Latvijas Gaze

Earnings Release • Oct 23, 2015

Business Areas and Finances

Zane Kotāne, Member of the Board Riga, October 21, 2015

Shareholders of JSC "Latvijas Gāze"

Investor relations

–Website

• –Corporate governance reports
• –Quarterly reports
• On stock exchange since 1999
• On 2nd Baltic list since 2008
• 2.8% of shares in active trading (10 million EUR capitalisation)
• 6th most valuable Latvian company in 2014
  • TOP 101 by Nasdaq Riga and Prudentia
• Goal of presentation

–To promote understanding in the company's business model

Key facts on JSC "Latvijas Gāze"

• Vertically integrated natural gas supply company
• Main business segments
  • –Natural gas transmission (TSO)
  • –Storage Inčukalns UGS(SSO)
  • –Gas distribution (DSO)
  • –Natural gas trade

General figures

–1,267 employees

–443 thousand customers in Latvia

• – 1,242 km of gas transmission pipelines
• – 4,967 km of gas distribution pipelines
• Financial figures (2014)
  • –Income – 503 million EUR

–

• –EBITDA – 69 million EUR
• –Assets –748 million EUR

• –Non-current assets – 564 million EUR

• –Annual capex – 30 million EUR

• –100% of capital financed

Industry figures

• Natural gas consumption in Latvia – 1.3 billion m3
• – Baltic peak consumption - 25-35 million m3 per day
• – 2.3 billion m3 possible to inject into Inčukalns storage

Inčukalns Underground Gas Storage Facility (IUGS)

In operation since 1968

• Technical characteristics
  • –Total volume 4.445 billion m3
  • – 2.3 billion m3 of active gas, i.e., available for regular withdrawal

• Regional stabiliser by design

• Principle of operation

  • – Russian transmission system does not serve winter consumption
  • –Injection from May till October
  • – Withdrawal from October till April

Business segment - Storage

Regulated business segment

• Latvian annual consumption in 2014 – 1.3 billion m3
• Free capacities in 2015 –300 million m3
• Regular supply for Estonia and Russia
• Storage of reserves – Lithuania and Estonia
• Over 50% of income from foreign customers

Business segment – Natural gas transmission

• Areas of activity
  • • Maintenance of gas pipelines
  • • Flow planning and permanent control
  • • Provision of requested volume for distribution (40 gas regulation stations)
  • • Capacity booking (from November 1, 2015)
• Cross-border transactions
  • • More than 20% of transmission income

• Structure of income

• •Regulated operation

• • Currently determined by volume and average transportation distance

Business segment – Distribution and Trade (LV)

4,967 km of pipelines (50% in cities); 443 thousand customers; 30-40 km per year newly built; Concentration of new customers – 68% in vicinity of Riga

Distribution – Supplies to Latvia (2014)

22% are direct supplies from Russia – rest taken from IUGS LV consumption substantially affected by air temperature

Trade – Customers in Latvia

• Steady number and structure of customers
• 87% of customers account for 2% of consumption

• Development in 2014

  • • 1,211 new connections

• • 435 capacity increases

• •64 new industrial customers
• •5 cogeneration stations

Rūpnieciskie klienti Mājsaimniecību apkure Komerciālie klienti Mājsaimniecību plītis

Regulation

• •Tariffs in force since 2008

• Key parameters

• • End-user tariff - 8 consumption tiers

• •WACC set to 8%
• •Consumption - 1.7 billion m3
• Regulated cross-border service tariffs
• 99.8% of business subject to regulation

Current market conditions and key dates

• •Privatisation agreements of 1997:
• • Exclusivity and single entity till April 3, 2017
• •EU natural gas market directive:
• • Exemption for Finland, Estonia and Latvia (Lithuania waived)
• • Exemption for countries with only 1 supplier
• •Energy Law:

-Market opening due April 3, 2017

Regional projects – Costs and prospects

2015

• -LNG terminal launched in Lithuania
• -Additional pipeline from terminal completed
  • • JSC "Latvijas LatvijasGāze" co-financing financing – transmission tariff
• • Lithuania's options limited by metering station on Lithuanian border
• -Lithuanian bottleneck – 6 million m3 per day

2019

• -Gas Interconnector Poland-Lithuania (GIPL)
  • • JSC "Latvijas LatvijasGāze" co-financing financing – transmission tariff
• -Physical connection to Russian flow

202...

• -LNG terminal in Estonia or Finland and Baltic connector
• -Latvijas Gāze would gain access to Finnish market

Forthcoming challenges (2016-2018)

To unbundle the company within statutory deadlines

• To get ready for market opening
  • –Customer segmentation
  • –Product development
  • –Market prospects

Regulatory changes:

• –Transmission – switch from km to entry-exit points
• –Switch from m3 to kWh
• – All service tariffs need to be changed
• Inčukalns UGS modernisation
  • –Regional importance (Project of Common Interest)
  • – To obtain EU co-funding for modernisation and potential expansion of Inčukalns UGS

Key trends

FINANCIAL FIGURES

Turnover and profitability

• 2012 – regular asset revaluation with impact on net profitability

• 2013 – one-off events

• –Amountofprovisionsfordebtors

• Steady EBITDA and profit maintained despite reduced Latvian consumption

Balance

• 75% of assets are non-current
• Main groups of assets revaluated once in 5 years
• Last revaluation in 2012, next due upon unbundling

• LG regularly pays dividends for previous year's performance
• The company has no external financing

Structure of business segments (2014)

Equally valued entities

• – Transmission and Inčukalns (50% EBITDA; 45% assets)
• – Distribution and Trade (50% EBITDA; 55% assets)

Contacts – IR@lg.lv

Vinsents Makaris

Uldis Stunda

THANK YOU!