Latvijas Gaze

Investor Presentation • Aug 15, 2017

WEBINAR OF THE JSC (AS) "LATVIJAS GĀZE"

Zane Kotāne Board Member On 14 August 2017

DISCLAIMER

This presentation has been prepared by the JSC "Latvijas Gāze" (hereinafter referred to as — the Company) for information purposes. Reproduction of the information used in the Presentation is authorized provided the source is acknowledged.

The Presentation is not an offer, encouragement or call for purchase of the Company's shares. All persons considering purchase of the Company's shares must independently become familiar with all the available information before adoption of the decision.

The information included in this presentation has not been independently verified. The attached consolidated financial statements have not been audited, and no auditor has provided an opinion that these unaudited financial statements truly reflect the Company's financial situation and performance in all the significant aspects covering the relevant period in accordance with the generally accepted accounting principles.

Neither the Company, nor its officials shall undertake any responsibility for losses, which may arise in relation to the use of this presentation or the content itself.

Performance of LG in the first half of 2017

Reorganization

DESCRIPTION OF THE JSC "LATVIJAS GĀZE"

• LG in 2017:
  • natural gas trader in Baltic region
  • distribution system operator in Latvia
• The first part of the reorganization was completed in early 2017. The results for the first half of 2017 do not include operations from the Transmission and Storage segments
• The results of 2016 are reflected without the Transmission and Storage segments

SHAREHOLDERS OF THE JSC "LATVIJAS GĀZE"

NUMBER OF TRANSACTIONS	1 283	2 240	875
NUMBER OF TRADED SHARES	136 627	229 363	110 313
% OF THE TOTAL NUMBER OF SHARES*	0.54%	0.91%	0.44%

* shares in public issue

• Listed at Stock Exchange since 1999
• 2.77% of shares in active trade
  • 10 mln EUR capitalization in active trade
• 6th most valuable company in the Baltic States after the capitalization in 2017
  • Nasdaq Riga
• Included in three trade indexes
  • OMX Baltic; OMX Riga; OMX Baltic Energy
• Annual payout of dividends since 1997
• National Security Law requirements:
  • Affects the Distribution system operator
  • Persons with at least 10 % holding must receive a permit from the Cabinet of Ministers
  • After the reorganization, LG must receive a permit for a transfer of the Distribution operator or their holding to another person.

OPERATING ENVIRONMENT AND REGULTION - CUSTOMERS

• During the transitional period, customers have the opportunity to continue paying a regulated natural gas price
• De facto for commercial clients the market opened on July 1
• On July 1, 12 thousand costumers become market participants. Their annual consumption on average are 90 % from Latvia`s total natural gas consumption
• After January 1, 2019, all customers receive natural gas at market price

REGULATION FOR INFRASTRUCTURE SERVICES

• After the opening of the natural gas market in Latvia, there are 3 regulated activity segments related to the natural gas infrastructure
• New tariff methodologies were adopted for all infrastructure segments in 2017, but tariffs changed only for the natural gas transmission segment - new tariffs came into force on July 1, 2017
• The methodology foresees that the new storage tariffs should be submitted for review by 15 November 2017, while the new tariffs for distribution until 15 February 2018
• In order to comply with the Energy Law requirements, the natural gas distribution system operator and the natural gas trader will be separated until January 1, 2018

RELATED USERS – HOUSHOLDS

• The largest customer segment ⁴³¹ thousand users
• LG serves related costumers
• After opening the market, households may continue paying for natural gas under tariffs regulated by PUCs (unlike with the market price, the PUC applies a regulated trade tariff)

NATURAL GAS MARKET

• The natural gas market of the Baltic States has decreased in the last 6 years by 26%
• Lithuania is the largest gas consumer among the Baltic States
• Significant sales representative in the region
  • 34% of the Baltic market in 2016

Performance in the first half of 2017

KEY INDICATORS

Key financial indicators (thousand EUR)	2017 6M	2016 6M*
Net turnover	177 336	181 902
EBITDA	23 977	28 622
EBITDA, %	13.5	15.7
Net profit	14 140	18 584
Net profitability, %	8.0	10.2
Profit per share, EUR	0.35	0.47
Total assets	418 586	442 290
		(31.12.2016)

Key performance indicators	2017 6M	2016 6M*
LG natural gas trade, MWh	7 668	8 040
Natural gas consumption in Latvia, MWh	7 679	8 117
Number of clients, thousand	443	444
Average number of employees	963	935
Length of distribution lines, km	5 066	5 047

• Factors that affects LG`s results:
  • Natural gas consumption -6%
  • Business reorganization, which doubles functions and costs
  • Market opening new features; customer communication and additional costs

REVENUE OF THE JSC "LATVIJAS GĀZE"

EUR/thous.m3

• Revenue decreases due to low prices in the global oil markets in the most active period of the heating season
  • Consumers will be applied a regulated sales price in Latvia up to the moment of opening of the market
• The average air temperature in the most active period of the heating season in 2017 is higher than a year before
• The volume sold in the first half of 2016 exceeds the volume sold in the first half of 2017 by 4.2%

CAPITAL INVESTMENT PROGRAMME

Capital Investments (thous. EUR)

Assets (mln EUR)

• Investments focus on the improvement of operational safety
• Investment directions (2017 H1):
  • Distribution gas pipelines 35%
  • IT infrastructure 33%
  • Technological equipment 18%
• Largest projects (2015-2017 H1):
  • Building and reconstruction of shut-off devices 5.0 mln EUR
  • Construction of new distribution gas pipelines 2.3 mln EUR
  • Reconstruction of electric protection equipment 1.6 mln EUR
• Long-term assets account for 56% of the total assets
• Assets are under regular revaluation
  • Revaluation of assets was started in 2017

TRADE

Trade Volume (MWh)

Trade in other countries

Commercial clients- large customers

Commercial clients- small and medium customers Household

GAS TRADE EUR'000	2015*	2016*	2017 H1
Net turnover	342 394	402 843	148 656
EBITDA	12 387	23 212	6 346
Segment assets (excluding cash assets) Purchase of fixed assets and intangible	86 308	36 164	64 804
assets	733	953	413

• Largest segment by net turnover (84 %)
• Trade in 2016 and 2017 both in Latvia and other countries
• Until 3 April 2017 100% regulated market
• After 3 April 2017 opening of LV market
  • Commercial users freely chosen natural gas supplier
  • Household users can purchase natural gas at regulated price for two-year period
• Key operational risks
  • Market share in Latvia after market opening
  • Operation in other Baltic markets
  • Risk of client concentration (Top 5 customers account for 50% of total sales)

Number of employees 2017 H1 - ¹³⁰ 14

DISTRIBUTION

Distribution volume (MWh)

GAS DISTRIBUTION EUR'000	2015*	2016*	2017 H1
Net turnover	48 495	50 882	28 680
EBITDA	26 371	27 196	17 631
Segment assets (excluding cash assets)	251 131	238 496	236 420
Purchase of fixed assets and intangible assets	6 377	6 425	2 109
Depreciation and amortization	11 734	11 872	6 258

• Distribution is and remains a regulated line of activity
• On March 16, the PUC approved the methodology for calculating the tariffs for the distribution system service. 8 differentiated consumer groups have been established in Latvia
• Segment profitability depends on the distribution of consumption among the user groups

Key operational risks:

• Organization unbundling and creation of corporate governance
• Regulatory risks
• Implementation of natural gas market opening requirements
• Number of employees 2017 H1 ⁸³³ 15
• * The performance of 2016 and 2015 excludes the performance of discontinuing operations

Reorganization of the JSC "LATVIJAS GĀZE"

RETROSPECT TO PHASE I: CONEXUS BALTIC GRID

• Energy Law requirements: transmission and storage are to be separated from trade until 3 April 2017
• JSC "Conexus Baltic Grid" commenced operation at the beginning of 2017
• Ownership must be separated: major owners energy companies must sell their Conexus shares until the end of 2017

We hereby remind you:

• Conexus is an independent company
• There is no more link left between the ownership of the shares of Latvijas Gāze and Conexus
• Conexus holds registered shares the ownership of which is certified by the entry into the register of shareholders (shares are not stored in the securities accounts)
• Conexus register of shareholders is maintained by the Latvian Central Depository

PHASE II: GASO

• Energy Law requirements: distribution and trade are to be separated until 1 January 2018
• Separation of ownership is not mandatory
• In the meeting of shareholders of 16 June 2017, the Council, as well as the shareholders supported separation of distribution into a subsidiary company
• Decision on reorganization must be adopted at the meeting of shareholders of 15 August 2017

• Household sector is to be partially regulated until 1 January 2019
• For the rest the market is open from 3 April 2017
• Directions of development: market of the Baltic States and new services
• Regulated services
• Provides access of traders to the end consumers
• Operates distribution networks and natural gas registration
• Directions of development: transparency and availability of services, and expansion of distribution networks

PHASE II: GASO

• If shareholders vote in favour of reorganization at the meeting of shareholders of 15 August, Gaso will be founded at the end of the year
• Given that the Energy Law requirements in fact apply to shareholders with a qualifying holding, Latvijas Gāze and the major shareholders concluded a contract on the rights of first refusal to hold the shares of the to-be-established company and representation of these shareholders in the administration bodies of Gaso

• Will become a holding company
• Will continue listing in the Stock Exchange
• Number of shares will not change
• Nominal value of shares will not change
• Joint-Stock Company
• One owner at least initially
• 39'900'000 shares
• Nominal value 1 euro
• Draft Articles of Association provides for the same representation of administration as in Latvijas Gāze

PHASE II: GASO

Participation in the meeting of shareholders of 15 August

• Positive vote for reorganization requires presence of ¾ of shareholders and vote "in favour" by 85% of the participants (provided by four major shareholders)
• In case of positive vote, the shareholders who do not participate in the meeting will still retain their shares of Latvijas Gāze, as well as Gaso – within the holding company

Key documents

• Reorganization prospectus
• Spin-off decision
• Asset distribution deed
• Spin-off balance sheet
• Auditor's opinion on results of examination of the draft decision on division
• Auditor's opinion on adequacy of property

Contact information

Vinsents Makaris IR@lg.lv +(371) 67 369 144 All documents are available on www.lg.lv, In the section Reorganization of the company

THANK YOU! Your questions