process water (i.e. the water not be used directly to produce electricity).
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 majority of the new water law provisions will come into force on January 1, 2018.
BAT conclusions is a document drawn up based on the reference document on the best available technologies (BAT) – the so-called 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, among others, by refurbishing generation sources or constructing 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.
On April 28, 2017, the representatives of the member states in the European Commission passed the above standards tightening the emission standards for the manufacturing industry.
On August 17, 2017, the European Commission's executive decision (EU) 2017/1442 of July 31, 2017 introducing the BAT Conclusions was published in the European Union's Official Journal. They became a part of the law in force in Poland and they will be the basis for issuing integrated permits. The time to adapt to the new standards is 4 years from the publishing thereof which means that the new requirements will come into force starting from 2021.
On October 16, 2017 TAURON received the lawsuit of June 30, 2017 of Nowy Jarosław Wind Invest sp. z o. o. with its seat in Warsaw against the Issuer for payment of damages in the amount of PLN 27 mln and determination of liability for damages that may arise in the future due to torts, including unfair competition acts, estimated by the plaintiff to be worth PLN 197.8 mln. This is the last of four announced lawsuits by Grupa Wind Invest companies in this case. The case is pending before the Regional Court in Katowice. The factual basis for the lawsuit, according to the plaintiff, is the termination by the Issuer's subsidiary: Polska Energia – Pierwsza Kompania Handlowa sp. z o.o. with its seat in Warsaw, 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 Company disclosed information on the above event in the regulatory filing (current report) no. 39/2017 of October 16, 2017.
Furthermore, the Issuer indicates that in the contractual disputes between the wind farms and the Issuer's subsidiary, i.e. Polska Energia-Pierwsza Kompania Handlowa sp. z o.o. (PE-PKH), claims for payment by PE-PKH of the total amount of PLN 82 086 055.87 were submitted. The amount includes the claims contained in the submissions extending the lawsuit in the already pending legal actions brought by companies: Amon sp. z o.o., Gorzyca Wind Invest sp. z o.o., In.ventus sp. z o.o. Mogilno III sp.k., In.ventus sp. z o.o. Mogilno IV sp.k., In.ventus sp. z o.o. Mogilno V sp.k., In.ventus sp. z o.o. Mogilno VI sp.k., Nowy Jarosław Wind Invest sp. z o.o., Pękanino Wind Invest sp. z o.o. and Talia sp. z o.o. and a separate claim for payment brought in 2017 by Dobiesław Wind Invest Sp. z o.o. including a demand for adjudging (ordering) payment of PLN 42 095 462 that Dobiesław Wind Invest sp. z o.o. is claiming due to compensation and liquidated damages.
On October 25, 2017 TAURON published TAURON Polska Energia S.A. Capital Group's selected estimated Q1-3 2017 and Q3 2017 consolidated financial data and operating data. Information on the estimated financial results was published in the regulatory filing no. 40/2017 of October 25, 2017.
In the third quarter of 2017 no proceedings were pending at TAURON Capital Group (in relation to the Issuer or its subsidiaries) concerning accounts payable and accounts receivable whose single or aggregate value would exceed 10% of TAURON Polska Energia's equity.
All transactions with related entities are concluded at arm's length. Detailed information on transactions with related entities is provided in note 45 of the Consolidated interim financial statements for the period of nine months ended on September 30, 2017.
In the third quarter of 2017 neither TAURON Polska Energia, nor its subsidiaries granted any loan or credit co-signings (sureties, endorsements) or guaranties – jointly to a single entity or such entity's subsidiary, for the total value that would represent an equivalent of at least 10% of TAURON Polska Energia's equity.
Besides the reported events indicated above in this document no other events had occurred since July 1, 2017 until the day this report was published that could be significant for the evaluation of TAURON Capital Group's ability to meet its obligations.
TAURON's Management Board's position is that the information presented in this report describes the staffing, assets and financial standing of the Company in a comprehensive manner and that no other events occurred, undisclosed by the Company, that could be relevant for the evaluation of its situation.
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