Takeover of LW Bodganka

Guaranteeing stable supplies of cheap fuel is the key way to maintain the profitability of conventional generation - factors resulting in the need of searching for profitable mining

Generation from bituminous coal is presently on the edge of profitability

• The average gross margin in 2014 amounted to 2% and during the recent years a considerable worsening of the energy generation from bituminous coal was observed (gross margin 2% in 2014 compared to 14% in 2011)
• Currently, generating assets based on bituminous coal are swept away from the market by brown coal

Profitability pressure will increase

• EU policy - RES energy support systems, CO2 policy, transborder connections - make energy generation from bituminous coal exposed to more and more pressure on profitability
• Pressure on reducing overhead costs of generation i.e. on reducing fuel costs

At the same time, investment plans within generation based on coal are significant

• Power strategy in Poland foresees investment plans in energy generating sources based on bituminous coal
• Financial ability to implement these investments must guarantee reinstatement and reliability of supplies - risk of breaching the financing terms

Implications for energy groups

• Energy companies must adjust coal purchases from generating assets which will optimise the efficiency (cost of mining, transport, coal quality, technological adaptation) and reliability of supplies to generating assets
• Without cost effective generating assets based on bituminous coal, coal based power plants will have high overheads and will be marginalised and will automatically decrease the domestic market of bituminous coal, which will result in the further deepening of the energetic materials oversupply.

Basic benefits for Enea due to takeover of LW Bogdanka

1. Hedging profitable energy generation from coal

• The transaction of acquiring LW Bogdanka should be recognised as the forward transaction of coal purchase at a bargain price, which is fully technologically adapted for firing in Kozienice Power Plant

2. Control over the key supplier

• In 2014 supplies from LW Bogdanka to Enea amounted to around 70% of the whole demand, but the historical and long-term forecast share is closer to 80%
• Minimisation of takeover risk
• Impact on formulating coal costs for own units

3. Perspectives of the further growth in value

• Better debt ratios
• Enea has a possibility of introducing further profitability improvement of LW Bogdanka (operating optimisation)
• Operating synergies:
• transport costs optimisation
• common purchases
• risk management optimisation
• support function optimisation
• Investment synergies

Successful tender offer of Enea for shares of LW Bogdanka