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TAURON Group's 2016-2025 Strategy

On 2 September 2016 the Company's Management Board adopted and the Supervisory Board issued a positive opinion on the document entitled "TAURON Group's 2016-2025 Strategy”. The adopted document is a response to the challenges stemming from the current and forecast situation on the market and in the power sector.

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. The adopted mission and vision reflect new management philosophy and are in line with the customer-oriented growth concept. 

In accordance with the adopted Strategy the Group's mission was defined in the following way:

"With passion and commitment we are delivering modern solutions that provide energy in the constantly changing world”

The Group's vision is:

"We are a company that best meets customer needs in the Polish energy industry”

Key assumptions of TAURON Group's 2016-2025 Strategy

Strategy includes an action plan split into three coherent and complementary priorities for the Group:

1. Ensuring the Group's financial stability 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 and CAPEX reduction that will bring a financial effect of PLN 1.9bn in 2017-2020. 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 investment in the CCGT unit at Łagisza Power Plant, resulting in not incurring PLN 1.5bn in CAPEX. It will be possible to resume the project in the case the regulatory and market environment turns favorable.

2. Building a strong capital group

Strategy defines a new approach to the value chain where key tasks are set for each line of business. Strategy does not assume balanced growth along each link of the value chain. 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. Electricity distribution as well as heat generation and distribution segments are to constitute a stable base of the Group's regulated businesses. Mining and conventional generation segments have tasks related first of all to efficiency improvement. The following three pillars of the strong capital group were defined:

•    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 the 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 the case of generation assets, they will be shifted to the regulated segment of the power system.

3. Transforming the Group into a modern and innovative organization, 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.

The Strategy will allow for transforming the Group into a modern entity with stable financial position and a wide offering of products and services meeting the expectations of customers, around whom the Group will be building its value. 


 

TAURON 2016-2025 Strategy.jpg

 

The CAPEX program planned for 2016-2025 amounting to approx. PLN 18bn. assumes that the commenced and well advanced investment projects will be continued. 

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.

In the generation segment investments in the construction of the 910 MW unit at Jaworzno III Power Plant and the CCGT unit at Stalowa Wola Combined Heat and Power Plant as well as the investments in the heating networks will be continued. 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. 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 generation sources as well as upgrading and replacing grid assets.

Assumed directions of investments beyond 2020 include first of all the regulated segments of the power sector (i.e., among others, electricity distribution, heat generation and distribution, participation in the nuclear power generation and regulated conventional generation) and the new power industry (i.e. e-mobility, distributed heat and electricity generation, power generation by prosumers, Smart Home, Smart City solutions and energy related services). 

Implementation of the Strategy will help increase EBITDA from PLN 3.5bn in 2015 to over PLN 4bn in 2020 and over PLN 5bn in 2025. Estimated recurring effect of the Efficiency Improvement Program in the form of impact on the Group’s EBITDA is approx. PLN 0.4bn starting from 2018 and the effect of Strategic Initiatives in the form of impact on the Group’s EBITDA is approx. PLN 0.3bn after 2020.