MANAGEMENT BOARD'S REPORT ON THE ACTIVITIES OF KOGENERACJA GROUP

Transcription

1 MANAGEMENT BOARD'S REPORT ON THE ACTIVITIES OF KOGENERACJA GROUP 1st half-year of

2 Table of contents I. Group profile Legal basis Group characteristics Shareholders of the Parent Company Composition of the Management Board and the Supervisory Board of the Parent Company Remuneration, awards and benefits for directors Agreements between the Company and the Executive Directors providing for payment of compensation KOGENERACJA Group Employment... 9 II. Key production and financial figures Key products Key economic and financial figures of the Group Extraordinary circumstances which materially affected the Group s trading performance Structure of assets and liabilities in the consolidated statement of financial position Related party transactions Guarantees given and received Financial results presented in the report vs. the published performance forecast Assessment of financial resources management Loans incurred and terminated Loans granted Events with significant impact on the Group's activities Factors that will affect the Group s performance in the subsequent periods Description of key risks and threats Litigations Shares of KOGENERACJA S.A. or its subsidiaries held by directors Dividend declared or paid III. Share price Quotation of the KOGENERACJA shares on Warsaw Stock Exchange Respect Index Ratio calculation methodology

3 I. Group profile 1. Legal basis The Management Board's Report was prepared pursuant to 90 section 1 point 3 of the Finance Minister s Ordinance of 19 February 2009 on current and periodic information provided by issuers of securities and conditions of recognition as equivalent information required by the law of a non-member State (Journal of Laws of 2014 item 133 with amendments) ( Ordinance ). 2. Group characteristics The parent company of KOGENERACJA Group ( the Group ) is Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. (KOGENERACJA S.A., Parent Company, Company ), joint stock company registered in Poland, having its registered office in Wrocław at ul. Łowiecka 24. The Company operates from three production plans with a joint electric capacity of MW and heat capacity of MWt, as per the licences held. The plants are located in Wrocław (EC Wrocław and EC Zawidawie) and in Siechnice near Wrocław (EC Czechnica). These heat and power plants are the central heat sources for Wrocław, providing the city with heating, domestic hot water and industrial steam as well as with electricity as part of the national energy infrastructure. Heat and electricity are mainly produced in co-generation, which ensures that the average yearly production capacity is high and the use of chemical energy of primary fuels is the most effective in the sector. The Group comprises Elektrociepłownia Zielona Góra S.A., whose shares were acquired in The company produces electricity and heat and after the merger with Zielonogórska Energetyka Cieplna Sp. z o.o. in 2009 also distributes heat. Non-consolidated members of KOGENERACJA Group also include: EDF Paliwa Sp. z o.o. (supply of coal and biomass) and EDF Polska S.A. (trading in electricity and certificates; provision of the so-called technical and non-technical support services to the Parent Company and its subsidiary EC Zielona Góra S.A.). 3. Shareholders of the Parent Company Below is a list of the shareholders holding directly or indirectly through subsidiaries at least 5% of the number of votes at the General Meeting of KOGENERACJA S.A. Status as at the date of presentation of the report for H number of votes at the GSM presented in the 1th quarter report % of votes at the GSM presented in the 1th quarter report change of % in the period number of votes at the GSM at the report filing date % of votes at the GSM at the report filing date EDF Polska S.A , ,74 EDF International S.A.S , ,67 EDF Investment III B.V , ,59 Aviva OFE BZ WBK , ,99 OFE PZU "Złota Jesień" , ,79 Nationale Nederlanden OFE , ,38 The share held by Nationale-Nederlanden OFE and OFE PZU Złota Jesień was updated at the General Meeting of the Company held 20 April 2017 (Current Report 10/2017). 3

4 4. Composition of the Management Board and the Supervisory Board of the Parent Company a. Composition of the Management Board Due to expiry of the mandates of the Management Board members of the previous term of office as at the date of the Company's Annual General Meeting for 2016, at the meeting of 10 March 2017, the Supervisory Board appointed the following Management Board members (Current Report 7/2017): 1. Wojciech Heydel Management Board President 2. Marek Salmonowicz Management Board Member 3. Maciej Tomaszewski Management Board Member 4. Krzysztof Wrzesiński Management Board Member b. s in the Supervisory Board The composition of the Supervisory Board as at 30 June 2017 was as follows: 1. Adriana Carrez Deputy Chairman of the Supervisory Board 2. Nicolas Deblaye Supervisory Board Member 3. Thierry Doucerain Supervisory Board Chairman 4. Raimondo Eggink Supervisory Board Member 5. Mariusz Grodzki Supervisory Board Member 6. Laurent Guillermin Supervisory Board Member 7. Roman Nowak Secretary of the Supervisory Board On 20 April 2017, the Company s Annual General Meeting was held, and on that day the mandates of three Supervisory Board members expired. The Annual General Meeting: granted discharge to all the Supervisory Board members; re-appointed, as of 20 April 2017, (pursuant to 13(3) of the Company's Articles of Association), the previous Supervisory Board members (AGM Resolutions 8A, 8B/2017, Current Report 9/2017): 1. Adriana Carrez 2. Laurent Guillermin. In H1 2017, no changes were made to the rules of appointing and removing the executives or the rights vested in them, particularly the rights to issue or redeem shares. c. The Extraordinary General Meeting of KOGENERACJA S.A. In H1 2017, no Extraordinary General Meeting was held. d. Annual General Meeting of KOGENERACJA S.A. On 20 April 2017, an AGM of the Company was held, solely to transact the business stipulated in Article 395(2) of the Commercial Companies Code (Current Report 9/2017). On 20 April 2017, the AGM granted discharge to all the Management Board and Supervisory Board members for performance of their duties (Current Report 9/2017) and appointed Management Board members (Current Report 7/2017) and Supervisory Board members (Current Report 12/2017). 4

5 5. Remuneration, awards and benefits for directors The total remuneration (overall pay including benefits) of the Parent Company s executive and non-executive directors was as per the table below. The conditions and levels of remuneration for the Management Board were described in detail in the Management Board s Report for in PLN thousand For 6-month-period ended 30 June 2017 For 6-month-period ended 30 June 2016 Management Board- salaries in the period of service Management Board - potential benefits Supervisory Board The gross value of the remuneration, awards and benefits granted in H and 2016 to the executive directors of the Company is as follows: For the period from 1 January to 30 June 2017 (during the term of service) in PLN thousand For the period: Base salary Target bonuses Total salary Other benefits Benefits received from subsidiaries Total benefits in 2017 Wojciech Heydel Marek Salmonowicz Maciej Tomaszewski Krzysztof Wrzesiński For the period from 1 January to 30 June 2016 (during the term of service) in PLN thousand For the period: Base salary Target bonuses Total salary Other benefits Benefits received from subsidiaries Total benefits in 2016 Wojciech Heydel Marek Salmonowicz Maciej Tomaszewski Krzysztof Wrzesiński

6 The gross value of the remuneration, awards and benefits granted in H and 2016 to the non-executive directors of the Company is as follows: Remuneration of the Supervisory Board (during the term of service) in PLN thousand For the period: Benefits for 6-month-period ended 30 June 2017 Additional benefits Total Benefits for 6-month-period ended 30 June 2017 Adriana Carrez Nicolas Deblaye Thierry Doucerain Raimondo Eggink Mariusz Grodzki Laurent Guillermin Roman Nowak Remuneration of the Supervisory Board for the period from 1 January to 30 June 2016 (during the term of service) in PLN thousand For the period: Benefits for 6-month-period ended 30 June 2016 Additional benefits Total Benefits for 6-month-period ended 30 June 2016 Ryadh Boudjemadi Adriana Carrez Nicolas Deblaye Thierry Doucerain Raimondo Eggink Mariusz Grodzki Laurent Guillermin Roman Nowak Agreements between the Company and the Executive Directors providing for payment of compensation in PLN thousand Target bonuses for 2017 Pension and retirement benefits Total Wojciech Heydel Marek Salmonowicz Maciej Tomaszewski Krzysztof Wrzesiński

7 Subsidiaries - consolidated Connected entities - not consolidated KOGENERACJA S.A. - Management Board s Report on the Group Activities Between the Company and the CEO and Management Board members individual non-competition agreements were signed, which prohibit them from undertaking any activity that would be in competition against the Company during the term of their employment and within 12 months after termination of employment. The non-competition ban applies in Poland, except the EDF Group companies. The agreements provide for a compensation equal to 100% of the gross basic salary paid under the employment contract and the management contract for the last 12 months preceding the termination of such contracts. Additional bonus (above the standard annual MBO award) in the amount up to ca PLN million can be paid for the President of the Management Board in a case of successful realization of the sale of EDF assets in Poland. 7. KOGENERACJA Group a. Ultimate parent KOGENERACJA S.A. and its subsidiary EC Zielona Góra S.A. were in the reporting period consolidated by EDF S.A., France, using the line-by-line method. EDF S.A. is an integrated entity with a presence in all branches of the power sector: generation, transmission, distribution, trading and sale of energy. EDF is Europe's largest electricity producer. In France, most of EDF Group s generating power originates from nuclear and hydro power plants. The Group provides energy and other services to 27.8 million customers in France. In 2016, the Group's consolidated revenues amounted to EUR 71.2 billion. EDF is listed on Paris Stock Exchange. b. Group structure Graphical structure of the Group and KOGENERACJA s share in the net worth of its individual subsidiaries are presented in the chart below. As at 30 June 2017 KOGENERACJA S.A. 98,40% EC Zielona Góra S.A. EDF Paliwa Sp. z o.o. EDF Polska S.A. LEGEND: Shares of KOGENERACJA S.A. EDF Polska S.A. and EDF Paliwa Sp. z o.o. are reported as connected companies because KOGENERACJA S.A. enters into material transactions with these entities. c. Entities covered by the consolidated financial statements KOGENERACJA S.A. Parent of the Group, as at 30 June 2017, included in its consolidated financial statements one subsidiary: EC Zielona Góra S.A. full consolidation. 7

8 d. Subsidiaries The tables below show the percentage share in the share capital of the Group subsidiaries and the nominal value of the shares held by KOGENERACJA S.A. as at 30 June 2017 and 31 December As at 30 June 2017 and 31 December 2016 Share capital Number of shares Nominal value of a share No of shares held by KOGENERACJA S.A. (directly) Number of shares Nominal value of shares (PLN) % of capital EC Zielona Góra S.A ,40 e. Activities of the subsidiaries EC Zielona Góra S.A. EC Zielona Góra S.A. produces electricity, and produces and distributes heat. Until the end of July 2004, electricity and heat were co-generated using coal as production fuel. When in August 2004 the CC Gas Unit was commissioned, the proportions of electricity and heat reversed and currently predominantly electricity is produced in the CC Gas Unit in the process of partial co-generation using gas fuel (natural gas from local sources). The installed electricity generation capacity is 198 MW (CC Gas Unit). The installed heat generation capacity is MW t, including: MW t (CC Gas Unit), MW t (gas and oil boiler plant), MW t (local gas-fired boiler plants). The company is the key source of heat and domestic hot water supplies for the city of Zielona Góra, and since 1 April 2009 it has also been a heat distributor. f. Other connected companies As at 30 June 2017, KOGENERACJA S.A. did not have shares in other connected companies. g. Activities of the other connected entities EDF Paliwa Sp. z o.o. The company s core business is the supply of steam coal and biomass for companies active in the Polish energy market, including for EDF Group companies in Poland. EDF Polska S.A. EDF is the largest producer of combined electricity and heat, providing heat to Kraków, Gdańsk and Gdynia. It also has a systemic coal-fired power plant in Rybnik. In Poland, EDF Group has 10% share of the electricity market and 15% share of the network heat market. The Group also includes EDF Paliwa, a service provider that purchases production fuel coal and biomass, and EDF Ekoserwis, which provides services relating to management of combustion waste as well as comprehensive services (in the area of coal-handling, ash removal and landfill management) to CHP and power plants. Furthermore, EDF in Poland trades in electricity produced by EDF Group companies in Poland and provides support services to EDF Group companies. 8

9 h. s in the Group structure In H1 2017, no changes were made in the Group s structure. i. Equity investments within the Group In H1 2017, the Parent Company did not make any equity investments. j. Other equity investments As at 30 June 2017, the Company did not have any other equity investments. 8. Employment As at 30 June 2017 and as at 31 December, in the years , the employment levels in Parent Company were as shown in the diagram below. As at 30 June 2017 and 31 December in the years , the employment levels in KOGENERACJA Group were as shown in the diagram below. The decrease in employment in the Group is a result of the restructure in the Parent Company and in EC Zielona Góra S.A. (establishment of the Shared Services Centre for EDF Group in Kraków, Poland, and transfer of employees under Article 23 1 of the Labour Code) and results from changes in the Group structure (including the sale of PPO Siechnice Sp. z o.o. in May 2012 and the sale of Renevis in June 2014, now EDF Ekoserwis Sp. z o.o.). 9

10 II. Key production and financial figures 1. Key products a. Key products - KOGENERACJA S.A. The company's key products are heat and electricity as well as energy origin certificates: green, red and yellow certificates. The sales of both heat and electricity (in production units) in the first half of 2017 and 2016 are presented in the table below. Unit 30 June June 2016 (number) Sales of heat TJ Sales of electricity MWh Totale sales of products in units TJ Sale of heat in the first half of 2017 was TJ and increased by 5% year-on-year. The increase is an effect of new heat connections and lower average temperatures. Sale of electricity in the first half of 2017 was MWh, up MWh, i.e. 3 %, year-on-year due to higher heat sales. Total sale of finished goods corresponding period. in the reporting period was TJ (including TJ for heat), up 4% on the Revenues from the sale of finished goods of the Parent Company in H and in H were as presented in the table below. 30 June June 2016 Value (in PLN thousand) Structure (%) Value (in PLN thousand) Structure (%) (value) Sales of heat Sales of electricity (1 490) Ancillary servicessales of electricity (944) Certificates (1 513) Other revenues (493) Revenues from the sale of finished goods

11 b. Key products of EC Zielona Góra S.A. The company's key products are heat and electricity as well as energy origin certificates: so called yellow certificates. Like KOGENERACJA S.A., EC Zielona Góra S.A. produces electricity and heat, but in different proportions, i.e. with the predominance of electricity. EC Zielona Góra S.A. produces energy based on natural gas in the CC Gas Unit. The sales of both products in EC Zielona Góra in the first half of 2017 and 2016 are presented in the table below. Unit 30 June June 2016 (number) Sales of heat TJ Sales of electricity MWh (29 273) -cc gas unit MWh (70 903) -re sale MWh Totale sales of products in units TJ (71) In H1 2017, the sale of heat was 752 TJ and increased by 34 TJ (5%) year-on-year. The increase in heat sales was primarily driven by the higher demand for heat from buyers, mainly due to favourable weather conditions in the reporting period (average temperatures in the individual months of H1). In H1 2017, the sale of electricity was MWh and was lower by MWh, i.e. by 4%, year-on-year. The sale of electricity was an effect of the planned idleness of the CC Gas Unit connected with its annual maintenance (in 2016, the unit was out of service in July and August). Total sale of finished goods in the reporting period was TJ, down 2.1% (71 TJ) on the first half of Revenues from the sale of finished goods of the subsidiary in H and in H were as presented in the table below. 30 June June 2016 Value (in PLN thousand) Structure (%) Value (in PLN thousand) Structure (%) (value) Sales of heat Sales of electricity (17 030) Certificates Other revenues (2 519) Revenues from the sale of finished goods (11 640) Other revenues from the sale of finished goods mainly included the estimated gas compensation payable under Article 46(5) of the PPA Act. 11

12 2. Key economic and financial figures of the Group a. Elements of consolidated statement of comprehensive income In the first half of 2017, the Group s consolidated net profit increased by PLN thousand (PLN thousand in the first half of 2017 vs. PLN thousand in the first half of 2016), i.e. up 3%, with the change being mainly driven by the increase in operating profit (up by PLN thousand, including PLN thousand posted by the Parent Company and PLN 434 thousand posted by the subsidiary EC Zielona Góra S.A.). In the reporting period, the Group s net profit was mainly affected by gross profit on sales, which increased by 2% vs. H1 2016, mainly as a result of higher revenue from compensation for PPAs (PLN thousand) and higher profit from the sale of heat and certificates. in PLN thousand 30 June June 2016 (value) Revenue from sales (1 196) Revenue from compensation for PPAs Cost of sales ( ) ( ) Gross profit on sales Distribution expenses (1 655) (1 629) (26) General and administrative expenses (3 700) (3 034) (666) Other operating revenues/costs Operating profit (EBIT) Net finance costs (4 399) (5 810) Income tax (27 332) (25 888) (1 444) Net profit b. Impact of the net profit of KOGENERACJA S.A. on the Group s net profit In the first half of 2017, the Parent Company generated a net profit of PLN thousand, down by PLN thousand compared with the corresponding period of the previous year. The key financials of the Company are presented and discussed below. Elements of unconsolidated statement of comprehensive income KOGENERACJA S.A. in PLN thousand 30 June June 2016 (value) Revenue from sales Cost of sales ( ) ( ) (1 156) Gross profit on sales Distribution expenses (1 022) (976) (46) General and administrative expenses (2 378) (1 932) (446) Other operating revenues Operating profit (EBIT) Net finance revenues (45 595) Income tax (13 467) (12 435) (1 032) Net profit (43 873) 12

13 Revenues KOGENERACJA S.A. in PLN thousand 30 June June 2016 (value) Revenues from sales Revenues from the sale of finished goods including certificates (1 513) including ancillary services (944) Revenues from the sale of merchandise and raw materials In the first half of 2017, the Company generated revenue from sales of PLN thousand, including the revenues from the sale of finished goods of PLN thousand and the revenues from the sale of merchandise and raw materials of PLN 450 thousand. In H1 2016, the revenue was PLN thousand, including the revenue from the sale of finished goods of PLN thousand and the revenue from the sale of merchandise and materials of PLN 449 thousand. The higher revenue from the sale of finished goods achieved in H (up by PLN thousand, i.e. 1%) mainly resulted from higher revenues from the sale of heat (up by PLN thousand). Other revenue items were lower vs. H1 2016: lower revenue from the sale of electricity (down by PLN thousand, including lower revenues from the sale of additional system services down by PLN 944 thousand); lower revenues from the sale of certificates (down by PLN thousand); lower other revenues (down by PLN 493 thousand). The increase in the sale of heat in H is the result of a volume effect. The volume of heat sales increased by 5% in the analysed period compared with the first half of The total value of revenues from the sale of electricity increased by PLN thousand vs. H as a result of lower electricity prices (down by 5%) and higher sales volume (up by approx. 3%). In the first half of 2017, the Company obtained lower revenue from the certificates for co-generated energy (red certificates) and energy from renewable sources co-firing of biomass (green certificates) (PLN thousand in H1 2017; PLN thousand in H1 2016). Production of electricity through co-firing of biomass fell by 11% in the analysed period of 2017 vs. H1 2016: green energy production in H was MWh compared with MWh in H Despite higher co-generation, in H1 2017, revenue from the sale of red certificates fell due to lower market price. The revenue increased by PLN 219 thousand on the back of the sale of yellow certificates and white certificates (up by 263 thousand). Revenue from the sale of merchandise and raw materials in H was PLN 450 thousand and were stable vs. H (PLN 449 thousand). Fixed costs and variable costs KOGENERACJA S.A. In the first half of 2017, variable costs relating to the generation of the sold products were 3.5% lower (by PLN thousand) year-on-year, amounting to PLN thousand. In the first half of 2016, these costs stood at PLN thousand. The decrease in variable costs is a consequence of the lower fuel costs (down by PLN thousand) caused by: lower coal price (down by 10%) combined with higher coal consumption (up by 7%) due to higher production of electricity (up by PLN thousand) and of heat; lower cost of biomass consumption due to lower production of green energy (down by PLN thousand). 13

14 The price of consumed steam coal with transport costs in H was PLN /GJ; the price of consumed biomass with transport costs was PLN 22.93/GJ, while the price of consumed steam coal with transport costs in H was PLN /GJ; the price of consumed biomass with transport costs was PLN 24.68/GJ. In the group of other fuel costs, an increase was noted in the cost of utilisation of limestone (higher production of the desulphurisation installation) and natural gas (up by PLN thousand in total). The increase of PLN thousand in the cost of shortage and purchase of CO 2 allowances is an effect of: the year-overyear reduction of free CO 2 emission limits granted to energy generators (estimated annual limit in 2017: Mg, in 2016: Mg), higher CO 2 emission in H (up by 2%), caused by higher heat production and higher cost of purchase of CO 2. The change in other variable costs (by PLN 146 thousand) vs. H1 2016, is mainly an effect of higher environmental protection costs due to higher production volume and lower costs of energy purchase in the balancing market. Cost of sales Administrative expenses Selling expenses Total in PLN thousand from to from to from to from to from to from to from to from to Variable costs ( ) ( ) ( ) ( ) fuel costs ( ) ( ) ( ) ( ) CO 2 allowances (22 337) (18 218) (22 337) (18 218) other variable costs (8 645) (8 791) (8 645) (8 791) Fixed costs ( ) ( ) (2 378) (1 932) (1 022) (976) ( ) ( ) staff costs (20 630) (21 026) (2 038) (1 743) (448) (492) (23 116) (23 261) overhauls (7 733) (6 759) (7 733) (6 759) depreciation (56 618) (50 945) (36) (48) - - (56 654) (50 993) services (26 679) (26 566) (25) (25) - - (26 704) (26 591) other fixed costs (8 981) (8 630) (279) (116) (574) (484) (9 834) (9 230) Value of goods and materials sold (98) (209) (98) (209) Total costs ( ) ( ) (2 378) (1 932) (1 022) (976) ( ) ( ) In the first half of 2017, fixed costs stood at PLN thousand and were higher by PLN thousand year-on-year. In H1 2016, fixed costs were PLN thousand. The change in the value of fixed costs in H was mainly caused by higher depreciation (up by PLN thousand), higher cost of overhauls (up by PLN 974 thousand), higher other costs (up by 604 thousand) and lower staff costs (down by PLN 145 thousand). The increase in depreciation of the power-generating equipment (up by PLN thousand) results from new fixed assets being put in service, i.e. mainly the desulphurisation and denitrification installation, which caused depreciation to grow in the reporting period, partly offset by changes in lifetime of fixed assets in 2017 (with a corresponding decrease in depreciation of PLN thousand in the first half of 2017). The increase in the cost of overhauls (down by PLN 974 thousand) is an effect of increased scope of overhaul works in H compared with H Other operating revenues (costs) of KOGENERACJA S.A. In the first half of 2017, other operating profit was higher by PLN 901 thousand year-on-year. Other operating revenues fell by PLN thousand, while other operating costs increased by PLN thousand. 14

15 Other operating revenues increased by PLN thousand, mainly due to reversal of an impairment charge of PLN 741 thousand as an effect of receipt of a contested payment with interest, an increase in revenues from the settlement of a subsidy (up by PLN 424 thousand) and an increase in revenues in respect of liquidated damages (up by PLN 251 thousand). In H1 2017, other operating costs were PLN thousand vs. PLN 712 thousand in H (up by PLN thousand), mainly due to posting an impairment charge for liquidated damages. Net finance income - KOGENERACJA S.A. In H1 2017, net finance income was lower by PLN thousand than in H This is an effect of a lower dividend received from the subsidiary EC Zielona Góra S.A. (down by PLN thousand). In H1 2017, the Parent Company posted a dividend of PLN thousand in respect of the 2016 profit, recognising it in financial revenues. In H1 2016, this was PLN thousand. Financial expenses were PLN thousand in H vs. PLN thousand in H1 2016, and related mainly to the interest on the loan from the Provincial Fund for Environmental Protection and Water Management WFOŚiGW for construction of the desulphurisation installation. Net profit of KOGENERACJA S.A. In H1 2017, the Company earned a net profit of PLN thousand compared with PLN thousand earned in the corresponding period of the previous year (down by PLN thousand). The decrease in the Parent Company's net profit is mainly an effect of a lower dividend from its subsidiary EC Zielona Góra S.A. (down by PLN thousand), coupled with an increase posted in the following items: higher result on sales: an increase in sales of PLN thousand, i.e. 1% (including mainly an increase in the sale of heat) coupled with an increase in the cost of CO 2 allowances related to a lower allowances limit received (down by PLN thousand); an increase in other operating profit (up by PLN 901 thousand). Key ratios: ROA, ROE, ROCE (%) 30 June June 2016 (% ) Return on assets (ROA) 5,21 7,61 (32) Return on equity (ROE) 6,71 9,98 (33) Return on capital employed (ROCE) 4,87 4,62 5 The Company's profitability rations achieved in H was lower year-on-year: ROA decreased by 32% and ROE by 33%, which mainly results from the lower net finance income posted by the Company in H (down by 32%) with a slight decrease in the value of assets (down by 1%) and an increase in equity (up by 0.5%). The increase in ROCE resulted from a stronger growth in operating profit (of 4%) with a simultaneous decrease in the employed capital (of 1.2%). The ratio calculation methodology is presented in point III 3 of this report. 15

16 c. Impact of the net profit of EC Zielona Góra S.A. on the Group s net profit In the first half of 2017, the company generated a net profit of PLN thousand, up by PLN thousand compared with the corresponding period of the previous year. The key financials of the subsidiary are presented in the tables below. Elements of unconsolidated statement of comprehensive income EC Zielona Góra S.A. The subsidiary s financials are based on the unconsolidated financial statements prepared in accordance with the Accounting Act. in PLN thousand 30 June June 2016 (value) Revenue from sales (4 696) Revenue from compensation for PPAs Cost of sales ( ) ( ) Gross profit on sales (61) Distribution expenses (633) (653) 20 General and administrative expenses (1 386) (1 432) 46 Other operating revenues Operating profit (EBIT) Net finance costs (4 748) (5 728) 980 Income tax (13 583) (13 210) (373) Net profit Revenues - EC Zielona Góra S.A. in PLN thousand 30 June June 2016 (value) Revenuse from sales (4 696) Revenues from the sale of finished goods (11 640) including certificates Revenues from the sale of merchandise and raw materials Revenue from compensation for PPAs In H1 2017, EC Zielona Góra S.A. achieved revenues from the sale of finished goods of PLN thousand, down by PLN thousand vs. H1 2016, when PLN thousand was reported. The decrease revenues from the sale of finished goods were mainly driven by: lower revenues from the sale of electricity (down by PLN thousand); lower revenues from gas compensation (down by PLN thousand). Other revenue items were higher vs. H1 2016: higher revenues from the sale of certificates (up by PLN thousand); higher revenues from the sale of heat (up by PLN thousand); In H1 2017, revenues from the sale of heat increased by 4% vs. H The increase was attributable both to the higher volume of heat sold and higher sales price, resulting from the new heat tariff, approved by the Energy Regulatory Authority in November The 14% decrease in the revenues from the sale of electricity resulted both from the lower volume 16

17 of electricity sold as a result of the planned idleness of the CC Gas Unit in May 2017 (in 2016, the CC Gas Unit was out of service in July and August) and the lower electricity sales price. The decision on a CC Gas-Unit break in May 2017 was dictated by business considerations (higher prices and higher need for electricity during summertime). In H1 2017, the company achieved revenues of PLN thousand from certificates, up by PLN thousand year-onyear. The higher revenues from certificates result from the revenues from the sale of white certificates of PLN thousand (no such revenues were posted in 2016) and higher revenues from yellow certificates as a result of a higher volume of generated yellow certificates (lower heat production volume) in H vs. H The revenues from gas compensation fell in H vs. H by PLN thousand. This is an effect of the 9% decrease in the electricity production in H1 in the annual production for Revenues from the sale of merchandise and raw materials were much higher, amounting to PLN thousand vs. PLN 640 thousand in H In H1 2017, the company sold electricity purchased from the Electricity Exchange (TGE) for resale due to the planned idleness of the CC Gas Unit in May 2017 (in 2016, the CC Gas Unit was out of service in July and August). Revenues from compensations for termination of the PPA in H were PLN thousand vs. PLN thousand in H The revenues were higher as a result of changes in the projected price paths for , which increased the likelihood of the scenario that the company will not be required to return all the funds received during the Programme. Fixed costs and variable costs of EC Zielona Góra S.A. Cost of sales Administrative expenses Selling expenses Total in PLN thousand from to from to from to from to from to from to from to from to Variable costs ( ) ( ) ( ) ( ) fuel costs (96 633) ( ) (96 633) ( ) CO 2 allowances (7 607) (8 684) (7 607) (8 684) other variable costs (4 548) (5 709) (4 548) (5 709) Fixed costs (45 465) (43 473) (1 386) (1 432) (633) (653) (47 484) (45 558) staff costs (8 069) (9 746) (744) (762) - - (8 813) (10 508) overhauls (5 624) (3 654) (5 624) (3 654) depreciation (19 666) (20 117) - - (7) (10) (19 673) (20 127) services (8 489) (7 306) (505) (342) (7) (4) (9 001) (7 652) other fixed costs (3 617) (2 650) (137) (328) (619) (639) (4 373) (3 617) Value of goods and materials sold (7 829) (727) (7 829) (727) Total costs ( ) ( ) (1 386) (1 432) (633) (653) ( ) ( ) In H1 2017, variable costs relating to the generation of the products sold amounted to PLN thousand, down by PLN thousand year-on-year (in H1 2016, the costs were PLN ). The decrease in all variable cost categories mainly results from the lower production volume caused by the idleness of the CC Gas Unit in May 2017 (in 2016, the CC Gas Unit was out of service in July and August). The decrease in the CO 2 costs results from lower CO 2 emissions in the comparable periods (down by 10%) coupled with lower free CO 2 allowances allocated to generation units, causing a need for purchase of the allowances. In H1 2017, fixed costs stood at PLN thousand and were higher by PLN thousand vs. H1 2016, when fixed costs were PLN thousand. 17

18 Staff costs and depreciation/amortisation costs were slightly lower vs. H Staff costs decreased as a result of lower salary costs due to lower employment and lower staff benefit costs. The lower depreciation costs result from a partial liquidation of fixed assets. Overhaul costs increased vs. H by PLN thousand as a result of the cost of turbine repair. External service costs increased vs. H by PLN thousand, mainly due to the cost of lease of the power generator, emission measurements, measurements on the heat network, higher cost of research services and the cost of radio and TV publications. Other fixed costs increased by PLN 756 thousand vs. H1 2016, mainly due to the increase in the cost of insurance, corporate entertainment, sponsoring and business travel. The value of merchandise and raw materials sold in the reporting period increased as the company sold electricity previously purchased for resale (in H1 2017: PLN thousand; in H1 2016: PLN 727 thousand). Other operating profit of EC Zielona Góra S.A. In H1 2017, other operating profit was PLN thousand, while in H it amounted to PLN thousand. In H1 2017, other operating profit increased by PLN 429 thousand as a result of settlement of a subsidy, a compensation received for a turbine failure in 2015, a write-down of negative goodwill and the cost of donations. Net finance income of EC Zielona Góra S.A. In H1 2017, the company posted net finance loss of PLN thousand vs. PLN thousand in H In H1 2017, EC Zielona Góra S.A. generated financial revenues of PLN thousand vs. PLN 587 thousand in H In H1 2017, financial expenses were PLN thousand vs. PLN thousand in H The higher net finance income in H was a result of higher interest income received, i.e. PLN thousand (including cash-pool interest of PLN 956 thousand) and lower cost of compensations for stranded costs (down by PLN thousand). Net profit of EC Zielona Góra S.A. In the first half of 2017, the company generated a net profit of PLN thousand. In H1 2016, the net profit was PLN thousand, i.e. lower by PLN thousand. The higher net profit posted in H was mainly driven by higher revenues from operating and financial activities and a higher underlying result on sales. Key ratios: ROA, ROE, ROCE EC Zielona Góra S.A. (%) 30 June June 2016 (% ) Return on assets (ROA) 8,47 8,13 4 Return on equity (ROE) 27,38 35,94 (24) Return on capital employed (ROCE) 73,84 136,92 (46) ROA achieved by the subsidiary in H was higher vs. H In H1 2017, ROA increased as a result of a higher net profit, which went up by 2%. ROE fell by 24% vs. H as a result of an increase in the value of equity. The lower ROCE resulted from an increase in the capital employed. Ratio calculation methodology is shown in point III 3 of this report. 18

19 3. Extraordinary circumstances which materially affected the Group s trading performance In H1 2017, no extraordinary events occurred which would affect the Group's financial results. 4. Structure of assets and liabilities in the consolidated statement of financial position a. Structure of the Group assets In the first half of 2017, total assets increased by PLN thousand. Non-current assets accounted for 75.3% of the balance sheet total. Their key components were Property, Plant and Equipment (70.8%). As at 31 December 2016, noncurrent assets accounted for 79.2% of total assets, while Property, Plant and Equipment accounted for 74.4% of total assets. In the asset structure, a decrease was observed in the share of inventories, mainly due to the lower volume of coal purchase in summer, which results from seasonality of production and optimisation of working capital. In addition, receivables decreased their share in total assets. The balance of cash increased by PLN thousand. in PLN thousand As at 30 June 2017 % of balance sheet total As at 31 December 2016 % of balance sheet total current period current period copmarative period (transformed data) copmarative period (transformed data) ASSETS I. Non-current assets 1. Property, plant and equipment , ,4 2. Intangible fixed assets, including: , ,9 - goodwill on related parties , ,7 3. Perpetual usufruct of land , ,6 4. Investment properties , ,7 5. Long-term receivables , ,4 6. Other long-term investments 4 0,0 4 0,0 7. Deferred tax assets , ,2 Total non-current assets , ,2 II. Current assets 1. Inventories , ,4 2. Short-term investments 32 0,0 12 0,0 3. Income tax receivables , ,1 4. Trade and other receivables , ,7 5. Cash and cash equivalents , ,5 6. Assets held for sale , ,1 Total current assets , ,8 Total Assets

20 b. Structure of the Group equity and liabilities In the structure of equity and liabilities, equity increased by PLN thousand, and liabilities increased by PLN thousand. The share of trade payables decreased in the structure of current liabilities, which is mainly due to the seasonality of production. Also, there was an increase in other financial liabilities on account of dividend payment by the Parent Company and a decrease in the value of loans and borrowings. in PLN thousand As at 30 June 2017 % of balance sheet total As at 31 December 2016 current period current period copmarative period (transformed data) % of balance sheet total copmarative period (transformed data) EQ UITY AND LIABILITIES I. Equity 1. Share capital , ,2 2. Share premium , ,1 3. Other reserve capital , ,3 4. Retained earnings , ,8 Equity attributable to ordinary shareholders , ,4 Non- controlling interests , ,1 Total equity , ,5 II. Liabilities Non-current liabilities 1. Loans, borrowings and debt instruments , ,2 2. Employee benefit liabilities , ,3 3. Deferred income , ,2 4. Deferred tax liability , ,3 5. Other long-term liabilities , ,3 6. Long-term provisions , ,5 Total non-current liabilities , ,8 Current liabilities 1. Loans, borrowings and debt securities , ,1 2. Other short-term financial liabilities , ,0 3. Income tax liabilities , ,1 4. Trade and other payables , ,4 5. Employee benefit liabilities , ,9 6. Short-term provisions , ,2 Total current liabilities , ,7 Total liabilities , ,5 Total equity and liabilities ,

21 c. Liquidity ratios of the Group For 6-month-period ended 30 June 2017 For 6-month-period ended 30 June 2016 (%) Current liquidity 1,89 1,73 9 Quick liquidity 1,56 1,53 2 In the first half of 2017, current liquidity ratio increased by 9%, while the quick liquidity ratio for H increased by 2% year-on-year. The increase in current liquidity results from the increase in the balance of cash and cash equivalents in current assets coupled with an increase in other short-term financial liabilities, i.e. the obligations on account of dividend payout by the Parent Company. In 2016, the dividend paid was lower. The increase in quick liquidity results from the 72% increase in the level of inventories in H due to the higher volume of coal purchased and lower coal purchase price coupled with a 7% increase in short-term liabilities and a 17% increase in current assets vs. H Ratio calculation methodology is shown in point III 3 of this report. 5. Related party transactions a. Transactions made by the Parent Company The key transactions made by the Parent Company with its connected entities in the first half of 2017 are presented in the interim condensed financial statements of KOGENERACJA S.A. for the year ended 30 June 2017, point C: Interim condensed unconsolidated financial statements, V Selected notes, Note 10 Related party transactions. b. Group transactions The key transactions made by the Parent Company with its connected entities in the first half of 2017, taking into account intercompany eliminations, are presented in the interim condensed financial statements of KOGENERACJA S.A. for the year ended 30 June 2017, point B: Interim condensed consolidated financial statements, V Selected notes, Note 16 Related party transactions. Transactions between the Group companies are made and performed on an arm's length. 6. Guarantees given and received a. Guarantees given On 25 June 2012, the Company granted guarantees for obligations of the entities covered by the cash-pool system. The value of the guarantees was more than 10% of the equity of KOGENERACJA S.A. In 2016, further annexes were signed, changing the structure of the companies participating in the cash-pool system and extending the terms of the respective agreements. ING Bank Śląski SA waived the guarantees of all the Companies for the obligations of EDF Polska S.A. under the Loan Agreement and limited the collateral under the Guarantee Line Agreement to a guarantee of EDF Polska S.A. 21

22 The following collateral continues to exist: a. Guarantee up to the maximum amount of PLN thousand to ING Bank Śląski S.A. securing against default on the existing obligations, including in respect of the Daily Limits under the Daily Limits Liquidity Management Agreement, by the debtors the EDF Group companies in Poland, namely: - EDF Polska S.A. - EDF Paliwa Sp. z o.o. - EDF Toruń S.A. - EC Zielona Góra S.A. - FENICE Poland Sp. z o.o. - EDF Gaz Toruń Sp. z o.o. The guarantee expires on 31 August The total value of obligations partly guaranteed by the Company is PLN thousand. The guarantee was given for a fee. According to the operating model of the cash-pool service, EDF Group companies in Poland will provide cross-guarantees to each other whereby cash transfers will be made. Detailed list of all guarantees given to the Group companies is presented in the interim consolidated financial statements of KOGENERACJA Group for the first half of 2017, chapter B.V. Selected notes to the interim condensed consolidated financial statements, point 15 Contingent claims and liabilities, and C V Selected notes to the interim condensed unconsolidated financial statements, point 9 Contingent claims and liabilities b. Guarantees received In the first half of 2017, the Parent Company did not receive any guarantees (for loans or other), whose total value would exceed 10% of its equity. 7. Financial results presented in the report vs. the published performance forecast The Company did not publish its forecast for the first half of Assessment of financial resources management a. Elements of the consolidated cash flow statement In the first half of 2017 and 2016, the Group's cash flows were as presented in the table below. in PLN thousand For 6-month-period ended 30 June 2017 For 6-month-period ended 30 June 2016 (value) Net cash from operating activities (73 962) Net cash used in investing activities (55 158) (74 723) Net cash from financing activities (12 179) (73 908) Total net cash flows Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year

23 1) Operating activities In H1 2017, the operating cash flows of the Group were PLN thousand, down by PLN thousand year-onyear (PLN thousand in H1 2016), i.a. due to the decrease of PLN thousand in the balance of inventories. 2) Investing activities The negative net cash flows from investing activities decreased by PLN thousand (PLN thousand in H and PLN thousand in H1 2016) as a result of lower investment expenses (PLN thousand in H vs. PLN thousand in H1 2016). 3) Financing activities Net cash flows from financing activities in H were negative at PLN thousand vs. negative financial cash flows of PLN thousand in H The difference of PLN thousand in financial outflows is an effect of the full pay-down, in H1 2016, by the Parent Company of the investment loan from EDF IG. Below are the cash flow statements of KOGENERACJA S.A. and EC Zielona Góra S.A, as they are key to the Group s cash flows. b. Cash flows of KOGENERACJA S.A. In the first half of 2017 and 2016, the Company s cash flows were as follows (selected data): in PLN thousand For 6-month-period ended 30 June 2017 For 6-month-period ended 30 June 2016 (value) Net cash from operating activities (37 928) Net cash used in investing activities (6 579) (59 432) Net cash from financing activities (11 591) (80 642) Total net cash flows Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year Financial management in H allowed the Company to balance its cash flows, i.e. to use its operating cash flows to cover the investment and financial expenses. 1) Operating activities In H1 2017, the operating cash flows decreased by 16% year-on-year. In H1 2017, net cash flows from operating activities were PLN thousand vs. PLN thousand in H1 2016, including as a result of a decrease in the Company s net profit vs. previous year (down by PLN thousand) and a change in depreciation of PLN thousand due to adjustments. 2) Investing activities The negative balance of cash flows from investing activities in the first half of 2017 is mainly the result of lower investment outflows and higher investment inflows. In the first half of 2017, cash flows from investing activities were negative at PLN thousand in comparison with PLN thousand in the first half of