PGE Polska Grupa Energetyczna : with a conditional agreement for the purchase of Polish assets of EDF (Conditional Share Sale Agreement). After the transaction will lead the heat market

PGE Polska Grupa Energetyczna has successfully concluded negotiations on the purchase of French EDF's assets in Poland. Thanks to the independent acquisition of 8 CHP plants in the biggest agglomerations such as Trójmiasto (Tricity), Wrocław and Kraków, located in five voivodeships, the Rybnik power station in Silesia and almost 400 km of heating network in four cities, the PGE Group will strengthen its leading position on the Polish electricity market and will become the largest supplier of the system heat. A conditional agreement worth a total of PLN 4.5 billion was signed on 19 May 2017.

Thanks to the acquisition of 8 CHP plants in Gdynia, Gdańsk, Kraków, Wrocław, Toruń, Zielona Góra, Zawidawie and Siechnica, the PGE Group increases its installed heat capacity from 3.55 GW to 7,57 GW, which is by more than 100%. Maintaining the current level of production, as reported for 2016, would increase the volume of heat produced by the Group by over 150%. The combined installed capacities of PGE and EDF allow the PGE Group to reach the largest share in the heat market (15%). The installed electrical capacities will increase by 25% and will reach the level of 15.95 GW.

Taking over the Polish assets of EDF is a strategic transaction for the PGE Capital Group, allowing us to realise a conscious expansion. First of all, it allows us to consolidate our leadership position in the energy market and to gain the first place in the heat market. The transaction builds the value of the Group and allows us to look at the development in the regulated heating sector on the basis of acquired assets - says Henryk Baranowski,CEO of PGE Polska Grupa Energetyczna.

The transaction is part of the Group's updated strategy until 2020. The acquired heat assets match the PGE business profile, increasing the share of stable EBITDA from the regulated activity and, thanks to the diversification, reducing the overall risk of the company.

In the situation of dynamic changes in the electricity market, the heat market is characterised by a stable market and regulatory environment. Investments in heating assets are also consistent with the megatrend of the distributed energy development and increase country's energy security. Besides, they support the achievement of climate objectives, are part of the demand to improve urban air quality and reduce emissions. They also guarantee the security of supplies to customers at a competitive price - says Henryk Baranowski.

Comprehensive analysis of PGE's assets and its financial capabilities has convinced us that we want and are able to complete this acquisition on our own. The advantage of such solution is tan ability to operate the valuable assets and to affect their development according to the PGE Group strategy - says Henryk Baranowski.

The value of the transaction for all assets acquired from EDF is PLN 4.51 billion, of which PLN 2.45 billion corresponds to equity and ca PLN 2.06 billion to the net debt, being the debt within EDF Group (liabilities of Polish EDF companies to the French owner ). The transaction will be financed from own resources. At the end of the first quarter of 2017, the PGE Group had cash of PLN 4.6 billion.

Last year, the PGE Group generated EBITDA of PLN 7.4 billion. In comparison, EDF's assets in Poland generated EBITDA of PLN 1.1 billion. From this perspective, the price of a company set at PLN 4.5 billion corresponds to market standards and is advantageous in our opinion - says Henryk Baranowski.

The agreement is of a conditional nature (the Conditional Share Sale Agreement, 'CSSA'), and completion of the transaction is subject to: obtaining by PGE an approval by the Office of Competition and Consumer Protection and the Minister of Energy, obtaining by PGE a withdrawal of the pre-emptive right from the President of the Agricultural Property Agency and obtaining by EDF a consent to the transaction from French authorities in charge of the supervision of state-owned companies and transactions in their shares.

On 11 May 2017, the PGE Group made an individual offer for EDF assets in Poland, expressing its interest in full operational control and full consolidation of the companies. On 19 May, the Group signed a purchase agreement to finalise several months' negotiations.

Acquired assets in figures

• Installed electrical capacity: 3.3 GW*
• Installed electrical capacity: 4.4 GW*
• Annual electricity production: 12.4 TWh
• Annual heat production: 32.8 PJ
• Heating network: ca 390 km
• 4 CHP plants (Gdynia, Gdańsk, Kraków, Toruń)
• Heating network in Toruń
• Rybnik Power Station
• Kogeneracja S.A.: 4 CHP plants (Wrocław, Zielona Góra, Zawidawie, Siechnica) and 3 heating networks (Zielona Góra, Siechnica, Zawidawie)

* Including the gas block at Toruń CHP plant, put into operation in 2017.

PGE Group after the transaction - Pro forma data for 2016