NOTIFICATION OF WRITE-DOWN DUE TO SUBSIDIARY’S DISCONTINUITY OF ACTIVITY

The Management Board of Polenergia S.A. (‘Company’) hereby notifies that on 18th October 2017 the Company decided to discontinue the activity of Grupa PEP Biomasa Południe Sp. z o.o. (‘Biomasa Południe’), i.e. production of pellet from biomass.

It results in a need to make a write-down of an estimated amount of PLN 9.8 million. The write-down is non-cash. It will be included in the Company’s consolidated financial statement for the 3rd quarter of 2017 in other operating expenses. It will charge the Group’s operating results without affecting EBITDA, according to the accepted definition. The presented item is estimated and is subject to change.

The decision is related to the fact that Biomasa Południe failed in its efforts to conclude new contracts for pellet purchase and this way ensure the viability of its operations, and at the same time the existing long-term contract, guaranteeing the pellet market, expired. According to the Company, the described situation is a result of the low demand for pellet and the fall in agro pellet prices, which in turn is connected mainly with the lack of implementing regulations for the Act on Renewable Energy Sources, which regulates biomass combustion and co-combustion.

Further to the decision to cease the activity of Biomasa Południe, the Company will take formal and legal steps related to its liquidation or sale. In the event of a change in market conditions, the decision to discontinue the operations of Biomasa Południe may be changed.