Financial results by operating Segments

  • 102-7
  • 102-4

Mining Segment

Item (PLN ‘000) 2019 2018 2017 Change in % (2019/2018) Change (2019-2018)
Mining
Sales revenue 944 433 1 266 024 1 541 425 75% (321 591)
coal – coarse and medium assortments 236 506 367 449 509 348 64% (130 943)
thermal coal 658 630 831 875 973 549 79% (173 245)
other revenue 49 296 66 700 58 528 74% (17 404)
Operating profit (EBIT) (1 391 949) (1 053 469) (211 070)  (338 480)
Depreciation and write-downs 892 084 963 207 128 034 38% (71 123)
EBITDA (499 865) (90 262) 43 913 (409 603)

Mining Segment’s revenue was 25% lower in 2019, as compared to 2018, as a consequence of the lower coal volume sold, which was due to the lower production of the commercial coal by TAURON Wydobycie’s mining subsidiaries. Sobieski Coal Mine (ZG Sobieski) suffered the biggest drop, which was due to, among others, the performance of the additional mining works to reinforce the longwall complex and fire in 547 coal face area. The lower extraction output by the other coal mines is a consequence of deteriorated geological and mining conditions.

Mining Segment’s 2019 EBITDA was significantly lower as compared to the 2018 earnings, which was due to the following factors:

  1. lower sales volumes of each product assortment by 22% on average – mainly as a result of the lower production of commercial coal,
  2. lower average price of the products sold by 4% on average, as a result of the lower price of coarse and medium coal assortments, which is a consequence of the situation on the coal market, as a result of a decrease of the demand for this commodity and a slight increase of the prices of coal dust sold by 1%,
  3. higher coal production variable direct unit cost which is a consequence of a 24% drop in the volume and the higher variable direct costs. The rise of the costs is due to the higher costs of the preparatory works accounted for, which is related to the larger quantity of the coal from the drifts,
  4. sales, in 2019, of the production output from the preceding period, while in 2018, some of the coal produced and not sold, had been recognized as assets in the balance sheet.

The Segment’s EBIT was significantly lower in 2019 than in 2018, mainly due to the impairment charges and the above factors.

TAURON Capital Group recognized, in the 2019 results, the booking of the impairment charges related to the loss of the carrying amount on the balance sheet of the Mining Segment’s cash generating units (CGU), whose total impact on the charge to the Segment’s operating profit reached PLN 694 million, which is lower than the value recorded in the same period last year.

Major investments

Mining Segment’s total capital expenditures came in at PLN 480 million in 2019, including the outlays on the following investment projects:

  1. PLN 94 million on the construction of the “Grzegorz” shaft, including the construction of the infrastructure and the accompanying headings,
  2. PLN 81 million on the construction of the 800 m level at Janina Coal Mine (ZG Janina),
  3. PLN 70 million on Brzeszcze Coal Mine’s (ZG Brzeszcze) capex program.
  4. PLN 85 million expenditure on the preparation of future production.

Mining Segment’s other capital expenditures are spent on coal extraction preparations and operations (mainly the purchase of machines and equipment, drilling of headings, longwall preparation).

Generation Segment

Item (PLN ‘000) 2019 2018 2017 Change in % (2019/2018) Change (2019-2018)
Generation
Sales revenue 4 923 281 4 638 494 4 537 002 106% 284 787
Electricity 3 793 331 3 598 195 3 484 071 105% 195 131
Heat 826 638 833 410 873 777 99% (6 772)
property rights related to certificates of electricity origin 253 936 153 637 114 840 165% 100 299
other revenue 49 377 49 377 64 314 93% (3 786)
Operating profit (EBIT) (129 097) 196 658 89 645 (325 755)
Depreciation and write-downs 1 113 336 534 714 447 379 208% 578 622
EBITDA 984 239 731 372 537 024 135% 252 867

Generation Segment’s sales revenue in 2019 was higher by 6%, as compared to 2018, due to the higher electricity sales revenue (due to the higher electricity sales prices) and the higher property rights sales revenue (due to the higher PM OZE sales prices and volume). The lower revenue from the heat sales is a consequence of the lower sales volume which was due to the higher outdoor temperatures year on year.

Generation Segment’s EBITDA was 35% higher in 2019, as compared to last year.

The following factors had an impact on the results achieved:

  1. higher margin on electricity (conventional energy) – mainly due to the higher CDS year on year. The recognition of the provision set up in connection with the obligation to present the CO2 emission allowances for redemption (retirement) related to (including) 883 thousand Certified Emission Reduction (CER) units, had a significant impact on the CDS in 2019
  2. higher margin on electricity (RES) – due to the higher electricity and PMOZE sales prices as well as the higher production volumes by the wind and hydro power plants,
  3. lower margin on heat – mainly due to the increase in the costs of the CO2 emission allowances and fuel costs, not fully passed on in the heat tariffs,
  4. the result on the opportunistic acquisition of 5 wind farms from the in.ventus group – an event that had a positive impact on the result in 2019,
  5. dissolving of the provision related to the employee benefits (entitlements) (cash equivalent for the subsidized consumption of electricity (employee tariff), service anniversary awards and the Company’s Social Benefits (Entitlements) Fund (Zakładowy Fundusz Świadczeń Socjalnych)) at TAURON Wytwarzanie – an event that had a positive impact on the result in 2018,
  6. other (mainly: the dissolving (reversal) of the provisions related to the refund of the subsidies for the biomass units, the dissolving (reversal) of the provisions for the reclamation of the furnace (combustion) waste landfill, the dissolving (reversal) of the provision for the Voluntary Redundancy Program, the higher revenue from the compensations, an increase in the labor costs resulting from the payroll agreement and the lower costs of rent, lease and perpetual usufruct of land in connection with the implementation of IFRS 16).

TAURON Capital Group recognized, in the 2019 results, the booking and reversing of the impairment charges related to the loss of the carrying amount on the balance sheet of the Generation Segment’s cash generating units (CGU), whose total impact on the charge to the Segment’s operating profit reached PLN 610 million.

Major investments (CAPEX)

The Generation Segment’s total capital expenditures came in at PLN 1 683 million in 2019, including the outlays on the following strategic investment projects:

  1. PLN 1 020 million on the construction of the new 910 MWe unit in Jaworzno,
  2. PLN 25 million on investment projects related to expanding and maintaining the district heating networks,
  3. PLN 104 million on the implementation of the heat unit at Łagisza Power Plant,
  4. PLN 42 million on the adaptation of TAURON Wytwarzanie’s generating units to the BAT conclusions,
  5. PLN 32 million on the restoration of SDW at Łagisza Power Plant
  6. PLN 27 million on connecting new facilities,
  7. PLN 6 million on connecting facilities heated from the low emission sources to the district heating networks,
  8. PLN 215 million on the replacement expenditures and overhaul components at TAURON Wytwarzanie.

Furthermore, the financial costs constitute approx. PLN 166 million of the segment’s total capex.

Apart from the above capex the investment project in Stalowa Wola, with the participation of the strategic partner, PGNiG, is underway. TAURON and PGNiG hold a 50% stake each in the special purpose vehicle implementing the project that includes the construction of the 449 MWe CCGT unit, including the 240 MWt heat generation component. In January 2016, the contract with the general contractor Abener Energia S.A was terminated. In March 2017, thanks to the repayment of the institutions financing the project thus far, the signed amendments to the gas and electricity agreements as well as the agreement on the project’s restructuring came into force. The agreement was reached and the decision was taken on the construction of the backup heat source. In March 2018, financing was obtained from Bank Gospodarstwa Krajowego S.A. (BGK) and PGNiG. As a result of completing a number of analyses, among others due to the project’s advancement level, the contract manager formula (EPCM) was chosen. Energopomiar Gliwice – Energoprojekt Katowice consortium was selected to implement the EPCM project. The project’s completion is scheduled for H1 2020. The expected capital expenditures on the project (excluding the financial costs) amount to PLN 1.4 billion.

Distribution Segment

Item (PLN ‘000) 2019 2018 2017 Change in %
(2019/2018)
Change
(2019-2018)
Distribution
Sales revenue 6 594 864 6 060 201 5 847 303 109% 534 663
distribution and trading services 6 299 847 5 789 487 5 438 954 109% 510 360
connection fees 80 885 81 129 114 112 100% (244)
Revenue due for fixing power line collisions 45 058 51 399 37 220 88% (6 341)
other revenue (rent, goods and materials, construction and assembly services) 169 074 138 186 257 017 122% 30 888
Operating profit (EBIT) 1 443 741 1 391 155 1 210 925 104% 52 586
Depreciation and write-downs 1 162 067 1 074 382 1 071 760 108% 87 685
EBITDA 2 605 808 2 465 537 2 282 685 106% 140 271

In 2019, as compared to 2018, the Distribution Segment reported an 9% sales revenue increase, while the increases of EBIT and EBITDA reached 4% and 6%, respectively. The following factors had an impact on the results:

  1. increase of the average rate of the distribution service sales to the final consumers,
  2. declining overall electricity delivery volume, including:
  • decrease in group A resulting both from the actions taken by the consumers aimed at reducing electricity consumption from the distribution grid (wider use of own generating facilities and optimization of electricity consumption) as well as the reduction of the production output (coal companies and steel industry),
  • increase of electricity delivery to the final consumers, in particular among the B group consumers, as a result of the continued GDP growth, primarily in the first half of 2019, and in the G group, first of all due to the increase, by 53 thousand, of the number of the household consumers,
  1. higher transmission services purchase costs,
  2. higher costs of purchasing electricity to cover the balancing difference as a result of higher purchase price, lower volume and the deviation due to the upward adjustment,
  3. decrease of the revenue due to fixing power line collisions in connection with the fact that two significant collisions in the WN-110kV grid were fixed in 2018 and a slight drop of the revenue from the connection fees related to the connections of entities mainly to the HV grid,
  4. increase of charges for exceeding the contractual connection capacity (power) and the above-standard passive energy off-take.

Major investments (CAPEX)

The Distribution Segment’s total capital expenditures came in at PLN 1 785 million in 2019. The main capex directions included:

  • PLN 996 million on the investment projects related to the grid upgrades (refurbishments) and replacements
  • PLN 676 million on the investment projects related to connecting new consumers.

In addition, the expenditures in the total amount of approx. PLN 117 million were also spent on: communications and IT, buildings and structures, means of transportation, in 2019.

Supply Segment

Item (PLN ‘000) 2019 2018 2017* Change in % (2019/2018) Change (2019-2018)
Supply
Sales revenue 14 907 937 14 219 677 13 567 887 105% 688 260
electricity, including 9 488 091 9 011 153 8 740 196 105% 476 938
revenue from retail electricity supply 7 479 056 7 928 888 7 554 448 94% (449 832)
greenhouse gas emission allowances 701 607 666 306 336 566 105% 35 301
fuel 1 396 300 1 371 117 1 024 912 102% 25 183
distribution service (transferred) 3 117 588 2 948 306 3 448 567 106% 169 282
other revenue, including trading services 204 351 222 795 17 641 92% (18 444)
Compensations 952 650 952 650
Operating profit (EBIT) 382 185 332 428 832 216 115% 49 757
Depreciation and write-downs 46 392 40 043 9 006 116% 6 349
EBITDA 428 577 372 471 841 222 115% 56 106
* 2017 data does not include the results of TAURON Dystrybucja Serwis

Supply Segment’s sales revenue was 5% higher in 2019, as compared to 2018, mainly due to the higher electricity sales revenue (higher electricity sales price on the wholesale market), an increase in the revenues from the sales of the distribution services and the greenhouse gas emission allowances (an increase in the market prices). The fuel sales revenue was also higher as a result of the rising gas fuel sales prices (higher gas fuel sales price along with the higher volume at the same time).

Supply Segment’s EBITDA and EBITDA were higher in 2019 than in the preceding year due to the following factors:

  1. electricity volume and prices – a negative impact on the result is mainly due to an increase of electricity market prices and the introduction of the act on “freezing sales prices”, this situation has a direct impact on the margin decline, mainly in the mass customers segment, with the total electricity supply volume falling at the same time by 1.8 TWh year on year (from 39.14 TWh to 37.36 TWh, including the retail electricity supply volume – a decline by 0.8 TWh and the electricity wholesale volume – a drop by 1.0 TWh),
  2. taking into account in the consolidated financial statements, drawn up as of December 31, 2019, of the estimated adjustments reducing the revenue from the customers, stemming from the need to adjust the prices in this period to the provisions of the amended Act,
  3. taking into account in the consolidated financial statements, drawn up as of December 30, 2019, of the price difference and the financial compensation, in connection with TAURON Capital Group trading subsidiaries’ right to submit requests for payment to Zarządca Rozliczeń SA (Settlements Manager),
  4. cost of the provision set up based on the requirements imposed in the amended act, as described in more detail in note 12 to the Consolidated financial statements of TAURON Polska Energia S.A. Capital Group drawn up in accordance with the IFRS approved by the EU, for the year ended on December 31, 2019, and consumption (using up) of the provision for onerous agreements, set up last year in connection with the introduction of the act on ”freezing electricity sales prices”,
  5. property rights prices – a negative impact on the result due to an increase of the prices of the green certificates,
  6. obligation to redeem (retire) property rights – a positive impact on the result is a consequence of a lack of the cogeneration obligations in 2019 (the redemption (retirement) obligation level in force in 2018 was: for PMEC 23.2%, for PMGM 8%, for PMMET 2.3%), with the obligation for the green certificates rising, at the same time, from 17.5% to 18.5% and the obligation for PMOZE-BIO being maintained at 0.50%,
  7. other – the recognized (booked) result on the other market (commercial) products sales includes, among others, the result on the sales of the CO2 emission allowances, the provision of the street lighting service, the result on the other business operations, the impairment charge related to the amount of the accounts receivable and the costs of sales).

Major investments (CAPEX)

The Supply Segment’s total capital expenditures came in at PLN 47 million in 2019, mainly for activities related to the maintenance and expansion of street lighting.

Other operations

Item (PLN ‘000) 2019 2018 2017 Change in % (2019/2018) Change (2019/2018)
Other operations
Sales revenue 979 911 857 462 804 560 114% 122 449
customer service services 215 785 190 765 198 113 113% 25 020
support services 481 000 424 468 392 394 113% 56 532
Biomass 118 546 78 699 74 248 151% 39 847
aggregates 106 573 101 495 101 343 105% 5 078
other revenue 58 007 62 035 38 462 94% (4 028)
Operating profit (EBIT) 46 152 46 023 35 902 100% 129
Depreciation and write-downs 90 034 89 009 82 141 101% 1 025
EBITDA 136 186 135 032 118 043 101% 1 154

The Other Operations Segment’s revenue was 14% higher in 2019, as compared to 2018, which was primarily due to an increase of the revenue from the higher sales of biomass and the support services. In addition, the revenue rose as a result of centralizing the services provided by CUW HR and the sales of the by-products of the coal burning and extraction.

Major investments (CAPEX)

The Other Operations Segment companies’ capital expenditures came in at PLN 133 million in total in 2019. They include mainly expenditures on the IT systems.

In addition, the capital expenditures related to the acquisition of 5 wind farms from the in.ventus group in the amount of PLN 601 million were incurred.

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