CONSOLIDATED INTERIM REPORT OF THE COMPANY AND THE GROUP

Transcription

1 CONSOLIDATED INTERIM REPORT OF THE COMPANY AND THE GROUP 1 January December 2015 Content 1

2 Content Message from the Chairman of the Board 5 About the Group and the Company 7 Most significant events 11 Analysis of financial and operating results of the Group 12 Review of activities of the Company and the Group 23 Corporate governance 34 Social responsibility 46 Key information about the Company and the Group 51 Content 2

3 Key indicators of the Lietuvos Energija Group 12 months of months of 2014 Change (+/-) million EUR % Revenue million EUR 1, % Costs of purchase of electricity, gas, fuel and related services million EUR % Operating expenses (1) million EUR % Operating expenses (normalised) million EUR % EBITDA (2) million EUR % EBITDA margin (3) % 20.2% 22.3% Net profit million EUR Net profit (normalised) million EUR % Total assets million EUR 2, , % Equity million EUR 1, , % Financial debts million EUR % Net financial debts (4) million EUR % Return on equity (ROE) (5) % 8.9% 9.0% Equity capital level (6) % 55.7% 55.2% Net financial debt / EBITDA of 12 months times Net financial debt / Equity ratio % 19.4% 13.4% 1) Operating expenses (OPEX) = operating expenses, except for the cost of purchase of electricity and related services, depreciation and amortization as well as impairment of value and write-off expenses of long-term tangible assets; 2) EBITDA (earnings before interest, taxes, depreciation and amortisation) = pre-tax profit (loss) + financial expenses - financial revenue received dividends + costs of depreciation and amortisation + value impairment costs + write-offs of tangible fixed assets + impact of the discount of the price of gas (for more information, see section EBITDA and net profit ); 3) EBITDA margin = EBITDA / revenue; 4) Net financial debts = financial debts cash and cash equivalents short-term investments and time deposits share of other fixed financial assets comprising investments in debt securities; 5) Return on equity (ROE) = net profit (loss), restated annual expression / equity capital at the end of period; 6) Equity capital level = equity capital at the end of period / total assets at the end of period; Key indicators of the Lietuvos Energija Group 3

4 EBITDA, million EUR, and EBITDA margin, % % 22.3% 18.6% 20.2% % 25% 20% 15% 10% 5% Net profit, million EUR EBITDA EBITDA margin, %. 0% Net profit Normalised net profit Assets, million EUR, and equity capital level, % 65.0% % % 55.7% Assets Equity, % 70% 60% 50% 40% 30% 20% 10% 0% Revenue, million EUR m m m m. Key indicators of the Lietuvos Energija Group 4

5 Message from the Chairman of the Board Key indicators of the Lietuvos Energija Group 5

6 Message from the Chairman of the Board Dear Customers, Partners, Employees and Shareholders, Halfway to its strategy targets, Lietuvos energija reports revenues above EUR 1 billion for the first time. In 2015, a State-managed group of companies Lietuvos energija successfully completed the most important project of the year improved its value chain and thus ensured a higher quality of services and customer servicing. The Group managed to strengthen its position in the changing market, and is further enhancing its operational efficiency, implementing its major development projects thus ensuring lower energy and services prices for Lithuanian businesses and residents. For us the year 2015 was the year of significant changes. First of all, we managed to clearly identify and categorise the activities of the Group: we established ESO, EnePro, segregated and strengthened our production and commercial activities so now we are able to focus on enhancing their efficiency. Concentration of customer servicing under the Gilė single window system defined a new service quality standard. Liquefied natural gas is becoming a competitive alternative and is winning an increasing market share. We advanced significantly in our cogeneration power plant projects, were further expanding in the area of renewable energy and offered some efficient energy consumption solutions. In our daily work we focus our efforts on strengthening the Group, developing our business and enhancing efficiency in order to generate value for our customers and the State. Our active negotiations with Statoil yielded some very important results lower expenses of Lithuania for natural gas, and we are able to offer a competitive alternative to Lithuanian and Baltic States consumers. We have become an active trader in the Baltic States it is apparent that the Klaipėda liquefied natural gas terminal will be increasingly loaded, and the consumers will be offered even more favourable prices as a result. After the power links with Sweden and Poland become operational, the year 2016 will become a turning point also in the electric energy market. Since 2013, when we launched our new strategy and set a target to double the Group's value by 2020, we have already fulfilled our plan by 41 %. This outstanding profitability of the Company's operations makes it possible to pay steady dividends to the State's budget. We see some further possibilities to increase our profitability, for instance, generating income through our new development projects, enhancing efficiency of the current activities, and a further optimisation of the structure of our capital. We implement our vision to become the largest energy company in Baltic States by increasing service quality and raising customer satisfaction. Every day we are focused to strengthening the group, expanding business and increasing efficiency in order to increase value to our clients and the state. Dr. Dalius Misiūnas Chairman of the Board and Chief Executive Officer Lietuvos Energija, UAB Message from the Chairman of the Board 6

7 About the Group and the Company Message from the Chairman of the Board 7

8 About the Group and the Company The Lietuvos Energija Group is one of the largest state-owned groups of energy companies in the Baltic States. The principal activity of the Group includes the generation and supply of electricity and heat, sales and distribution of electricity, sales, distribution and supply of natural gas, as well as the servicing and development of the energy sector. The rights and obligations of the shareholder of Lietuvos Energija Group are implemented by the Ministry of Finance of the Republic of Lithuania. The Lietuvos Energija Group with more than employees manages and operates key electricity generation capacities of Lithuania ensuring the security of energy supply, also distribution network covering the whole territory of the country, and provides services to more than 1.6 million customers throughout Lithuania, offers electricity supply services to consumers abroad, operates 8.5 thousand km of distribution gas pipelines, supplies gas to more than consumers, implements development projects of strategic value and pursues the goals of the National Energy Strategy. In 2015, 2.01 TWh of electricity were generated, 8.53 TWh of electricity were transmitted to consumers and 657 million m 3 of natural gas were transported via gas distribution pipelines. During 12 months of 2015, the consolidated revenue of the Group amounted to EUR million and EBITDA of the Group was EUR million. Net profit totalled to EUR 40.1 million. The parent company of the Group Lietuvos Energija, UAB (hereinafter Lietuvos Energija or the Company) is responsible for transparent management and coordination of activities of the whole Group, improvement of the efficiency in order to ensure competitive services for consumers, and for socially responsible creation of long-term value for its shareholders. The Company analyses the activities of the Group, represents the Group, implements rights and obligations of the shareholder, establishes operational guidelines and rules, and coordinates the activities in the areas of production, commerce, finance, law, strategy and development, human resources, risk management, audit, technology, communication and others. About the Group and the Company 8

9 Structure of the Group As of the date of the Report, the Lietuvos Energija Group consisted of 22 companies: the parent Company and 21 directly and indirectly managed companies. The core business activities of the Group include the generation of electricity and heat, sales, distribution and supply of electricity as well as sales and distribution of natural gas. Activities of the Group s companies servicing these core types of business activities comprise the ITT, real estate, transport, repairs and construction of energy facilities, staff training, public procurement, accounting, administration of labour relations and other services. A detailed list of the Group companies is presented on p. 52 hereof. The following is the structure of the Group as of 26 Fabruary 2015 (excluding UAB EURAKRAS, HOB OU and Tuulueenergia OU). About the Group and the Company 9

10 Strategy of the Group The main strategic goal of the Lietuvos Energija Group is to double the Groups value and to become the most valuable energy company in the Baltic States by This value is perceived as a sustainable balance of three components: return on assets, improvement of competitiveness and responsibility towards employees, society and the environment. Return on Groups assets is increased through development diversifying activities, indulging in new economically feasible projects, acquiring enterprises, ensuring the efficiency of daily operations and achieving the goals set by the shareholder. The Group will contribute to the enhancement of the economic competitiveness by ensuring a stable supply of electricity and natural gas, offering new products and promoting rational consumption of electricity and natural gas. The Group assumes responsibility towards society and its employees, proactively implements environmental requirements and ensures the continuity and improvement of skills. MISSION sustainable growth of value in the energy sector by promoting economic and social development of the country. The main strategic directions of the Group: VISION to become the most valuable energy company in the Baltic States. Ensuring quality services to customers. The care is taken to achieve better servicing of customers, develop electronic (saving customer time) and new services responding to the needs of customers, increase customers choices and guarantee the reliability of generation, distribution and supply of electricity and of distribution and supply of natural gas. Diversification of the operations includes the implementation of investment projects in the sector of electricity, heat and natural gas. The projects increase the competitiveness of the Group and of the national economy at large as well as the energy independence of the state, optimisation of the production and trading portfolio, development of new activities by extending the value chain of the Lietuvos Energija Group. These goals are achieved using the available resources and infrastructure, by creating new infrastructure, effective governance, and through acquisitions. VALUES responsibility, cooperation, result. Enhancing the efficiency of operations. The efficiency is sought in the main activities of the Group, as well as in the provision of support functions, management of assets and other resources across all Group companies. In order to achieve higher efficiency, the management and control system of the Group is integrated by the common principles of business management, sharing, coordination and control of responsibilities. Efficiency improvement measures on identical or very similar activities in each company are continued. Active best practices sharing between companies is promoted. Building new organisational culture. A modern, effective and dynamic organisation is being created operating on the basis of common values, developing in consistent and targeted manner the required competences and successors for key employees, and offering internal environment which encourages the involvement of employees. About the Group and the Company 10

11 Most significant events of the reporting period Cogeneration plant projects gaining pace 15 October Endorsed by the Government Lietuvos Energija and Fortum Heat Lietuva concluded a contract defining the terms for the obligations of the partners, and the conditions for the joint investment into the construction of a new waste cogeneration power plant in Kaunas. On 24th November 2015 The European Commission authorised a concentration regarding UAB Kauno kogeneracinė jėgainė to be implemented by the partners. (More on p. 26). LNG is becoming a competitive alternative 5 February A Group company Lietuvos dujų tiekimas concluded a liquefied natural gas (LNG) supply contract with Statoil, according to which the company will meet more than half of the annual demand of gas (about 300 m m³). Statoil was selected because of the most advantageous economic conditions and the pricing policy. LITGAS also signed an updated contract on assigned supply with a Norwegian company Statoil. (More on p. 26). Improved value chain 1 January In the course of 2015, the Lietuvos energija Group completed the implementation of its most important project the value chain improvement programme. As a result of the programme, the Company defined and improved the principal operations of the Group, that were subsequently allocated between the companies in a way ensuring that the Group operates more efficiently, creating the largest value and maximum benefits for customers. (More on p. 24). Two wind plant farms added to the Group's portfolio 21 January Lietuvos Energija acquired two companies managing wind plant farms in Lithuania and Estonia UAB Eurakras and Tuuleueenergija OU. Thus, the State-managed group of companies enhanced its energy production capacities by additional 42.3 MW. (More on p. 28). Stringer presence in the ESCO project market 18 February On 18 February 2016, Lietuvos energija established a new company UAB Energijos sprendimų centras that will be engaged in the development of energy efficiency enhancement and renewable energy resources in Lithuania and abroad. Energijos tiekimas, another company of the Group, starts a new ESCO company in Širvintos. (More on p. 27). Redundant immovable property will be sold 28 February Lietuvos energija Group that previously centralised the management of the immovable property in the hands of NT Valdos, now with a view to increasing its operating efficiency and focusing upon its principal activities now undertook to sell the immovable property it owned but not having any strategic value for the energy sector. (More on p. 29). Most significant events of the reporting period 11

12 Analysis of financial and operating results of the Group Most significant events of the reporting period 12

13 Key operating indicators Key operating indicators of Lietuvos Energija, UAB Group Change (+/-) +/- % Electricity Generated electricity TWh % Distributed electricity via medium- and low-voltage grids TWh % Public and guarantee supply TWh % Supply to independent customers TWh % Quality indicators of electricity supply SAIDI, min. (exclusive of force majeure) min % SAIFI, units (exclusive of force majeure) units % For technological costs in the distribution network % 6.76% 7.31% % Gas Distributed volume of gas billion m % Distributed volume of gas thousand MWh % Sold volume of gas billion m % Sold volume of gas thousand MWh % Quality indicators of gas supply SAIDI, min. (exclusive of force majeure) min SAIFI, units (exclusive of force majeure) units With the growing economy of the country, electricity consumption increased in The amount of electricity distributed by the Group via medium and low-voltage networks in January - December increased by 1.6 percent (0.14 TWh) compared to 12 months of 2014 and totalled 8.53 TWh in The growth in the amount of electricity consumed came as a result of increased consumption of electricity in the industrial sector. 2.4 TWh more of electricity was distributed to this group of customers in 2015, or +2.7 percent more than in 2014 (2.37 TWh). In 2015, the public and guarantee supply of electricity of the Lietuvos Energija Group was 3.12 TWh, which is -3.1 percent or -0.1 TWh less than a year ago. The supply of electricity to independent consumers totalled 5.41 TWh (+4.5 percent, TWh). In 2015, the Lietuvos Energija Group generated 2.01 TWh of electricity (+9.3 percent more compared to the result of 2014). Compared to the previous reporting period, electricity generation volumes in Kaunas Algirdas Brazauskas Hydroelectric Power Plant decreased by percent (from TWh to TWh in 2015). The level of generation of electricity in Kruonis Pumped Storage Plant was almost unchanged in TWh of electricity were produced and sold, that is TWh more than in 2014 (0.661 TWh). Electricity generation in combined cycle gas turbine of Elektrėnai Complex amounted to 1.03 TWh ( TWh, or percent more compared to 2014, when generation amounted to TWh). The Elektrėnai Complex units are used for electricity generation in order to ensure reliable operation of the electricity system, when there is a shortage of electricity in the country due to the repair or limited permeability of other Key operating indicators 13

14 sources of electricity generation or the price thereof on the market increases. Such arrangement of electricity production in Elektrėnai allows ensuring efficient use of PIMS funds. Technological costs in the distribution network remained stable in 2015 amounted to 6.57 percent (In 2014 technological costs were 6.31%). The average duration of unplanned interruptions in electricity transmission excluding the causes of force majeure (SAIDI) improved and was 66 minutes (compared to 71.6 minutes a year ago), while the indicator illustrating the frequency of unplanned interruptions per consumer (SAIFI) accounted for 0.84 times in 2015 compared to 0.90 times in With decreasing consumption of natural gas, the volume of gas distributed by the Group also decreased. The volume of gas distributed by the Group in 2015 totalled to TWh (about billion cubic meters), i.e percent, or TWh less compared to 2014, when about TWh of gas was distributed (0.748 billion m3). With the commencement of operations of the liquefied natural gas terminal and the Group LITGAS having started to sell gas to customers, the volume of gas sold by the Group increased and totalled thousand MWh (about billion cubic meters) in 2015, which was percent, or TWh more than the volume of gas sold by Lietuvos Dujos during 12 months of 2014 (8.31 TWh or billion cubic meters of gas). The average duration of unplanned interruptions in transportation of gas (SAIDI), excluding the causes of force majeure (SAIDI) remained low in 2015 and totalled 0.24 min. (compared to 1.67 min. in 2014), while the average number of interruptions in gas transportation (SAIFI) was times (compared to times in 2014). The indicators improved as there were no serious natural gas supply disruptions. Sold and distributed volumes of gas, thousand MWh Generation, distribution and sales of electricity, TWh Sold gas Electricity sales in free market Public and guarantee supply Distributed gas Electricity distributed to customers via medium and low voltage grids Generated electricity Key operating indicators 14

15 Key financial indicators Revenue In 2015, the revenue of Lietuvos Energija Group increased by percent, or EUR 123 million, compared to the same period of last year, and totalled EUR 1,095.7 million. During the reporting period, the major share of revenue was generated from the electricity transmission service (30 percent of the total revenue, or EUR million), sales of the generated electricity as well as supply and trade of electricity (28 percent of the total revenue, or EUR million) and distribution and sales of gas (29 percent of the total revenue, or EUR million). Compared to the revenue of 2014, in 2015, with increasing sales of electricity in the free market, revenue from the sales of generated electricity as well as supply and trade of electricity increased by percent (+ EUR 49.4 million, from EUR 260 million to EUR million). Revenue from the electricity transmission service decreased upon the reduction of the transmission price by 13.1 percent (- EUR 49.3 million), from EUR million in 2014 to EUR million in 2015 Structure of the revenue of the Group in 2015, million EUR and % Revenue of the Group, million EUR ,6 % % 2015 EUR million % % % % Distribution of electricity Balancing, regulation and power reserve PIMS of LEG Heat energy Connection of new customers Other revenue Sales of produced electricity, electricity trade and supply Revenues from distribution and sales of gas Key financial indicators 15

16 Revenue of 2014 Revenues from distribution and sales of gas Sales of produced electricity, electricity trade and supply Other revenue Connection of new customers Heat energy PIMS of LEG Balancing, regulation and power reserve Distribution of electricity Revenue of 2015 Revenue related to gas transmission and distribution activity included in the Group s statement of comprehensive revenue increased by 85.4 percent (+EUR million, from EUR 170 million in 2014 to EUR million in 2015). Due to increase in the revenue related to gas transmission and distribution, a share of this group in the revenue structure significantly increased and accounted to 28 percent (in percent). Due to reduction of revenue from the electricity transmission service, a share of this group in revenue structure decreased from 38.6% in 2014 to 30% in Dynamics of revenue of the Group in 2015 compared to 2014 by sectors, million EUR 1, , , (1.8) (2.0) (14.4) (4.5) (49.3) 1,095.7 Key financial indicators 16

17 Assets and equity In 2015, the Group s assets decreased by -1.5 percent, or -EUR 35.1 million, and totalled EUR million as at 31 December Compared to 31 December 2014, the Group s assets amounted to EUR million. The reduction in the Group s assets was mainly determined by more efficient management of short-term assets - during 12 months of 2015, the level of inventories of the Group fell by EUR 13 million, or 24.5 percent, while trade receivables decreased by EUR 28.7 million, or -18.9%. Equity of the Lietuvos Energija Group decreased by 0.7 percent, or -EUR 9.1 million, in 2015 and was EUR 1,299.8 million as at 31 December On 31 December 2014, equity of the Group amounted to EUR 1,308.9 million. The decrease of the equity was determined by payment of dividends in Q and by termination of the Lithuanian Power Plant 5 and 6 block operations. Equity level of the Group remained almost unchanged in 2015, it was equal to 55.7 percent as at 31 December 2015 (55.2% as at 31 December 2014). Operating and purchasing expenses In 2015, operating expenses of the Group amounted to EUR million and, compared to 2014, increased by 6.1 percent (+EUR 8.8 million). The increase in operating expenses was determined by acquired control of Lietuvos Dujos in June of 2014 since then, operating expenses of the taken-over gas transmission and distribution activity have been included in the Group s operating expenses. Excluding these expenses, compared to 2014, in 2015, normalised operating expenses of the Group decreased by - 7.5%, or EUR 9 million, from EUR million to EUR million. Purchasing expenses of electricity, gas, fuel and other services of the Group, million EUR % % 11.9 Purchases of gas for trade Purchases of gas and fuel During the reporting period, expenses of the Group for the purchase of electricity, gas, fuel and related services, compared to 2014, increased by +26.7%, or +EUR million. The growth was mostly predetermined by inclusion of costs related to the trade of gas, which totalled EUR million in 2015, into the Group s purchasing costs. The Group engaged in the activity of trade of natural gas in June 2014 upon the acquisition of the controlling stake of AB Lietuvos Dujos. Compared to 2014, during 12 months of 2015, the purchase of gas and fuel oil for energy production decreased by 84% from EUR 75.9 million to EUR 11.9 million, while the purchase of electricity and related services remained stable and were 3% higher. Operating expenses of the Group, million EUR % % Purchases of electricity and 40 related 20 expenses % Operating expenses related to the take-over of gas transmission and distribution activity, new projects Assets revaluation, sales, dismantling and related expenses Normalised operating expenses Key financial indicators 17

18 EBITDA of 2014 Gas supply and distribution Other Electricity distribution and supply Electricity generation EBITDA of 2015 EBITDA and net profit In 2015, the Group s earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to EUR million, which is +2.2 percent, or +EUR 4.7 million more than EBIDTA of 2014, which was EUR million (EBITDA of 2015 does not include the negative effect of temporary nature of the discount of the price of gas in the amount of EUR million applied to household and non-household customers in 2015 and a negative effect of EUR 8.3 million of cost allocation from previous periods, and positive LNG trade effect of EUR 4.04 million which will reduce future results of the Group was also eliminated. The growth of EBITDA of the Group was predetermined by significant positive change (+EUR 21.6 million) of gas transmission and distribution activity results. EBITDA of the Group, million EUR EBITDA profitability margin of the reporting period of the Group accounted for 20.2 percent (compared to EBITDA profitability margin of 22.3 percent in 2014). This change was predetermined by a significantly lower profitability of the gas sales activity, compared to other core activities of the Group, which made up a significant share of revenues of the Group in Dynamics of EBITDA of the Group by the nature of activities, million EUR (0.9) (2.2) (15.5) Key financial indicators 18

19 In 2015, the Group earned EUR 40.1 million in net profit, which is +EUR million more than in 2014 (-EUR 280 million). The profit result for 2014 was largely affected by the discount for gas price granted to AB Lietuvos dujos by Gazprom and by revaluation of AB LESTO assets. The amount of net profit during 12 months of 2015 was significantly affected by additional costs related to the gas price discount applied by the Group to household and non-household customers in 2015 (total negative effect of EUR million), significant negative impact (of EUR -6.9 million) of the revaluation of assets and transfer of costs from previous periods on the results and negative impact (-EUR 25.7 million) of revaluation of AB Lietuvos Energijos Gamyba assets. Compared to 2014, during 12 months of 2015 net result was positively affected by decreased depreciation and amortization costs upon the accounting of revaluation of AB LESTO assets (EUR million). EBITDA sources of the Group in 2015, % 22% 10% 11% 2015 EBITDA EUR million 57% AB Lietuvos dujos LESTO, AB Lietuvos energijos gamyba, AB Other In light of these factors, comparative net profit of 2015 (EUR million) was -2.2% or -EUR 2.6 million lower than net profit in 2014 (EUR million). Net profit, million EUR Normalised net profit of the Group, million EUR Key financial indicators 19

20 Investemnts of 2014 Heat generation capacities Development of the electricity distribution network ITT (IT, telecommunications and management systems) Construction of gas systems Reconstruction of gas systems Other investments Electricity generation capacities Maintenance of the electricity distribution network Investments of 2015 Investments The Group s investments totalled EUR million in 2015, i.e. made up percent, or +EUR 37.9 million more than in 2014 (EUR million). During 12 months of 2015, most investments (66%) were allocated for the development and maintenance of the electricity distribution network. Structure of investments of the Group in 2015, % In 2015, compared to 2014, investments into the maintenance of the electricity distribution network increased the most in 2015 (+EUR 21.1 million); also investments increased in construction of gas systems (+ EUR 7.3 million) and reconstruction of gas systems (+ EUR 6 million), in other sectors also gradually increased (+EUR 22 million in total), except lower investments in development of the electricity distribution network (- EUR 6.6 million) and lower investments in heat generation capacities (-EUR 9.7 million) and ITT (-EUR 3.5 million). Changes in investments of the Group in 2015 by sectors, million EUR 16% 25% % 3% 2015 EUR million 3% 5% (9.7) (6.6) (3.5) % % 0.0 Development of the electricity distribution network ITT (IT, telecommunications and management systems) Heat generation capacities Construction of gas systems Maintenance of the electricity distribution network Electricity generation capacities Reconstruction of gas systems Other investments Key financial indicators 20

21 Borrowings, net, at 31 Dec 2014 Cash and short term investments Borrowings Borrowings, net, at 31 Dec 2015 Financial debts As of 31 December 2015, net financial debts of the Group totalled EUR million and, compared to the level of net financial debts at the end of 2014, increased by + EUR 75.9 million. The greatest impact on the increase of net financial debts of the Group was caused by increased financial debts aimed at funding the Group s investments during the first half and by the payment of dividends to shareholders in In 2015, the level of financial debts of the Group increased by 7.4 percent, or EUR 29.1 million, and accounted for EUR million at the end of December, compared to EUR million at the end of Upon the payment of dividends to shareholders and the investments of the Group, cash and short-term investments of the Group totalled EUR million as at 31 December 2015, which is -EUR 46.8 million, or 21.7% less than at the end of (EUR million). Group's net borrowings, EUR million Key financial indicators 21

22 Due to larger financial debt the ratio of net financial debts of the Group and EBITDA of the past 12 months of the Group increased (from 0.81 times at the end of 2014 to 1.14 times at the end of December 2015). The ratio of net financial debts of the Group and equity of the Group increased from 13.4 percent at the end of 2014 to 19.4 percent at the end of December of The current level of net financial debts of the Group remains low in terms of both the generated revenue and capital structure compared to indicators of companies operating in the European energy sector. Low level of financial debts of the Group and high level of its equity as well as profitability of its ordinary activities reflect a sustainable and stable current financial position of the Group and the perspective thereof, the Group s financial capability to make investments necessary for the ensurance of the provision of the current services of the Group, implementation and funding of new projects and ensurance of further development of the Group. Net financial debts of the Group/equity ratio, % 25% Net financial debts of the Group/EBITDA of 12 months, in times % 19.4% % 13.4% % 0.6 5% % 31/12/ /12/ /12/ /12/2015 Key financial indicators 22

23 Review of activities of the Company and the Group Key financial indicators 23

24 Review of activities of the Company and the Group Review of activities of the Lietuvos Energija Group covers the period from 1 October 2015 till the date of the Report. Value chain improvement In 2015 Lietuvos Energija has finished the most important project a value chain improvement programme. During the project the core related activities of the Group were merged and distributed across companies ensuring more efficient operations of the Group, creating the highest value and providing additional benefits to customers: related activities were merged, customer service was centralised. By 2020, the total estimated benefit for customers and shareholders of the company will amount to EUR 64 million. The structure of the Group was reorganised since 1 of January 2016 as the new joint entities started their operations. The updated operating concept improved customer service, increased operating efficiency and reduces costs. The largest benefit of the changes are expected for the customers: a simple and convenient single window servicing arrangement, standardised servicing and processes, new services, faster connection to the engineering networks and procedures. The programme of value chain improvement covered 4 core areas of operations: production, supply/ sales, network, customer service, also the project for the operations of contracting companies was implemented. ESO focuses to customers, quality and efficiency Since 1 of January 2016 Energijos Skirstymo Operatorius AB (ESO) was established by merging joint-stock companies LESTO AB and Lietuvos dujos AB. New company distributes electricity to more than 1.6 million customers and supplies gas to more than 570 thousand customers throughout Lithuania. Liudas Liutkevicius was appointed to the position of the Chairman of the Board and CEO, he previously was the CEO of Lietuvos Dujos. ESO integrated the best competences of the two companies this synergy will help the Group to enhance its efficiency, reduce the operating costs and create additional benefits for electricity and natural gas customers. Due to the merger the operating costs are estimated to decrease by 5 %, and the annual saving effect will account for EUR 3.6 million. ESO consists of five regional divisions in Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys. The divisions established in regional centres coordinates the operations of the dispatcher's stations in the region, plan the repair, development or upgrading of electricity and gas distribution networks. On 11 January 2016 the symbolic market bell ceremony started trading in shares of ESO at the Nasdaq Vilnius exchange. The logo of ESO lit at the Times Square in New York to mark the beginning of trading in ESO shares. Gile merges customer servicing Starting with 2016, ESO, Lietuvos Dujų Tiekimas and Energijos Tiekimas arranged for joint customer servicing at joint service centres named Gile, that is managed by group company Verslo Aptarnavimo Centras (Business Servicing Centre). A self-service website constructed for the provision of online services; in addition to the smart app. The integrated customer servicing arrangement will accumulate the best practices and through the 'one stop' facility offers most relevant and convenient services to the customers online, by telephone or at a customer service centre. The servicing will be made even more convenient due to a possibility to pay by a single transfer for two services electricity and natural gas. Other Review of activities of the Company and the Group 24

25 companies providing utility services, e.g. water or heat suppliers are also invited to join this integrated customer servicing system. The accumulation of customer service specialists at a single company of the Group Verslo aptarnavimo centras allows the Group to decrease operating expenses, increase flexibility and create additional benefits for customers. The Business Servicing Centre also administer the payments, manage accounting and handle indebtedness. Customer service centres of Gilės operate in Vilnius, Kaunas, Klaipėda, Šiauliai, Panevėžys, Alytus, Marijampolė, Utena and Visaginas; most centres were opened in the premises of the former LESTO and Lietuvos dujų tiekimas customer service centres. At such centres customers are provided a possibility to learn use the Gilė programme and the self-service portal In other towns ESO will continue cooperation with its partners public libraries and AB Lietuvos paštas. The special self-service locations will continue operating at libraries, and at post offices customers can obtain the electricity payment booklets, or check their electricity consumption readings. Single short number 1802 operates round the clock for any issues related to electricity or gas. In case of gas leak call at emergency number Integrated trade in electricity and improved production Lietuvos energijos gamyba is the company integrating the energy production operations, while the wholesale trade in electricity has been segregated and transferred to Energijos tiekimas. This arrangement will increase flexibility in the market and ensure a possibility to customise new products to the needs of the customers. On 12 October 2015 Lietuvos energijos gamyba sold the commercial wholesale electricity trade operations to Energijos tiekimas. The part of the business sold was not related to the physical electricity production trade in derivative financial instruments and the provision of the balancing service. After the sale transaction Lietuvos energijos gamyba continues generating income in the market from the electricity produced at and the systemic services provided by the power plants managed by it. The maximum value of the transaction may reach EUR 21.1 million, of which EUR 13.1 million will be paid by end of March Depending on the performance of the sold operations another EUR 8 million (EUR 2 million per year) may be paid by Energijos tiekimas took over the wholesale energy trade operations since 1 January 2016, and appointed Vidmantas Salietis as the General Manager of Energijos tiekimas. EnePRO establishes a new name in the energy contracting market Since 1 January 2016 two secondary energy service companies Elektros Tinklo Paslaugos (ETP) and Kauno Energetikos Remontas (KER) were reorganised by merger a single company was created, it is called Energetikos Paslaugų ir Rangos Organizacija, or EnePRO in short. Martynas Pargaliausikas became the CEO of EnePRO. EnePRO merged and integrated the competence and the expertise of two companies, and established a single energy service and contracting company that provides a range of services, such as construction, reconstruction, repair and maintenance of energy facilities and other services. The synergy of two similar and each other complementing companies opens broader possibilities to develop complex and expedient solutions, develop the service portfolio, and increase the competitiveness of the company in the energy service market, decrease the operating costs and thus contribute to enhancing the Group's value. EnePRO dedicates significant attention to an increase of its performance efficiency by introducing LEAN tools and other advanced practices. Reorganisation of Lietuvos dujų tiekimas and LITGAS postponed On 29 December 2015, a decision was taken to postpone the reorganisation of the natural gas supply and trade companies Lietuvos dujų tiekimas (LDT) and LITGAS, following the completion whereof LITGAS was supposed to be merged with LDT. Thus the merger transaction was postponed pending the Review of activities of the Company and the Group 25

26 final drawing up and approval of the legal and regulatory base governing the operations of the liquefied gas (LNG) terminal and the assigned supply. The merger of the LDT and LITGAS would enhance the efficiency and flexibility in the provision of the services, increase their choice. As of 4 January 2016, Dominykas Tučkus, the former General Manager of LITGAS shifted to Lietuvos energija, where he became a member of the Board, and the Director of the Service Division. Pending the integration to Lietuvos dujų tiekimas LITGAS was temporarily managed by Vytautas Čekanavičius, the Head of the Development Department of the company. Diversification of activities Diversification of activities of the Group is one of the main preconditions for increasing the value of the Group. By 2020, the Group is planning to invest almost EUR 1 billion in various areas: heat sector by constructing new or upgrading the existing cogeneration power plants, supply and sales of natural gas utilising the potential of the LNG terminal, renewable energy sources. Cogeneration power plant projects in Vilnius and Kaunas The Lietuvos Energija Group implements the projects of modern waste and biofuel-fired high-efficiency cogeneration power plants construction in Vilnius and Kaunas. New power plants will produce heat and electricity and ensure lower heat production prices for consumers of these cities as well as additional production of local electricity at a competitive price and will solve waste management problems. By Resolution of the Government of the Republic of Lithuania of 28 May 2014 the projects were recognized as projects of state significance. Currently, Lietuvos Energija is implementing the project in Vilnius independently, however, it has planned for a possibility to attract partners in other stages of the implementation of the project. The Environmental Protection Agency has authorised the activities under the project. On 8 May 2015, the Lietuvos Energija Group published an international tender for turnkey construction works of Vilnius cogeneration power plant. The object of the procurement comprises all works, services, equipment and materials, which will be used to design and construct a new cogeneration power plant in Vilnius. The Buyer is a special-purpose company UAB Vilniaus Kogeneracinė Jėgainė (VKJ), which was established by Lietuvos Energija for the implementation of the project. On 12 October 2015, the potential contractors selected by way of competition were delivered the technical specifications according to which the potential contractors are drawing up and will submit the final binding tenders. The tender consists of two parts - construction of waste incineration and biofuel cogeneration facilities. The planned electric capacity of waste incineration facility will be about 18 megawatts and its thermal capacity - about 53 MW, while electric and thermal capacity of biofuel facilities will be 70 MW and 174 MW, respectively. On 26 October 2015, the Board of AB Lietuvos energija approved the new Articles of Association of UAB Vilniaus kogeneracinė jėgainė, and approved its Board with Mindaugas Keizeris, Nerijus Rasburskis and Valdas Lukoševičius as its elected members. Saulius Barauskas appointed as General Manager of UAB Vilniaus kogeneracinė elektrinė. In Kaunas, Lietuvos Energija is developing a cogeneration power plant project with a partner - UAB Fortum Heat Lietuva. After the approval by the Government on 28 September, on 15 October 2015 AB Lietuvos energija and UAB Fortum Heat Lietuva concluded a contract that defined the terms for the obligations of the partners, and the conditions for the joint investment into the construction of a new waste cogeneration power plant in Kaunas. 24 November The European Commission authorised the partners to implement concentration regarding UAB Kauno kogeneracinė jėgainė. According to the shareholder agreement, Lietuvos Energija owns 51 % of the shares of the Kaunas cogeneration power plant, thus ensuring the State control over the project as provided for in the Resolution of the Government. The Board of the company consists of three members of which two are appointed by AB Lietuvos energija, in addition to one independent member of the Board. The Company's authorised capital will amount to EUR million depending on the contribution of the EU support. The total investment in the project will amount to EUR 147 million. Review of activities of the Company and the Group 26

27 During Q4, 2015 UAB Kauno kogeneracinė jėgainė published the technical specifications of its principal technological facilities. Having received and considered comments and proposals from market participants the company was in the course of 2016 continuing public procurement of principal components of the future waste power plant: boiler, steam turbine and a generator, smoke cleaning equipment, cranes as well as engineering-project management services. The project provides for a construction of a new high capacity power plant using waste as fuel, with the electric power reaching 24 MW, and the heat production power of 70 MW. Such capacities will ensure an efficient utilisation of about 200,000 tons of waste generated in the region, and a production of about 500 GWh heat and about 170 GWh of electricity. LNG gas is becoming a competitive alternative On 5 February 2016 a Group company Lietuvos dujų tiekimas concluded a liquefied natural gas (LNG) supply contract with Statoil, according to which the company will satisfy more than half of the annual demand of gas (about 300 million m³). Having assessed the offers submitted by Gazprom and other LNG suppliers, Statoil was selected due to its most advantageous economic and pricing terms. This contract will facilitate Lietuvos dujų tiekimas in its efforts to diversify the supply portfolio and maintain stable natural gas supply prices to customers, despite the adverse developments in the Gazprom pricing policy. On 16 February, a gas carrier reached the Klaipėda Sea Port with the first commercial shipment of the LNG of Lietuvos dujų tiekimas about 70,000 m³, i.e. about 50 % of the capacity of the gas carrier acquired from Statoil. The other half of the gas carrier's capacity of 70,000 m³ was filled with the LNG intended to Achema. LITGAS, another company of the Group and engaged in trading in gas has been supplying to regulated energy producers the amount of the LNG required for the terminal since 1 January On 17 November 2015, the parliament approved the amendments to the Law on the LNG terminal; the amendments provided for a new arrangement for sharing the LNG supply and the assigned supply costs for all consumers of the natural gas system depending on their maximum declared demands. The new model for the maintaining the LNG terminal provides that the NCC should establish an average market price for natural gas. That will be the price for which LITGAS would sell gas to heat and electricity producers, and the difference between the acquisition and the sale price, and other assigned supply-related costs would be recovered from the capacity charge collected from all consumers of gas. 18 February 2016 LITGAS also signed an updated contract on assigned supply with a Norwegian company Statoil. In view of the decreasing demand in natural gas in the energy sector which has been obligated to use gas from the terminal, the annual volume was reduced by about one third from approximately 5.5 TWh (about 540 million m³) to approximately 3.6 TWh (350 million m³). The duration of the contract was extended to the end of 2024, which thus will coincide with the duration of the lease of the Independence vessel. Furthermore, the pricing formula was modified which made the price of the LNG supplied according to the contract similar to that of the gas supplied by the pipeline. As projected by LITGAS, the average LNG import price in 2016 may reach EUR 16-21/MWh, while it was EUR 29.04/MWh in In view of the amendments to the contract the Klaipėda LNG terminal maintaining costs are expected to decrease by more than one third (about EUR 34 million), the benefit being transferred to the energy prices to the final consumers: thus heat customers are estimated to annually spend by EUR 11.3 million, electricity customers will save about EUR 9.8 million, consumers in the industry about EUR 7 million, while residents and corporates using gas EUR 2 million and EUR 3.6 million accordingly. ESCO projects will be implemented by a new company On 18 February 2016, Lietuvos energija established a new company UAB Energijos sprendimų centras that will be engaged in the development of energy efficiency enhancement and renewable energy resources in Lithuania and abroad. The Board meeting of Lietuvos energija of 19 February elected Donatas Černiauskas General Manager of ESC. Review of activities of the Company and the Group 27

28 The activities of the new company will be based on the ESCO model (Energy Service Company) an energy saving service company investing in energy efficiency measures, and ensuring a pay-back of the investment from the future energy savings within the contract duration. The operations of the company enables achieving the largest savings effect for owners/managers of buildings/facilities without incurring significant initial investment. 18 February An announcement about the first street lighting project based on ESCO principles and to be implemented in Širvintos; the project will be implemented by Energijos tiekimas. About 70 % of the most energy consuming lamps currently in Širvintos region municipality will be replaced by modern LED type lamps. The new modern technologies are estimated to enable the regional municipality to save up to 75% in electricity used for street lighting. Possibility to take over the third cogeneration power plant On 16 October 2015, a taking over by the Municipality of Vilnius of the third cogeneration power plant (TEC) was announced. The transaction will make it possible to establish the value of the TEC corresponding to market conditions, and assess the possibilities for the further use of the TEC. Untill recently, neither the Municipality of Vilnius, nor the State-managed group of entities Lietuvos energija has had a possibility to assess the condition of the TEC or determine its market price corresponding to market conditions. The Group maintains cooperation ties with the Municipality and seeks possibilities to ensure that the TEC generates maximum possible added value for electricity and heat consumers. Prior to taking over an asset of that volume, it is necessary to carry out its diligent technical, financial and economic analysis; the value of the TEC will have to be determined by competent experts, asset valuers. Project of heat production infrastructure in Elektrėnai is finished In 2015, Lietuvos energijos gamyba completed the implementation of the project 'Construction of heat energy production capacity and steam production capacity' at the Lithuanian power plan, and started operating the new steam and biofuel boiler houses, as efficient and economical heat energy generation capacities independent from the electricity generation. The construction of the steam boiler station was completed early in On 16 January 2015, the commission set up by the General Manager recognised the steam boiler station to be suitable for operation. This 49.9 MW steam boiler station was established for the purpose of maintaining heat reserves, ensuring the sufficient production of heat energy at peak cold spells, as well as commissioning the reserve power plant units. This boiler station ensures an uninterrupted production of heat energy, and the commissioning of the electricity production capacities of the reserve power plant from a cold status. Another important accomplishment in 2015 was the completed construction of the biofuel boiler station. The station now houses two biofuel boilers with condensing economiser with the total thermal input of 40 MW. The biofuel boiler station construction works have been completed, as well as all the procedures related to the completion of the construction procedures. Two wind power parks added to the Group's portfolio In January 2016, Lietuvos Energija acquired two companies operating wind power parks in Lithuania and Estonia Eurakras UAB and Tuulueenergia OU. The existing electricity generation capacities of the state-owned group of companies were in-creased by additional 42.3 megawatts (MW). The wind power parks held by Lietuvos Energija are expected to produce around 136 thousand MWh of electricity per year, which is the quantity that could meet the annual electricity demand of Klaipėda city residents. Eurakras UAB, a Lithuanian company acquired, operates the park consisting of 8 wind turbines with the capacity of 24 MW located in the villages of Geišiai and Rotuliai II in Jurbarkas region. Lietuvos Energija acquired 75% of shares of this company from Renagro UAB and the investment entity BaltCap. Wind turbines for this wind power park were produced by the German company Nordex. The installed capacity of each turbine is equal to 3 MW, the height of the tower reaches 120 metres and the diame-ter of the rotor 117 metres. This wind power park was constructed only recently the building completion statement and the permit for electricity generation were issued at the end of December During the auction on the allocation of promo-tion quotas organised by the National Control Commission for Prices and Energy on 22 February 2013, the wind power Review of activities of the Company and the Group 28

29 park of Eurakras was granted the promotion quota for electricity generation. Electricity produced by the wind power park will be pur-chased at the tariff of EUR 71 per MWh for 12 years. The company Tuulueenergia operates the park consisting of 6 wind turbines with the capacity of 18.3 MW in the locations of Mali and Tamba in Estonia. Lietuvos Energija acquired 100% of shares of this company from BaltCap and minority shareholders. All six wind turbines were produced by the German company Enercon. The installed capacity of each turbine is equal to 3 MW, the height of the tower reaches 99 metres and the diameter of the rotor 101 metres. This wind power park was put into oper-ation at the beginning of The wind power park of Tuulueenergia was installed using two types of support: a part of the park was constructed using the investment support and with respect to the other part a promotional tariff was ensured, which is paid for 12 years in Estonia as of the commencement of the operation of the park (a fixed premium of EUR 53.7 per MWh is added to the electricity market price). The total consideration for both transactions is equal to EUR 28 million. The enter-prise multiple (enterprise value-to-ebitda ratio), after the assessment of the borrow-ings of the companies, ranges from 9 to 10 times. These acquisitions were mostly financed using borrowed funds. On 5 August 2015, Lietuvos Energija publicly invited owners of the wind power parks to consider the possibilities of selling the infrastructure operated. Assessment of wind energy potential in Kruonis PSHP In the beginning of 2015, complex measurements of wind speed, directions and other meteorological conditions were completed in the territory of Kruonis PSHP in order to conduct the initial assessment of the potential of the land plot for the installation of a wind power plant park. Based on positive wind measurement results, Lietuvos Energijos Gamyba initiated preparatory works for the installation of a wind power plant park in the territory of Kruonis PSHP. Studies and other deliverables in 2015: a study on the impact of the Kruonis wind power plant farm upon Natura 2000 sites, a feasibility study assessing the wind resource and electricity production volumes, as well as the environmental impact assessment programme. Currently the report on the environmental impact assessment is being drawn up; the procedure is scheduled to be completed by mid Duomenų logistikos centras chosen by international companies In February 2016, Hurricane Electric Internet Services, the world's largest IPv6 service provider selected Duomenų logistikos centras (Data logistics centre, DLC) as a basis for a start of its operations in the Baltics, and presented its new Point of Presence, established at the data centre located at A. Juozapavičiaus St. 13, Vilnius. Through this new access centre customers of the DLC, as well as other companies of Lithuania will acquire a direct access to the highest reliability Hurricane Electric IPv4 and IPv6 networks. Customers of the DLC will also have a possibility to exchange the IP flow with the global Hurricane Electric network. On 21 January 2015 a 3,000 km long data transmission highway Baltic Highway was launched, it connects by a high-throughput connection Vilnius and Tallinn with one of the largest data transmission centres in the world Frankfurt via Riga, Warsaw and Berlin. In order to increase revenues from the data centre service and diversify the activities, on 14 July 2015, Duomenų Logistikos Centras offered a new micro-colocation service - customers, who only need to place a single server, will also be able to keep their equipment in the modern Tier-III data centre Data Inn in Lithuania. Enhancement of operating efficiency Higher efficiency of activities of the Group implies both higher profit and return for shareholders as well as lower tariffs for consumers. The strategy of Lietuvos Energija for establishes that higher operating efficiency will be achieved by adapting the most advanced management practices in corporate governance, planning and monitoring of activities, finance, procurement, risk management and internal audit areas. The Group currently has an installed and developed uniform management and control system, it has an approved management and control system policy, risk management policy and methodology, integrated planning and monitoring system policy, innovation management policy, project Review of activities of the Company and the Group 29

30 management policy and procedure, a process management standard, portfolio formation and monitoring procedure currently being drawn up, etc. The uniform management and control system helps to achieve efficiency and synergy in the activities of the Group as well as the implementation of the goals set. Centralization and improvement of efficiency of processes With a view to improving the processes that support the core activities of the Group and reducing their expenses, the Lietuvos Energija Group concentrated a part of functions supporting the core activity in a separate company UAB Verslo Aptarnavimo Centras, which provides to the Group the services of public procurement, accounting and administration of employment relations. Centralization of the processes of public procurement, accounting and administration of employment relations is aimed at standardizing them, ensuring greater transparency and efficiency as well as faster implementation thereof. Such concentration model of servicing processes is in line with best global practices. Administration of the employment relations of the Group was started through UAB Verslo Aptarnavimo Centras in the beginning of In 2015, Lietuvos Energija optimized the use of office premises located in Vilnius and thus plans to save about EUR 1 million during three years and to create conditions for employees of the Group to be in closer cooperation. Centralization and optimization of the management of real estate allowed the Group to reduce its expenses for rent of premises by almost a third and occupied areas - by three times throughout Lithuania in 4 years. Lietuvos energija Group that previously centralised the management of the immovable property in the hands of NT Valdos, now with a view to increasing its operating efficiency and focusing upon its principal activities now undertook to sell the immovable property it owned but not having any strategic value for the energy sector. The first auction for the immovable property administered by NT Valdos was held on 26 February The participants of the auction were offered items suitable for bars, warehousing or production, as well as several objects of residential or recreational purpose. The assets sold at the auction were estimated by independent assets values to be worth EUR million. The Group has also centralized the management of vehicles - it started organizing a unified procurement of vehicle rental services for 14 companies of the Group on 3 April Such decisions are expected to help save costs for the administration of the vehicle fleet of the Group. On 5 January 2016, Lietuvos energija announced a tender for a two years' duration overdraft of EUR 60 million. This short-term lending instrument will be available to all companies of the Group, therefore they will not have to purchase any services separately. Due to the centralised management of the treasure, the Group's account credit limit will be twice less than under the arrangement where each company ensures the limits individually. This will allow the Group to decrease the interest costs when borrowing working funds, and thus significantly enhance the efficiency of the Group's treasury management. On 1 February 2016, the Board of Lietuvos energija approved the project for the enhancement of the efficiency of the Group's treasury activity, under which part of the functions of the Group's treasury will be placed under joint management. The interest for the overdraft account will be linked to the Euro overnight index average (EONIA). Where the actual interbank interest rate is negative, such interest will be equal to a zero. The account overdraft term which is 24 months can be extended for an additional term of 12 months. No property of the Group will need to be pledged for the repayment of the credit, and the credit terms will not impose any restrictions upon the economic or borrowing operations of the Group. Planned single integrated business management system On 14 August 2015, Lietuvos Energija announced about its plans to transfer to a single integrated business management system, thus seeking to increase its operating efficiency, flexibility and to create better possibilities for expansion. The estimated duration of the project of exceptional scope is three years. The company will publish an international open tender procedure for the selection of an implementer of the integrated business management system, which would cover common business management, Review of activities of the Company and the Group 30

31 accounting and customer service as well as technological asset management information systems. The implementer will also have to provide support services for three years after the deployment of the system. Customers of Lietuvos Energija Group should also feel the benefit of the new system - due to the single and modern system, Group companies will be able to provide services to Group customers in a more qualitative and flexible way: create more flexible service plans, better serve customers in service centres and via self-service channels; system reliability and speed will increase. Operation of units 5 and 6 in Elektrėnai is terminated On 8 December 2015, the Board of Lietuvos Energijos Gamyba made a decision to terminate the operation of two more units (units 5 and 6) of the Reserve Power Plant in Elektrėnai from Dismantling works of these units are expected to start at the beginning of 2017 after the completion of the dismantling of units 1 and 2. The dismantling of units 5 and 6 of the power plant with their capacity reaching 300 MW was stipulated in the company's long-term strategy announced in the middle of The units are dismantled due to a poor technical condition, low potential of capacity utilisation in future and high maintenance costs. These units that started to produce electricity back in were not operating for several years. Ensuring the quality of services Investments in electricity network and services Untill 2016 the Group s company LESTO serviced more than 1.64 million customers devoted great attention to the development and modernisation of the power grid and consistently expanded and improved the provided services considering the changing needs of its customers. Since 2016 those activities are continued in newly formed company ESO. During 12 months of 2015, LESTO connected new customers, which is 7.8 percent more than during the respective period of 2014 when new customers were connected. The total permissible capacity of newly connected consumer objects amounted to kw, which is 15.2 percent more than during the same period of 2014 ( kw). On 27 October 2015, the World Bank published its business regulation ranking 'Doing Business 2016', in which in terms of the 'getting electricity' indicator Lithuania from the 66th place progressed to the 54th. The indicator was significantly improved to the accelration in the procedures for getting electricity to new customers, namely, a reduction in the number of connection procedures, within one year the connection process was shortened by one week. According to the methodology used by the World Bank, the duration of getting electricity to businesses this year was reduced by 42 calendar days to 95 days. Compared to 2014, the average duration of the connection to the electricity distribution network for businesses decreased by as many as ten calendar days and for private customers - by four days. Currently, objects of business customers are connected to the gas distribution network within an average of 45 calendar days and those of private customers - within 47 calendar days compared to 2011, when business customers were connected to electricity networks within an average of 65 days and private customers - within 61 days. ESO continus the purchase of power grids of gardeners associations, thus ensuring a reliable and secure supply of electricity, and carried out the projects of network modernisation co-financed from the EU structural funds. During Q4 of 2015, LESTO completed two network modernisation projects in 76 and 17 collective garden communities accordingly. During the upcoming decade, ESO plans to modernize the distribution network in essence. In order to ensure reliable, safe and intelligently managed services, the company plans to invest EUR 1.7 billion into the modernization and renovation of the network by In 2015, electricity meters that no longer met the metrological requirements were replaced and electricity meters for new customers were installed. By investing in the modernisation and automation of electricity meters, electricity meters to the automated data reading system were connected in 2015, thus increasing the number of electricity meters operated by the Company, the data of which are read in remote manner to Review of activities of the Company and the Group 31

32 On 8 January 2016, in cooperation with a consortium of Lithuanian and foreign companies that won the international public procurement tender ESO started preparing for the installation of smart meters. Smart electricity meters will be installed at 3,000 customers' of ESO. Within the framework of a pilot project ESO seeks to determine the efficiency of smart meters and their benefit to residents. On a special screen, or the Gilė self-service website at customers will be able to monitor the hourly consumption of electricity, and the specialists of ESO will receive more comprehensive information about the quality of the energy being supplied, and the condition of the network. New gas consumers are connected Group serves about 560 thousand household customer objects and about 9.5 thousand non-household customer objects. About household customers use gas for heating their houses, while the majority of customers, about , use gas in stoves for cooking. The largest consumers of gas, reportedly using about 5.28 TWh (500 million m³) are business customers, i.e. industry entities, heat producers and public sector entities. Private customers use about 1.54 TWh (146 million m³) of gas. In 2015, Lietuvos Dujos invested EUR 7.3 million for connecting new customers, compared to investments of EUR 5.7 million in The company built 82.7 km of gas distribution pipelines (87.3 km a year ago) and connected new customers to the gas pipelines, which is 13.5 percent more compared to 2014 when about new customers were connected to the gas distribution system. On 1 December 2015, Lietuvos dujos drew up an investment plan for , presenting the objectives, directions and the scope of the long-term investment policy. The investment needs for the distribution network was planned having clearly identified the principal investment directions and the worst condition property groups. In , the demand for investment into the distribution network is estimated to account for EUR million, or, on average, EUR 14.1 million per year. A major part of the funding will be invested in the construction of new gas pipelines, and the connection of customers to the network. One of the largest investment in new gas system construction projects was the gasification of the Tauragė region municipality territory launched in All the works related to the Tauragė municipality gasification are scheduled to be completed by the end of Another project completed in 2015 was a medium pressure distribution gas pipeline construction project at Pramonės Ave., Kaunas. The gas pipeline was built for a company Dirbtinis pluoštas, and the investment amounted to nearly EUR 87,000. Further, a nearly 2 km long gas pipeline was built as part of the project for the improvement of infrastructure services for the residents in a new private house area in Noreikiškės settlement, Kaunas region. The investment in this relation exceeded EUR 63,000. In 2015, EUR 6.7 million was invested in projects of reconstruction of gas systems and gas distribution reliability and safety ensurance projects (compared to EUR 5.8 million in 2014). 157 gas pipeline closing devices were reconstructed, about 246 remote control and data reading systems in gas pressure regulating equipment and in homes of natural gas customers were installed and about 13.5 thousand gas meters were replaced during the reporting period. On 7 October 2015, AB Lietuvos dujos concluded agreements with the companies Mano Būstas, Elektrovoltas and Inlinen making them responsible for checking gas meters of the least risky customers of AB Lietuvos dujos using gas only for cooking. For the purpose of increasing its performance efficiency, decreasing costs and seeking to focus on the principal activities creating the largest value for the shareholder and the customers the Company outsourced part of its non-principal operating functions to third party suppliers. Prices of services decline further 1 January Announcement of new electricity prices adjusted having regard to the amendments to the Law on the Liquefied Natural Gas. The energy price for residents decreased on average 0.2 cents/kwh. In 2016, the ceiling price for the electricity distribution by medium voltage network is 1 euro cent/kwh, i.e. by euro cent lower than in In 2016, the ceiling price for the electricity distribution by low voltage network Review of activities of the Company and the Group 32

33 is euro cent/kwh, or euro cent up from This rate increased due to a higher investment needs for the modernisation of the low voltage networks. The total weighted natural gas distribution tariff is 1% lower than in November The NCC approved the gas price for residents for H starting with 1 January 2016 residents pay for natural gas the same price as was effective during H Partly the stable gas prices with respect to residents are maintained due to the additional discount that evens out the natural gas import and infrastructure services prices fluctuations. As from 1 June 2015, tariffs for access to electricity networks have changed for new customers. According to preliminary estimates, a statistical new consumer planning to get access to electricity pays EUR 230 and businesses - EUR 758 less than up until then. Some decrease in the electricity electricity tariffs was achieved due to a lower budget of the public interest obligations (VIAP). On 26 October 2015, the NCC approved the VIAP budget for 2016 of EUR 139,981 million (11.5 % down from 2015). As the VIAP quotes were abolished, the electricity production at cogeneration plants and the Elektrėnai power plant of AB Lietuvos energijos gamyba will no longer be supported, while in 2015 the support for the electricity production in Elektrėnai amounted to EUR million. Within this amount EUR million were allocated as support to secure the energy system reserve service provided by AB Lietuvos energijos gamyba. On 1 Octorber 2015, LESTO started electricity exchange with producers, who have installed small solar power plants and develop production. The NCC established the price for the use of the medium voltage network at 1.59 euro cent/kwh, and 3.04 euro cent/kwh for the use of the low voltage network. Ensured high customer service quality The satisfaction surveys conducted in autumn 2015 among the customers of the Lietuvos Energija Groupcompanies LESTO, AB Lietuvos dujos and UAB Lietuvos dujų tiekimas yielded the results exceeding the average indicators among the European and other world utility service providers. The electricity power customer satisfaction index among private customers increased by 4 points since last year and stood at 80, 2 and 76 points, respectively, for corporate customers. The respective figures for private customers of natural gas are 80 points for private customers and 77 points for corporate customers. The customer satisfaction index for UAB Lietuvos dujų tiekimas reached 81 points. The results exceed the average customer satisfaction indices of European and other global utility service providers; the European average index stands at 70, and 73 points globally. This high customer satisfaction index was mostly achieved to the customer service improvement initiatives launched by the Lietuvos Energija Group joint customer service centres, centralised activities, more efficient processes, faster and higher quality services. During 2015, LESTO improved all principal customer satisfaction indicators. The experience of private customers of LESTO exceeded the expectations, as the number of complaints decreased by 7 percentage points, the professionalism of the servicing personnel was rated highly positively, promptly provided assistance, convenient servicing both online ( or at a short number Return for shareholders AB Lietuvos energija allocated EUR million in dividends for H1 2015; the dividends were paid to the budget. The entities under the management of AB Lietuvos energija allocated dividends to its shareholders for H1 2015: LESTO EUR million, or EUR per share; Lietuvos energijos gamyba EUR million, or EUR per share, and AB Lietuvos dujos EUR million, or EUR per share. The state-owned Lietuvos Energija Group allocated EUR 52.6 million in dividends for 2014, and this was the most of all state-owned enterprises. Review of activities of the Company and the Group 33

34 Corporate governance The Lietuvos Energija Group, whose shareholder is the state of Lithuania, aims at ensuring efficient and transparent operations. To that end, the reorganisation of governance was carried out in 2013, during which the corporate governance of the Group was reorganised and enhanced. The new governance structure and model of the Group has been developed on the basis of the most advanced international and national practices, following the recommendations published by the Organisation for Economic Cooperation and Development, having regard to the Corporate Governance Code for companies listed on the NASDAQ OMX Vilnius Exchange, Guidelines on the Governance for State-Owned Enterprises recommended by the Baltic Institute of Corporate Governance. The corporate governance model of the energy Group was implemented in observance of the Corporate Governance Guidelines approved by the Ministry of Finance of the Republic of Lithuania on 7 June 2013 (the Guidelines are available at The Group s governance structure was formed in observance of the principles of corporate governance, and contributes to their implementation. The Company s shareholder is the State controlling 100 % of its shares. The rights and obligations of the shareholder are implemented by the Ministry of Finance of the Republic of Lithuania, which adopts the main decisions related to the implementation of the ownership rights and obligations. On 19 October 2015, the Management Coordination Centre recognised Lietuvos Energija Group as the best managed State capital entity. The customers scored specifically high the entity s transparency and management indicators. Compared to 2013, the Group improved the good management index by 8 %, and scored 8.44 points out of 10 possible. The primary goal of the corporate governance is to achieve the effect of synergy aligning different activities of the Lietuvos Energija Group and targeting them at the achievement of the common goals at the Group level. Corporate governance 34

35 Supervisory bodies Supervisory Board The Supervisory Board is a collegial supervisory body specified in the Articles of Association of the Company and elected by the General Meeting of Shareholders for a term of four years. The Supervisory Board of Lietuvos Energija consists of seven members natural persons representing the Ministry of Finance, the Ministry of Energy, the Ministry of Economy, the Office of the Government of the Republic of Lithuania, and three independent members. The Chairman of the Supervisory Board is elected by the Supervisory Board from among its members. This model of formation of the Supervisory Board complies with the principles of corporate governance.the Supervisory Board of Lietuvos Energija operating at the end of the reporting period (31 December 2015) was as follows*: Šarūnas Kliokys (born in 1959) Antanas Danys (born in 1975) Dr. Virginijus Lepeška (born in 1955) Tomas Garasimavičius (born in 1978) Aloyzas Vitkauskas (born in 1954) Rasa Noreikienė (born in 1959) Rokas Baliukovas (born in 1977) Educational background Workplace, position Chairman, Independent member Vytautas Magnus University, Baltic Management Institute, Degree in Business Administration (EMBA) Vilnius University, Economist s Diploma. Chairman of the Board of UAB Ekonovus; Chairman of the Board and Director of UAB Avestis; Chairman of the Board and Managing Director of UAB Šiaulių Plento Grupė; Chairman of the Board of AB Kilimai; Member of the Board of VĮ Registrų Centras; Member of the Board of EUROCHAMBERS, President of Association of Lithuanian Chambers of Commerce, Industry and Crafts. Independent member Vilnius University Master s Degree in Business Administration (MBA) Boston College Bachelor s degree. CEO of Grinvest PTE.LTD; Development manager of UAB Kaštonų kalva ;Board member of Lanestead OU; Board member of Balaef OU; Chairman of the Council of UAB NEO Finance, CEO of Asian Pacific Green Energy Pte. Ltd. Independent member Vilnius University Doctor of Social Sciences. Chairman of the Board and consultant of UAB Organizacijų Vystymo Centras; Consultant of UAB OVC Mokymai; Advisor of the Chairman of the Board of UAB Vilandra; Advisor to CEO of UAB AL Holdingas; Board Member of the Association Mentor Lietuva; Board Member of PE Paramos Vaikams Centras; Member of the Commission of Candidates to Judicial Selection. Member Educational background Creighton University Political Science Master s Studies Vilnius University IIRPS Political Science Master s Studies Vilnius University TSPMI Bachelor s Degree in Political Science. Government of the Republic of Lithuania, Advisor to the Prime Minister for Energy. *No one of the Supervisory Board members participate in the capital of the Company or Group company. Member Vilnius Civil Engineering Institute Post-graduate studies of technical sciences Vilnius Civil Engineering Institute Master s Degree in Civil Engineering. Ministry of Finance of the Republic of Lithuania; Vice-Minister. Member Kaunas University of Technology Master s Degree in Public Administration Vilnius University Lawyer s Speciality. Ministry of Economy of the Republic of Lithuania; Vice-Minister. Member since Kaunas University of Technology, Bachelor s Degree in Electric Engineering; Šiauliai University Master s Degree in Energy Engineering Šiauliai University Master s Degree in Management and Business Administration. Ministry of Energy of the Republic of Lithuania; Vice-Minister. Corporate governance 35

36 The main functions and responsibility of the Supervisory Board cover the following areas: election and recall of members of the Board, supervision of activities of the Board and the CEO, provision of feedback to the General Meeting of Shareholders on the Company s strategy, a set of financial statements, distribution of profit (loss), and annual report. The Supervisory Board also addresses other matters attributed to its competence. The Supervisory Board is functioning at the Group level, i.e. where appropriate, it addresses the issues related to the activities of the Company, its subsidiaries or their management and supervisory bodies. Committees of the Supervisory Board For the purpose of effective fulfilment of its functions and duties, the Supervisory Board forms committees. The committees of the Supervisory Board provide their conclusions, opinions and proposals to the Supervisory Board according to their competence. A committee consists of a minimum of three members of whom at least one member must be a member of the Supervisory Board and at least one independent member. remuneration policy at the Group level, establishment of the amount and composition of remuneration, principles of promotion, etc. Where appropriate, the Company may also form other ad hoc committees (e.g., for addressing specific issues, preparation, supervision or coordination of strategic projects, etc.). Audito komitetas The following committees have been operating in Lietuvos Energija: Risk Management Supervision Committee is responsible for the submission of conclusions or proposals to the Supervisory Board on the functioning of management and control system in the Group and (or) main risk factors and implementation of risk management or prevention measures; Audit Committee is responsible for the submission of objective and impartial conclusions or proposals to the Supervisory Board on the functioning of the audit and control system in the Group; Nomination and Remuneration Committee is responsible for the submission of conclusions or proposals on the matters of nomination, recall or promotion of member of the Board to the Supervisory Board, also for the assessment of activities of the Board and its members and for issuing a respective opinion. The functions of the Committee also cover the formation of the common Committee member Rasa Noreikienė Chair of the Committee Danielius Merkinas Independent member Aušra Vičkačkienė Member Gintaras Adžgauskas Member Irena Petruškevičienė Independent member Number of shares held in the Workplace Company and the Group - Ministry of Economy of the Republic of Lithuania, Vice-Minister - UAB Nordnet, Finance Director - Ministry of Finance of the Republic of Lithuania, Director of the Asset Management Department - World Energy Council, Director of the Lithuanian Committee European Commission Member of the Audit Development Committee Corporate governance 36

37 Main functions of the Committee: monitoring the process of preparation of financial statements of the Company and the Group, with a special focus on the adequacy and consistency of used accounting methods; monitoring the efficiency of internal control and risk management systems of the Company and the Group, analysis of the need for, and adequacy of, these systems and perform review of the existing internal control management systems; monitoring the adherence to the principles of independence and objectivity by the certified auditor and audit company, provision of related recommendations, as well as proposals for the selection of an audit company; monitoring the audit performance processes of the Company and the Group, examining the effectiveness of audit and response of the administration to the recommendations provided by the audit company in the letter to the management; monitoring the effectiveness of the internal audit function of the Company and the Group, analysis of the need for, and adequacy of, this function, provision of recommendations on the need for, effectiveness of, the internal audit function, and on other internal audit related matters; providing proposals for the internal audit plans of the Company and the Group, recommendations for the regulations of internal audit units of the Company and the Group, appointment and dismissal of the head of a structural unit performing the functions of the internal audit, approval of his (her) job description, imposition of incentives and penalties; monitoring the compliance of activities of the Company and the Group with laws and other legal acts of the Republic of Lithuania, articles of association and business strategy; assessment and analysis of other issues attributed to the competence of the Committee by decision of Supervisory Board; performance of other functions related to the functions of the Committee set forth by legal acts of the Republic of Lithuania and in the Corporate Governance Code of companies listed on NASDAQ Vilnius Stock Exchange. Risk Management Supervision Committee Committee member Antanas Danys Chairman of the Committee Raimundas Petrauskas Independent member Donatas Kaubrys Independent member Tomas Garasimavičius Member Main functions of the Committee: Number of shares held in the Company and in the Group Workplace - Grinvest PTE.LTD CEO - Schmitz Cargobull Baltic, UAB CEO - Dovirma, UAB, CEO - Advisor to the Prime Minister of the Republic of Lithuania for Energy monitor the identification, assessment and management of risks relevant for the accomplishment of goals of the Company and the Group; assess the adequacy of internal control procedures and risk management measures to the identified risks; assess the status of implementation of risk management measures; monitor the implementation of the risk management process; analyse financial possibilities for the implementation of risk management measures; assess the risks and risk management plan of the Company and the Group; assess the regular risk identification and assessment cycle; control the establishment of risk registers, analyse their data and provide proposals; monitor the drafting of risk management-related internal documents; perform other functions attributed to the competence of the Committee by decision of the Supervisory Board. Corporate governance 37

38 Nomination and Remuneration Committee Committee member Aloyzas Vitkauskas Chairman of the Committee Virginijus Lepeška Independent member Tomas Garasimavičius Member Main functions of the Committee: Number of shares held in the Workplace Company and in the Group - Ministry of Finance of the Republic of Lithuania, Vice-Minister - UAB Organizaciju Vystymo Centras, Chairman of the Board - Advisor to the Prime Minister of the Republic of Lithuania for Energy assess and provide proposals on the long-term remuneration policy of the Company and the Group (the main fixed part of the remuneration, performance-based remuneration, pension insurance, other guarantees and forms of remuneration, compensations, severance pays, other components of the remuneration package), other principles of compensation for costs related to the individual s performance; assess and provide proposals on the policy of bonuses of the Company and the Group; monitor the compliance of the policy of remunerations and bonuses of the Company and the Group with the international practice and good governance practice recommendations, and provide respective proposals for the improvement of the policy of remunerations and bonuses; provide proposals concerning bonuses upon distribution of distributable profit (losses) of the Company and the Group of the respective financial year; assess the terms and conditions of agreements of the Company and the Group with members of management bodies of the Company and the Group; assess the procedures of recruitment and selection of candidates to members and senior management of the Company and the Group and establishment of qualification requirements; perform regular reviews of the structure, size, composition and activities of the management and supervisory bodies of the Company and the Group; supervise how members of management bodies and employees of the Company and the Group are notified of the professional development possibilities and how they upgrade their skills regularly; supervise and assess the implementation of measures ensuring the continuity of operations of the management bodies and employees of the Company and the Group; perform other functions attributed to the competence of the Committee by decision of the Supervisory Board. Corporate governance 38

39 Management bodies Board The Board is a collegial management body provided for in the Articles of Association of the Company. The members of the Board are elected for a term of four years and recalled by the Supervisory Board on proposal of the Nomination and Remuneration Committee. The Board comprising 5 members elect from among its members the Chairman of the Board the Chief Executive Officer of the Company. The members of the Board, acting according to their competence, must ensure the proper performance of the Company s activities / supervision of the respective areas at the Group level. The Board of Lietuvos Energija operating at the end of the reporting period (31 December 2015) was as follows: Dr. Dalius Misiūnas (born in 1978) Ilona Daugėlaitė (born in 1970) Darius Kašauskas (born in 1972) Mindaugas Keizeris (born in 1980) Dominykas Tučkus (g. 1981) Dalia Andrulionienė (born in 1971) Educational background Workplace, position Chairman of the Board, CEO Lund University Doctor s degree in Technological Sciences; Master s Degree in Industrial Electrical Engineering and Automatics Kaunas University of Technology Bachelor s Degree in Electrical Engineering. Lietuvos Energijos Gamyba, AB, Chairman of the Supervisory Board; AB Energijos skirstymo operatorius Chairman of the supervisory board (since ); Association Eurelectric, member of the Board of Directors; National Lithuanian Electricity Association, President; KTU Alumni Association, President; Lietuvos Energija Paramos fondas, Member of the Board; Council member of Lithuanian Cofederation of Industrialists. Board Member, Director for Organisational Development Vilnius University Master s Degree in Hydrogeology and Engineering Geology. LESTO AB, member of the Supervisory Board (till );AB Lietuvos Dujos member of the Supervisory board (till );AB Energijos skirstymo operatorius (since ); UAB Technologiju ir Inovaciju Centras, Chair of the Board; UAB Elektros Tinklo Paslaugos, member of the Board (til ); AB Duomenu Logistikos Centras, Chair of the Board (till ); UAB Verslo aptarnavimo centras, Chairman of the Board (since ); Board Member, Finance and Treasury Director ISM University of Management and Economics Doctoral Studies of Social Sciences, Course of Economics; BI Norwegian Business School Master s Degree in Management, Vilnius University Master s Degree in Economics. LESTO AB, Chairman of the Supervisory Board (till ); AB Lietuvos Dujos, Chairman of the Supervisory Board (till ); NT Valdos UAB, Chairman of the Board; UAB Kauno Energetikos Remontas, Chairman of the Board; UAB Verslo aptarnavimo centras Chairman of the Board (till ); UAB Elektroniniu mokejimu agentura; Chairman of the Board. *No one of the Board members participate in the capital of the Company or Group company. Board Member, Strategy and Development Director Vilnius University Master s Degree in International Business Vilnius University, Bachelor s Degree in Business Administration and Management. Lietuvos Energijos Gamyba, AB, Chairman of the Supervisory Board (since ); UAB Elektros Tinklo Paslaugos, Chairman of the Board (till ); Energijos Tiekimas, UAB, Chairman of the Board (till ); UAB LITGAS Chairman of the Board ( ); UAB Kauno Energtikos Remontas, Chairman of the Board (till ); UAB Lietuvos Duju Tiekimas member of the Board (till ); UAB Energetikos paslaugų ir rangos organizacija, Member of the Board (since ); UAB Vilniaus kogeneracinė jegaine, Chairman of the Board (since ). Board Member, Generation and Services Director since L. Bocconi university (Italy), Master s Degree in Finance; L. Bocconi university, Degree in Business Administration and Management. Lietuvos energijos gamyba, AB, Member of the Supervisory Board; UAB LITGAS, Chairman of the Board; UAB Lietuvos dujų tiekimas, Member of the Board; Energijos tiekimas UAB, Member of the Board; UAB Elektroninių mokėjimų agentūra, Member of the Supervisory Board. Board Member, Generation and Services Director (from till ) BI Norwegian Business School, Executive Master, Management program; Vilnius University, Master s Degree in Economics and Management. AB Energijos skirstymo operatorius, Board member (since ). Corporate governance 39

40 Organizational culture and employees The Company s employees are the key element in implementing the operating strategy of the Lietuvos Energija Group. The aim is to build and maintain a value-based organisational culture, motivating employees to assume responsibility, cooperate and jointly seek for the best result. In implementing the goals set by the shareholder and pursuing a socially responsible business, we have been seeking to attract and retain skilled specialists in the Group and to create with them long-term partnership relationships and joint successful future while ensuring mutual benefit. As of 31 December 2015, there were employees in the Group. Compared to Q3 of 2015, the number of employees of the Lietuvos Energija Group slightly decreased. Company Number of employees Lietuvos energija, UAB 78 AB LESTO 2178 Lietuvos energijos gamyba, AB 429 AB Lietuvos dujos 971 UAB Technologijų ir inovacijų centras 187 UAB Duomenų logistikos centras 16 Energijos tiekimas UAB 15 UAB Kauno energetikos remontas 245 UAB Elektroniniu mokejimu agentura" 1 UAB ELEKTROS TINKLO PASLAUGOS 568 NT Valdos, UAB 240 VšĮ Respublikinis energetikų mokymo centras 145 UAB LITGAS 14 UAB VAE SPB 11 UAB Verslo aptarnavimo centras 171 UAB Lietuvos dujų tiekimas 97 UAB Vilniaus kogeneracinė jėgainė 13 Total As of 31 December 2015, there were 78 employees in the Company. 96.2% of the Company s employees have higher university education, of whom 6 are doctors of science. The Company employs 2 Certified Professional Project Managers (PRINCE2), 1 Certified Financial Analyst (CFA), 1 Certified Internal Auditor (CIA), 1 Certified Fraud Examiner (CFE), 2 Certified Risk Management Assurance Experts (CRMA), 5 employees with the professional Board Member s qualification of the Baltic Institute of Corporate Governance. The employees are active members of associations and unions and of the academic community (KTU Business Council, LEI Supervisory Board, Technological Development Committee under the Agency for Science, Innovation and Technology, etc.). Structure of the Company's employees by educational background, percent Aukštasis Aukštesnysis Vidurinis 57.2 percent of Group s employees have higher university education, 31 of them are doctors of science, 26.2 percent have advanced vocational and 14.3 percent - secondary education. Distribution of the Group's employees by educational background, percent Aukštasis Aukštesnysis Vidurinis Kita Corporate governance 40

41 The majority of the Group s employees was male (75.8%), while female accounted for 24.2% of employees. Distribution of employees by gender, percent 24.2 Male 75.8 Female Distribution by gender of executives is also similar: 77.8 % of executives were male and 28.2% - female. Distribution of executives by gender, percent The total wage fund of the Company for January - December 2015 was EUR The following was the average monthly wage of the Company s employees in January December 2015, before taxes. Category of employees Average monthly wage, EUR Chief Executive Officer (CEO) Top-level managers Mid-level managers Experts, specialists As of 31 December 2015, there were employees in the Group. The total wage fund of the Group in January December 2015 was EUR thousand. The following was the average monthly wage of the Group employees in January December 2015, before taxes. Category of employees Average monthly wage, EUR Chief Executive Officer (CEO) Top-level managers Mid-level managers Experts, specialists Male Female Corporate governance 41

42 Developing organization and its culture After the reorganization of the governance of the Lietuvos Energija Group, the focus is placed on coordinated organisational development, management of human resources, creation of new organisational culture, efficiency of the organisation of activities, and building and maintaining of competences in During Q4 2015, Lietuvos energija drew up and started implementing a project for the improvement of human resources (HR) management. As a result of the project the functions of the human resources management will be defined as corporative (at Lietuvos energija), partnership (at companies of the Group), and administrative (Business Servicing Centre). A task under the project is the formation of the human resources management, in addition, internally the corporate managers will have in-house partners to consult on strategic personnel management issues. The in-house HR management partners will be able to allocate more time for daily professional development of managers, also leadership in organisations increasing the efficiency in the area of human resources management. For the third time already the company Group initiated the evaluation of the employee competences 360, in the course of which the employees will receive the feedback from their direct managers, subordinates and colleagues. It has successfully continued career management and rotation system structuring processes (84 employees rotated between Group companies in Q4 of this year, and 47 employees moved up the corporate ladder). Developing competences Lietuvos energija Group consistently dedicates efforts to the enhancement to the qualification of its employees, while ensuring that its employees hold all the certificates required for the work as required by law, and continue improving their work-related competences. As of the end of Q4 2015, total 1,643 employees have attended different training sessions hosted by Lietuvos energija Group. Individual companies held at the organizational level various general, professional and management competence trainings, such as leadership, team building, change management, communication, project management business process management and others. In Q4, Lietuvos Energija Group has formed a team of internal lecturers. The lecturers of the Academy will be delivering courses on managerial skills development, a course for new members of the Group, and will develop relevant competences of the current employees Rotation inside the Group 47 Career inside the company Corporate governance 42

43 Share of employees having participated in trainings, percent LE LESTO LEG LD LDT LITGAS ETP ET KER NTV TIC DLC VAC Internship opportunities The Group companies create conditions for students of higher education institutions and vocational schools to apply their theoretical knowledge and acquire practical skills. During Q4 of this year, 32 interns were accepted for practice: Number of interns 2 Number of employed interns Corporate governance 43

44 Supervisory bodies in listed Group companies On 3 December 2015, a new company AB Energijos skirstymo operatorius (ESO) was incorporated by way of merger and having reorganised AB LESTO and AB Lietuvos dujos; ESO started operating as of 1 January 2016, and n 31 December 2015, AB LESTO and AB Lietuvos dujos terminated their operations, and were removed from the register. As of 1 January 2016, the Supervisory Board functioning in ESO comprised: Name, surname Dalius Misiūnas Chairman Ilona Daugėlaitė Member Petras Povilas Čėsna Independent member Participation in the capital of the Company and the Group, % Term of office December December December 2019 Workplace Lietuvos energija, UAB CEO Lietuvos energija, UAB Organisational Development Director LITEXPO Chairman of the Board As of 31 December 2015, the Supervisory Board functioning in Lietuvos Energijos Gamyba, AB comprised: Name, surname Mindaugas Keizeris Chairman since Pranas Vilkas Independent member Participation in the capital of the Company and the Group, % Term of office August August 2013 August 2017 Workplace Lietuvos Energija, UAB, Strategy and Development Director - As of 31 December 2015, the Supervisory Board functioning in AB LESTO comprised: Name, surname Darius Kašauskas Chairman Petras Povilas Čėsna Independent member Ilona Daugėlaitė Member Participation in the capital of the Company and the Group, % Term of office - July September July Workplace Lietuvos Energija, UAB, Director of the Finance and Treasury Service LITEXPO Chairman of the Board Lietuvos Energija, UAB, Director of the Organisational Development Service As of 31 December 2015, the Supervisory Board of AB Lietuvos Dujos comprised: Participation in the capital of Name, surname the Company and the Group, Term of office Workplace Darius Kašauskas Chairman - % November Lietuvos Energija, UAB, Director of the Finance and Treasury Service Petras Povilas Čėsna Independent member Ilona Daugėlaitė Member - November November LITEXPO Chairman of the Board Lietuvos Energija, UAB, Director of the Organisational Development Service Dominykas Tučkus Member Dalius Misiūnas Chairman till August 2017 August Lietuvos Energija, UAB, Production and Service Director Lietuvos energija, UAB CEO Corporate governance 44

45 Management bodies of listed companies As of 31 December 2015, the Board of AB Energijos Skirstymo Operatorius comprised: Name, surname Liudas Liutkevičius Chairman Eglė Čiužaitė Member Dalia Andrulionienė Member Rytis Borkys Member Dalius Svetulevičius Member Aidas Ignatavičius Chairman Participation in the capital of the Company and the Group, % Term of office December December December December December Workplace AB Energijos skirstymo operatorius, CEO AB Energijos skirstymo operatorius, Director of Finance and Administration Division AB Energijos skirstymo operatorius, Director of Service Division AB Energijos skirstymo operatorius, Director of Network Development Division AB Energijos skirstymo operatorius,director of Network Operations Division AB Energijos skirstymo operatorius, CEO Head: Liudas Liutkevičius,CEO of AB Energijos skirstymo operatorius. As of 31 December 2015, the Board of AB LESTO comprised: Name, surname Aidas Ignatavičius Chairman Andrius Bendikas Member Sergejus Ignatjevas Member Virgilijus Žukauskas Member Participation in the capital of the Company and the Group, % Term of office - September September September September Head: Aidas Ignatavičius, CEO of AB LESTO AB LESTO, CEO Workplace AB LESTO, Director of Finance and Administration Department AB LESTO, Director of Customer Service Division AB LESTO, Director of Electricity Network Division As of 31 December 2015, the Board of AB Lietuvos Dujos comprised: Participation in the capital Name, surname of the Company and the Group, % Term of office Workplace Liudas Liutkevičius - November 2014 AB Lietuvos Dujos, Chairman Chief Executive Officer Giedrė Ginskienė Member - November Nemunas Biknius - November 2014 Member (till ) Valentina Birulienė Member Dalius Svetulevičius Member since November February Head: Liudas Liutkevičius, CEO of AB Lietuvos Dujos. AB Lietuvos Dujos, Director of Finance and Treasury Service AB Lietuvos Dujos, Director of Service Provision and Development Service AB Lietuvos Dujos, Director of Organisational Development Service AB Lietuvos Dujos, Director of Gas Network Service As of 31 December 2015, the Board of Lietuvos Energijos Gamyba, AB comprised: Participation in the capital of Name, surname the Company and the Group, % Term of office Workplace Juozas Bartlingas Chairman - September September 2017 Lietuvos Energijos Gamyba, AB, CEO Adomas Birulis Member Eglė Čiužaitė Member Darius Kucinas Member Vidmantas Salietis Member - September September September September September September September 2017 Lietuvos Energijos Gamyba, AB, Director of Business Development Department Lietuvos Energijos Gamyba, AB, Director of Finance and Legal Department Lietuvos Energijos Gamyba, AB, Director of Production Department Lietuvos Energijos Gamyba, AB, Director of Wholesale Electricity Trade Department Head: Juozas Bartlingas, CEO of Lietuvos Energijos Gamyba, AB. Corporate governance 45

46 Social responsibility and environmental protection Corporate governance 46

47 Social responsibility The Lietuvos Energija Group devotes special attention to social responsibility and seeks to ensure that operations of the Group are based on principles of responsible activities enshrined in the Global Compact initiated by the United Nations. The Global Compact includes implementation of 10 principles of responsible activity and encourages companies to avoid damage to the environment, community, and other businesses, and to join their effort with the United Nations, public authorities and nongovernmental organisations in dealing with social and environmental issues, thereby contributing to the development of the society and economic growth. The Global Compact is based on the principles of human rights, employee rights, environmental protection and anti-corruption. The model of socially responsible business of the Lietuvos Energija Group is implemented through targeted and consistent activities in the following areas: Environmental protection Relation with employees and society Market operations On 14 September 2015, a new publication 'LE knyga' (LE Book) was introduced to all employees of the AB Lietuvos energija Group. The 'LE knyga' is an employee guide which should become a desk book for all new, experienced and the incumbent employees. The book represents a summary of the key principles of corporate governance at AB Lietuvos energija, its corporate culture, objectives and values. The book is a quick reference source for the most important information required in daily activities. The Sustainable school ('Darni mokykla') project initiated by LESTO in early October 2015 was selected at the Swedish business award ceremony as the Social responsibility initiative of the Year. The purpose of the project is to promote the education institutions communities to use energy resources sustainably and to protect the environment. At a Securities Exchange event 'Nasdaq Baltic Market Awards 2015' of 28 January 2015, Energijos skirstymo operatorius won three awards for the progress achieved by Lietuvos dujos and LESTO in improving investor relations in Lietuvos dujos was included into the category of companies that have achieved the biggest progress; within the category the company ranked third. LESTO won the awards raking third in the category of the best annual corporate management report, and the best company in interactive investor relations. The Lietuvos Energija Group has a functioning zero-tolerance policy with regard to corruption, which applies to all employees of the Group. The policy emphasizes that Lietuvos Energija shall not tolerate any form of corruption - both direct and indirect. Group employees must perform their work and functions in a fair and transparent manner. More information on social responsibility, the entire zero zero-tolerance policy with regard to corruption and other information can be found on the Group s website at 47

48 Environmental protection The Lietuvos Energija Group encourages the use of work equipment reducing costs and pollution, sustainable use of natural resources, is actively looking for ways to minimise the impact of energy objects on people and the environment, and invests in the environmentally friendly modern technologies. In implementing different environmental projects, the Group aims at minimising the impact of energy objects on people and the environment, and also at encouraging the participation of society in different initiatives related to environmental protection. Waste management and sorting, efficient use of resources The Lietuvos Energija Group are implementing waste sorting initiatives, and have installed special waste sorting containers for sorting plastic and paper. The Group s company LESTO keeps encouraging its clients to give up paper bills and pay-books. The Environmental Management System complying with requirements of LST EN ISO 14001:2005 has been implemented in objects of Lietuvos Energijos Gamyba. Also, subdivisions of Lietuvos Energijos Gamyba implement the requirements for the atmospheric, surface water, groundwater and soil pollution monitoring and protection measures specified in the Integrated Pollution Prevention and Control (IPPC) permits. In 2015 the waste management entities at Elektrėnai compound were delivered for utilisation 39 t of biofuel ash, 132 t of sand waste, 440 t of liquid fuel ash, 7 t of absorbent waste, 1.5 t of etilenglicol waste, 22 t of chemical waste, t of activated carbon waste, t of ion exchange resins, 1,168 t of construction and insulation materials containing asbestos, 5 t of plastic and rubber wastes, 5 t of paper and cardboard waste, 2.5 t of timber waste; metal purchasers were delivered 763 t of electro-technical waste, 2,327 t of ferrous metal scrap, 134 t of copper scrap and 38 t of aluminium scrap. The household waste collected at the site are under the contract disposed of by a specialised company. Total 150 t of sulphite waste were delivered to Obenys site. A specialized company removes municipal waste collected in the territory of Kruonis PSPP on the basis of signed agreements. In 2015, tonnes of municipal waste were removed from the territory. Kruonis PSPP gave over tonnes of hazardous waste (of which oiled water accounted for 9.5 tonnes, fluorescent lamps tonnes, used batteries tonnes, oily cloths 0.4 tonnes, electronic scrap tonnes, oil sludge 11 tonnes and oil filters 0.01 tonnes) and 0,46 tonnes of non-hazardous waste for utilization, and sold tonnes of ferrous scrap. In 2015, Kaunas Algirdas Brazauskas Hydroelectric Power Plant handed over for utilisation t of hazardous waste, 0.88 t of non-hazardous waste and sold 2.12 t of ferrous metal scrap. Household waste collected in the territory of this object is removed by a specialised company on contractual basis; in 2015, about 6.48 of household waste was generated in the territory. Lietuvos Dujos has an implemented and certified environmental management system in accordance with ISO standard requirements, which is constantly managed and improved. The sertificate, that was granted on 8 of April 2015, will be valid until 7th of April One of the main objectives of Lietuvos Dujos in the field of control and minimization of atmospheric pollution using technical measures is the control of any possible gas leaks in the process of natural gas distribution. In order to ensure the reliability of gas systems, maintenance of gas pipelines and their facilities, repairs, reconstruction and modernization thereof is being performed. In 2015, gas emissions into the atmosphere at the fault of third persons amounted to MWh (compared to 671 MWh a year ago). Gas consumption for technologic needs related to gas emissions into the atmosphere totalled MWh ( MWh a year ago). Support Fund Pursuant to the Order of the Minister of Finance of the Republic of Lithuania, Lietuvos Energija has set up a support fund, which supports significant initiatives and projects valuable to the country and the society on behalf of the entire Group. Social responsibility 48

49 During the period from 8 to 22 of June, Lietuvos Energija Support Fund invited entities holding the status of support beneficiary and meeting criteria set by the fund to submit applications for support in This year, the management of the Fund determined the support for children suffering from oncological diseases, sports and culture to be priority areas of support at the national level. The Fund received a total of 90 applications, which were evaluated according to the set criteria. On 17 August 2015, the Fund allocated support for 19 projects and activities; the support amount totalled almost EUR At the national level, support was allocated for the project Šeimos Namučiai (English: Sweet Family Home) of the charity and support fund Mamų Unija (English: Mothers Union), participation of the disabled of Lithuania in Paralympic Games (Lithuanian Sports Federation of People with Disabilities), Š. Marčiulionis basketball academy, which trains basketball talents for cadet, junior and national Lithuanian men s basketball team, Kaunas men s basketball club Žalgiris, development of St. Christopher Chamber Orchestra in order to increase access to culture for residents of Lithuania and the event held by the Baltic Institute of Advanced Technology called Tyrėjų Naktis 2015 (English: Researcher s Night 2015). On 18 February 2016 the policy of support allocation was updated. Social initiatives On 17 October 2015, the entities of the Group joined the 'International corruption perception week'. The initiative is a continuation of the Group's employees in the area of perception of corruption. On the same week, the Group also joined the World Prematurity Day, then the conventional lighting of the building at Žvejų St. 14 was changed to bright purple. On 25 September 2015, the entities of the Lietuvos Energija Group were active participants at an annual Friday event 'Investigator's Night'. The objects offered attracted a great deal of attention of the participants and organisers of the event. Six tours were arranged at one of the most modern regional data centres Data Inn. The tour 'The Light Guard' organised by LESTO was attended by 24 participants, among them a class of teenagers from the Vilnius Engineering Lyceum (future engineers). Two tours were arranged at the practical training site of AB Lietuvos dujos in Panevėžys, the tours were attended by 44 participants who enjoyed the most interesting guided tours and picturesque simulations. The Group actively contributed to the event of the traditional Days of Energy Professionals organised by the National Lithuanian Energy Association (NLEA). On April 2015, free educational events were hosted in the Lithuanian Energy and Technology Museum excursions for the public and a concert of the Latvian instrumental cello trio Melo-M. During the excursions, visitors were able to get familiarised with the Lithuanian energy system and its topicalities, also, to learn more about the energy specialist s occupation. In order to strengthen ties with Elektrėnai region community, where the main activities of Lietuvos Energijos Gamyba are focused, traditional events Lietuvos Energijos Gamyba Presents are held. In 2015, four meetings were arranged: one of them was with players of Kaunas basketball club Žalgiris and Elektrėnai ice hockey club Energija, with the bard Andrius Kulikauskas, another one with Kaunas University of Technology scientists and inventors and last one with participants of the expedition Misija Sibiras (English: mission Siberia). A total of 13 cycle meetings were held so far. On 19 July, in commemoration of the 56th anniversary when the old Nemunas bed was reimpounded and the Kaunas lagoon overflew and when the currently operating A. Brazauskas HPP and Kruonis PSPP were built, an animated graphics clip was presented, which briefly and clearly told about the largest energy object in the country using renewable sources for electricity production, namely, A. Brazauskas HPP in Kaunas. This is the third animated graphics movie telling about divisions of Lietuvos Energijos Gamyba. The Group ensures a possibility to charge electric cars in a rapid charging station free of charge. In July of 2014, LESTO opened up the first electric vehicle rapid charging station in Vilnius, J. Lelevelio Street, together with its partners Nissan and NT Valdos. The station seems to have a flow of regular users - each month about 1000 kwh of electricity is charged here. Currently, Energijos Tiekimas, the largest Lithuanian capital electricity supplier, ensures a free of charge supply of electricity to the station. Social responsibility 49

50 In order to contribute to raising awareness about energy among society and young generation in particular, Lietuvos Energijos Gamyba welcomes free of charge excursions to the objects under its control: the combined cycle unit, Kruonis Pumped Storage Power Plant and Kaunas Algirdas Brazauskas Hydroelectric Power Plant. In 2015, the power plants were visited by almost visitors. Long-term projects The large scale long-term social responsibility projects for children, youth and the general public implemented by the Group s company LESTO are characterised by active involvement of communities and different social groups, and ideas of safety, energy efficiency and conservation of environment. Operation This project is aimed at promoting responsible behaviour with power grid installations, raising awareness of people about safe behaviour with electrical equipment and reducing negative consequences arising from irresponsible or malicious behaviour of residents. Considering that the greatest support in fighting thefts of electricity is the civil consciousness of the citizens, LESTO continued its cooperation with the Association of Managers of Local Authorities of Lithuania in September the representatives of the Company met with 38 Managers of local authorities of Jurbarkas, Šilalė, Pagėgiai ir Tauragė regions. The agenda of the meetings included presentations of the current situation, and discussions on the prevention of thefts from and accidents at transformation stations. Not More Than Needed. The project is aimed at developing rational energy use traditions of the society. In October-November LESTO in cooperation with its partners held a cycle of conferences 'As much as needed for industry' (Lith. Tiek, kiek reikia pramonei). The purpose of the series of -events launched in the major cities of Lithuania was to promote the national business, and especially industry entities, and promote a rational use of energy resources. The events became a forum for experts and representatives of companies to share their experience, make presentations on the advantages of LED lightings, compensation of reactive electricity, and energy audit. At events of 2015, presentations and topics for discussion concerned not only the consumption of electricity, but also of natural gas. Total 400 representatives of different industry entities attended the 5 conferences held within the framework of the project, most of then chief energy specialists and managers. Social responsibility 50

51 Key information about the Company and the Group The Interim Report of Lietuvos Energija and its subsidiaries has been prepared in observance of Resolution No of the Government of the Republic of Lithuania of 14 July 2010 On Approval of the Guidelines for Ensuring the Transparency of Activities of the State-Owned Enterprises and Appointment of the Coordinating Authority and is published on the Company s website at Company s name Lietuvos Energija, UAB Company s code Authorised capital Paid-up authorised capital Address EUR thousand EUR thousand Telephone (8 5) Fax (8 5) Website Legal form Date and place of registration Register collecting and storing data about the Company Žvejų g. 14, LT-09310, Vilnius, Lithuania biuras@le.lt Private Limited Liability Company Registered on 28 August 2008 in the Register of Legal Entities Register of Legal Entities, SE Centre of Registers On 13 February 2013, the Company s shares were transferred to the Ministry of Finance under right of trust. On 30 August 2013, UAB Visagino Atominė Elektrinė was renamed to Lietuvos Energija, UAB. On 31 December 2015, the authorised capital of the Company was divided into ordinary registered shares with par value of LTL 1 (EUR 0.29) each. All shares are paid up in full. Shareholders of the Company Republic of Lithuania, represented by the Ministry of Finance of RL Share capital (EUR thousand) % Key information about the Company and the Group 51

52 Information about subsidiaries, branches and representative offices Companies directly or indirectly owned by Lietuvos Energija, UAB at the end of the reporting period (31 December 2015): Authorised capital Head office address of the Effective shareholding, Company (EUR thousand) Core activity company (%) Lietuvos energijos gamyba, AB Elektrinės g. 21, Elektrėnai 96, Electricity generation, supply, import and export, as well as trade in electricity AB LESTO (till ) Aguonų g. 26, Vilnius 94, Electricity supply and distribution to consumers AB Lietuvos dujos (till ) Aguonų g. 24, Vilnius 96, Natural gas supply and distribution to consumers NT Valdos, UAB Geologų g. 16, Vilnius Disposal of real estate, other related activities and provision of services UAB Duomenų logistikos centras A. Juozapavičiaus g. 13, Vilnius 79, ITT maintenance services UAB ELEKTROS TINKLO PASLAUGOS (till ) UAB Kauno energetikos remontas (till ) Motorų g. 2, Vilnius Construction, repairs, technical maintenance of power grids and related installations, connection of consumers to power grids Chemijos g. 17, Kaunas Repairs of electric installations, manufacture of metal structures UAB LITGAS Žvejų g. 14, Vilnius 66, Supply of LNG via the LNG terminal and trade in natural gas UAB Elektroninių mokėjimų agentūra Žvejų g. 14, Vilnius Payment collection services are estimated Energijos tiekimas UAB P. Lukšio g. 1, Vilnius Supply of electricity and natural gas VšĮ Energetikų mokymo centras Jeruzalės g. 21, Vilnius Professional development and continuing vocational education and training of energy sector specialists Geton Energy OÜ Narva mnt 5, Talinas Supply of electricity Geton Energy SIA Bezdelingu 12, LV-1048, Ryga Supply of electricity UAB Technologijų ir inovacijų centras A. Juozapavičiaus g. 13, Vilnius 97, Provision of ITT and other services UAB VAE SPB Smolensko g. 5, Vilnius Advisory business and other management activities UAB Verslo aptarnavimo centras P. Lukšio g. 5 b, Vilnius 97,0 580 Services of organising and carrying out public procurement and administration of personnel UAB Lietuvos dujų tiekimas Žvejų g. 14, Vilnius Gas supply Lietuvos energijos paramos fondas Žvejų g. 14, Vilnius Allocation of support for projects, initiatives and activities important to the public UAB Vilniaus kogeneracinė jėgainė Žvejų g. 14, Vilnius Modernization of the district heating system of the city of Vilnius UAB Kauno kogeneracinė jėgainė Žvejų g. 14, Vilnius Modernization of the district heating system of the city of Kaunas Key information about the Company and the Group 52

53 Information about securities of the Group Shares of LESTO, Lietuvos Energijos Gamyba and Lietuvos Dujos are listed on the Main List of NASDAQ OMX Vilnius. The trade in shares of the companies was started on 17 January 2011, 1 September 2011 and 13 April 2011, respectively. The shares of the companies are traded solely on the Nasdaq Vilnius stock exchange. Structure of the authorised capital and shareholders having held more than 5 percent of the Issuer s authorised capital according to the data of 31 December 2015 Company Total nominal value of shares, EUR ISIN code Ticker symbol Trade list Shareholder name and surname (company name) Share of votes granted by owned shares, %. AB LESTO LT LES1L BALTIC MAIN LIST Lietuvos Energija, UAB 94.39% Lietuvos Energijos Gamyba, AB LT LNR1L BALTIC MAIN LIST Lietuvos Energija, UAB 96.13% AB Lietuvos Dujos LT LDJ1L BALTIC MAIN LIST Lietuvos Energija, UAB 96.64% Information about securities of the Group 53

54 Agreements with intermediaries of public trading in securities Lietuvos Energija has not concluded any agreements with intermediaries of public trading in securities, because its securities are not traded on the stock exchange. Group companies: Lietuvos Energijos Gamyba, AB On 1 September 2011, shares of Lietuvos Energijos Gamyba were included in the Main List of NASDAQ OMX Vilnius Stock Exchange. As of 31 December 2015, the company had issued ordinary registered shares with par value of EUR 0.29 per share. Issue ISIN code LT Since 9 February 2016 Lietuvos Energijos Gamyba has concluded securities accounting agreements on the accounting of securities issued by the issuer and management of personal securities accounts with AB SEB bank. Till 8 February 2016, securities accounting agreements on the accounting of securities issued by the issuer and management of personal securities accounts were held in Swedbank, AB. AB Lietuvos Dujos On 1 January 2008, shares of AB Lietuvos Dujos were included in the Main List of NASDAQ OMX Vilnius. The company s shares are traded on NASDAQ OMX Vilnius Stock Exchange. As of 31 December 2015, the company had issued ordinary registered shares with par value of EUR 0.29 per share. Issue ISIN code LT AB Lietuvos Dujos has concluded an agreement on the accounting of securities issued by the company and management of personal securities accounts, payment of dividends to minority shareholders and provision of other related services with AB SEB Bank. AB LESTO Since 17 January 2011, ordinary registered shares of LESTO have been listed on the Main List of NASDAQ OMX Vilnius Stock Exchange. As of 31 December 2015, the company had issued ordinary registered shares with par value of EUR 0.29 per share. Issue ISIN code LT The authorised manager of securities accounts of LESTO is AB SEB Bank. Agreements with intermediaries of public trading in securities 54

55 Main Group events until the date of the Report Launch of electricity exchange with the customers who have installed small solar power plants and intend to develop electricity production using the existing electricity network infrastructure. (01 October 2015). Lietuvos Energijos Gamyba sold the commercial wholesale electricity trade operations to Energijos Tiekimas. The maximum value of the transaction might reach EUR 21.1 million. (12 October 2015) Lietuvos energija and Fortum Heat Lietuva concluded an agreement regarding investment in Kauno kogeneracinė jėgainė (Kaunas cogeneration power plant). (15 October 2010) Lietuvos energijos gamyba issued the certificate on the take-over of the new biofuel power plant in Elektrėnai to the general construction contractor; the operation of the facility was fully handed over to the production personnel. (22 October 2015) The NCC established the ceiling prices for the reserve capacity securing service provided by Lietuvos Energijos Gamyba for (22 October 2015) The NCC approved the VIAP budget of the electricity sector for 2016 total EUR 139,981. Within this amount EUR million were allocated as support to secure the energy system reserve service provided by Lietuvos Energijos Gamyba. (26 October 2015) election of the Board of Vilniaus kogeneracinė jėgainė: Mindaugas Keizeris, Nerijus Rasburskis, Valdas Lukoševičius (independent member). (26 October 2015) The Board of Lietuvos energija decided to change the name of UAB Gotlitas, marking the payment entity project into UAB Elektroninių mokėjimų agentūra (EMA); the company's authorised capital of the company was increased to EUR 700,000. EMA Board elected: Darius Kašauskas and Giedrė Maumevičiūtė. (26 October 2015) Lietuvos Energijos Gamyba circulated a material event notice regarding the Resolution of the Government of the Republic of Lithuania 'Regarding the buy-out of shares' obligating the Company to buy out the shares of the minority shareholders of the expired legal entity AB Lietuvos elektrinė, and establishing the price of the shares to be redeemed in the mandatory manner. (26 October 2015) The NCC established the ceiling price for the distribution of natural gas for 2016 EUR 7.92/MWh. (29 October 2015) Lietuvos dujos transferred shares of UAB GET Baltic accounting for 34 % of its authorised capital to AB Amber Grid. The shares were sold at the market price established by an independent asset valuer EUR 130,832. (06 November 2015) Lietuvos energija was ranked fifth among Lithuanian companies in Central Europe TOP 500 published by an audit and consultation company Deloitte. (12 November 2015) The Vilnius Regional Administrative Court rejected the appeals of Lietuvos energijos gamyba regarding Resolution No. O3-875 of 30 October 2014 of the NCC 'On the recalculation of the component of the heat production price of AB Lietuvos energijos gamyba, and AB Lietuvos elektrinė', and the annulment of Resolution No. O3-934 of 11 December 2014 'Regarding the unilateral establishment of the heat production price by AB Lietuvos energijos gamyba and AB Lietuvos elektrinė. (17 November 2015) Dalius Misiūnas resigned from the Supervisory Board of Lietuvos energijos gamybos. His candidature was approved at the Supervisory Board of Energijos skirstymo operatorius. (18 November 2015) LESTO signed with Pohjola Bank Plc. signed a contract regarding granting of a long-term loan of EUR 70 m. (19 November 2015) The European Commission authorised the State-managed group Lietuvos energija and UAB Fortum Heat Lietuva to implement concentration regarding UAB Kauno kogeneracinė jėgainė. (25 November 2015) 1 December Lietuvos dujos drew up an investment plan for , presenting the objectives, directions and the scope of the longterm investment policy. In , the demand for investment into the distribution network will reach EUR m, or, on average, EUR 14.1 m per year. (1 December 2015) Main Group events until the date of the Report 55

56 The appeal of Lietuvos energijos gamyba regarding the decision of the Vilnius Regional Administrative Court of 17 November 2015 was accepted. On 17 November 2015, the Vilnius Regional Administrative Court rejected the appeals of the Company regarding the annulment of Resolution No of 30 October 2014 and Resolution No of 11 December 2014 of the NCC. (02 December 2015) shareholders of LESTO and Lietuvos dujos approved the reorganisation of the Company into ESO. An extraordinary general meeting of shareholders elected the Supervisory Board, consisting of: Dalius Misiūnas, Ilona Daugėlaitė and Petras Povilas Čėsna. Dalia Andrulionienė, Eglė Čiužaitė, Rytis Borkys and Dalius Svetulevičius elected as members of the Board. (03 December 2015) The authorised capital of Energijos tiekimas was increased to EUR 17 million; the Board of Lietuvos energija approved the conclusion of guarantee and surety agreements with the Company. (07 December 2015) 8 December Aidas Ignatavičius submitted an application on resigning from the position of the Chairman of the Board and the CEO of LESTO and ESO as of 1 January The Board of Lietuvos energijos gamyba passed the decision to terminate, as of the New year, the operation of Units 5 and 6 of the reserve power plant in Elektrėnai. (8 December 2015) A biofuel boiler station manager by Lietuvos energijos gamyba in Elektrėnai pledged to Nordea Bank AB. (9 December 2015) AB Energijos skirstymo operatorius (ESO) registered in the Register of Legal Entities (11 December 2015) ESO issued the certificates of the State Energy Inspectorate to operate electricity and natural gas facilities. (16 December 2015) Dominykas Tučkus became a member of the Supervisory Board of Lietuvos energijos gamybos. (21 December 2015) The Vilnius Regional Administrative Court rejected the complaints of LESTO requesting partial annulment of the Resolutions of the NCC of 17 October 2014, whereby in the opinion of the Company the Commission incorrectly established the ceiling prices of the electricity distribution service for (22 December 2015) The Bank of Lithuania issues the licence for the operations of a payment agency Elektroninių mokėjimų agentūros. (22 December 2015) The NCC changed the ceiling public price of electricity for 2016 (8.086 ct/kwh (excl. VAT) from medium-voltage networks, ct/kwh (excl. VAT) from low voltage networks). (23 December 2015) The immovable property of Lietuvos dujos acquired by NT Valdos; transaction value EUR 16.5 million. (23 December 2015) The reorganisation of LITGAS and Lietuvos dujų tiekimas by way of merger postponed. (28 December 2015) Lietuvos energijos gamyba and Energijos tiekimas signed the business transfer-acceptance statement. Under the statement as of 1 January 2016 Energijos tiekimas took over the ownership rights to the commercial part of the wholesale trade in electricity. (30 December 2015) Mindaugas Kvekša elected member of the Board of Lietuvos energijos gamyba, Mindaugas Kvekša was holding the position of the Director of the Finance and Administration Department. (31 December 2015) Procurement of the key equipment of UAB Kauno kogeneracinė jėgainė: boiler, steam turbine, generator, smoke cleaning equipment, cranes and engineering services. (31 December 2015) A new company Energijos skirstymo operatorius (ESO) established on the basis of LESTO and AB Lietuvos dujos started its operations. A new self-service website launched having merged two other websites: and deklaravimas.dujos.lt. (1 January 2016) Start of operations of Energetikos paslaugų ir rangos organizacija (EnePRO) established on the basis of Elektros tinklo paslaugos and Kauno energetikos remontas. (1 January 2016) Lietuvos energija announced a tender for a two years' duration overdraft of EUR 60 million. The limit will be available for all companies of the Group. (5 January 2016) Launch of trading in shares of ESO at Nasdaq Vilnius Exchange. ESO logo lightened up at the Times Square in New York. (11 January 2016) Mindaugas Keizeris recalled from the Boards of Lietuvos dujų tiekimas and LITGAS, Dominykas Tučkus appointed to replace Mindaugas Keizeris. (11 January 2016) The Lithuanian Consumer Association applied to Court regarding the overpayment for natural gas allegedly not refunded by Lietuvos dujų tiekimas. (12 January 2015) Main Group events until the date of the Report 56

57 Vilnius Regional Court rejected the claim of Vilniaus energija to Lietuvos dujų tiekimas regarding the overpayment of EUR 19 million for gas. (21 January 2015) Lietuvos energija acquired two companies managing wind plant farms in Lithuania and Estonia UAB Eurakras and Tuuleueenergija OU. (21 January 2016) Energijos tiekimas joined the electricity derivative financial instrument exchange Nasdaq Commodities. (28 January 2016) Announcement of the immovable property auction to be held by NT Valdos on 26 February (01 February 2015) Start of the buy-out of shares of minority shareholders of the former public company LIETUVOS ELEKTRINĖ. The determined number of the ordinary registered shares of Lietuvos energijos gamyba will be purchased for the established fixed price EUR ; interested persons may apply concerning the shares from 9 February 2016 until 9 May 2016 (2 February 2016). new Board of Energijos tiekimo elected: Dominykas Tučkus, Ieva Lauraitytė and Edvardas Jatautas (independent member). (2 February 2016) Vilnius Regional Administrative Court rejected the appeal of LESTO requesting to repeal the Resolution of of the NCC 'Regarding the planned inspection of AB LESTO'. (5 February 2016) The National Electricity Association and the Lithuanian Gas Association merged and became the National Energy Association of Lithuania. (8 February 2016) LITGAS signed an updated assigned supply contract with a Norwegian company Statoil amendments to the contract will help to reduce the Klaipėda LNG terminal maintaining costs. (18 February 2016) The NCC concluded that Lietuvos dujų tiekimas exercises significant influence in wholesale and retail market, however, within the period being reviewed , did not abuse its position, and did not apply unreasonably high prices or price pressure. (18 February 2016) Augustas Dragūnas appointed a member of the Board and the Director of the Finance and Administration Service of ESO. Augustas Dragūnas replaced Eglė Čiužaitė who was appointed the Chairman of the Board and the General Manager of Lietuvos energijos gamyba, after awarding the resignation application of the former General Manager, and Vidmantas Salietis, a member of the Board. (19 February 2016) Lietuvos Energija, UAB Chief Executive Officer 26 February 2016 Dr. Dalius Misiūnas Main Group events until the date of the Report 57