Latvijas Gaze

Investor Presentation • Aug 22, 2019

JSC Latvijas Gāze

Vice-Chairman of the Board / CFO JSC Latvijas Gāze Results of the 1st Half 2019

Sebastian Gröblinghoff

Riga, 22 August 2019

Latvijas Gāze group structure as of 30 June 2019

• Own and independent Supervisory Council & Management Board

- Wholesale trading and sale of natural gas to industrial and commercial customers as well as to households

• Provision of natural gas distribution services "Gaso" holds an exclusive license for the distribution of natural gas on the territory of Latvia which is valid until 6 December 2037

Latvijas Gāze shareholders as of 30 June 2019

Agenda
1	Latvijas Gāze group and shareholder structure
2	Key market developments during 1st Half 2019
3	st Financial results 1 Half 2019
4	Outlook Full-Year 2019
5	Questions & Answers

Above seasonal-normal temperatures and a collapse of market prices characterized the market environment during 1H 2019

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• Apart from that, hub prices exhibited a strong short-term volatility (e.g. intraday volatility)

Key developments on the global gas markets strongly affected regional market developments

• Mild winter with above long-term seasonal temperatures across most parts of Europe
• European natural gas hub prices collapsed
• High summer/winter spreads triggered strong storage injection across Europe
• Worldwide discussions on measures against climate change and the transition to a carbon-free economy continued

Global market developments Regional market developments

• Drop in global natural gas prices also exerted strong downward pressure on natural gas prices in the Baltic region
• Supplies to Klaipeda LNG Terminal were significantly up
• Competition in the Latvian and Baltic natural gas market further increased
• Customers with fixed prices more frequently asked for price adjustments
• Water levels in Daugava and price developments at the Nordic power exchange remained key drivers behind the use of natural gas in power generation

Selected key events during the period January – July 2019 impacting the operations of Latvijas Gāze Group

January	February	March	April	May	June	July
On 1 January new distribution network tariffs became effective	First traders started competing with Latvijas Gāze in the household segment	Latvijas Gāze successfully participated in the storage auction held by Conexus Baltic Grid	"Go-Live" of the first module of the new billing system and customer portal	In line with tariff methodology Conexus Baltic Grid announced to lower tariffs for the bundled storage product	Information was published about additional vessels bringing LNG into the Klaipeda LNG Terminal	Due to technical reasons Conexus Baltic Grid reduced the available injection capacity into the IUGS* by 40%
					On 19 June Latvijas Gāze's Annual Shareholders Meeting was held	Latvijas Gāze announced to move to another office building
					* Inčukalns	Underground Gas Storage
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Agenda
1	Latvijas Gāze group and shareholder structure
2	Key market developments during 1st Half 2019
3	st Financial results 1 Half 2019
4	Outlook Full-Year 2019
5	Questions & Answers

Despite the mild winter and lower gas demand in Latvia the Group's sales & trading segment managed to increase gas sales thousand EUR thousand EUR

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

Distribution Segment Sales & Trading Segment

• Strong sales to newly acquired customers in Estonia and strong gas demand from the power generation segment during May and June were the key drivers behind the segment's growth in sales

Despite a 40% increase in net turnover the Group's EBITDA and net profit in H1 2019 dropped significantly year-on-year

• The segment's assets had a worth of 263 million EUR and constituted 63% of the Group's total assets
• The segment's turnover year-on-year dropped by
• 12.4% to approx. 27 million EUR Net profit amounted to 6.8 million EUR for the first half of 2019, which was 33% lower than a year before

Distribution Segment Sales & Trading Segment

• The segment's assets had a worth of 153 million EUR mainly consisting of gas in storage and cash
• The segment's turnover amounted to approx. 164 million EUR and increased by 57% year-on-year
• Overall the segment closed the first six months of 2019 with a loss of 4.1 million EUR

Strong sales of Latvijas Gāze could not mitigate negative effects from a combination of unfavourable factors in 1H 2019 thousand EUR thousand EUR thousand EUR

generation segment and to customers in Estonia were the key drivers behind the growth

• However, several unfavorable factors weighed heavily on the sales & trading segment's operations and resulted in negative earnings (EBITDA) • Strong sales to the power in net turnover • Negative earnings and

Corporate Income Taxes on dividends resulted in a loss of the sales & trading business for 1H 2019

A combination of several unfavourable factors resulted in an operating loss for 1H 2019

from physical deliveries in QIV and lower storage expenses in the second half of 2019.

Despite the weak operational result in 1H 2019 Latvijas Gāze Group maintains a healthy Balance Sheet and liquidity position

Group maintains a healthy Balance Sheet and liquidity position
		Balance Sheet
	Group	Group	Company1	Company1
	30.06.2019	31.12.2018	30.06.2019	31.12.2018
ASSETS	416,013	412,479	347,892	351,519
Total non-current assets	242,817	245,135	199,550	198,729
Total current assets	173,196	167,344	148,342	152,790
LIABILITIES & EQUITY	416,013	412,479	347,892	351,519
Equity	291,203	310,355	280,126	306,388
Non-current liabilities	47,855	50,089	125	125
Current liabilities	76,955	52,035	67,641	45,006
		Selected Financial Ratios
	Group	Group	Company1	Company1
	30.06.2019	31.12.2018	30.06.2019	31.12.2018
Debt-to-Equity Ratio2	0.43	0.33	0.24	0.15
Current Ratio3	2.25	3.22	2.19	3.39
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 2 Debt-to-Equity Ratio = Total Liabilities	on Group level / Total Equity

		Selected Financial Ratios
Debt-to-Equity Ratio2	0.43	0.33	0.24	0.15
Current Ratio3	2.25	3.22	2.19	3.39
1 Company refers to Latvijas Gāze JSC "Gaso" which are consolidated	group's sales & trading on Group level	business only and,	thus, does not include	the results of the
2 Debt-to-Equity Ratio = Total Liabilities	/ Total Equity
3 Current Ratio = Current Assets /	Current Liabilities	15

Latvijas Gāze invests into improving core business and customer processes and strives to bring down its operating costs • Latvijas Gāze initiated an ambitious cost

Capital expenditures ("CAPEX")

• Focus of investments in 2019 is on IT systems & infrastructure
• CAPEX strategy 2019/20 is geared towards improving the effectiveness and efficiency of core business and customer processes • In total Latvijas Gāze plans to spend
• approx. 2.4 million EUR on IT systems & infrastructure in 2019
• Investment program is well on track

Operating expenses ("OPEX")

• savings program to bring down OPEX
• Cost savings program strives to decrease OPEX in 2019 by 15% year-on-year
• After first six months 2019 cost savings program is well on track

Outlook Full-Year 2019

Short-term market outlook

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• Market prices expected to remain volatile Uncertainties around IUGS injection regime to continue during upcoming months Availability of attractively priced LNG to spur short-term supply competition in the Baltic region

Outlook on Group FY 2019 result

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• Latvijas Gāze committed to improve the sales & trading result during second half of 2019 Mark-to market losses will be matched by income from physical supply contracts starting as of November However, risk that further unfavorable developments hit the sales & trading bottom line remains Despite the current situation in the sales & trading segment we expect a positive FY 2019 result on group level

Financial Calendar / Upcoming Event

09 Oct. 2019	Extraordinary Shareholders Meeting
27 Nov. 2019	Publication of 9 months 2019 unaudited financial statements