enea 2014 q3

Krzysztof Zamasz President of the Board

Warsaw, 12 November 2014

Dalida Gepfert Vice-President of the Board for Financial Affairs

New corporate governance allows for optimum use of organisational capabilities

Q3, Q1-Q3 2014

Paweł Orlof Vice-President of the Board for Corporate Affairs

Grzegorz Kinelski Vice-President of the Board for Commercial Affairs

2

Agenda

Energy market and key operating data

ENEA CG's results in Q3 and Q1-Q3 2014

ENEA's corporate governance

A new unit in Kozienice

Grzegorz Kinelski Vice-President of the Board for Commercial Affairs

Energy market is sensitive to actions undertaken in the EU

4

• Higher average price of baseload by 14.4% yoy

• SPOT market was affected by:

• situation on the European carbon market

• demand for energy

• introduced mechanism of compensating for operating power reserve

• deficiencies in the capacity available for the Operator of the transmission system

• significant growth in capacities installed in wind farms

• limitations in intersystem exchange

• Almost for the whole period of Q1-Q3 2014 energy prices on the forward market were in the upward trend and only during the last months of Q3 2014 a sideways trend was observable

The average price of energy in Q3 2014 was the highest in the recent ten quarters

130

140

150

160

170

180

190

200

210

220

I II III IV V VI VII VIII IX X XI XII

PLN

/MW

h

Average prices of electricity on SPOT market on PPE

Baseload - 2012 Baseload - 2013 Baseload - 2014

140

150

160

170

180

190

0

20

40

60

80

100

120

140

160

180

200

04/10/2012 29/04/2013 30/07/2013 11/10/2013 27/12/2013 25/02/2014 17/04/2014 12/06/2014 05/08/2014 30/09/2014

Prices and trading volumes - baseload for 2015

trading volume weighted average price

MW

PLN

/MW

h

5

• Low prices of coal on external markets

• Changes in coal prices in the ARA port set, during Q2 and Q3 2014 ranging from 72 to 77 USD/t

• Decreased prices of African and Australian coal in Q3 2014 to the level of 65-70 USD/t

• The market of allowances for emissions was affected by:

• the so-called backloading • structural reform

• reduction of

carbon leakage phenomenon • determination of the strategy

of a new climate and energy package

• Price of EUA allowances on SPOT market during Q1-Q3 2014 grew by 23%

• Great surplus of EUA in the system

Lack of significant grounds for coal price increases

0

2

4

6

8

10

IXVIIIVIIVIVIVIIIIIIXIIXIXIXVIIIVIIVIVIVIIIIIIXIIXIXIXVIIIVIIVIVIVIIIIII

201420132012

EUR

/t

Quotations of EUA and CER - closing prices on SPOT market

EUA 3 Phase CER EUA 2 Phase

65

75

85

95

105

115

I II III IV V VI VII VIII IX X XI XII I II III IV V VI VII VIII IX X XI XII I II III IV V VI VII VIII IX

2012 2013 2014

USD

/t

Coal price monthly indices (globalCOAL)

Richards Bay (RSA) Newcastle (Australia) Amsterdam-Rotterdam-Antwerpia

6

[GWh] Q3 2013 Q3 2014 Change Q1-Q3

2013

Q1-Q3

2014 Change

Total energy generation,

including: 3 010 3 341 11.0% √ 8 988 9 455 5.2% √

Conventional

generation 2 784 3 096 11.2% √ 8 321 8 680 4.3% √

Production from RES 226 245 8.4% √ 667 775 16.2% √

Higher energy production in ENEA CG

ENEA CG increased energy production in Q1-Q3 2014 both form conventional sources and RES

7

Agenda


ENEA CG's results in Q3 and Q1-Q3 2014



Dalida Gepfert Vice-President of the Board for Financial Affairs

ENEA CG reports good financial results

9

[PLN mln] Q3 2013 Q3 2014 Change Q1-Q3

2013

Q1-Q3

2014 Change

Net sales revenue 2 191.6 2 387.0 8.9% √ 6 787.2 7 227.2 6.5% √

EBITDA 456.5 412.2 -9.7% 1 394.1 1 515.7 8.7% √

Net profit 206.8 211.4 2.2% √ 661.7 836.3 26.4% √

Net debt/EBITDA -0.6 0.2 0.8 -0.6 0.2 0.8

Financial results of ENEA CG exceeded the market consensus

10

Decreased margin on generation and reduced selling prices in the segment of trade charged the Group's EBITDA in Q3 2014

0.6% 40.5% 14.3% 12.6% 17.3% 20.8% [PLN mln]

268.0 232.6

188.5

-36.1

15.7

-26.9 -2.3

5.3

179.6

0

50

100

150

200

250

300

350

400

450

500

EBITDA Q3 2013 Trade Distribution Generation Other activity Exclusions EBITDA Q3 2014

456.5

412.2

-22.8% 5.7% -85.5% -19.3%

EBIT

Amortisation/ depreciation

Growth in segment

Drop in segment

Change in segment yoy [%]

EBITDA margin [%]

1) Includes undistributed expenses of the whole Group and exclusions

1)

11

[PLN mln] Q3 2013 Q3 2014 Change

Generation 139.0 112.2 -19.3%


Trade 42.2 6.1 -85.5%

Decreased margin on generation and reduced selling prices in the segment of trade charged the Group's EBITDA in Q3 2014

Segment of trade Lower EBITDA by PLN 36.1 mln (-85.5%) • lower average selling price by 15.3% • higher costs of ecological duties by PLN 26 mln • lower average purchase price of energy by 9.7% √ • higher volumes of sales by 1,060 GWh √

Segment of distribution Higher EBITDA by PLN 15.7 mln (5.7%) √ • higher costs of purchase of transmission services • lower costs of purchasing energy for coverage of

book-tax difference • lower costs of employee benefits - employment

optimisation and Programme of Voluntary Redundancy √

Segment of generation

Lower EBITDA by PLN 26.9 mln (-19.3%) • lower margin on generation by PLN 20 mln • lower margin on co-combustion by PLN 9 mln • lower fixed costs by PLN 13 mln √


Distribution 273.8 289.5 5.7%

12

In Q1-Q3 2014 ENEA CG responded flexibly to the demanding situation on the energy market, reaching 8.7% growth of EBITDA

819.7 991.6

574.4

-111.2

88.5

134.0

-6.9

17.2

524.2

0

200

400

600

800

1000

1200

1400

1600

EBITDAQ1-Q3 2013

Trade Distribution Generation Other activity Exclusions EBITDAQ1-Q3 2014

-55.7% 11.0% 32.0%

1 394.1

1 515.7

[PLN mln]

-25.1%

20.5% 40.4% 21.4% 11.6% 21.0% 2.9%

1) Includes undistributed expenses of the whole Group and exclusions

EBIT

Amortisation/ depreciation

Growth in segment

Drop in segment

Change in segment yoy [%]

EBITDA margin [%]

1)

13

[PLN mln] Q1-Q3 2013 Q1-Q3 2014 Change

Generation 418.5 552.5 32.0%


Distribution 806.7 895.2 11.0%

In Q1-Q3 2014 ENEA CG responded flexibly to the demanding situation on the energy market, reaching 8.7% growth of EBITDA

Segment of trade Drop of EBITDA by PLN 111.2 mln (-55.7%) • lower average selling price by 16.6% • higher costs of ecological duties by PLN 43 mln

• lower average purchase price of energy by 12.2% √ • higher volumes of sales by 2,234 GWh √

Segment of distribution Growth of EBITDA by PLN 88.5 mln (11.0%) √ • higher costs of purchase of transmission services • lower costs of purchasing energy for coverage

of book-tax difference • cost optimisation and drop in liabilities

for grid assets √ • lower costs of employee benefits

- employment optimisation and Programme of Voluntary Redundancy √

Segment of generation Higher EBITDA by PLN 134.0 mln (32.0%) √ • lower margin on generation by PLN 103 mln • loss of EBITDA stemming from the unit no. 9's

failure by PLN 23 mln • higher revenue from recovery of stranded costs

by PLN 257 mln √


Trade 199.6 88.4 -55.7%

14

We are firmly prepared to finance strategic investment projects

1 573

836

524

-542 -258

-1 839

1 222

-381

1 135

0

500

1 000

1 500

2 000

2 500

3 000

3 500

Cash 1.01.2014

Net profit Amortisation/depreciation

Workingcapital

without LTA

Receivablesfrom

Long-termagreements

CAPEX Externalfunding

Other Cash 30.09.2014

[PLN mln]

1) Acquisition of property, plant and equipment and intangibles and acquisition of MPEC Białystok 2) Including distribution of dividend (PLN 252 mln)

1) 2)

15

After Q1-Q3 2014 cost reduction in ENEA CG amounted to PLN 124 mln

1. Generation

2. Distribution

3. Sales

4. SSC

5. Other companies

TOTAL

Cost savings [PLN mln]

Q1-Q3 2014

Initiatives implementation forecast for 2014

86 130

29 64

3 5

1 5

5 4

124 208

Undertaken activities will allow to reduce

costs by ca. PLN 500 mln

16

ENEA CG develops according to the precise plan

Consistent development of ENEA CG - higher CAPEX by PLN 258 mln in Q1-Q3 2014 with a low value of net debt/EBITDA ratio on the level of 0.2

New corporate governance increases ENEA CG's strength of action

ENEA CG's financial results are above the market consensus

PLN 124 mln cost savings after Q1-Q3 2014

Pursuant to the strategy, we are researching the market as regards new acquisitions (wind power plants, cogeneration sources and heating networks)

17

Agenda


ENEA CG's results in Q3 and Q10Q3 2014




New corporate governance - efficient management of ENEA CG

19

Homogeneous economic body A group of individual and autonomous companies

legal interest

economic interest

legal interest

economic interest

economic interest

legal interest

ENEA S.A.

Change of ENEA Group's organisational DNA

ENEA CG's organisation strategy - introduction of Corporate Governance

20

Corporate Governance - benefits

Standardisation of the Group companies' interest with the interest of the whole Group specified by the Board of the parent company

Revaluation of ENEA CG's employee thinking to the realisation of ENEA CG's interest identified with the interest and goal of each company comprising ENEA CG

Shortening of the decision making process within ENEA Group

Shortening of the communication paths between the parent company and subsidiaries (including in relation to the disclosure requirements)

Establishment of the communication channel to the leading shareholder of the companies, i.e. ENEA S.A.

21

ENEA Group's Code

Each company comprising ENEA Group bears legal liability for observing the Code of ENEA Group.

Ch

ange

s ad

just

ing

to t

he

Co

de'

s p

rin

cip

les

The companies are obliged to conduct operations directed at the implementation of ENEA Group's mission and strategy.

Amendments of Statutes of subsidiaries

Amendments to: - Rules of the Supervisory Boards - Rules of the Management Boards

A homogeneous legal basis (internal) of activity of ENEA CG with no contractual relationships.

ENEA Group's constitution which indicates that ENEA Group is managed by the Board of ENEA S.A. in order to

realise the Group's strategy and mission.

ENEA Group - legal measures

22

Key Companies

Sup

po

rtin

g C

om

pan

ies

ENEA Group in the meaning of ENEA Group's Code

ENEA S.A.

ENEA Trading Sp. z o.o. ENEA Operator Sp. z o.o. ENEA Wytwarzanie S.A. ENEA Centrum

EP PUE ENERGOBUD Leszno

Energomiar

BHU

ENEOS

generation

trade

distribution

support

23

Corporate Governance implementation process

V 2014 VII 2014 X 2014 VII 2013 IX 2013

Amendment to: ‐ Statutes of subsidiaries ‐ Rules of the Management

Boards ‐ Rules of the Supervisory

Boards

Approval by the Board of ENEA S.A. of ENEA Group's Code

Establishment of Committees: ‐ Management Committee ‐ Compliance Committee ‐ Investment Committee

Establishment of the Audit Management Department

Commencement of operations in the full scope:

‐ Management Committee ‐ Compliance Committee ‐ Investment Committee

Adoption of the final list of ENEA Group's Committees and

new list of Management Departments Completion of the corporate

governance reconstruction

Establishment and commencement of new Committees' operations:

‐ Risk Committee ‐ Trade and Promotion Committee ‐ Finance and IT Committee

Establishment and commencement of new Management Departments' operations:

‐ Communication Management Department

‐ Purchases Management Department ‐ HR Management Department ‐ Security and Legal Service Management

Department

Commencement of works over the new corporate governance model

24

The Management Board of ENEA S.A.

Investment Committee

Management Committee

Compliance Committee

Trade and Promotion Committee

Risk Committee Ryzyka

Finance and IT Committee

ENEA Group's Committees - state as at 1 October 2014

Subsidiaries of ENEA Group

25

Procedure for submitting motions to Management Committee of ENEA Group

1 business day

10 business days 1 business

day

3 business days

5 business days

15 business days

Closing the term for submitting motions

Management Committee's meeting

Submission of motions to the Management Committee's Secretary

Verification of the motions' completeness and sending them to the Corporate Department in order to obtain all the recommendations

Analysis of motions and preparation of recommendations by the Corporate Department and obtaining a recommendation of other Organisational Units of ENEA / ENEA Group to filed motions

Obtaining the approval of the agenda by the Chairman of the Management Committee

Preparation of an excerpt of the minutes from the Committee's meeting relating to the adopted resolution and submission to the Applicant

1 2 3 4

1

2

3

4

26

12.05 09.06 07.07

26.05 23.06

04.08 08.09 06.10 03.11 08.12

21.07 18.08 22.09 20.10 17.11 15.12

2014

01.05

Schedule of ENEA Group Management Committee's meetings

Schedule of meetings in 2014

27



Risk Committee




Committees create a new decision making structure in key areas

Manages the key material investments and capital expenditures in ENEA Group.

Guarantees support in governance management of subsidiaries.

Takes care for the compliance of decisions made with ENEA Group's Code and corporate strategy.

Supports the Board of ENEA S.A. in making decisions relating to finance management and IT.

Minimises the business threats related to the realisation of strategic goals and everyday operations.

Manages the area of trade and relations with Customers.

28

Management Departments in ENEA Group - state as at 1 October 2014


The Management Board of ENEA S.A.

Audit Management Department

Purchases Management Department

HR Management Department

Security and Legal Service Management

Department

Communication Management Department

29

ENEA's Corporate Communication Department

Director

Press office Promotion bureau Internal

communication bureau

Investor relations bureau

ENEA Operator • Public Relations and Promotion Bureau • Communication and HR Development Bureau • 5 regional spokesmen

ENEA Wytwarzanie • PR and Exchange Information Department • Board's Adviser - Spokesman

ENEOS • Marketing Department

ENERGOBUD • Board's Office

BHU • Sales Development Department

ENEA Centrum • Administration and HR Department

– Communication Specialist

Man

agin

g U

nit

C

oo

per

atin

g U

nit

B

usi

nes

s U

nit

ENEA Group Companies' organisational units

Communication Management Department's structure

30

Management Departments guarantee a more flexible management of particular functions in the Group companies and a more efficient realisation of undertaken decisions

Security and Legal Service

Management Department

Runs the Group's common communication within the promotional, image and media activities, so that to coherently communicate and support sale activities.

Assesses the internal processes as for their compliance with relevant standards, procedures and legal regulations.

Deals with the optimisation of purchase and logistic processes in the Group, so that using the effect of scale to gain better commercial terms.

Manages the security in ENEA Group and ensures legal service for the Group companies, in order to ensure the compliance of all the procedures and documents functioning within ENEA CG with the legal regulations being in force.

Realises a coherent HR policy, taking into account the competences and professional development of employees in all the Capital Group's companies, so that to effectively use human capital.





31

Facilitation of procedures leads to a more efficient management


The Management Board of ENEA

S.A.



Risk Committee







Security and Legal Service Management Department


32

Agenda


ENEA CG's results in Q3 and Q10Q3 2014




Unit No. 11 will satisfy the strictest European criteria of environment protection

34

We perform plans for 2014 with a day to day accuracy

65%

15%

2012 – 2013 2014 2015

Assembly of the load bearing structure of the boiler with grid was performed

Turbine set's load bearing structure posts were performed

Foundations under the engine room building's steel structure were performed

Reinforced concrete structure of the cooling tower up to 120 m was performed

IOS emergency blowdown tank's structure assembly was completed

Cooling water pumping station building's concreting was completed

0%

20%

40%

60%

80%Scope of works to be performed in 2014

35

We have already realised 12 of 26 milestones in the project of new unit construction

Planowane Zaawansowanie Prac Płatności Rzeczywiste Zaawansowanie Prac

2012 2013 2014 2015 2016 2017

5 6 7

8 9

10 11

12

18

16 17

13 14

19

20 21 22

2 1

4 3

26

15

23 24

25

Stages of Realisation

Planned progress of work Real progress of work

curr

ent

pro

gres

s

New corporate governance allows for optimum use of the organisational capabilities

Q3, Q1-Q3 2014

[email protected]

Additional information

38

139.0

112.2 0.4

-22.7 -4.5

0

20

40

60

80

100

120

140

160

EBITDA Q3 2013 Segment of SystemPower Plants

Segment of Heat Segment of RES EBITDA Q3 2014

Growth

Drop

[PLN mln] Generation – EBITDA Q3 2014 bridge

Attachment No. 1 - Drop of EBITDA in the segment of generation stems from lower margins resulting mainly from lower market prices of energy

39

-46.0

42.2

6.1 9.3 0.6

-10

0

10

20

30

40

50

EBITDAQ3 2013

First contribution margin Cost of sales Other factors EBITDAQ3 2014

Trade – EBITDA Q3 2014 bridge

Attachment No. 2 - Despite a growth in the volume of sales by over 1 TWh, the first contribution margin's erosion was decisive for the trade segment's result in Q3 2014

Growth

Drop

[PLN mln]

40

273.8 289.5

23.4 7.8

-12.3 -3.3

0

50

100

150

200

250

300

350

EBITDAQ3 2013

Regulation Gird assets Organisation Other factors EBITDAQ3 2014

Attachment No. 3 - Despite higher purchase costs of transmission services, the segment of distribution’s EBITDA grew by 5.7% yoy in Q3 2014

Distribution – EBITDA Q3 2014 bridge

Growth

Drop

[PLN mln]

41

418.5

552.5 127.1 10.0

-3.0

0

100

200

300

400

500

600

EBITDAQ1-Q3 2013

Segment of SystemPower Plants

Segment of Heat Segment of RES EBITDAQ1-Q3 2014

Attachment No. 4 - In Q1-Q3 2014 the segment of generation's result was positively affected by recognition of revenue from recovery of stranded costs

Generation – EBITDA Q1-Q3 2014 bridge

Growth

Drop

[PLN mln]

42

199.6

88.4 0.8 4.5

-116.4

0

50

100

150

200

250

EBITDAQ1-Q3 2013

First contribution margin Cost of sales Other factors EBITDAQ1-Q3 2014

Attachment No. 5 - Drop in selling prices as a result of growing competition on the retail market charged the result of the segment of trade in Q1-Q3 2014

Trade – EBITDA Q1-Q3 2014 bridge

Growth

Drop

[PLN mln]

43

806.7

895.2

36.5 56.6 2.7

-7.3

0

100

200

300

400

500

600

700

800

900

1 000

EBITDAQ1-Q3 2013

Regulation Gird assets Organisation Other factors EBITDAQ1-Q3 2014

Attachment No. 6 - Optimisation of employment and the grid asset use process supported the result of the segment of distribution in Q1-Q3 2014

Distribution – EBITDA Q1-Q3 2014 bridge

Growth

Drop

[PLN mln]

enea 2014 q3

Investor Relations

change q1q3

months of q3

gwh q3

energy prices

agenda energy market

average price of energy

spot market eua

coal prices