37/2020
37/2020
Key components of the Development Strategy of LW Bogdanka S.A. Mining Area of the Enea Group until 2030 (under the 2040 framework), including a dividend policy – disclosure of inside information.
Current Report No. 37/2020
Date of preparation: 16 December 2020
Subject: Key components of the Development Strategy of LW Bogdanka S.A. Mining Area of the Enea Group until 2030 (under the 2040 framework), including a dividend policy – disclosure of inside information.
Legal basis: Article 17.1 of MAR – Inside Information
Content:
The Management Board of LW Bogdanka S.A. (“Company”) with registered office in Bogdanka hereby announces that on 2 December 2020 it adopted a resolution on approval of new strategy which includes dividend policy, entitled Development Strategy of LW Bogdanka S.A. Mining Area of the Enea Group until 2030 (under the 2040 framework) (“Strategy”). Due to significant alteration of conditions on domestic and international markets in 2020, the Company decided to verify the assumptions made with respect to strategy adopted in 2017 by revising it until 2030 under the 2040 framework.
The adopted document required approval of the Supervisory Board pursuant to Article 17.1.14 of the Company's Articles of Association.
The Management Board delayed the public announcement regarding the adoption on 2 December 2020 pursuant to Article 17.1 of the Regulation (EU) No. 596/2014 of the European Parliament and of the Council on market abuse and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (MAR).
Today the Company's Supervisory Board approved the abovementioned Strategy which includes a dividend policy.
The adopted Strategy reflects Poland’s 2040 Energy Policy and constitutes a link in the 2030 Development Strategy of the Enea Group (under the 2035 framework) as it covers, among other things, activities to meet the assumed demand for thermal coal on the side of power and cogen plants from the Generation Area of the Enea Group.
The vision presented in the Strategy shows that: “Bogdanka is the efficiency leader in the mining sector with the highest work safety standards, who flexibly adjusts to environmental requirements and market conditions, and builds “Green Deal” as part of diversification of business activity.”
In accordance with its new mission statement: “Bogdanka proves that it is a reliable supplier of coal for commercial power plants, able to maintain its competitive advantage and to ensure continuous increase in the value of the Company, while improving its work safety and environment protection standards, and implementing innovative solutions.”
In the course of the activities to formulate the Strategy, two main Strategic Goals were identified:
• Maintaining the position of the market leader in thermal coal supplies for commercial power plants in Poland, who successfully competes with importers;
• Maintaining high efficiency and profitability of production due to innovative organizational as well as technical and technological solutions.
Based on developed forecasts (Poland’s 2040 Energy Policy, The National Energy and Climate Plan for the period 2021-2030), LW BOGDANKA S.A. will aim to become the most cost-efficient producer of thermal coal in Poland, who can successfully compete with other coal producers and suppliers while maintaining the current production potential under the 2040 framework.
In order to complete the abovementioned assumptions, LW Bogdanka S.A. will take the following optimization actions:
a) Increasing the number of products due to selective extraction (type 34);
b) Broadening operating areas (diversification) – use of technical and human potential with a view to launching efficient initiatives outside of the core business;
c) Identifying, recognizing and documenting new coal reserves (coking coal – type 35);
d) Implementing own innovative solution programs (technical and technological, work safety) which allow competitive advantage to be maintained;
e) Implementing key strategic initiatives defined for the Mining Area of the Enea Group Strategy.
While completing the assumptions enumerated above the Company plans to take advantage of its strengths, such as:
• Stable sales thanks to long-term agreements with coal recipients;
• Geographic rent – the only mine extracting coal in the Lublin Coal Basin;
• Low cost of extraction – the highest cost-efficiency on the market;
• Highly qualified employees, technical culture;
• Optimal use of production capacity;
• Constant dialogue with representatives of the employees and local community;
• Quoted Company status.
The Company plans to seize the opportunities provided by holding a mining license for Ostrów and “K-6, K-7” deposits.
The Company assumes average production in 2021-2025 at a level of 9.7 million tonnes. Only thermal coal would be produced during that period. Between 2026 and 2040, on the other hand, also coking coal will be extracted (type 34). Since 2026 the volume of coking coal will reach the level between 0.7 to 3.1 million tonnes annually, with average value of 1.9 million tonnes. Hence, total average coal production until 2040 shall amount to approx. 8.8 million tonnes.
Due to length of walls reaching 6-7 kilometers, which is an innovation in Poland, but typical of global mining, the Company assumes higher excavation concentration and lower cost of mining which will allow it to successfully compete with coal providers, especially from abroad.
Average expenditure in 2021-2025 will amount to approx. PLN 535 million, in 2026-2030 to approx. PLN 405 million, approx. PLN 352 million in 2031-2035, and approx. PLN 307 million in 2036-2040. The quoted amounts do not include possible cost of making the Ostrów deposit vertically available (PL 2.1 billion).
On the basis of the above assumptions, the Company will strive to achieve, on average in 2021-2025, the Return on Equity (ROE) ratio of 6.6% (6.2% in 2026-2030) and the Return on Assets (ROA) ratio of 6.2% (7.1% in 2026-2030), and to achieve nominal EBITDA on the level of 33% (36% in 2026-2030).
In-house consumption ratio for the Enea Group will amount to 85% until 2025, then drop to 67% beginning from 2030.
As part of the Strategy, Bogdanka assumes that it will strengthen its market position by achieving 34% share in the market of fine thermal coal for commercial power plants by 2030.
The Company also assumes the increase in share in revenue on initiatives outside of core business up to 30% until 2040. The change of revenue structure will be made in stages (5% in 2025, 10% in 2030).
Because of its crucial importance to the region, one of the Company’s goals, as always, is to run its business operations in compliance with the rules of corporate social responsibility (CSR), which include ensuring the highest work safety standards, environmental effectiveness, protection of local biodiversity, stimulation of development and a guarantee of security for local communities, as well as the effective management of relationships with all groups of stakeholders – all these in line with the principles of sustainable growth (Green Mine).
In the medium and long run, LW Bogdanka S.A. wants to remain a dividend-paying Company, and the Management Board of LW Bogdanka S.A. intends to ask the General Shareholders Meeting for approval of dividends up to 50% of the net profits shown in the Company’s separate financial statements, prepared in accordance with the International Financial Reporting Standards.
In the light of rapid changes in both Polish and global coal markets, it is a priority for the Management Board to ensure financial and liquidity security for the Company. Therefore, the dividends recommended each time by the Management Board will depend on:
• current market situation,
• generated operating cash flows,
• implementation of planned development investments,
• possibilities and conditions of obtaining debt financing.
Implementation of strategic organizational and technical and technological initiatives aimed at increasing the efficiency of production may influence the capital expenditure, hence shaping the future dividend policy of the Company. The above dividend payment policy will be reviewed periodically, and future dividend payments will be made in accordance with the decisions of the General Shareholders Meeting.
Information contained in this Current Report on the Strategy of LW Bogdanka S.A. is not a projection of results. No information contained in this Current Report is meant to be a recommendation to acquire or dispose of any financial instruments as defined in the Regulation of the Finance Minister of 19 October 2005 on information that constitutes recommendations regarding financial instruments and their issuers (Dz.U. [Journal of Laws] of 2005, No. 206, item 1715). A detailed description of risk factors related to investment in LW Bogdanka S.A.’s securities is contained in LW Bogdanka S.A.’s annual report published as a periodic report of 26 March 2020.
Date of preparation: 16 December 2020
Subject: Key components of the Development Strategy of LW Bogdanka S.A. Mining Area of the Enea Group until 2030 (under the 2040 framework), including a dividend policy – disclosure of inside information.
Legal basis: Article 17.1 of MAR – Inside Information
Content:
The Management Board of LW Bogdanka S.A. (“Company”) with registered office in Bogdanka hereby announces that on 2 December 2020 it adopted a resolution on approval of new strategy which includes dividend policy, entitled Development Strategy of LW Bogdanka S.A. Mining Area of the Enea Group until 2030 (under the 2040 framework) (“Strategy”). Due to significant alteration of conditions on domestic and international markets in 2020, the Company decided to verify the assumptions made with respect to strategy adopted in 2017 by revising it until 2030 under the 2040 framework.
The adopted document required approval of the Supervisory Board pursuant to Article 17.1.14 of the Company's Articles of Association.
The Management Board delayed the public announcement regarding the adoption on 2 December 2020 pursuant to Article 17.1 of the Regulation (EU) No. 596/2014 of the European Parliament and of the Council on market abuse and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (MAR).
Today the Company's Supervisory Board approved the abovementioned Strategy which includes a dividend policy.
The adopted Strategy reflects Poland’s 2040 Energy Policy and constitutes a link in the 2030 Development Strategy of the Enea Group (under the 2035 framework) as it covers, among other things, activities to meet the assumed demand for thermal coal on the side of power and cogen plants from the Generation Area of the Enea Group.
The vision presented in the Strategy shows that: “Bogdanka is the efficiency leader in the mining sector with the highest work safety standards, who flexibly adjusts to environmental requirements and market conditions, and builds “Green Deal” as part of diversification of business activity.”
In accordance with its new mission statement: “Bogdanka proves that it is a reliable supplier of coal for commercial power plants, able to maintain its competitive advantage and to ensure continuous increase in the value of the Company, while improving its work safety and environment protection standards, and implementing innovative solutions.”
In the course of the activities to formulate the Strategy, two main Strategic Goals were identified:
• Maintaining the position of the market leader in thermal coal supplies for commercial power plants in Poland, who successfully competes with importers;
• Maintaining high efficiency and profitability of production due to innovative organizational as well as technical and technological solutions.
Based on developed forecasts (Poland’s 2040 Energy Policy, The National Energy and Climate Plan for the period 2021-2030), LW BOGDANKA S.A. will aim to become the most cost-efficient producer of thermal coal in Poland, who can successfully compete with other coal producers and suppliers while maintaining the current production potential under the 2040 framework.
In order to complete the abovementioned assumptions, LW Bogdanka S.A. will take the following optimization actions:
a) Increasing the number of products due to selective extraction (type 34);
b) Broadening operating areas (diversification) – use of technical and human potential with a view to launching efficient initiatives outside of the core business;
c) Identifying, recognizing and documenting new coal reserves (coking coal – type 35);
d) Implementing own innovative solution programs (technical and technological, work safety) which allow competitive advantage to be maintained;
e) Implementing key strategic initiatives defined for the Mining Area of the Enea Group Strategy.
While completing the assumptions enumerated above the Company plans to take advantage of its strengths, such as:
• Stable sales thanks to long-term agreements with coal recipients;
• Geographic rent – the only mine extracting coal in the Lublin Coal Basin;
• Low cost of extraction – the highest cost-efficiency on the market;
• Highly qualified employees, technical culture;
• Optimal use of production capacity;
• Constant dialogue with representatives of the employees and local community;
• Quoted Company status.
The Company plans to seize the opportunities provided by holding a mining license for Ostrów and “K-6, K-7” deposits.
The Company assumes average production in 2021-2025 at a level of 9.7 million tonnes. Only thermal coal would be produced during that period. Between 2026 and 2040, on the other hand, also coking coal will be extracted (type 34). Since 2026 the volume of coking coal will reach the level between 0.7 to 3.1 million tonnes annually, with average value of 1.9 million tonnes. Hence, total average coal production until 2040 shall amount to approx. 8.8 million tonnes.
Due to length of walls reaching 6-7 kilometers, which is an innovation in Poland, but typical of global mining, the Company assumes higher excavation concentration and lower cost of mining which will allow it to successfully compete with coal providers, especially from abroad.
Average expenditure in 2021-2025 will amount to approx. PLN 535 million, in 2026-2030 to approx. PLN 405 million, approx. PLN 352 million in 2031-2035, and approx. PLN 307 million in 2036-2040. The quoted amounts do not include possible cost of making the Ostrów deposit vertically available (PL 2.1 billion).
On the basis of the above assumptions, the Company will strive to achieve, on average in 2021-2025, the Return on Equity (ROE) ratio of 6.6% (6.2% in 2026-2030) and the Return on Assets (ROA) ratio of 6.2% (7.1% in 2026-2030), and to achieve nominal EBITDA on the level of 33% (36% in 2026-2030).
In-house consumption ratio for the Enea Group will amount to 85% until 2025, then drop to 67% beginning from 2030.
As part of the Strategy, Bogdanka assumes that it will strengthen its market position by achieving 34% share in the market of fine thermal coal for commercial power plants by 2030.
The Company also assumes the increase in share in revenue on initiatives outside of core business up to 30% until 2040. The change of revenue structure will be made in stages (5% in 2025, 10% in 2030).
Because of its crucial importance to the region, one of the Company’s goals, as always, is to run its business operations in compliance with the rules of corporate social responsibility (CSR), which include ensuring the highest work safety standards, environmental effectiveness, protection of local biodiversity, stimulation of development and a guarantee of security for local communities, as well as the effective management of relationships with all groups of stakeholders – all these in line with the principles of sustainable growth (Green Mine).
In the medium and long run, LW Bogdanka S.A. wants to remain a dividend-paying Company, and the Management Board of LW Bogdanka S.A. intends to ask the General Shareholders Meeting for approval of dividends up to 50% of the net profits shown in the Company’s separate financial statements, prepared in accordance with the International Financial Reporting Standards.
In the light of rapid changes in both Polish and global coal markets, it is a priority for the Management Board to ensure financial and liquidity security for the Company. Therefore, the dividends recommended each time by the Management Board will depend on:
• current market situation,
• generated operating cash flows,
• implementation of planned development investments,
• possibilities and conditions of obtaining debt financing.
Implementation of strategic organizational and technical and technological initiatives aimed at increasing the efficiency of production may influence the capital expenditure, hence shaping the future dividend policy of the Company. The above dividend payment policy will be reviewed periodically, and future dividend payments will be made in accordance with the decisions of the General Shareholders Meeting.
Information contained in this Current Report on the Strategy of LW Bogdanka S.A. is not a projection of results. No information contained in this Current Report is meant to be a recommendation to acquire or dispose of any financial instruments as defined in the Regulation of the Finance Minister of 19 October 2005 on information that constitutes recommendations regarding financial instruments and their issuers (Dz.U. [Journal of Laws] of 2005, No. 206, item 1715). A detailed description of risk factors related to investment in LW Bogdanka S.A.’s securities is contained in LW Bogdanka S.A.’s annual report published as a periodic report of 26 March 2020.