2.1. Assuming control over companies operating wind farms owned by the in.ventus group

On 3 September 2019, the transaction documentation regarding  TEC1 Sp. z o.o., TEC2 Sp. z o.o. and TEC3 Sp. z o.o. (subsidiaries of TAURON Polska Energia S.A.) purchasing five wind farms owned by the in.ventus group and amounts owed to Hamburg Commercial Bank AG (formerly HSH Nordbank AG) by wind farm operators was signed. The transaction involved the following acquisitions:

  • TEC1 Sp. z o.o. – rights and obligations of the general partner of the Polish partnerships owning the wind farms;
  • TEC2 Sp. z o.o. – rights and obligations of the general partner of the German partnerships which are limited partners of the Polish partnerships,
  • TEC3 Sp. z o.o. – the rights and obligations of the limited partner of the Polish and German partnerships, at the same time acquiring their debt contracted from Hamburg Commercial Bank AG and amounts owed to their former shareholders as a result of loans granted to the Polish partnerships.

In order to perform the intended transaction, on 2 September 2019, Extraordinary General Shareholders’ Meeting of TEC1 Sp. z o.o., TEC2 Sp. z o.o., TEC3 Sp. z o.o. decided to increase their issued capital. The Company assumed the new shares for the total amount of PLN 600 900 thousand. The surplus of the above amount received as part of the capital increase over the value of cash transferred under the transaction in the amount of PLN 579 661 thousand is allocated to the companies’ operating activities.

The total value of the transferred cash was determined based on the locked box mechanism as at 31 December 2018 and as at the transaction date amounted to PLN 579 661 thousand, including PLN 21 590 thousand of the acquisition price and PLN 558 071 thousand of the debt repaid to Hamburg Commercial Bank AG. The entire amount was transferred in cash.

In the Company’s opinion, the fair value of the payment made does not differ from its nominal value.

As at
3 September 2019
(unaudited)
Business acquisition price, including: 21 590
Consideration paid for rights and obligations acquired in partnerships 8 490
Consideration paid for amounts owed to former shareholders, arising from contracted loans 13 100
Repayment of debt contracted with Hamburg Commercial Bank AG 558 071
Total value of cash transferred in the transaction 579 661

The Group carried out an analysis, as a result of which it concluded that the transaction is a business combination as defined in IFRS 3 Business Combinations. The acquired wind farms are fully operational. The transaction included the acquisition of all business processes and operations of the wind farms (except for management-related processes to be replaced by processes already adopted by the Group), including rent and lease of land on which the generating assets are located, maintenance and service agreements regarding these assets and power sales contracts. Taking into account the above, the conditions to qualify the subject of the transaction as a business under IFRS 3 Business Combinations are met.

In line with IFRS 3 Business Combinations, the transaction was settled using the acquisition method. The day of taking over control the business was assumed on 3 September 2019. As at 30 September 2019, bearing in mind the short period that passed after the control assuming date, the Group was unable to obtain all the information necessary to complete the identification and fair value measurement of the acquired assets and liabilities and made a provisional settlement of the transaction. As at 31 December 2019, the Group has completed the process of valuation to fair value of property, plant and equipment, and valuation of provisions for cost of disassembly of non-current wind farm assets, which are the most significant elements of the net assets of the acquired business combination, performed by an independent experts. The Company also has identified and valued the remaining acquired net assets to fair value. Therefore, in these consolidated financial statements, the Group presents the fair values of the acquired assets and liabilities and finally settles the transaction using the acquisition method.

Fair values of assets and liabilities acquired as at the date of taking over control are presented in the following table:

As at
3 September 2019
(unaudited)
As at
3 September 2019
(unaudited)
ASSETS   EQUITY AND LIABILITIES
Non-current assets   Non-current liabilities
Property, plant and equipment 712 193 Liabilities due to loans granted by Hamburg Commercial Bank AG 558 071
Right-of-use assets 36 163 Lease liabilities 32 964
Other non-financial assets 484 Provisions for costs of disassembly of non-current assets, land reclamation and other 60 817
748 840 Deferred tax liability 3 122
Current assets Current liabilities
Inventories 10 579 Lease liabilities 2 251
Receivables from buyers 3 802 Liabilities to suppliers and other financial liabilities 3 459
Other non-financial assets 6 605 Accruals and government grants 606
Cash and cash equivalents 36 582 Other non-financial liabilities 4 013
57 568 10 329
TOTAL ASSETS 806 408 TOTAL EQUITY AND LIABILITIES 665 303
ACQUIRED NET ASSETS 141 105

Liabilities due to loans granted by Hamburg Commercial Bank AG, acquired with assets in the net amount of PLN 558 071 thousand were repaid when the transaction was concluded. As a result, the portfolio of the acquired companies does not include financial debt arising from loans contracted from entities outside the TAURON Capital Group.

In relation to the value of net assets presented as provisional settlement of the transaction in the condensed interim consolidated financial statements for the 9- months ended 30 September 2019 (unaudited), has significantly changed the value of:

  • property, plant and equipment, whose provisional value amounted to PLN 857 797 thousand,
  • provisions for costs of disassembly of non-current assets, whose temporary value amounted to PLN 51 258 thousand.

As a result of the above changes, related to the fair value measurement, the amount of the deferred tax liability, whose provisional value amounted to PLN 31 055 thousand, also changed significantly. The fair value of other net assets does not differ significantly from their provisional values.

As at the acquisition date, the determined amount of identifiable assets and acquired liabilities exceeds the consideration transferred by the Group. Therefore, according to the Group, the transaction is a bargain purchase.

As at
3 September 2019
(unaudited)
Acquisition price 21 590
Acquired identifiable net assets 141 105
Gains on bargain purchase 119 515

Considering the specific requirements of IFRS 3 Business Combinations regarding the possibility of recognizing a possible gains on bargain purchase, the Group reassessed the completeness of identification of the acquired assets and liabilities and the procedures used to determine their value. As a consequence of the procedures performed, the Group decided that it is justified to recognized gains on bargain purchase in the above amount as operating activities in the consolidated statement of comprehensive income.

According to the Group, the bargain purchase gains resulted from a series of circumstances, the key of which were related to the financial standing of entities disposing of the assets and changes in the market standing of renewable energy sources that were favorable for the Company.  In particular, following the privatization effected in 2018, Hamburg Commercial Bank AG commenced activities aimed at improvement of its financial standing, among others in the form of restructuring its loan debt portfolio. It should also be noted, the entities in which the TAURON Group acquired rights and obligations were in a bad financial standing, among others due to the need to repay their debt, in conditions of falling prices of green energy certificates, experienced in prior years. A market change involving an increase in the prices of electricity and of green certificates in the period from the seller’s approval of the binding tender to the transaction closure date was another aspect contributing to the profitability of the transaction.

Revenue from the sale of the acquired wind farms from the acquisition to 31 December 2019 amounted to PLN 68 869 thousand and operating profit reached to PLN 37 324 thousand. The Group estimates the revenue from sales of the acquired wind farms for the year ended 31 December 2019 at PLN 174 862 thousand, and the related operating profit at PLN 41 958 thousand.

Acquiring control over wind farms formerly owned by the in.ventus group complies with the updated strategic directions published on 27 May 2019 and supplementing the TAURON Group Strategy for 2016-2025, which provides for an increase in low- and zero-emission generation installed capacity as described in detail in Note 55 hereto.

In relation to the purchase of the wind farms, on 4 September 2019, in relation to the case filed by Hamburg Commercial Bank AG against TAURON Sprzedaż Sp. z o.o. regarding the payment of damages due to the failure to deliver under contracts on sales of property rights arising from green certificates and liquidated damages charged in relation to the termination of the above contracts in the total amount of PLN 232 879 thousand with statutory interest for delay, calculated from the date of filing the case (i.e. 7 March 2019) to the date of payment, the Bank and TAURON Sprzedaż Sp. z o.o. (a subsidiary) filed a letter to the District Court in Kraków in which the Bank withdrew the case and resigned from the claim. Both parties motioned for dismissing the case and for a decision that each party would cover its own litigation costs. In a decision of 5 September 2019, the Regional Court in Kraków dismissed the above proceedings and mutually canceled the litigation costs incurred by the parties. The decision is binding.

On 24 September 2019 parties to all cases filed by in.ventus group companies against Polska Energia Pierwsza Kompania Handlowa Sp. z o.o. and TAURON Polska Energia S.A. motioned for suspension of the cases. The above cases were suspended by the court.

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