power plant and prospects for development of heat and cogeneration - - PowerPoint PPT Presentation

Acquisition of heating assets and Rybnik power plant and prospects for development of heat and cogeneration segment within PGE Group

May 19, 2017

Agenda

2

• Summary of the transaction
• PGE Group after the transaction
• Henryk Baranowski – President of the Board and CEO
• Prospects for development of PGE Group on heat market
• Ryszard Wasiłek – Vice- President of the Board for Operations

Transaction in a nutshell

• Successful acquisition of assets creating value of PGE at attractive price
• Transaction value as at December 31, 2016: PLN 4.51 bn, including:
• Equity value: PLN 2.45 bn
• Value of debt: PLN 2.06 bn
• Additional obligations resulting from the transaction:
• Subscription tender for shares of Kogeneracja SA up to 66% of voting rights – within 3 months

after closing of the transaction

• Interests on the equity value amounting to no more than PLN 107 m from Jan. 1, 2017 until

the closing of the transaction to be settled on a pro-rata basis

• Financing – PGE’s own funds
• Planned closing of the transaction: till Jan. 2, 2018
• Fulfilment of conditions precedent required
• Payment for shares and debt subrogation at the closing of the transaction

3

Benefits for investors of PGE Group

• Transaction compliant with the Strategy of PGE Group
• Increased share of EBITDA from stable regulated business
• Lowering Group’s overall business risk
• Safeguarding leadership position at the heating market in Poland
• Moving towards more diversified fuel mix and balanced countrywide geografic presence
• Accessing large urban areas (beyond PGE Distribution domain) with approx. 4.5 milion

inhabitants within the range of locations to support market expansion for electricity from PGE

• Cost synergies – management, fuel supply, sales network
• Socially responsible policy – active fight with low-stack emission in order to improve air

quality

4

Scope of investment

5

CHP Gdańsk CHP Gdynia Rybnik Power Plant EDF Polska S.A. EDF Investment III B.V.

Shared Services Center

CHP Kraków Headquarters DCO | SME CHP Zawidawie CHP Czechnica ZEW Kogeneracja S.A. CHP Wrocław CHP Zielona Góra EDF Ekoserwis EDF Toruń Zower EDF Gaz Toruń Pollytag EDF Paliwa EDF Foundation Utex-Serwis Torec

99.51% shares 100% shares 17.74% shares 32.26% shares Total 50% +1 share 98.40% shares 95.22% 84.08% 50% 100% 100% 49.30% 50.04% 100%

Acquired assets - summary

• Installed electric capacity: 3.3 GW*
• Installed thermal capacity : 4.4 GW*
• Annual electricity generation (net): 12.4 TWh
• Annual heat generation: 32.8 PJ
• District heating network: approx. 390 km
• 4 CHPs (Gdynia, Gdańsk, Kraków, Toruń)
• District heating network in Toruń
• Rybnik power plant
• Kogeneracja S.A.:
• 4 CHPs (Wrocław, Zielona Góra,

Zawidawie, Czechnica)

• 3 district heating networks (Zielona Góra,

Siechnice, Zawidawie)

6 * Including gas units at CHP Toruń, commissioned in 2017

CHP Power plant mazowieckie pomorskie dolnośląskie kujawsko- pomorskie wielkopolskie warmińsko-mazurskie podlaskie małopolskie łódzkie zachodnio- pomorskie lubuskie

• polskie

śląskie lubelskie świętokrzys kie podkarpackie

Gdynia Gdańsk Toruń Kraków Rybnik Zielona Góra Wrocław Zawidawie Czechnica

PGE Group after the transaction

7

PGE Group after the transaction – pro forma data 2016

8

12.75 15.95

PGE PGE + EDF

Installed electric capacity (GWe)

3.55 7.57

PGE PGE + EDF

Installed thermal capacity (GWt)

+114% 18.57 51.37

PGE PGE + EDF

Heat generation (PJ)

+177% +25% 7.38 8.50

PGE PGE+EDF

EBITDA (PLN bn)

+15%

PGE EDF PGE+EDF

Revenues (PLN bn) 28.09 4.85

32.94

EBITDA margin 26.3% 23.2%

25.8%

Net debt (PLN bn) 5.15 2.06 7.21

53.67 66.07

PGE PGE + EDF

Net electricity generation (TWh)

+23%

PGE after transaction - organisation

9

• Implementation of programs integrating the

assets in PGE’s structure

• Detailed development plan for Rybnik power

plant to be prepared

• Acquired potential of heat to be included in

PGE’s development plans with regard to district heating business

Heat in PGE Group after transaction

• PGE becomes market leader in heat generation and installed capacity
• Integration and optimisation of CHPs operations at current locations

10

Current CHPs of PGE Group Current power plants of PGE Group Acquired CHPs and Rybnik power plant

PGE 15%

PGNiG Termika 9% VEOLIA 6% TAURON 2% Other 68%

Installed capacity in heat in Poland

mazowieckie pomorskie dolnośląskie kujawsko- pomorskie wielkopolskie warmińsko-mazurskie podlaskie małopolskie łódzkie zachodnio- pomorskie lubuskie

• polskie

śląskie lubelskie świętokrzys kie podkarpackie

Lublin Kielce Rzeszów Bydgoszcz Pomorzany Szczecin Dolna Odra Opole Gorzów Wlkp. Zgierz Gdynia Gdańsk Toruń Bełchatów Kraków Rybnik Turów Zielona Góra Wrocław Zawidawie Czechnica

Estimates

Prospects for development

• f heat and cogeneration

segment within PGE Group

11

Why heat?

• Poland is one the largest heat markets in Europe
• Favourable EU draft regulations
• Compatibility with a megatrend of distributed power generation
• Improvement of the country’s energy security
• Support of regional social and economical development through inter alia utilisation of local

fuels potential

• Prospective improvement of the air quality (reduction of smog)
• Supports achievement of climate targets – reduction of CO2 emission
• Necessary product with no substitute for customers

12

The key to free the potential of the segment: stable regulations including long-term support for cogeneration

Opportunities on heat market in Poland

• Support for highly efficient cogeneration to be continued after 2018
• High level od decapitalisation of district heating assets and strict environmental standards –

space for highly-efficient, innovative technologies

• Expected gradual decommissioning of old, inefficient condensation assets due to inter alia

BAT conclusions creates additional room for cogeneration sources on electricity market

13 Share of cogeneration in heat production in 2015, by voivodships Heating assets (net) and decapitalisation of

• f fixed assets ratio in 2015, by voivodships

Source: Energy Regulatory Office

Production of heat in cogeneration Decapitalisation of assets in 2015 Net assets PLN m

1

Development of heat in PGE

14

Currently possessed cogeneration and heating assets of PGE Assets acquired Decapitalised district heating assets outside of PGE’s area Acquisitions and

• rganic

development of district heating networks

2 3 4

Regulatory environment Development of technologies Local conditions

Strategic support for development of district heating market

 Report by the Ministry of Energy „Directions for development of innovations in energy” (May 2017) indicates the legitimacy of:  Increasing the share of cogeneration as an environmentally effective way of using fossil fuels  Financial support for expansion of the district heating network  We assume that support for highly efficient cogeneration will be continued in long-term perspective :  The certificate system of support for highly efficient cogeneration will expire by the end of 2018. Declaration by the Ministry of Energy implies that after 2018 support for that technology will be continued  Conceptual works on the auction system are ongoing in the Ministry of Energy, system shall be similar to auction-based RES support scheme, provided by the RES Law  According to the Ministry of Energy, the proposed system shall be disclosed shortly

15

Electricity and heat – a perfect match

• Changes in regulatory, market and technological environment generate new challenges for

the energy groups … and opportunities

• Strengthened PGE = knowledge of specific local conditions and relations capital
• Extending the value chain by district heating networks – PGE interested in development

and acquisition of district heating networks, especially in locations where PGE operates its generating assets

• Use of grants and preferential financing – environmental programs
• Search for new technologies like multi-fuel installations, gasification, etc. improving

efficiency of modernised heat sources

• Possible expansion of products and services on offer

16

PGE’s goal is to benefit from market opportunities and to create value through supplies of heat to customers at competitive price and in ecological way

Heat in PGE – one step further

• Not only big cities – potential of smaller localities
• Identifying heat sources of 1-50 MWt requiring major modernisation
• Approx. 200 most attractive installations with the highest co-operation potential have

been identified

• Access to local markets and customers database through acquisition of EDF assets supports

implementation of the project

17

High profile

• not competitive to PGE
• capacity of 1-50 MWt
• fuel hard coal, gas, fuel oil
• Year of construction/

modernisation < 2000

No information No installations Out of segmentation Medium profile High profile Need for modernisation

Rybnik – new perspective

• Current district heating network covers approx. 30% of heat demand in Rybnik
• Prospects for significant increase in supplying Rybnik’s heating system by the power plant
• Beyond 2021 prospects for increasing demand in current district heating network due to

decommissioning of part of local heating plants’ infrastructure

• Outlook for expansion of the district heating network, which will allow for covering of

entire city’s demand at approx. 560 MWt

• Development of the district heating network combined with the growth of heat generation

from cogeneration units as one of key methods for improvement of air quality in Rybnik

18

We create value

19

Currently possessed cogeneration and heating assets of PGE Assets acquired Decapitalised district heating assets outside

• f PGE’s area

Acquisitions and

• rganic

development of district heating networks

2 3 4

Comprehensive Strategy of PGE for heat and cogeneration segment in September 2017

1

Additional information

20

Acquisition price* and peer multiples

Transaction parameters [PLN million]

• Dec. 31, 2016

Equity price* 2 453 Net debt** 2 056 = Enterprise Value 4 509 EBITDA 2016 to be consolidated*** 1 123

*price for 99.51% shares in EDF Polska and 100% shares in EDF Investment III as at Dec. 31, 2016 (net price without interest – final payment will include interest accrued pro rata between Jan. 1, 2017 and the payment date, the amount shall not exceed PLN 107 million). (the above price does not include either costs of tender call for ZEW Kogeneracja SA or remaining 0.49% stake in EDF Polska). **mainly the debt owed to EDF Group, scheduled to be paid back by PGE before the closing date. ***theoretical contribution to FY16 consolidated pro-forma statement of PGE Group: includes EBITDA of approx. PLN 187 million attributable to minorities (involving mainly ZEW Kogeneracja SA and EC Zielona Góra). EBITDA fraction attributable to PGE amounts to PLN 936 million.

21 Peer companies

EV/EBITDA 16 Type* Country ALBIOMA SA 8.4 CHP FR DRAX GROUP PLC 4.2 CHP GB ZE PAK SA 2.5 PP PL EVN AG 6.4 PP AT PGE SA 4.1 IUG PL ENEA SA 4.3 IUG PL TAURON POLSKA ENERGIA SA 5.9 IUG PL ENERGA SA 6.1 IUG PL POLENERGIA SA 5.8 IUG PL EDP-ENERGIAS DE PORTUGAL SA 7.2 IUG PT CENTRICA PLC 3.9 IUG GB IBERDROLA SA 9.0 IUG ES EDF 2.3 IUG FR ENGIE 7.3 IUG FR CEZ AS 6.1 IUG CZ E.ON SE 5.7 IUG DE ENDESA SA 7.5 IUG ES SSE PLC 15.0 IUG DE RWE AG 5.1 IUG DE Peer median 5.9 Polish companies – median 5.1 Foreign companies – median 6.4

* CHP – combined heat and power plant, PP – power plant, IUG – integrated utility

• group. Source: Bloomberg, proprietary work. Multiples based on market cap as at

May 15, 2017 (Enterprise Value of PGE based on the net debt 2016 reported by the Company)

Transaction price has been derived from DCF method. Peer relative valuation was merely a check-confirmation method.

General financial information on acquired assets

• Revenues: PLN 4.85 bn
• EBITDA: PLN 1.1 bn
• Adjusted EBITDA margin: 23.2%
• Assumption of free CO2 allowances: total of 11.2 m tonnes (Rybnik 5.3 m tonnes ,

CHPs 5.9 m tonnes )

22

Rregulated 70% Uunregulated 30%

EBITDA structure by operating segments

Heat assets

23

CHP Fuel Installed capacity Net electricity generation (GWh) Heat generation (PJ) City population** (ths) (MWe) (MWt)

Gdańsk Hard coal 217 736 746 7.6 462 Gdynia Hard coal 105 426 417 3.9 247 Kraków Hard coal 446 1118 1638 7.5 761 Toruń Hard coal 2 369 2 2.5 203 Toruń Methane-rich gas 101 352 440-450* 2.2-2.3* ZEW Kogeneracja S.A. Wrocław Hard coal 369 812 816 6.9 636 Zawidawie Hard coal 3 21 13 0.1 Czechnica Hard coal 94 247 250 2.6 7 Zielona Góra Nitrogen-rich gas 188 302 1266 1.5 102

Data for 2016. Gas units in Toruń CHP commissioned in 2017 * Estimates ** Source: Central Statistical Office of Poland CHPs comply with conditions of emissions indicated in the integrated permits. All main boilers were adapted to IED through realisation of Flue-gas desulphurisation installations and deNox installations

Rybnik power plant

• Installed electric capacity: 1 775 MW
• Net electricity production: 7.26 TWh
• Net efficiency: 34.2%
• Availability: 85.9%
• Capacity Factor (GCF): 50.9%
• Load Factor (GOF): 73.5%

24 Data for 2016

Investor Relations contacts

25 Jakub Frejlich Tel: (+48 22) 340 10 32 jakub.frejlich@gkpge.pl Mob: +48 695 883 902 Krzysztof Dragan Tel: (+48 22) 340 15 13 krzysztof.dragan@gkpge.pl Mob: +48 601 334 290 Filip Osadczuk Tel: (+48 22) 340 12 24 filip.osadczuk@gkpge.pl Mob: +48 695 501 370 Małgorzata Babska Tel: (+48 22) 340 13 36 malgorzata.babska@gkpge.pl Mob: + 48 661 778 955 Bernard Gaworczyk Tel: (+48 22) 340 12 69 bernard.gaworczyk@gkpge.pl Mob: +48 661 778 760

Disclaimer

26

IMPORTANT: You must read the following before continuing. The following applies to this document, any oral presentation of the information in this document by PGE Polska Grupa Energetyczna S.A. (the “Company” or “PGE”, and, with its subsidiaries, the „Group”) or any person on behalf of the Group any question‐and‐answer session that follows the oral presentation, and any other material distributed or statements made at, or in connection with, such presentation (the “Presentation”). In accessing the Presentation, you agree to be bound by the following terms and conditions. This Presentation has been prepared by the management of PGE and other entities only for the use [at the meeting held after the signing of the conditional share sale agreement between PGE, EDF International SAS and EDF Investment II BV] and may not be used for any purpose other than described above. This Presentation does not constitute or form part of and should not be constructed as, an offer to sell, or the solicitation or invitation of any offer to buy or subscribe for, securities of the Group, any of its subsidiaries in any jurisdiction. No part of this Presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investments decision whatsoever. The Presentation may not be reproduced, redistributed, published or passed on to any other person, directly or indirectly, in whole or in part, for any purpose. No information contained herein or otherwise made available is, or shall be relied upon as, a promise, warranty or representation, whether as to the past or the future and no reliance, in whole or in part, should be placed on the fairness, accuracy, completeness or correctness of such information. In particular, past performance cannot be relied on as a guide to future performance. The Group expressly disclaims any obligation or undertaking to disseminate any updates or revisions to the Presentation, unless required by applicable laws, including any financial data or forward‐looking statements, and will not publicly release any revisions it may make to the Presentation that may result from any change in the Group’s expectations, any change in events, conditions or circumstances on which these forward‐looking statements are based,

• r other events or circumstances arising after the date of this document. Nothing herein should be construed as financial, legal, tax, accounting, actuarial or other

specialist advice. We operate in an industry for which it is difficult to obtain precise industry and market information. Market data and certain economics and industry data and forecasts used, and statements made herein regarding our position in the industry were estimated or derived based upon assumptions we deem reasonable and from our own research, surveys or studies conducted at our request for us by third parties or derived from publicly available sources, industry or general publications such as newspapers. This Presentation and any materials distributed in connection with this Presentation are not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law

• r regulation or which would require any registration or licensing within such jurisdiction.

Any projections and other forward-looking data included in the Presentation are included for the sole purpose of assisting you in developing your own model of the

• Group. The Presentation, as opposed to the model you may develop on your own using some of the Presentation included in this Presentation, may not be referred to,

quoted or otherwise directly disclosed by you. This Presentation includes “forward-looking statements”. These statements contain the words “anticipate”, “believe”, “intend”, “estimate”, “expect” and words of similar meaning. All statements other than statements of historical facts included in this Presentation, including, without limitation, those regarding the Group’s financial position, business strategy, plans and objectives of management for future operations (including development plans and

• bjectives relating to the Group’s products and services) are forward-looking statements. Such forward-looking statements involve known and unknown risks,

uncertainties and other important factors beyond the Group’s control that could cause the Group’s actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based

• n numerous assumptions regarding the Group’s present and future business strategies and the environment in which it will operate in the future.