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Current Report No. 9/2016

16.02.2016 17:40

Information about planned write-off of impaired generation assets in financial statements for 2015

Following completion of main works related to asset impairment tests in line with the requirements of IAS 36, the Management Board of TAURON Polska Energia S.A. (“Company”, “TAURON”) announces information on the expected impact of non-cash one-off in the form of write-off of unprofitable generation units in the Generation segment. The Generation segment includes companies that produce electricity and heat from conventional and renewable sources.

For testing purposes, the recoverable amount has been determined based on analysis of discounted cash flow generated by individual cash-generating units. Key business assumptions that have impact on the evaluation of the recoverable amount included the adopted curves of energy and fuel prices, CO2 emission limits for electricity generation, tariff revenue of heat companies and maintenance of generation capacity of existing fixed assets as a result of executing capacity replacement investments.

The reason behind the write-offs lies primarily in market conditions that have been unfavorable for electricity generators and the resulting application of more conservative forecasts of electricity prices and reduced generation volumes in future.

To partially set off the impact of negative market conditions and improve the situation of the Group over longer perspective, the Company’s Management Board has launched works on corporate strategy update. As part of that process a review of investment portfolio has been initiated to verify investment projects. The Company is also finalizing works on the new Efficiency Improvement Program for the years 2016-2018 which should bring further savings. In addition, synergies are expected to be achieved inside the Group thanks to simplification of the management model. The Company indicates that market trends are essential when it comes to development of long-term perspective for planning electricity generation profitability, which may lead to further write-offs is the unfavorable trends persist.

In reference to consolidated financial statements of TAURON Capital Group (“Group”) for the financial year ended on 31 December 2015 the conducted tests have indicated that it was necessary to write-off major part of the Group’s generation assets from the electricity and heat generation segment due to partial or full impairment – including generation units of various capacities (in particular 200 MW and 150 MW), biomass-fired units and cogeneration units. Total value of estimated write-offs resulting from impairment of tangible and intangible assets and company value in the Generation segment charged to prime costs amounts to PLN 3,564 million and their impact on net result amounts to PLN 2,916 million. The write-offs will have no impact on EBITDA understood by the Group as EBIT increased by depreciation and write-offs for non-financial assets.

In reference to standalone financial statements of TAURON Polska Energia S.A. for the financial year ended on 31 December 2015 the conducted test indicated that it was necessary to write-off the impairment of shares in TAURON Wytwarzanie S.A. and TAURON Ciepło sp. z o.o. in the total amount of PLN 4,931 million. Expected impact of these write-off on the net result in standalone statements amounts to PLN 4,931 million.

The Company indicates that the values presented above are estimated values and may change. Final results of tests and amounts of impairments will be presented in the financial statements of TAURON Polska Energia S.A. and TAURON Capital Group for the year 2015 which will be published on 9 March 2016.

Article 56 section 1 item 1 of the Act on Public Offering - price-sensitive information

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