Current reports
Current report no. 45/2020
Information on the intention to include in the financial statements for the first half of 2020 impairment losses on assets and their estimated impact on financial results
Legal basis:
Art. 17 item 1 MAR – inside information
Contents of the report:
Zespół Elektrowni Pątnów-Adamów-Konin SA ("Company"), in connection with the completion of works on impairment tests of assets in accordance with the requirements of IAS 36 and NAS 4, publishes information on the need to recognize impairment write-downs on assets.
In the analysis process, the greatest impact on its result was:
- Reduction of coal supplies in future periods due to the fact that Ościsłowo open-pit mine is not taken into account as a prospective deposit and, consequently, the expected life span of Pątnów I and Pątnów II power plants is shortened.
- Separation of Konin power plant as an independent centre generating independent cash flows ("CGU") focused on the generation of energy from renewable sources (biomass).
The current business model assumed the use of the currently exploited open-pit mines and obtaining a license to exploit the prospective Ościsłowo deposit. At present, the baseline scenario envisages the use of only the currently exploited open pits and no exploitation of Ościsłowo deposit. Considering the length of the decision-making process to obtain a concession for Ościsłowo field, the complexity of this process and the uncertainty as to the operating conditions in the long-term, in the environment of the tightening European climate policy and increased emission standards for coal sources, as well as the intention of the Company to actively apply for funds from the Just Transformation Fund and other EU funds dedicated to the mining regions of Europe participating in the process of energy transformation and just transformation, it was decided not to include this deposit in the base scenario for the operation of coal assets of ZE PAK SA Group.
The key circumstances for making this decision were external factors negatively affecting the profitability of electricity production from lignite, in particular the rising prices of CO2 emission allowances, this tendency may be strengthened by raising the greenhouse gas emission reduction target for 2030 from 40% to 55%, proposed by the European Commission last week. This decision was also significantly influenced by the growing import of electricity to Poland, which puts pressure on the level of electricity prices on the wholesale energy market in Poland. According to PSE (Polskie Sieci Elektroenergetyczne SA) declarations, the technical capacity of energy imports will increase in the coming years due to Poland's participation in the progressive harmonization of the Community electricity market under the market coupling mechanism.
This means that in the scenario under consideration, the operating periods of Pątnów I and Pątnów II power plants were shortened due to the abundance of deposits. The shortening of the operating period means, on the one hand, the need to write down the value of assets, reducing the current financial results, but on the other hand, in the opinion of the Company, it reduces the exposure to various types of risks that increasingly accompany high-emission activities, especially in the long term. The faster phasing out of coal activities will also allow the Group to focus more on projects in new areas of activity related to energy generation in renewable sources.
In connection with the plans to reduce the coal activity and at the same time focus on generation from renewable sources, it was decided at ZE PAK SA to separate two independent CGUs, including Konin power plant as separate CGUs. This process made it possible to reverse the write-offs made so far on the assets of Konin power plant, mainly due to the lower risk associated with generation from renewable sources.
In relation to the consolidated financial statements of ZE PAK SA Capital Group for the first half of the year ended June 30, 2020, the tests for the impairment of assets showed the legitimacy of creating impairment losses on property, plant and equipment CGU Elektrownia Pątnów I, CGU Elektrownia Pątnów II and CGU PAK KWB Konin SA in the total amount of PLN 585 million, as well as the reversal of previously created impairment losses on property, plant and equipment of CGU Elektrownia Konin in the amount of PLN 296 million. The total net amount of write-offs (i.e. the surplus of created write-offs over their reversals) is PLN 289 million. The sum of the above events will not affect the Group's consolidated EBITDA, and in the case of the consolidated net result, it will decrease it by PLN 201 million.
With regard to the standalone financial statements of ZE PAK SA for the first half of the year ended June 30, 2020, prepared in accordance with the Accounting Act, the conducted tests for impairment of assets showed that it was justified to create an impairment loss for non-current assets of Pątnów I power plant in the amount of PLN 110 million and reversal of impairment losses on non-current assets at Konin power plant in the amount of PLN 296 million. At the same time, the result of the test for the impairment of assets in CGU PAK KWB Konin SA justifies the need to make a write-off in the amount of PLN 122 million due to the impairment of shares in PAK KWB Konin SA. The sum of the above events will not affect the standalone EBITDA of the Company, and in the case of standalone net result, it will increase it by PLN 64 million.
Simultaneously, the Company informs that the operations mentioned in the report are non-cash, accounting and do not affect the liquidity situation of the Company and the Group.
The estimated consolidated result at the level of EBITDA for the first half of 2020 will amount to PLN 61 million. As a result of the events described above, the estimated consolidated net loss for the first half of 2020 will amount to PLN 261 million. However, without taking into account the above-mentioned one-off events, ZE PAK SA Group would end the first half of 2020 with a net loss of PLN 60 million.
The projected estimated unit result of ZE PAK SA at the level of EBITDA for the first half of 2020 will amount to minus PLN 13 million. As a result of the events described above, the estimated net profit of ZE PAK SA for the first half of 2020 will amount to PLN 29 million. However, without taking into account the above-mentioned one-off events, ZE PAK SA would have ended the first half of 2020 with a net loss of PLN 35 million.
The company reserves that the consolidated and standalone statements are being reviewed by a certified auditor, therefore the above amounts may change.
Signatures of persons representing the Company:
Maciej Nietopiel – Vice President of the Management Board
Paweł Lisowski – Vice President of the Management Board