TAURON Polska Energia S.A. (TPE) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I'd like to welcome you to the earnings of TAURON Group for the first quarter of 2020. The host of today's meeting are Mr. Filip Grzegorczyk, the CEO of TAURON Polski Energia; and Mr. Marek Wadowski, the CFO of TAURON Polski Energia. My name is Marcin Lauer. I'm working for Investor Relations team. The presentation will be conducted in Polish and simultaneously interpreted into English. Outside of the broadcast, you can also listen in to today's meeting via conference call mode. I'd like to invite you to ask questions using your form available on the website of the broadcast. Due to the GPRD (sic) [ GDPR ] regulations, we'll not be providing your contact details here, but we can provide the name of institutions that you represent, if you enter this information in the content of your question. Mr. President, please start the presentation.

Thank you very much. Good afternoon, ladies and gentlemen. We'd like to welcome you very cordially. We have a pleasure to present to you the financial results and operating results achieved by TAURON Group in the first quarter of 2020. To start with, I'd like to emphasize that TAURON Group, we have been following closely and stringently the epidemiological guidelines and orders. We are compliant with the current situation. What's very important, all of the subsidiaries of the group are working without any problems. We want to continue to operate in an uninterrupted way. And so, we're conducting ongoing activities aimed at protecting the 26,000 employees of TAURON Group. We're also undertaking initiatives that are limiting the negative implications of the pandemic for the group's finance between May and July. The workforce of TAURON, which is TAURON Mining segment will be working 4 days a week, and that way, this will be reduced by 20% during that period. Yesterday, we signed an agreement, a similar agreement at TAURON Generation subsidiary. The employees of the subsidiaries, starting from May to July will have reduced work time down to 90% and pro rata reduced wage. These activities will allow us to apply for the funds related to the employment protection funds as part of the anti-crisis shield package. We should, however, emphasize that the COVID-19 situation is very dynamic, very fast-changing and can evolve in a different way that we can't foresee. The management board of the company is, on an ongoing basis, monitoring the potential impact and will undertake any possible steps to mitigate the negative implications of COVID-19 on TAURON Group. After this brief introduction forced by the epidemiological situation, I would like to present to you the group's financial situation. I will describe the highlights of our growth in Q1 and the CapEx of group investments of group, whereas our CFO, Mr. Marek Wadowski, will describe the market and financial situation -- economic situation, he'll present also the detailed financial results, broken down into individual segments. Additionally, Mr. Wadowski will also present the outlook for 2020 for our group. Ladies and gentlemen, let's move on to the key data for the first quarter of 2020. First of all, one need to emphasize that in Q1, our group posted good financial results that EBITDA level were in line with the market expectations or the analysts’ expectations. Moving on to the data that you can see on the slide, one must say that in the first quarter of 2020, the sales revenue went up year-over-year by 3%, reaching almost PLN 5.5 billion. The increase of sales revenue was driven, first of all, by the higher rates for the distribution services. The group posted almost PLN 960 million EBITDA. However, it was charged with a one-off event with PLN 120 million. The impact of this event on the earnings will be presented by the CFO, Mr. Marek Wadowski, when presenting subsequent slides. Furthermore, the group posted PLN 162 million of net profit. This was impacted by the negative FX differences in the amount of more than PLN 200 million. The CapEx came in at PLN 940 million, and they were 29% higher. This change was due to an increase of CapEx in the Generation and Distribution segment. The net debt-to-EBITDA ratio calculated, excluding the debt due to subordinate that issued as of the end of March 2020, achieved 3.27. The details on the financing and that will be presented later on in the presentation by the CFO, Mr. Marek Wadowski. If you will look now at the operating data, I want you to emphasize that in Q1 2020, TAURON Group provided in total 13.25 terawatt hours of electricity. We have observed a decline of electricity consumption in all groups, customer groups, except for households. Due to the fact that the Green Turn of TAURON is picking up steam and is becoming more and more important for the group's finances, we have decided to separate in our financial statements the renewable energy sources segment. Let me emphasize that in the first quarter of 2020, we generated 40% more electricity from renewable energy resources, such as strong growth was due to the acquisition in September 2019 of 5 wind farms of the total capacity of 180 megawatts and the favorable wind conditions. During the period under review, TAURON Group produced more than 2.6 terawatt hours of electricity using hard qualified units. The production of volume was impacted by the overhaul works performed on several 200-megawatt units conducted due to the adaptation to the so-called BAT conclusions requirements as well as the weather conditions that occurred during this period. On the other hand, the heat generation supply went up by 4% versus the first quarter of 2019. The commercial coal production came in at almost 1.2 million tons, which was a positive result of the earlier implemented optimization steps. So we are mentioning that 4% of generation segment subsidiaries for coal was satisfied with coal coming from TAURON Group's coal mines. By the end of July of this year, the extraction output will be limited due to the introduction of a 4-day work week at our coal mines that I have just mentioned. Ladies and gentlemen, on the next slide, we are providing a summary of the highlights that occurs-ed in Q1, a number of important events that have taken place this year, namely, in the first quarter, despite the spreading coronavirus pandemic, TAURON Group obtained successfully external financing. In that period, we signed loan agreements worth PLN 1 billion in total, and this amount will be used to finance the general corporate purposes, excluding the financing of the coal assets. An important element of the financing for the Green Turn of TAURON was the signing of an agreement with a Polish Development Fund, which is related to joint investments in renewable energy sources, first of all, in onshore wind farms and solar farms. I'm very happy to see that we have managed to achieve an agreement -- reach an agreement with a workforce with respect to limiting, reducing the work time at TAURON Mining and TAURON Generation. This will allow us to adjust the production of the Mining Segment to the market conditions and the reduced demand for coal on the market. Let me also mention that we signed an agreement with a consortium of Rafako Mostostal Warszawa, according to which, the commissioning of the power generating units should take place by November 15 this year. Let me now hand over to Mr. Wadowski.

Ladies and gentlemen, in the first quarter of this year, we were dealing with less and less favorable, more and more adverse macroeconomic situation. And if you add to that the pandemic, as we see at the slide that you can see, the PMI dropped below 50 points, which clearly indicates worsening outlook, the decline of electricity consumption, domestic consumption more than 2 percentage points. The decline of production is 4.6%. It is worth noting the fact that in the first quarter of 2020, the production of electricity from coal-fired units, that of lignite and hard coal, dropped. The total share of coal-fired generation in the first quarter is below 70%. The market situation also was less favorable than last year that falling prices and as the prices were falling, also the margin was dropping, mainly the clean dark spread. The increase of revenue in the first quarter of 2020 is primarily -- was probably driven by the increase of electricity sales price as well as an increase of distribution tariffs. Let me remind you that in the first quarter of 2019, the distribution tariff was still the 2018 tariff because the 2019 tariff was approved at the beginning of April 2019. Looking at EBITDA, if we exclude the one-off events, this result in Q1 2020 was lower by 12%. The net profit was significantly lower. The main reasons being of lower net profit was the lower EBITDA, which I will further on elaborate, and the negative FX differences, minus PLN 230 million, which was primarily due to the valuation of the debt denominated in euro. We are showing now to you on the slide the results of the 5 segments, including the new renewables segment. This is how we'll be reporting our result due to the greater transparency of our presentation. It is worth noting that the Distribution Segment still continues to be very material, the most material segment in terms of EBITDA, more than 70% EBITDA in Q1 '20 came from that segment. The EBITDA during the period under discussion was impacted to the largest extent by 2 segments, the renewable energy sources, positive impact, and the generation segment had a negative impact. Moving on to the Distribution Segment. In Q1, as I mentioned, of 2020, we are comparing the distribution service rate versus, as a matter of fact, the 2018 rate for distribution services. Therefore, a significant improvement of EBITDA due to the distribution service sales price. The volume was lower 2 percentage points in Q1 year-over-year. Here in Q1, we really have a full effect of the pandemic visible looking at April versus -- April 2020 versus April 2019 when we have the entire period covered by the pandemic. The decline of the volume of electricity is 11%; in Group B, 23%; in Group C, 17%; and in Group A, 4%. And we are estimating -- because we don't have detailed information for the other groups, so we are estimating the increase of electricity in the G Group would be around 5%. The quality parameters of the Distribution Segment. They comply with the requirements of the President of Energy Regulatory Office. And because of those tariffs, we are not expecting the tariffs to be adjusted in the subsequent periods. The new segment, renewable energy sources is displaying a significant impact of increase of EBITDA. This is the result, first of all, by the acquisition of the wind farms with total capacity of 180 megawatts at the end of 2019. Increase of production in the segment from wind is 112%. Had we not had those new wind farms, the increase of production from wind would be around 12%. The hydroelectric power plants, we can see that there production dropped by 17%. In the Generation Segment, first of all, one should note a one-off event. This is the swap of CO2 emission analysis purchase contracts. The total result on the transaction is PLN 127 million. The value of this transaction is PLN 720 million, the impact on the result is applicable to Q1 in the subsequent quarters. This impact will be reversed -- will be getting reversed, namely, the swap of CO2 emission analysis was involved, the swap of hedging contracts to the contracts signed with the financial institutions of the OTC contracts, which led to the settlement of the settlement of the transaction and the current prices, which led to this result because of the hedging contracts for the CO2 emission analysis purchases were at a higher level than the amount that we settled the transaction at. However, there's contract that were signed with the financing institutions are contracts at the lower levels, therefore, the cost of purchasing the CO2 emission analysis in the subsequent periods of 2020 will be because of that lower. We are estimating that the reversal of this negative result in 2020 will be in the region of 50 -- between PLN 50 million and PLN 70 million. It's also worth noting that in the Generation Segment, in 2020, we do not have new Jaworzno yet, namely the generating units that will be commissioned in the middle of November is not generating positive EBITDA in Q1. In order to mitigate this lack of a shortcoming of EBITDA because of the nonoperation of this unit, we are repurchasing electricity, and the result on the repurchased electricity is being shown in the Supply Segment, which I will elaborate on in a moment. The negative impact of the margin electricity on coal-fired units was a consequence of 2 factors. The first factor being the decline of the clean dark spread, mainly caused by the increase of prices of CO2 emission analysis. The other factor was the drop of the production volume, mainly on the 200-megawatt unit, and this decline in the volume production was mainly due to the overhauls because of the adaptation of BAT conclusions adaptation, and, of course, the market situation. Moving on to the next segment, the Supply Segment. As I mentioned before, in this segment, we are showing the margin generated from the result on the transaction of repurchasing of electricity. The total impact on the result in Q1 is more than PLN 100 million. Thanks to that, the consolidated EBITDA, the lack of generation from the 910 megawatt unit in Jaworzno didn't have an impact on the EBITDA in Q1. We are expecting that in the subsequent months up to November inclusive, we will be able, to a large extent, to mitigate the negative impact of a lack of production from that unit. In the Supply Segment, it's also worth noting that we had a positive impact coming from the following factor of price and volume, which is primarily the consequent outside of G tariff, where the prices went up in a way, but did not fully cover the cost of purchasing electricity. However, in the other segments, I mean, here, the business segments, in the other segment, the price is higher, and this price covers for us the cost of purchasing electricity. Therefore, this is the reason for an increase of EBITDA. But as I mentioned before, out of PLN 139 million, which we are showing on the side, more than PLN 100 million is based -- is the result of the repurchases performed on the 910-megawatt unit. In the Mining Segment now, in Q1, we generated a bit higher EBITDA, despite the fact that the volume of coal sold dropped. However, the Mining Segment is operating in such a way that if sales decline, the inventory levels go up. Let me remind you that the inventory levels versus the end of Q1 2019 went up significantly, and some of the costs is going into the inventory. That's where we are showing it in this bar other as a consequence of higher inventory -- coal inventory levels. Once the coal is sold, then those costs will be shown in the profit and loss statement. This is, of course, the result of applying the principle of accounting of relationship between cost and revenue. Comparing the first quarter of 2020 to Q4 2019, we can see the results of the actions taken. We can see an increase of the extraction output. The main factor, which now makes this output not beyond the level, but we would like it to be, but problem with selling coal, the problem due to the lower demand among the coal-fired units for hard coal. As the CEO mentioned, we are reducing the production, now the coal mines are operating 4 days a week. And this is the main factor that's limiting the increase of production now. At the end of March 2020, the available financing of TAURON is almost PLN 1.6 billion. The net debt-to-EBITDA ratio is 2.37. Partly, this ratio is that of a one-off events that I mentioned before, namely the settlement of the contract for the purchase of CO2 emission analysis. The result generated will be getting reversed over a subsequent period. So therefore, it will have a positive impact upon this leverage ratio later on this year. We are working on reducing this leverage ratio. As of now, we don't have any information about specific effects of our actions. One such effect is up here, we will, of course, provide the profit information in accordance with the [indiscernible] Now let me hand over now the floor to Mr. President.

Thank you very much. Ladies and gentlemen, a few words about the capital expenditures and the work progress on the key projects, namely the largest product that TAURON Group is implementing right now is the construction of a 910-megawatt unit at Jaworzno. The construction of that unit, as I mentioned before, its commissioning should take place by November 15 this year. Current work progress at construction site is more than 98%. The next important product, the construction of a CCGT unit at Stalowa Wola. The installation of steam piping has been completed and the auxiliary installations have been completed. And the balance of plant systems were completed. The test pressure of the new cooling water ducting was completed on March 4. The first utilization of gas turbine has been completed -- was completed, and the unit should be commissioned in this quarter -- during this quarter. On the slide, you can also see the product involving implementing production at the 460-megawatt unit at Lagisza and the construction of peaking and boilers. This investment product is completed with respect to implementing production, while the final installation elections and reassemblies are taking place at the backup boilers and the handover recommissioning of a boiler house into a -- for operation is planned in Q2. The final item presented on this slide are investments related to the adaptation of TAURON's generating units to the work review air conditions in force past 2021 in order to comply with BAT conclusions. By the end of Q1, we spent PLN 75 million on this project. If we look at CapEx broken into segments, one should mention that the CapEx of TAURON in the first quarter of 2020 came in at PLN 940 million. Traditionally, the biggest CapEx was spent on upgrading the grid assets and connecting new customers to the distribution grid by CapEx in the Distribution Segment and came in at PLN 485 million. The CapEx in the Generation Segment clocked in at PLN 361 million with almost PLN 120 million spent on the implementation of Jaworzno generation unit. In the Mining Segment, we continued the construction of the Grzegorz shaft at Sobieski Coal Mine, the investment program at Sobieski Coal Mine and the construction of 800-meter level at Janina Coal Mine. In this segment, our CapEx came in at PLN 60 million. It's also worth mentioning that from the moment that COVID-19 virus started spreading in our country, we are taking actions aimed at reducing the CapEx in the subsequent periods. Therefore, we introduced limits, limits on CapEx spending. And on an ongoing basis, we are reviewing the weight, the importance of each investment products. Ladies and gentlemen, I'd like to finish the discussion of my part of the presentation at the final slide showing the outlook for 2020, our business outlook for 2020 given by the CFO, Mr. Wadowski. Following that, we will be happy to answer your questions. Please, Mr. President.

On this slide, we are presenting to the outlook -- EBITDA outlook for 2020. I would like to emphasize that the situation we are dealing with now is a situation, an unprecedented situation, and to a large extent, unpredictable. Its further evolution is unpredictable in the subsequent quarters. Our views are based on the best of our knowledge as of today, but this is subject to change if the situation in our environment changes. I'm presenting the outlook broken down into 5 segments. And the distribution we're expecting in 2020, a decline -- EBITDA to decline. This is the consequence of 2 factors, lower volumes it delivered. We are not expecting such big declines for the whole year. As in April, as I mentioned, 11% drop. However, the volume of electricity delivered in 2020 will be lower, most likely, than in 2019. And also, the second factor, very important, the weighted average cost of capital in 2020 is lower than in 2019. In the renewable energy sources segment, we are expecting EBITDA to rise. However, I'd like to note that one should take into account the fact that in 2019, we are dealing with a one-off event in this segment, namely the result on the opportunistic acquisition of -- 180 megawatts acquisition of wind farms, and it had PLN 120 million positive impact on EBITDA. If we exclude this factor from 2019, we would expect EBITDA to rise, primarily due to the significant increase of the volume of electricity produced by the wind farms, which is primarily the effect of the acquisition of the wind farms as well as the assumed favorable wind conditions that -- throughout 2020. Also, the factors that will be stopping this growth will be the markets, which namely is the lower electricity prices as well as worse hydrological conditions. In the Generation Segment, we are expecting a significant strong slump of EBITDA, which will be primarily driven by the decline of EBITDA or a lack of EBITDA being generated by the 910-megawatt unit and until the moment it is put into operational. We were assuming this EBITDA will have a positive impact on the result of this segment. However, at least until the middle of November, we will likely not have this EBITDA generated by the Jaworzno unit, the new unit, and also expecting difficult market conditions throughout 2020 due to the high electricity imports in the first quarter 2020 versus the same period of last year was 60% up versus 2019. And let me remind you that 2019 also had a higher electricity import versus 2018. And we're expecting also, later on during the year, that the demand for electricity will be declining. Therefore, to sum up in this segment, Generation Segment, we should observe a significant slump of EBITDA in the supply segment. We expect EBITDA to rise. And this is the other round versus Generation Segment since the -- using market situation, we are mitigating the impact of lack of EBITDA from the 910 megawatts unit in Jaworzno. We are showing this result in the Supply Segment. Therefore, this actually will have a positive impact upon the Supply Segment. If we look at the entire Capital Group at the consolidated level, we are expecting that the commissioning of this unit at a later date than originally assumed will not cause a significant decline of EBITDA. This will be, to a large extent, compensated, maybe even fully compensated by the trading operations. The market situation definitely is highly supportive of such actions. In the other elements, the Supply Segment is facing a number of challenges, including the risk of an increase of write-offs due to overdue accounts payable. Originally, we are assuming this to be higher. Now there's a risk we are monitoring all the time. But it's worth indicating that we are not treating this risk as a very significant risk at this point in time. Of course, it's hard for us to foresee what -- how will the situation progress later during the year. In the Mining Segment, we expect EBITDA to rise. The main reducing -- the limitation factor is the demand for hard coal. If -- had the demand not dropped, definitely, we would have observed a very strong increase of EBITDA in the Mining Segment. But still, the effects of efficiency improvements that we made last year will be visible in the segment. The CapEx, we are adjusting CapEx on an ongoing basis to our financial position. The net debt-to-EBITDA ratio is the main element that we take into account when defining the -- determining the CapEx level. This is what we'll continue to do in 2020. That's all from us. Thank you very much for listening to our presentation. And let's move on now to the Q&A question.

Thank you very much to the presidents for the presentation. During this part, question and answers will have, as usual, our experts available. Mr. Dariusz Niemiec, the Managing Director for Trading; Mr. Roland Makiela, who is Director for Controlling; and Mr. Sebastian Gola, Executive Director for Analysis. We have a series of 5 questions from the Societe Generale analyst, 5 issues he's raising. Let's -- I suggest that we answer them one by one. The first issue, what are the effects of the up-to-now discussions with the regulator on the upcoming regulatory period, especially with respect -- because of declining WACC? The decline of around 4% in 2020 as you look at the 10-year old bills. This may lead to the reduction of CapEx in Distribution and also the write-offs or impairment charges on assets.

The effects of the talks to the regulator, we don't have any effect as of now. That's true that the declining WACC, weighted average cost of capital, will be a challenge in 2021 in the Distribution Segment. Of course, on our side, we'll be trying to convince the regulator to modify its approach. Let me be frank, but the decline of WACC, as indicated in the question, 4%, definitely will lead to a decrease of EBITDA and definitely may cause the need to perform impairment task, conducting impairment task or even book some write-downs. But as of now, it's difficult for me to predetermine what will be the final situation in the middle of May, still have some more time left. So we can see those challenges. And of course, we will try to make the situation related to the decline of interest rates and the bond interest rates, but I think it comes into what we have discussed. Capital, we will try to make that -- to take that into account in his approach, but it's too early to indicate any effect yet.

Thank you. The next issue, because of increases of September 2019, what should we expect the cost of wages to increase in 2020? Please indicate the level in millions or PLN. I'd like to ask Mr. Director, Roland Makiela to answer this question, please.

The overall impact of last year's agreement signed will be between 3.5% and 4% of the overall wages level, including the benefits. However, one should remember that the agreement came into force starting as of September last year. Therefore, this year, 2020, this effect will be relatively accordingly lower and will be around 2.5% as an increase of the total wages pool. And then wage and benefits.

Thank you. The next question. The unassigned items and exclusions generated an EBITDA loss of PLN 101.5 million versus PLN 20 million -- PLN 20.7 million in Q1 2019. Why such a big increase? That's the next question. So I would also ask also Mr. Roland Makiela to answer this question, please.

The issue of a difference in the unassigned items segment is the effect of a valuation of the coal produced by TAURON Mining Segment, the valuation of coal that is held as inventory at TAURON Generation and TAURON heat segments. One must say that last year, in 2019, this cost was very high, relatively high, let's put it this way. And there are 4 -- accordingly, it was -- it mitigated the profit and loss statement. Here this year, this cost is lower, so we have a reverse trend. Therefore, the entire difference comes from that.

Thank you. The next question is related to the Mining Segment. On the EBITDA bridge, the other items was PLN 62 million, increasing EBITDA. What is that amount, to be exact, which is the increase of the inventory levels in the Generation Segment?

As I mentioned before, the increase of inventory level means that, that costs are being activated this way. Those cost will be shown in the P&L statement once the coal that is being inventoried now is sold. So at the moment, when the inventory levels have declined.

I think it might be the last question coming from Societe Generale. What was the impact of closing positions on the new Jaworzno on the EBITDA of the supply segment in 2020?

The impact on EBITDA result is improvement of EBITDA result by a bit more than PLN 100 million.

Thank you very much. Let's move on to the next round of questions this time coming from the Trigon brokerage house analysts. Three questions coming from that analyst. Do you think that the shifting of coal assets to a set from the facilities to separate state [ unit ] where the consolidation of utilities within the stock market would be merged into a single-unit entity? What are your ideas how to reduce the net debt-to-EBITDA ratio in subsequent quarters? To what minimum level the CapEx could go down this year in case of major macroeconomic problems?

Ladies and gentlemen, with respect to the shifting of mining assets from the utilities to a separate state-owned unit or entity, looking at this question, one should say that such a concept -- as a coherent concept as of now, we are not familiar with that concept as of now. With respect to the Mining Segment, we are trying, as of now, to focus on our own assets. And here, we are taking actions in 2 dimensions. On one hand, we are trying to optimize the operations of those assets. It seems that the first effects of this optimization are already visible. On the other hand, we are trying to implement the TAURON strategic directions with respect to those assets. And in particular, towards reducing those assets. Work, conceptual work is underway in this regard. We will not be giving any feedback on concept that we are not familiar with. What we can assure you of is the fact that we are implementing, in this area, our strategy. And on one hand, optimization; on the other hand, verification, market verification of options, opportunities to reduce such assets within our group. With respect to the consolidation of public-listed utilities towards a single utility, single new company will be a good idea. One must say, first of all, that as a matter of fact, what is important for the industry is the answer to the issues that are being discussed by individual companies internally and definitely, some type of rotation of assets towards [indiscernible] speaking to turning individual groups, more green would be a good idea. We are talking here about, for instance, the Green Turn of TAURON Group. It is also worth emphasizing here that we are trying to carry out this project quite effectively. Of course, we have 4 utilities. This is a situation that has had its history. We're talking about 2007, 2008 time frame. And today, maybe a question could be raised whether the structure is the correct one. And of course, answering the question whether the consolidation of public-listed companies is a good idea or a bad idea, one should raise another question, namely the question, what would be the objective that we'd like to accomplish, what objective could be achieved as a result of such action from the level of management of TAURON Group. For us, the priority for now is to steadfastly implement our strategy. However, the issues related to the consolidation of the industry, these are the issues to be determined at the ownership level in such a sense, of course, we are open to good ideas. However, as I mentioned, as of today, within our capabilities, we can steadfastly implement the strategy of our group, whereas the consolidation-related issues, these are the decisions up to the owners. So to that extent, beyond our level. An important thing, however, as I mentioned, is irrespective of the configuration is adjust the adaptation of the group or groups, utility groups, electric utility groups to megatrends and the EU regulations that are forcing a transition towards renewable energy sources.

The ideas how to reduce the net debt-to-EBITDA ratio in subsequent quarters, that was the next question. And to what minimum level the CapEx may go down in the case of a major macroeconomic problem?

Let me start with the latter part of the question. Of course, in terms of CapEx, we are working intensely on optimizing them. There are certain expenditures that we have to incur. We've been carrying those expenditures not to bring about any disruptions to the operations of our TAURON Capital Group. However, it's difficult to answer. It may happen in the case of major macroeconomic disruptions. Of course, it all depends upon the magnitude of such disruptions. What's very important is the fact that those capital expenditures are being adapted -- adjusted to the level at which we can say that Capital Group is the group with a stable safe financial position. We have certain ideas and certain projects, as a matter of fact, now, actions that we are taking to reduce the net debt -- net debt-to-EBITDA ratio. However, at this point in time, I'm not able to give any more specifics regarding this topic because of the fact that our work is at such a stage where we cannot give you any more precise image. However, once more detailed information is available of major importance for our group, definitely that bit of information will be provided -- will be disclosed in a regulatory filing in a current report.

Thank you very much. Ladies and gentlemen, we are receiving many questions regarding the ideas related to the consolidation of the mining sector and the generation sector or coal-fired generation sector. However, it seems to me that Mr. President Grzegorczyk presented our position, our management Board to present. So let me not -- we'll not be coming back to those questions. But a question from Raiffeisen Capital Management. It seems that these questions have already been answered. The position of our management board has been presented already regarding those questions. However, a question, and the question regarding the Jaworzno power generating units. Will TAURON be claiming liquidity damages for delaying the Jaworzno project? What would be the consequences of Rafako going bankrupt for TAURON?

So our approach is as follows that with respect to the financial settlement or the connection of this unit, we want to decide and discuss that once this unit has been commissioned. That's why it's difficult for me now to predetermine, to prejudge of what the situation will be like with respect to the enforcement of liquidated damages. Definitely, the impact for TAURON Group related to -- due to the delay of the commissioning of this unit strongly mitigated or reduced, I'm talking her -- I'm talking about the impact on EBITDA as a result of trading operations. But I think it's too early at this point in time to speak about specific settlements related to this power generating unit because it's not been commissioned yet. Definitely, the bankruptcy of Rafako would not be a positive event for TAURON. It'll not help the completion of this project. But definitely, we take this situation into account, and we think that, in fact -- that's a possibility, but in an extreme situation, we'll have to complete this unit on our own. But for now, as of now, we hope to continue our good cooperation or have a good cooperation with Rafako. And we hope that according to the statements, this unit will be commissioned, and all our efforts are focused on commissioning this unit as soon as possible and to make it generate electricity as soon as possible. Thank you very much.

We have a question, the following question, will TAURON demand -- claim from the President of Energy Regulatory Office a compensation due to the loss of volumes?

We don't have such a direct possibility option to acclaim such compensation. It's difficult to speak about any legal basis or any other basis to make any claims due to the loss of volumes. But if such an opportunity arises, if an option arises in any of anti-crisis package versions, we will definitely take it into account whether we have any room for maneuver here, for taking any actions here in this regard. But as of now, we are focusing on the Distribution Segment to operate in an optimum manner. And we take into account the fact that this is -- volumes will actually take place. This is the very effect that's caused, to a large degree, by the coronavirus pandemic. Thank you very much.

A question of a more technical nature. Why for many years, electricity imports could not go up? And since the year, the imports are rising fast. What has changed technically in the system? I would like to ask Mr. Dariusz Niemiec to answer this question, please.

Good afternoon, ladies and gentlemen. First of all, the conditions -- let me start with a nontechnical position. But the technical are obvious, the TSO investments in shifting devices, the phase-shifting devices that enable increase of capacity transmitted, but there are economic factors. One, because of a change of the method applied by the TSO, methods of determining the allocation of transmission capability, that was the main issue. The other major impact -- major factor is commercial. The price deficit in German, Polish market in 2019, almost 93% hours were cheaper on the German side versus Polish side. So this led to a very strong pressure to increase imports of electricity. So exporting electricity from Germany into Poland plus that method applied by the TSO plus the phase-shifting devices led to this effect -- this substantial increase, and we think it will continue to be that way and grow.

Thank you. And the last question, I think, related to the heat assets divestment process. What's the progress on this process today?

Ladies and gentlemen, currently, we are in the process of a market verification or the ability to divest TAURON share pool subsidiary to potential investors. Interested investors are currently performing the due diligent analysis of the TAURON share pool, TAURON heat subsidiary.

Thank you very much. Ladies and gentlemen, I'd like to invite you today already on behalf of management board and my only behalf for our next meeting after we publish the first half earnings report. I hope we are able to meet not only in virtual reality, but also physically in our daily operations. Please contact our Investor Relations team, and thank you very much for accepting our invitation to today's presentation. Thank you very much, and see you next time. [Statements in English on this transcript were spoken by an interpreter present on the live call.]