• EBITDA will top PLN 4bn in 2020
  • In the long term minimum 40 percent of the consolidated net profit will be paid out as dividend
  • Strategic initiatives will bring a financial effect of PLN 1.9bn
  • Expenditures on innovations will reach 0.4% of the consolidated revenue a year
  • Developing e-mobility, Smart Home and Smart City
  • PLN 18bn CAPEX assuming continuation of key investment projects

Ensuring financial stability, investment projects aligned to the market needs and developing innovations as well as building long term, strong customer relationship - are the key assumptions of TAURON Group's new 2016-2025 Strategy.

- Strategy sets the priorities that will transform the Group into an innovative, aligned to the market and customer needs, growing energy company providing a return on invested capital for its shareholders - assures Remigiusz Nowakowski, CEO of TAURON Polska Energia S.A.

One of the priorities is ensuring the Group's financial stability which is to be achieved through the following actions:

  • Efficiency Improvement Program, adopted in March, 2016 and assuming achieving PLN 1.3bn in savings in 2016-2018. The above savings include actions resulting in the cumulative EBITDA increase by approximately PLN 1bn and involving CAPEX reduction by approximately PLN 0.3bn in 2016-2018,
  • Strategic initiatives, including CAPEX reduction in 2017-2020, will bring a financial effect of PLN 1.9bn. It will be achieved as a result of actions leading to the cumulative EBITDA increase by approximately PLN 1.2bn and the CAPEX reduction by approximately PLN 0.7bn. These are additional financial outcomes, beside the effects generated by the Efficiency Improvement Program,
  • Stopping the construction of the CCGT unit at Łagisza Power Plant, resulting in the CAPEX reduction by PLN 1.5bn in CAPEX. It will be possible to resume the project in case the regulatory and market environment turns favorable.

- In the process of preparing the Strategy a thorough review was conducted of the macroeconomic, market and regulatory environment as well as of the forecasts on the directions of the sector's growth, including translating them into opportunities and risks facing TAURON Group. The adopted mission and vision reflect new management philosophy and are in line with the customer-oriented growth concept - explains Jarosław Broda, Vice President of the Management Board of TAURON Polska Energia responsible for Asset Management and Development.

In the long term TAURON is planning to pay out a dividend of minimum 40 percent of the consolidated net profit. The Company's intention is to provide a dividend yield that would be competitive versus the yield offered by long term debt instruments issued on the Polish market by investment grade rated companies. The final recommendation on the dividend will be affected by additional factors, including in particular:

  • Group's liquidity position,
  • market situation,
  • implementation of the investment policy,
  • cost and ability to obtain financing,
  • legal requirements and provisions of the financing agreements, in particular related to not breaching the defined value of the leverage ratio,
  • ensuring an investment grade rating.

- Dividend policy will be subject to periodic reviews by the Management Board. I would like to note that the forecasts that the Strategy is based upon indicate that 2020 will be the first year when the dividend payout will be possible. Of course, the final decision on the dividend payout, its amount and detailed conditions of its potential payout will every time be made by the Company's General Meeting approving financial statements for the given fiscal year - says Marek Wadowski, CFO of TAURON Polska Energia.

In the process of preparing the Strategy the Management Board reviewed in detail TAURON Group's ability to finance the current and planned investment projects with a view that their completion could be achieved using funds generated from operations and debt financing. As part of rationalizing CAPEX the expenditures planned for 2016-2020 were reduced from approx. PLN 20.2bn to approx. PLN 18bn. It is assumed that the commenced and well advanced investment projects will be continued.

Generation segment's capital expenditures amount to PLN 6.7bn until 2020. More than 50 percent of the entire CAPEX, i.e. PLN 9.5bn by 2020, are investments in the distribution segment that include connecting new customers and electricity generation sources as well as upgrading and replacing grid assets.

TAURON assumes that the construction of the 910 MW unit at Jaworzno III Power Plant will be carried out under a new financing formula envisaging spinning off of an organized part of the enterprise and selling its shares to third party partners, provided they do not acquire a controlling stake. A change of the way the unit's construction is financed would reduce the net debt/EBITDA ratio, and thus significantly lower the risk of breaching the threshold value of this covenant (3.5x) defined in the financing agreements. It should be emphasized that the Strategy assumes maintaining financial stability and not breaching the net debt/EBITDA covenant of 3.5x without taking into account selling a minority stake in the construction of the 910 MW unit to third party partners.

- This means that the planned change of this project's financing formula represents an additional element that would stabilize TAURON Group's financial position - emphasizes Remigiusz Nowakowski.

In the mining segment investments at Janina coal mine and the construction of Grzegorz shaft at Sobieski coal mine will be continued and the planned investments at Nowe Brzeszcze Grupa TAURON coal mine will be carried out. CAPEX in this line of business is approximately PLN 1.3bn until 2020.

Assumed directions of investments beyond 2020 include, apart from the regulated segments of the power sector, also the new power industry. TAURON will be investing in developing e-mobility, distributed heat and electricity generation, power generation by prosumers, Smart Home, Smart City solutions and energy related services. With respect to innovative as well as research and development activities the Strategy assumes expenditures equal to 0.4% of the consolidated revenue a year.

- Strategy will allow for transforming the Group into a modern entity with a stable financial position and a broad product and service offering meeting the expectations of the customers around whom the Group will be building its value - adds Jarosław Broda.

Sales and development of new products and services are to constitute a strong base for the Group's growth. The Group is planning to rapidly develop its offering for the customers in this segment which will allow for retaining the existing base of customers that purchase TAURON products and increasing profitability. The transformation of the Group into an even more modern and innovative organization will be achieved by deploying changes supporting the implementation of the strategy:

  • Expanding research and development as well as innovative activities for which expenditures equal to 0.4% of the consolidated revenue a year are envisaged
  • Developing innovative projects based on the Corporate Venture Capital (CVC) type fund dedicated for this purpose
  • Implementing a new, process-oriented operational model. Five priority process streams have been identified around which TAURON Group's operations will be concentrated, i.e. Strategy, Finance, Asset Management and Development, Customer and Corporate Management and Support. Such approach will allow for placing a greater emphasis on cross-sectional issues that will determine the Group's competitive advantages in the future
  • Customer relationships based on integrated high quality service with the use of modern sales and customer service channels as well as developing a product and service offering. A long term strategic goal is to generate at least 25 percent of the supply segment's revenue/margin from the new operations in 2025
  • Stable base of regulated assets based on the upgraded electricity distribution and heat segments as well as readiness to grow renewable energy sources in case the regulatory environment turns favorable
  • Efficient conventional assets, i.e. mining and conventional generation segments, which as a result of improving cost efficiency and productivity will be competitive on the market or, in case of generation assets, they can be shifted to the regulated segment of the power system.

Strategy presents the optimal expansion path that will ensure financial stability and growth, while at the same time providing support for ensuring stability of the power system. The long term growth will be driven by solutions based on customer relationships.

TAURON Polska Energia SA published this content on 02 September 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 02 September 2016 16:16:01 UTC.

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