1. TRAFICON – Energy Sector Services
Portfolio Analysis
Energetický a průmyslový holding &
CONSOL Energy Inc.
12 March 2015

2. Part 2
1. TIA
2. TCA
3. Summary/Reasoning
4. Final Comments and
Questions
Agenda
Part 1
1. Industry Analysis
2. EPH Analysis
3. CONSOL Analysis

3. STEEP Analysis
IndustryAnalysis:
CentralEurope
Area Major Points Implications
Social
● The minimum wage
● Awarness of global warming
● Higher GDP growth rate
● Companies should adopt green
technologies
Technological
● Hydro, solar and wind power
● Infrastructure supports more
renewable energy
● Research and development are to
continue meeting goals
Economic
● Koruna and Euro falling
● Historically low interest rates
● Importing goods is more expensiv
● Less money for the consumer
Ecological
● Pollutants due to environmental
negligence
● Reduce European carbon footprint
● Correct past mistakes and make
up for their actions in the future
● Negative correlation towards
harming the environment
Political
● Abiding by Czech and European
Law
● EU has passed a variety of
provisions aiding this industry for
3.2

4. Porter’s 5 Forces
IndustryAnalysis:
CentralEurope
3.4

5. Porter’s 5 Forces
IndustryAnalysis:
CentralEurope
3.4

6. Porter’s 5 Forces
IndustryAnalysis:
CentralEurope
3.4

7. Porter’s 5 Forces
IndustryAnalysis:
CentralEurope
3.4

8. Porter’s 5 Forces
IndustryAnalysis:
CentralEurope
3.4

9. Best Business Practices
● Reducing CO2 Emissions:
Carbon Trading Scheme
● Continued investment in
R&D
● Keeping up with EU
Standards
IndustryAnalysis:
CzechRepublic

10. STEEP Analysis
IndustryAnalysis:
UnitedStates
Area Major Points Implications
Social
● “Babyboomers” generation are
retiring
● Increase the minimum wage
● Smaller labor force
● Labor becoming expensive
Technological
● Technology to capture CO2
emissions
● Investment in start-up energy
● Nuclear power
● US can reach 27% by 2030
● Nuclear energy not as
essential
Economic
● The US is out of its recession
● Interest rates down and dollar
strong
● Foreign investments in
market
● Capital investment
Ecological
● Carbon Dioxid, coal and gas ● Renewable resources
Political
● Stable political environment ● Direction of future energy
industry
3.6

11. Porter’s 5 Forces
IndustryAnalysis:
UnitedStates
3.8

12. Porter’s 5 Forces
IndustryAnalysis:
UnitedStates
3.8

13. Porter’s 5 Forces**
IndustryAnalysis:
UnitedStates
3.8

14. Porter’s 5 Forces
IndustryAnalysis:
UnitedStates
3.8

15. Porter’s 5 Forces
IndustryAnalysis:
UnitedStates
3.8

16. Best Business Practices
IndustryAnalysis:
UnitedStates
● Continuing increased trend
in renewable energy
● Keeping up with US energy
standards
● Efforts to decrease costs

17. EPH
● Founded in 2009
● Subsidiary of J&T Finance Group
● Shareholders:Daniel Kretinsky,Patrik Tkac,investors
from J&T
● Vertically
EPH

18. Portfolio
EPH

19. SWOT Analysis
EPH
4.1.1
● Decentralized structure
● Vertically integrated
● Established infrastructure
and distribution channels
● Diversified portfolio
● Expanding their
geographic reach
● Small presence in
renewable energy
sector

20. SWOT Analysis
EPH
4.1.1
● Large debt financing
● Reliance on small
number of suppliers
● Synergy issues with
M&A
● Stock capital market
is poorly developed
● Eggborough causing
profit margins to
shrink

21. SWOT Analysis
EPH
4.1.1
● E.ON acquisition
● Eggborough Power
Acquisition
● Renewable Energy
● Government
providing subsides
● EU Energy goals-
renewables

22. SWOT Analysis
EPH
4.1.1
● Warmer winter weather
● High competition reducing
market share
● Providing alternative energy
sources
● Stricter EU environmental
regulations
● EU heighten sanctions
against Russia

23. Recommendations
• Plan today for financial stability in the long term
• It will be much easier to start the process now
rather than to resist and be leveraged by increased
debts in the future to transfer to EU policy.
• EPH should consider fostering a long-run
sustainability strategy over a short-term
profitability gained through coal exploitation.
EPH

24. Business Strategy: EPH w. TRAFICON
EPH
4.1.3

25. Strategy Canvas
EPH
4.1.4

26. Financial Analysis:
Energetický a Průmyslový Holding, a.s. (EPH)
• Ratio Analysis
• Net Asset Value – Market Value Multiplier
• Guideline Company Valuation
• Discounted Cash Flow Valuation
– WACC Rate
– Historical Free Cash Flows
– Growth Rate and Future Cash Flows
– Present Value Discount
– Fair Value
• Financial Analysis Conclusion
FinancialAnalysis
EPH

27. FinancialAnalysis
EPH
Ratio Analysis - EPH
Specific Ratio 2009 2010 2011 2012 2013
5 Year
Average
Peer Group
Average
Liquidity Ratios
Current Ratio 0.88 0.44 0.39 2.18 1.33 1.04 2.2
Quick Ratio 0.37 0.32 0.21 1.19 0.45 0.508 1.36
Solvency Ratios
Total Debt to Equity 147.00% 79.20% 86.10% 41.60% 68.63% 84.51% 64.46%
Interest Coverage 1.93 15.90 0.80 3.71 7.74 6.02 9.48
Asset Management Ratios
Total Asset Turnover 0.61 0.51 0.55 0.39 0.52 0.85
Profitability Ratios
Return on Assets (%) 1.69% 17.07% 9.97% 12.01% 5.02% 9.15% 4.46%
Return on Equity (%) 13.90% 73.20% 31.10% 46.50% 59.40% 44.82% 10.72%
Net Profit Margin (%) 7.12% 35.15% 19.23% 26.85% 20.66% 21.80% 11.1%

28. Net AssetValue– MarketValue Multiplier
FinancialAnalysis
EPH
(in billions) JSW KBTK LWB CNX
Total Assets 91 Kč 12 Kč 25 Kč 226 Kč
Less: Total Liabilities 36 Kč 7 Kč 9 Kč 127 Kč
Net Assets 55 Kč 6 Kč 16 Kč 99 Kč
Market Value Analysis (in millions)
Price Per Share 351.00 Kč 33.11 Kč 831.09 Kč 754.24 Kč
Shares Outstanding 117 Kč 99 Kč 34 Kč 229 Kč
Market Value 41,211 Kč 3,286 Kč 28,265 Kč 172,676 Kč
Net Assets/Market Value 133% 180% 57% 57%
Average 107%
NAV Analysis (billion CZK)
Market Value Multiplier Net Assets/Market Value EPH
High 180% 211 Kč
Average 107% 125 Kč
Low 57% 67 Kč

29. Guideline Company Method
*All ratios current as
of 28/2/15
Financial Analysis
EPH
Market Valuation Method
Comparable Company P/E P/B P/Sales P/CF
CNX 38.20 1.39 2.04 7.24
JSW 33.33 0.32 0.34 1.51
KBTK 19.22 0.99 0.45 4.57
LWB 11.99 1.37 1.68 4.54
Industry 34.78 2.14 1.65 7.97
AVERAGE 27.50 1.24 1.23 5.17
Fair Market Value (billion CZK)
P/E 27.50 Net Income 17 Kč 471 Kč
P/B 1.24 Net Assets 117 Kč 145 Kč
P/Sales 1.23 Revenues 83 Kč 102 Kč
P/CF 5.17 Free Cash Flow 43 Kč 223 Kč
*Comparable
Company Avg.
*EPH Financials Fair Market Value = 235 Kč

30. Discounted Cash Flow Analysis:
WACC
FinancialAnalysis
EPH
Cost of Equity
Czech Equity Risk Premium 7.16%
Beta 1.45
Risk Free Rate 0.45%
Rf + Beta(Equity Risk
Premium)
10.83%
Add: Country Risk Premium 1.41%
Re= 12.24%
Cost of Debt
Average Financing Cost 4.52%
Add: Country Risk Premium 1.41%
Add: Risk Free Rate 0.45%
Rd= 6.38%
Final WACC Rate
Average Weight of Debt 50%
Average Weight of Equity 50%
(1-Tax Rate) 81%
re(E/V)+rd(D/V)(1-t)
WACC = 8.71%

31. Discounted Cash Flows:
Historical FCF
FinancialAnalysis
EPH
-10 Kč
4 Kč
35 Kč
43 Kč
-20 Kč
-10 Kč
- Kč
10 Kč
20 Kč
30 Kč
40 Kč
50 Kč
2009 2010 2011 2012
Billions

32. FinancialAnalysis
EPH
Discounted Cash Flows: Growth
Rate

33. EPH Projected Cash Flows (CZK)
2014 2015 2016 2017 2018
43,803,604,000 Kč 44,986,301,308 Kč 46,200,931,443.32 Kč 47,448,356,592.29 Kč 48,729,462,220.28 Kč
FinancialAnalysis
EPH
Discounted Cash Flows: Future Cash
Flows

34. FinancialAnalysis
EPH
Discounted Cash Flows: Present
Value Discount
Discounted Cash Flows (billion CZK)
Year Cash Flows (mult.) PV Discount = Discounted Cash Flows
2014 44 Kč 0.92 40 Kč
2015 45 Kč 0.85 38 Kč
2016 46 Kč 0.78 36 Kč
2017 47 Kč 0.72 34 Kč
2018 49 Kč 0.66 32 Kč
Sum of Discounted Cash Flows = 180 Kč
Discounted Terminal Value (TV)
Last Projected Cash Flow 49 Kč
Growth Rate 2.70%
WACC 8.70%
TV = (Last Future CF*1+LTGR)/(WACC-LTGR)
Terminal Value (TV) 834 Kč
Multiply: PV Discount 0.66
Discounted Terminal Value 549 Kč

35. FinancialAnalysis
EPH
Discounted Cash Flows: Fair Value
Fair Value (billion CZK)
Sum of Discounted Cash Flows 180 Kč
Add: Discounted Terminal Value 549 Kč
Sum: Enterprise Value 730 Kč
Less: Net Debt 2013 107 Kč
Fair Value 622 Kč

36. EPH Financial Analysis Summary
• Valuations indicate a sizeable net worth
• European Quantitative Easing -- Debt Financing
to become cheaper
• Global Oil Overproduction -- Producing more coal
helps to mitigate risk
• EPH is a profitable, growing company with a
sizeable footprint in Central Europe
FinancialAnalysis
EPH

37. CONSOL Energy Inc.
● Founded in 1864
● Coal Mining and Natural Gas Extraction Company
● Operations in the Central U.S. throughout the
Appalachian Mountains
● Produce 6.5% of total energy consumed in U.S.
● Why CONSOL Energy Inc.?
o Issue of parent country size
o Revenue, Asset, and Debt similarity
o Core Operations
CONSOL

38. 66%
22%
12%
2013 Revenue
Coal
Natural Gas
Other
61%
31%
8%
2014 Revenue
Coal
Natural Gas
Other
Product/Service Portfolio:
• Coal
• Natural Gas
Product/Service Portfolio

39. SWOT Analysis
● Largest private R&D facility
● Marine terminal
CONSOL
● Longwall mining
technology
● Marcellus shale and
bituminous coal
5.1.1

40. SWOT Analysis
● Warmer winter weather’s
● Product/service portfolio
CONSOL
● Not fully integrated
vertically
5.1.1

41. SWOT Analysis
● Joint venture with Noble
Energy
● Water division
CONSOL
● First mover in water
segment
● International coal demand
5.1.1

42. SWOT Analysis
● Natural Gas prices
● Waning domestic coal demand
CONSOL
● Long term resource
contracts expiring
● Environmental regulations
5.1.1

43. Recommendations
● Continue to grow domestic natural gas
operations and temper coal operations
● Increase international export of coal to meet
growing demand
● Invest in water division and related
technologies
CONSOL

44. Productivity
Increase Resource
Utilization
Revenue Growth
Expand Service
Portfolio
Expand Consumer
Base
Price
Reliability
Products
Reliability
Product/Service Attributes Positioning
Branding
Customer Retention
Operations
- Efficient
operations
- Focus
operations on
new
vision/direction
Customer
- Reach out to
new
international
customers
Innovation
- Continuous
focus on R&D
- Water Segment
first mover
Regulations
-Adhere to state and
federal regulations
Project and uphold
green image
Manage resources
responsibly
Information CapitalHuman Capital Organizational Capital
- Train employees about
environmental sustainability
and overall services provided
- Knowledge of overseas
markets
- Water recycling
- R&D developments
- Company culture
- Strong leadership structure
Financial
Perspective
Customer
Perspective
Internal
Perspective
Learning &
Growth
Perspective
Business Strategy

45. Strategy Canvas
CONSOL
5.1.3

46. Financial Analysis - CONSOL

47. Comparable Company Analysis

48. WACC Inputs
Cost of Debt (in millions)
Exchange Rate 31/12/13 -
19.86
Weights Rate Wd
29,790
0.4802 8.00% 3.84%
24,825
0.4001 8.25% 3.30%
4,965
0.0800 6.38% 0.51%
2,046
0.0330 5.75% 0.19%
218
0.0035 7.93% 0.03%
199
0.0032 6.19% 0.02%
62,043 7.08% 7.89%
CAPM -- CONSOL Energy
Company Beta 1.73
Risk Free Rate 1.82%
Expected Market Return 9.01%
Cost of Equity 14.26%
*CAPM=Rf + B(Rm - Rf)
Calculating Expected Return on the Market - Rm
Geometric Averages
1928-2014 9.60%
1965-2014 9.84%
2005-2014 7.60%
AVERAGE 9.01%

49. WACC
WACC (in millions) -- CONSOL ENERGY
Total Equity 99 Kč
Debt (Long + Short Term Borrowings) 63 Kč
Total Debt and Equity (V) 162 Kč
Weight of Equity (E/V) 61.19%
Weight of Debt (D/V) 38.81%
WACC = (E/V)(Re) + (D/V)Rd(1-T)
E/V 61.19%
Re= 14.26%
D/V 38.81%
Rd= 7.89%
T 23.25%
WACC 11.08%

50. Historical Free Cash Flow
(billions)
(20)
(15)
(10)
(5)
-
5
10
15
2009 2010 2011 2012 2013 2014
Billions

51. Capital Expenditure Forecast
Historical Capital Expenditures (in millions)
Segment Weights FY 2011 FY 2012 FY 2013 FY 2014 GUIDANCE 2015
GAS 74% CAPEX (13,130) (10,131) (19,237) (25,264) (24,610)
% Change -22.8% 89.9% 31.3% -2.6%
COAL 26% CAPEX (13,367) (12,610) (9,110) (8,705) (5,414)
% Change -5.7% -27.8% -4.4% -37.8%
-
5
10
15
20
25
30
2010 2012 2014 2016 2018 2020
Billions
Forecasted Capital Expenditure
GAS GAS (Forecasted) COAL (Forecasted) COAL
Growth Rate
Gas Coal
% Change 2014-2015 % Change 2013-2015
-2.59% -23.33%

52. Forecasted Free Cash Flow
(10)
(8)
(6)
(4)
(2)
-
2
4
6
8
2015 2016 2017 2018 2019
Billions
EV / EBITDA Multiple Analysis

53. EV / EBITDA Multiples Analysis
0.00
2.00
4.00
6.00
8.00
10.00
12.00
CONSOL
ENERGY INC
ALLIANCE
HOLDINGS GP
LP
PEABODY
ENERGY CORP
NATURAL
RESOURCE
PARTNER
CLOUD PEAK
ENERGY INC
EBITDA 2019 in millions Growth Rate 2020
31,555 3.40% 32,628
2020 EBITDA 32,628
EV / EBITDA Multiple 8.24
2020 Enterprise Value in
millions 268,942
2020 Enterprise Value 268,942
Discounted by WACC (1+ .1108)^5
2015 Enterprise Value
in millions 159,039

54. Threats Benchmark
6
EPH&CONSOL

55. STEEP
TRAFICON
IndustryAnalysis
6
Area Major Points Implications
Scoial
• Population increasing steadily • Future growth in clientele
Technological
• New technologies are growing • Confidence in decisions
• More demand for IT consulting
Economical
• Economical trends • No money to hire consultants
Ecological
• Development of renewable energy
sources
• European Union reform of energy
efficiency
• Oversee development
• European wide commitment and
reform
Political
• Government Incentives
• Uncertainty with governments
• Changes in Policies
• Additional funding to hire consultants
• Creates uncertainty for companies

56. Traficon Current Portfolio
TRAFICON
CompanyAnalysis

57. Recap
● Increasing focus on Clean Energy in the European Energy
Industry
● European Energy Industry STEEP implications for TRAFICON
- Economic- Koruna/Euro depreciating, low interest interest
rates
- Political- Opportunity (EU), Threat (Czech government)
● European Energy Industry Porter’s 5 Forces, Best Business
Practices implications for TRAFICON
● EPH vs. CNX
- CNX- main business irrelevant to TRAFICON, strategic
direction not aligned with TRAFICON’s expertise, not enough
financial capacity for green energy push, unnecessary costs
- EPH- going towards green energy, geographically feasible
More capable financially

58. Comparison Companies W/ TRAFICON
(Strategies)
CONSOL
● Continue to grow
domestic natural gas
operations and temper
coal operations
● Increase international
export of coal to meet
growing demand
● Invest in water division
and related technologies
EPH
● Formulate long term
Financial Stability
blueprints
● Strengths and
opportunities outweigh
weaknesses and threats
● Long run sustainability >
short run profitability

59. EPH SWOT Analysis in TRAFICON’s
eyes
● Strengths- Diversified portfolio
● Weaknesses- Uncertainty of industry
● Opportunities- E.ON acquisition
● Threats- Pressure for EU standards, long-term financial stability

60. Existing Service Portfolio
Main Services
1) M & A Advisory
2) Structure Financing
3) Strategic Advisory
Main Territories
1) Central Europe
2) Russia
3) United Kingdom
Main Industries
1) Energy
2) Real Estate
3) Logistics

61. SWOT Analysis
● Small, independent company
● Expertise in their areas of consulting
● Professional understanding of
clients’ business psychology
TRAFICON
CompanyAnalysis
● Individual attention to clients
● International contacts-
Partnerships, Membership in
associations
8.2.2

62. SWOT Analysis - TRAFICON
● Matching funding requirements to
particular investors
● Cyber-presence- website
● Information accessibility/Credibility
TRAFICON
CompanyAnalysis
● Cyber presence- social
media
● Territorial/Geographical
reach
8.2.2

63. SWOT Analysis - TRAFICON
TRAFICON
CompanyAnalysis
8.2.2
• Market development- Asia-Oceania
region
• Market development- Technology
sector
• Internet presence- social media,
website, digital marketing company

64. SWOT Analysis - TRAFICON
• Internet presence
• Difficulty in starting a company
and weak investor protection in CR
TRAFICON
CompanyAnalysis
• Decentralizationdefault in
communicationCorruption
8.2.2

65. Strategy Map
TRAFICON
CompanyAnalysis
8.1.3

66. Summary and
Recommendations
• -Continuum chart- internal improvements (training, cyber presence,
etc)-->market penetration (EPH)-->market development
(technology, Asia-Oceania)
TRAFICON
CompanyAnalysis