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Adoption and approval of PGE Group's strategy

  • No. of the report: 51/2016
  • Report date: 06.09.2016 14:12
  • Report legal ground: Art. 17 sect. 1 of MAR – inside information.

Contents of the report

The Management Board of PGE Polska Grupa Energetyczna S.A. ("PGE”, the "Company”) informs that on September 6, 2016 the Supervisory Board approved PGE Group's (the "Group”) strategy update presented by the Management Board of PGE. The below report presents the key elements of the updated strategy. At the same time the Company's Management Board informs that the strategy presentation will be posted on PGE's website.

As part of its strategy PGE will be seeking to maximize ROIC, i.e. Return on Invested Capital, which is to be achieved by launching a number of initiatives aimed at increasing the Group's efficiency and flexibility. This will enable implementation of the program to develop modern conventional electricity as well as new technologies and business models.

Mission and vision

PGE's mission is to ensure security and growth based on reliability of supply, technical excellence, modern services and partnership relationships. The overall objective of PGE Group's operations is to increase its shareholder value and the key role in ensuring Poland's energy security. In accordance with its long term growth vision PGE is to become:

- Leader in electricity generation, actively taking advantage of growth opportunities

- Reliable and active media and service supplier

- Poland's most efficient and flexible energy group

- Leader in developing new business models and business lines

Maintaining the leading position in generation is to involve achieving an at least 40% share in Poland's electricity generation market beyond 2020.

Operational efficiency

In order to improve its cost efficiency the company is planning to achieve a PLN 500m reduction of controllable costs by 2020 versus 2016. This will allow for the total cost reduction of approximately PLN 3.5bn in 2016-2020 versus the current forecasts. Furthermore, PGE is intending to reduce planned expenditures on modernization and replacements by approximately PLN 500m in 2016-2020, among others as a result of introducing an integrated production assets management system. As part of organizational changes, the heat production operations will be placed in a separate Cogeneration business line with the goal to improve operational efficiency and develop this business based on numerous operational and cost synergies and the strong position on the regional heat markets.

Investments

In the course of the investment program that envisages realizing the full potential of the company's core operations and developing modern conventional electricity the Group allows for an option where third party partners could participate in its flagship investment projects at Opole and Turów. At the same time PGE is reviewing further investments in conventional power generation, e.g. at Dolna Odra, based on the new market model.

The Company will carry out the modernization of its power plants and combined heat and power plants to the optimal degree in order to comply with the new BAT industrial emissions standards, and it also takes into account the potential growth of the biomass co-firing technology's share in PGE's generation portfolio based on the new RES support system.

The investment projects in the distribution segment are to result in reducing the performance indicators by 2020 versus 2015: SAIDI and SAIFI by 56%, and the average new customer connection time by 40%.

The Group assumes capital expenditures of approximately PLN 34bn in 2016-2020, not including capitalized costs related to removal of overburden. Beyond 2020 PGE will be implementing a new investment program, dependent on selected strategic options (developing modern coal-fired power generation, off-shore wind farms or a nuclear power plant). The choice will be determined by the external factors: among others, European Union's climate and energy policy, the power system's needs or market model.

New technologies and business models

PGE is planning to implement innovations in all links of the value chain, increasing the efficiency of utilizing combustion by-products and flexibility of the generation units as well as automating processes and optimizing replacement activities in lignite mining.

The Group is intending to participate in the growth of renewable energy sources so as to generate approximately 25 percent of Poland's RES electricity production in 2030. PGE's strategic options also include constructing an approximately 1000 MW off-shore wind farm, implementing the most advanced on-shore wind farm projects, expanding biomass co-firing at dedicated installations and increasing its involvement in the microgeneration segment.

The Group is also planning to expand activities in the energy efficiency area, building PGE's brand as the market leader. At the same time the Group is increasing its involvement in developing and commercializing new energy technologies, creating a modern, comprehensive offering for the customer, in accordance with the requirements of the changing environment.

Social responsibility

PGE is of the opinion that a responsible approach towards the natural environment, customers, shareholders and public interest will allow for a safe implementation of the Group's mission and vision.

PGE is to be a responsible organization, aware of its environmental impact, building shareholder value and ensuring sustainable growth of the business. In its activities in this area the Group is focusing, among others, on:

- Reducing environmental impact

- Education with respect to efficient use of electricity and environmental impact

- Utilizing diverse energy sources

- Ensuring security of electricity supply

- Operating based on ethical principles

- Taking actions for the benefit of local communities

Strategy implementation preconditions

The Group assesses that the implementation of the strategy will be dependent on several external conditions materializing, among which the regulatory ones are of the highest importance:

- Poland's energy policy supporting the implementation of PGE Group's mission and vision

- Available capacity remuneration mechanism (capacity market)

- System-wide new investment project support mechanisms

- Implementing agreed solutions with respect to free CO2 emission allowances

Ultimately PGE assumes increasing the Group's investment potential that would allow for implementing the long term growth vision, as well as periodically updating the strategy in response to new market opportunities and changing external conditions.

The Company's Management Board informs that the above constitutes confidential information the publication of which was delayed in accordance with art. 17 section 4 of the Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC.
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