Strategy in action

The Strategy has laid down priorities the simultaneous pursuit of which is transforming the TAURON Group toward the ‘power sector of tomorrow’.

The actions that have been taken, the values of the strategic goals that have been achieved, the Efficiency Improvement Program and the Strategic Initiatives that are underway are all results of the implementation of the Strategy.

2019 was another period of pursuit of the priorities set forth in the Strategy:

Ensuring TAURON Capital Group’s financial stability

Ensuring TAURON Capital Group’s financial stability is achieved through the Efficiency Improvement Program, the implementation of the Strategic Initiatives and the improvement of the investment efficiency.

The implementation of the 2016-2018 Efficiency Improvement Program was completed in 2018. The implementation of the program brought savings of PLN 1 719 million which represented 132% of the planned savings, with PLN 1 067 million impacting EBITDA and PLN 652 million having been due to the reduction of the capital expenditures.

tauron-model-inforgrafiki_2019-EN_ebitda-capex2018 tauron-model-inforgrafiki_2019-EN_ebitda-capex2018

As part of the implementation of the Strategic Initiatives and the rationalization of the investment outlays for 2017-2020, it was assumed that the financial effects at the level of PLN 3.4 billion would be achieved.

Assumptions of the Strategic Initiatives and the CAPEX rationalization in 2017-2020

Implementation of the Strategic Initiatives in 2017-2019 (cumulatively)

 

In 2019, the Strategic Initiatives brought a financial effect of PLN 1 103 million, with PLN 566 million impacting EBITDA, and PLN 537 million having been due to the reduction of the capital expenditures (including PLN 426 million due to the halting of the construction of a 413 MWe CCGT unit with a heating unit at the Łagisza Power Plant in Będzin). The Generation Line of Business (PLN 395 million) and the Supply Line of Business (PLN 135 million) made the largest contributions to the savings achieved. The cumulative effects achieved as of the end of 2019 amounted to PLN 3 537 million, with PLN 1 536 million having a positive impact on EBITDA, and PLN 2 001 million coming from the reduction of the investment outlays.

Pursuant to the Update of the Strategic Directions, maintaining financial stability is to be supported by a market verification of the strategic options: disinvestments in the Mining Line of Business and the Heat Line of Business. In 2019, a decision was made to carry out the market verification of the sale of the Janina Coal Mine (ZG Janina). The goal of this decision was to make TAURON’s portfolio of assets more flexible by adapting the mining assets to the planned demand for fuel. On December 10, 2019, the process of searching for a potential investor interested in acquiring the Janina Coal Mine (ZG Janina) was completed due to the lack of purchase offers. The strategic option of adapting the level of fuel production to the future needs of the coal generating units that will continue to be operated within TAURON Capital Group remains valid and the conceptual and analytical works are underway, as a result of which alternative solutions should be developed. Additionally, the works are underway to prepare and implement a turnaround program for TAURON Wydobycie.

TAURON Ciepło assets divestment project is underway, with its completion planned for 2020.

Building a strong capital group

TAURON Capital Group is offering the most comprehensive product and service portfolio for the customers among Poland’s electric utilities. The measures aimed at developing the Supply Segment are also supported by the dedicated projects as part of the Strategic Research Agenda (Strategiczna Agenda Badawcza – SAB) adopted by the Management Board in 2018. Works are underway on improving high customer service standards and developing modern and integrated sales and customer service channels.

The regulated assets that deal with the operations with respect to electricity and heat distribution are an important link in TAURON Capital Group’s value chain. A significant portion of the capital expenditures is spent on the construction and refurbishment of the grid. TAURON Capital Group invested PLN 1 785 million in total in the Distribution Segment in 2019, while at the same time implementing initiatives aimed at improving the cost and organizational efficiency. The main activities involved unifying the processes and systems as well as implementing an optimal and coherent structure of TAURON Dystrybucja.

The steps aimed at improving the economic efficiency of the generation assets held were continued in the Mining and Generation Segments in 2019, thanks to the optimization of the costs and capital expenditures, employment, production assets and the sale of the redundant non-production assets as well as the implementation of the investment and refurbishment projects. The refurbishment investment projects are conducted as part of the undertakings aimed at adapting the generating units to the BAT Conclusions requirements. As a result of concluding agreements, as a consequence of taking part in the capacity market auctions conducted, TAURON Capital Group’s generating units will be receiving additional revenue. As part of the Update of the Strategic Directions, the new delivery schedules for the 120 MW and 200 MW unit shutdowns were developed and adopted.

As part of the implementation of the assumptions of TAURON’s new green policy, TAURON Capital Group acquired 5 wind farms in September 2019, with a total installed capacity of 180 MW, and as a result of the deal its installed capacity in wind based technology was doubled. Due to the takeover of the wind farms, TAURON was ranked second among Polish energy groups in terms of installed capacity in on-shore utility scale wind farms. In December 2019, TAURON EKOENERGIA signed a contract for the purchase of a photovoltaic farm project – Choszczno solar power plant with the planned installed capacity of 6 MW. The planned date of commissioning the power plant is Q4 2020. At the same time, the works are underway to prepare for the development of the photovoltaic installations on TAURON Capital Group’s land (sites) that is not used commercially.

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Introduction of the organizational changes supporting the implementation of the Strategy

The basis of the operational model is process based management and the split of tasks and responsibilities among the defined units: Corporate Center, Lines of Business and Shared Services Centers (CUW). TAURON Capital Group’s cooperation with start-up companies has become important, apart from the traditionally understood research and development activities, as part of the innovative culture.

TAURON Capital Group’s new proposal for startups is the TAURON Progres acceleration program enabling a quick presentation of the solution to experts, without waiting for the call for applications to be opened.

TAURON Capital Group’s strategic goals realized in 2019
# Strategic goal Realization in 2019
1. EBITDA above PLN 4 billion in 2020 The goal is being realized through the core operations of TAURON Capital Group’s business segments and the implementation of the Strategic Initiatives and the Efficiency Improvement Program. In 2019 EBITDA of PLN 3.6 billion was achieved.
2. Net debt/EBITDA covenant below 3.5x Maintaining the covenants is both the consequence of actions leading to the improved financial results as well as actions aimed at improving the investment efficiency. As part of the Strategy the investment portfolio was optimized and modern financing in the form of a hybrid bond issue was obtained. As of the end 2019 the net debt/EBITDAratio reached 2.8x.
3. Maintaining a high Customer Satisfaction Index (CSI) TAURON Capital Group is an industry leader in customer service quality. Annual customer satisfaction surveys performed by an external company confirm a high satisfaction level of TAURON Capital Group’s customers. The results of the December 2019 CSI survey were as follows: for households 83 points, for small and medium size enterprises 78 points, and for business customers 78 points.
4. Power plants generating positive cash flows by 2020 Achievement of this goal will be the consequence of a number of actions undertaken within TAURON Capital Group, among others: optimizing the costs and outlays related to the generating units, TAURON Capital Group’s trading (commercial) strategy, as well as the impact of the external environment, both the regulatory one, as well as the market one. The guaranteed revenue obtained as part of the won main auctions of the capacity market will have a significant, positive impact on achieving positive cash flows by TAURON Capital Group’s generating units starting from 2021.
5. Maintaining the customer base TAURON Capital Group is Poland’s largest electricity distributor and the second largest electricity supplier. Maintaining the customer base constitutes for TAURON Capital Group a long term growth platform and is implemented by both, actions improving the quality of the services provided, among others an expansion of the customer communications channels, as well as a broad product offering. As of the end of 2019, TAURON Capital Group provided services for approx. 5.5 million customers of the Supply Segment and 5.65 million customers of the Distribution Segment.
6. Unit margin leadership among Poland’s 4 largest electricity suppliers Maintaining of the leadership position is based both on maintaining a high volume of electricity supplied, as well as the ability to generate a positive financial result. TAURON Capital Group, by focusing on the customer, is developing a broad, profitable base of products and services. Based on the data for the first three quarters of 2019 TAURON Capital Group maintained the leading position among Poland’s 4 largest utilities in terms of the unit margin, calculated as the Supply Segment’s EBITDAattributed to the electricity supplied to the final consumers.
7. New businesses are to represent at least 25% of revenue / margin in 2025 TAURON is actively preparing to take part in the new markets and areas of operations. The activities focused on the new businesses are supported by the implementation of SAB and the cooperation with start-ups. TAURON got involved in the project with the goal to deploy broadband internet access in seven regions in the south of Poland as part of the Operational Program Digital Poland (Program Operacyjny Polska Cyfrowa – POPC). The attractiveness of the project is additionally enhanced by the amount of the subsidy worth PLN 187 million. In November 2018 TAURON commissioned a network of terminals for charging electric vehicles made up of four fast charging stations (DC) and 19 accelerated charging stations (AC). Additionally, the eCar from TAURON application that allows for renting an electric vehicle was launched.

The largest project as part of the implementation of the goal is the broadband internet access deployment. This project is composed of the Digital Poland Operational Program (POPC) implemented in 7 regions of southern Poland and the construction of structures enabling taking advantage of the business potential of the infrastructure within the Business Services Center at TAURON Customer Service. The attractiveness of the project is additionally enhanced by the amount of the subsidy worth PLN 187 million. With respect to eMobility development, TAURON Capital Group provides a car sharing service and builds infrastructure for charging electric cars. 49 charging stations were completed at the end of 2019, at the end of the current development stage the network will be expanded to 150 stations. In 2019, projects related to the construction of the cogeneration engines were launched based on 2 models: ESCO for an external customer and a model assuming the optimization of the use of methane obtained from the mining headings at Brzeszcze Coal Mine (Zakład Górniczy Brzeszcze – ZG Brzeszcze).

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