Latvijas Gaze

Earnings Release • May 29, 2020

JSC Latvijas Gāze

Unaudited results for Q1 2020 - Webinar -

Sebastian Gröblinghoff Vice-Chairman of the Management Board / CFO JSC Latvijas Gāze

Riga, 28 May 2020

1	Key market developments in Q1 2020
2	Financial results in Q1 2020
3	Outlook 2020
4	Questions & Answers

1	Key market developments in Q1 2020
2	Financial results in Q1 2020
3	Outlook 2020
4	Questions & Answers

Global gas market developments

Key trends and developments in the global and regional natural gas market during Q1 2020

• Mild temperatures during the first three months of the year and the spread of the coronavirus led to lower than usual global gas demand during this period of the year
• Global availability of natural gas supplies remained high due to healthy storage levels and a continued inflow of LNG into Europe
• Subsequently, after a stabilization in the second half of 2019 natural gas prices dropped significantly during Q1 2020
• On 1 January 2020 the Finish gas market opened for competition and the single market zone consisting of Latvia, Estonia and Finland became operational
• During Q1 traders using the BalticConnector pipeline between Estonia and Finland faced significant congestion
• Far-reaching lockdown measures in connection with the worldwide spread of the coronavirus forced market players to adjust their operations

After a slight recovery during the second half of 2019 European hub gas prices dropped in Q1 2020

• After an upward trend of natural gas prices in European gas markets during the period August – December 2019, the GASPOOL front month index in March 2020 continued to decrease, reaching 9.63 EUR/MWh.

Selected key events during the period January - March 2020 impacting the operations of Latvijas Gāze Group

¹ Latvian Public Utilities Commission

Actions taken by Latvijas Gāze Group and first impact assessment of the coronavirus on the Group's operations

Overview of actions taken and first impact assessment

• To protect its employees, customers and other stakeholders from the spread of the coronavirus Latvijas Gāze Group took several measures including but not limited to:
  • Closure of contact centres for visitors; at least until the state of emergency is lifted the Group's contact centres can only be reached via phone or electronic means of communication
  • Suspension of business trips and meetings
  • Implementation of remote work places (i.e. working from home) where possible
  • Implementation of extended hygiene rules
• Latvijas Gāze Group fully ensured business continuity as well as the uninterrupted supply of natural gas to its customers during Q1
• Although the impact of the situation on natural gas consumption cannot yet be exactly quantified, it is likely that the total gas demand in Latvia will be lower
• The Group projects that there will be an increase in accounts receivable due to delayed payments by customers as well as an increase of customers being in default
• To manage actively the increased credit and liquidity risks resulting from the current situation the Group has implemented additional risk management measures

1	Key market developments in Q1 2020
2	Financial results in Q1 2020
3	Recent market developments and outlook 2020
4	Questions & Answers

Due to above seasonal normal temperatures volume indicators for both of the Group's segments dropped year-on-year

• Mild temperatures and the subsequent lower gas demand led to a 27% year-on-year decrease in the amount of natural gas transported through the gas distribution network in Latvia

Distribution Segment Sales & Trading Segment

• A combination of above seasonal normal temperatures, lower natural gas demand in power generation as well as a number of larger customers having stored significant gas quantities in the IUGS in 2019 themselves led to a year-onyear drop in sales

Despite a challenging market environment the Group managed to maintain a solid profitability during Q1 2020

• The segment's assets had a worth of 333 million EUR and constituted 70% of the Group's total assets.
• The segment's turnover was 10% lower than in Q1 2019 and amounted to 15.4 million EUR.
• Profit before taxes decreased by 20% year-on-year and amounted to 5.7 million EUR in Q1 2020.

Distribution Segment Sales & Trading Segment

• The segment's assets had a worth of 143 million EUR mainly consisting of trade receivables and cash.
• The segment's turnover amounted to 50 million EUR and decreased by 49%, compared to Q1 2019.
• Profit before taxes decreased by 5% year-on-year and amounted to 9.6 million EUR in Q1 2020.

However, lower sales prices & quantities pushed the Company's key financial indicators in Q1 below the previous year's level

¹ "Company" refers to Latvijas Gāze group's sales & trading business only

A strong balance sheet and liquidity position provide stability to Latvijas Gāze during the times of the Corona crisis

		Balance Sheet
	Group	Group	Company1	Company1
	31.03.2020	31.12.2019	31.03.2020	31.12.2019
	EUR'000	EUR'000	EUR'000	EUR'000
ASSETS	475 592	464 238	337 877	330 210
Non-current assets	318 687	321 203	202 432	202 452
Current assets	156 905	143 035	135 445	127 758
LIABILITIES & EQUITY	475 592	464 238	337 877	330 210
Equity	398 997	383 711	313 807	304 177
Non-current liabilities	44 674	46 150	327	349
Current liabilities	31 921	34 377	23 743	25 684

		Selected Financial Ratios
	Group	Group	Company1	Company1
	31.03.2020	31.12.2019	31.03.2020	31.12.2019
Debt-to-Equity Ratio2	0.19	0.21	0.08	0.09
Current Ratio3	4.92	4.16	5.70	4.97

¹ Company refers to Latvijas Gāze group's sales & trading business only and, thus, does not include the results of the JSC "Gaso" which are consolidated on Group level

² Debt-to-Equity Ratio = Total Liabilities / Total Equity

³ Current Ratio = Current Assets / Current Liabilities

1	Key market developments in Q1 2020
2	Financial results in Q1 2020
3	Outlook 2020

Outlook Full-Year 2020: Market, OPEX, CAPEX, Financials

Market

• Global and regional demand likely to drop from previous year's level due to mild winter and impact of the coronavirus; first forecasts see a drop in global demand of 5% year-on-year
• Ample supply of attractively priced LNG in the global gas market expected to persist
• Competition within Latvia as well as across borders will increase and further exert pressure on margins
• Latvijas Gāze plans to explore additional markets and new business opportunities

Operating Expenses (OPEX) and Investments (CAPEX)

• Cost discipline of previous years to be continued with further savings to be implemented where possible
• OPEX in Q1 slightly below previous year's level
• Despite the Corona crisis Latvijas Gāze's investment program for 2020 is well on track
• Investments in 2020 geared towards a further improvement in the efficiency and effectiveness of customer care processes and strengthening of the company's core business

Financials

• Impact of Corona crisis as well as lower demand due to above seasonal average temperatures expected to negatively weigh on the planned group's result for 2020
• Despite additional risk management measures Latvijas Gāze Group expects higher credit losses and provisions for bad debt due to the coronavirus situation
• Profit generated during Q1 provides the Group with certain financial buffer for the remaining year; annual Group result expected to be lower than planned but still positive

Financial Calendar 2020

26 Feb. 2020	Publication of 12 months 2019 unaudited financial statements	
30 March 2020	Extraordinary Meeting of Shareholders	
1 April 2020	Publication of audited full year financial statements 2019	
27 May 2020	Publication of 3 months unaudited financial statements (Q1)	
25 June 2020	Annual Meeting of Shareholders
26 Aug. 2020	Publication of 6 months unaudited financial statements (Q2)
25 Nov. 2020	Publication of 9 months unaudited financial statements (Q3)

1	Key market developments in Q1 2020
2	Financial results in Q1 2020
3	Outlook 2020
4	Questions & Answers