PGE Polska Grupa Energetyczna S A : Presentation from the Management Board conference of September 16, 2020

H1 2020

Financial and Operating Results

September 16, 2020

2

Wojciech Dąbrowski

President of the Board, CEO

3 Key role of power sector in achieving zero emissions

• The Polish economy is facing zero-emissionchallenges
• Changes affect many sectors, such as fuel industry, chemical sector, transport and agricultural sector
• The real transformation will take place in the area of ​​powergeneration
• PGE - as the largest company in sector - will play key role in achieving zero emissions by Poland
• PGE Group's strategic aspiration is 100 percent green energy for PGE customers in 2050

4 Work on the PGE Group's strategy

• Wide range of data, introduced into PGE's proprietary analytical models and used to design the Group's strategic goals, has become the starting point for the work
• Comprehensive strategy is being developed, allowing the successful transformation of the PGE Group towards green energy
• New strategy will be a benchmark for the broadly understood power sector

5 Strengthening supervision in the PGE Group

• In order to meet the changes planned by the Ministry of State Assets, the
  Holding Council of the PGE Group was established
• Appointment of the PGE Group Holding Council is aimed at strengthening the decision-makingprocess and supervision over individual companies and segments in the PGE Group
• General Agreement will introduce mechanisms in response to the planned changes to the regulations
• PGE Group companies will voluntarily accede to the Agreement and will strive to implement the PGE Group's strategy

6 Support for transformation

• At the PGE Group, a project called Just Transition Plan for the Bełchatów Complex was launched. It is planned to establish projects for other locations in which the PGE Group is currently operating coal assets
• Sustainable and responsible transformation of mining regions does not have to mean problems for the local labor market
• Green investments can replace and even provide many more jobs than conventional coal complexes currently offer
• Energy transition should be seen as an opportunity for the local community

7 Reaction of the PGE quotations

• Stock market valuation depends on many market and macroeconomic factors
• Increase in PGE's stock exchange valuation is an expression of confidence in the declarations and actions of the PGE Management Board
• Role of the Management Board of PGE is to present to shareholders a reliable picture of the Company's situation and actions taken to build the Company's value

8

Paweł Strączyński

Vice-President for Finance

9 Electricity market

Freezing the economy in Q2 2020, decreased demand and increased imports

		Domestic consumption and generation
17 000	GWh									Q2
16 000
15 000
14 000
13 000
12 000		Source: PSE				Total generation
						Domestic demand for electricity
11 000	Jan-18	Apr-18	Jul-18	Oct-18	Jan-19	Apr-19	Jul-19	Oct-19	Jan-20	Apr-20	Jul-20

Consumption

-8.5% (-3.5 TWh)

Increase of net imports

(-0.9 TWh)

Generation

-11.7% (-4.4 TWh)

July - effect of the reopened economy:

• Consumption -2.9% (-0.4TWh)
• Generation -6.0% (-0.8TWh)

10 Electricity market

Deepening price decline and strong pressure on margins

BASE Forward next year and i CO2 prices

• Average realized price by PGE in

H1

2020: Conventional Generation

and District Heating ~282

PLN/MWh

266

130

PLN/MWh

290

110

270

243

• BASE Y+1 lower by PLN 33

250

90

(2021: 233 PLN/MWh)

233

• CO2 price increase not reflected

230

in the price of electricity

70

210

2

C0

50

190

PLN/t

170

Source: TGE

30

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Nov-18

Jan-19

Mar-19

May-19

Jul-19

Sep-19

Nov-19

Jan-20

Mar-20

May-20

Jul-20

11 Summary of H1 - operating results

Net electricity generation

TWh

Distribution of electricity

TWh

Sales to end-users

TWh

Heat sales

PJ

					29.5
H1	2019
				28.6
H1 2020			-0.9
H1	2020 excl. ELO 5/6	25.3			-4.2

		18.1
H1 2019
		-0.8
H1 2020	17.3

											21.9
	4.6		7.9		4.3			5.0
										-1.8
	4.5		7.4	3.3		4.9		20.1
	A	B	C+R	G
											28.6
	H1 2019
										-0.8
	H1 2020
								27.8

Limited decrease of production y/y due to the commissioning of new units in Opole

COVID-19 influence (-5%)

Efect of the economy freezing in Q2 -0.7 TWh (-8%)

Lower sales to end users (-8%)

Lower heat sales in heating season partially compensated by the increase in sales in the second quarter.

12 Generation volume by fuel - H1 2020 y/y

TWh

H1 2019

		pumped
hard coal 8.72	storage 0.33
	natural gas	hydro 0.27
	2.26
	other 1.44
		wind 0.68
lignite	17.06
		biomass 0.16

H1 2020
	pumped
hard coal 9.83	storage 0.37
natural gas 2.39	hydro 0.25
other 1.62
	wind 0.78
lignite 14.72
	biomass 0.22

Lignite (-2.34 TWh)

Hard coal (+1.11 TWh)

Wind (+0.10 TWh)

Lower load -7% y/y. Decommissioning of unit no. 1 in Bełchatów in 2019

Significant increase in production due to generation of units 5/6 in Opole pp (+2.6 TWh)

Favourable weather conditions - capacity factor of 33.5% vs. 30.2% in H1 2019

Average total emission rate of the Group (tCO2/MWh):

0.82	0.80

H1 2019

H1 2020

13 Summary of H1 - financial results

• Decline in reported EBITDA due to one-off factors.
• Recurring EBITDA on comparable level (-6%) due to the lack of a significant impact of COVID-19 in H1.
• Decrease of EBIT and net result as an effect of created provisions and write-offs.
• Net debt decrease in Q2:
• • Cash settlement of receivables from the sale of CO2 (PLN +1.4bn)
  • Lower collaterals on CO2 and electricity (PLN +1.6bn)
  • Excess of the CO2 provision over purchase cost (PLN +0.8bn)
  • Non-cashEBITDA items - reclamation and actuarial provisions (PLN +0.5bn)

Recurring EBITDA

-182

4 395

3 299	3 117	-2 175	-2 402
		2 446
	2 805
			1 765
H1	H1
2019	2020
PLN		271

m

-637

EBITDA

EBIT

Net result

-4.23

13.96

11.42

9.73

H1 H1

2019 2020 2020

PLN bn

Net debt

14 Development of EBITDA by major value drivers

H1 2019 EBITDA REPORTED

One-offs

H1 2019 EBITDA RECURRING

Wholesale price of electricity

CO2 allowances

Fuel costs

Personnel cost

Group margin on retail market

Property rights and ancillary services

Other

H1 2020 EBITDA RECURRING

One-offs

H1 2020 EBITDA REPORTED

	PLNm
	3 395	4 395
		1 096
2 299	3 299
		915
		1 047
	9
	152
	93
	100
	104
2 117	3 117
	312
1 8052 805

• Realized price (+1 153) (+42 PLN/MWh)
• Sales volume (-238)(-0.9 TWh)
• Higher price (-1 066) (+37 PLN/t) Less free allowances (-341)(-4.8m t)
• More hard coal consumed
• Lower price of natural gas
• (+6%) Effect of wage agreements in 2019
• Higher electricity balancing cost
• Property rights (+63), Ancillary services (+37)

15 CAPEX y/y (on an accrual basis)

			617	5		29
					3
2 557							2 504
		67
PLNm	768
H1 2019	Conventional	District Heating	Renewables	Distribution	Supply	Other	H1 2020
	Generation
H1 2019	1 581	111	32	820	9	4
H1 2020	813	178	649	825	6	33

Modernization and	New wind farms 611	Connecting new
maintenance 508	off-takers 350

16 Reported EBITDA: outlook for 2020 vs. 2019

2 880

2 306

		1 186
			517			1 127
774	493						280
PLNm	301				187
	Conventional Generation	District Heating		Renewables	Distribution	Supply
				EBITDA H1 2020		EBITDA 2019

• Increase in CO2
  cost, reduction of
  free allowances
• Lack of one-off
  impact from extra
  CO2 granted

•	Increase in CO2	•	Lower prices of	• Decline in	• Lower volumes
	cost, reduction of		electricity on	volume as a
	free allowances		spot market	result of COVID-	• Rise of the
•	Lack of one-off	•	Positive effect of	19 and the	balancing cost
economic
	impact from extra		the acquired
		slowdown
	CO2 granted		wind farm
			expected