MANAGEMENT BOARD S REPORT ON THE ACTIVITIES OF KOGENERACJA GROUP

Transcription

1 MANAGEMENT BOARD S REPORT ON THE ACTIVITIES OF KOGENERACJA GROUP 1st Half of 2015

2 List 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 Emoluments, awards and benefits of directors Agreements between the Company and the executive directors providing for payment of compensation KOGENERACJA Group Employment 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 comprehensive income 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 on the Company's Activities was prepared pursuant to 90(1)(3) of the Finance Minister s Ordinance of 19 February 2009, Journal of Laws No. 33, item 259 ( Ordinance ), as amended. 2. Group characteristics The parent company of KOGENERACJA Group ("the Group") is Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. (KOGENERACJA S.A., "the Parent Company", "the Company"), joint stock company registered in Poland. having its registered office in Wrocław at ul. Łowiecka 24. The Company operates from four production plans with a joint electric capacity of MW and heat capacity of 1,086.3 MWt, as per the licences held. The plants are located in Wrocław (EC Wrocław, EC Muchobór 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 started to be 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. The Group s companies that are not consolidated by KOGENERACJA S.A. also include: EDF Paliwa Sp. z o.o. (supply of coal and biomass) and EDF Polska S.A. (trade in electricity and certificates, and provision of technical and non-technical support functions to the Parent Company and to the 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 total voting power 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 ,99 1, ,99 OFE ING , ,72 OFE PZU "Złota Jesień" ,04 0, ,31 The share ownership of OFE PZU Złota Jesień and Aviva OFE was updated according to the data published after the General Meeting on 23 June 2015 (Current Report 7/2015). 3

4 4. Composition of the Management Board and the Supervisory Board of the Parent Company a. Composition of the Management Board Since 26 June 2014 (Current Report 13/2014), the membership of the Management Board has been as follows: 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. Changes in the Supervisory Board Since its appointment by the AGM on 26 June 2014, the membership of the Supervisory Board has been as follows (Current Report 13/2014): 1. Ryadh Boudjemadi Supervisory Board Member 2. Adriana Carrez Vice -Chairman of the Supervisory Board (since 13 November 2014) 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 In H1 2015, 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 repurchase shares. c. Annual General Meeting of KOGENERACJA S.A. On 23 June 2015, an AGM of the Company was held, solely to transact the business stipulated in Article 395(2) of the Commercial Companies Code (Current Report 6/2015). On 23 June 2015, the AGM granted discharge to all the Supervisory and Management Boards members for performance of their duties (Current Report 6/2015). 5. Emoluments, awards and benefits of directors Total salaries (including gross salaries and other benefits) received by the key management and supervisory personnel are presented below: in PLN thousand For 6-month-period ended 30 June 2015 For 6-month-period ended 30 June 2014 Management Board- salaries in the period of service Management Board - potential benefits Supervisory Board

5 The gross value of the remuneration, awards and benefits for H and 2014 earned by the executive directors of the Company was as follows: In the period (during the term of office) in PLN thousand For the period: Base salary Target bonuses Total salary Other benefits Benefits received from subsidiaries Total benefits in 2015 Wojciech Heydel Marek Salmonowicz Maciej Tomaszewski Krzysztof Wrzesiński Roman Traczyk, for the period from 1 January to 31 March 2015 after stepping down from office, received an additional remuneration of PLN 129 thousand on account of the non-competition agreement signed during his role as Management Board member. Performance bonuses for 2014 were also paid to H. Zajas (PLN 42 thousand) and R. Traczyk (PLN 84 thousand), who acted as Management Board members until 26 June In the period from 1 January to 30 June 2014 (during the term of office) in PLN thousand For the period: Base salary Target bonuses Total salary Other benefits Benefits received from subsidiaries Total benefits in 2014 Wojciech Heydel Marek Salmonowicz Maciej Tomaszewski Roman Traczyk Krzysztof Wrzesiński Henryk Zajas

6 The gross value of the remuneration, awards and benefits for H and 2014 earned by the non-executive directors of the Company was as follows: Emoluments of the Supervisory Board members for the period (during the term of office) in PLN thousand For the period: Benefits for 6-month-period ended 30 June 2015 Additional benefits Total Benefits for 6-month-period ended 30 June 2015 Ryadh Boudjemadi Adriana Carrez Thierry Doucerain Raimondo Eggink Mariusz Grodzki Laurent Guillermin Roman Nowak Emoluments of the Supervisory Board members for the period from 1 January to 30 June 2014 (during the term of office) in PLN thousand For the period: Benefits for 6-month-period ended 30 June 2014 Additional benefits Total Benefits for 6-month-period ended 30 June 2014 Wojciech Asterski Ryadh Boudjemadi Philippe Castanet Adriana Carrez François Driesen Thierry Doucerain Raimondo Eggink Birgit Fratzke-Weiss Mariusz Grodzki Laurent Guillermin* Jerzy Michalik Nicolas Mitjavile Roman Nowak Zbigniew Szymanek *) Laurent Guillermin acted as a Supervisory Board member from 1 January 2014 to 8 April 2014, and then was re-appointed to the Supervisory Board on 26 June

7 6. Agreements between the Company and the executive directors providing for payment of compensation in PLN thousand Target bonuses for 2015 Pension and retirement benefits Total Wojciech Heydel Marek Salmonowicz Maciej Tomaszewski Krzysztof Wrzesiński Non-competition agreements were signed between the Company and the Management Board President Wojciech Heydel, and with Management Board members: Marek Salmonowicz, Maciej Tomaszewski and Krzysztof Wrzesiński. The agreements prohibit the individuals from conducting a business competitive to the Company within 12 months after termination of their respective employment contracts. 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. A non-competition agreement was also signed between the Company and Roman Traczyk during his service as Management Board member. The agreement strictly prohibits any competitive activity for 12 months after termination of employment, and, additionally, the ban applies to Wrocław and its surrounding municipalities for another 12 months. The ban does not relate to EDF Group companies (including EC Zielona Góra S.A.). The agreement provides for a compensation equal to 100% of the gross basic salary paid under the employment contract and the management contract for the last 24 months preceding the termination of the employment contract. On 14 May 2014, a side agreement was signed to the non-competition agreement whereby the competition ban applicable after the term of office of Roman Traczyk was shortened to 10 months. The side agreement provides for a compensation equal to 100% of the gross basic salary paid under the employment contract and the management contract for the last 10 months preceding the termination of the employment contract. 7

8 Subsidiaries - consolidated Connected entities - not consolidated KOGENERACJA S.A. - Management Board s Report on the Group Activities in the period 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 the areas of generation, transmission, distribution, trading and sale of energy. EDF, which is Europe s largest electricity producer, has mainly nuclear power plants and water power plants in France. 95.9% of the energy they produce does not result in CO 2 emissions. In France, the energy transmission and distribution companies from EDF Group use km of overhead and cable medium and high-voltage lines and km of high and highest-voltage lines. The Group has approx million customers, including 28.3 million in France. In 2014, the Group s revenues amounted to EUR 72.9 billion, including 45.2% generated outside of France. EDF is listed on Paris Stock Exchange and is a member of the CAC 40 index. 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 2015 KOGENERACJA S.A. 98,40% EC Zielona Góra S.A. EDF Paliwa Sp. z o.o. EDF PolskaS.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. Companies covered by the consolidated financial statements KOGENERACJA S.A. Parent of the Group, as at 30 June 2015 included the following two subsidiaries in the consolidated financial statements: EC Zielona Góra S.A. subsidiary (full consolidation) Renevis Sp. z o.o. subsidiary (full consolidation for the period from 1 January to 30 June 2014). 8

9 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 2015 and 31 December at 30 June 2015 and 31 December 2014 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 ,4 e. Activities of the subsidiaries EC Zielona Góra S.A. The core business of EC Zielona Góra S.A. is: production of electricity production of heat distribution of heat and supply of network heat. Until the end of July 2004, electricity and heat were co-generated in EC Zielona Góra using coal as production fuel. When in August 2004 the CC Gas Unit was commissioned, with the capacity of 190 MW and 95 MWt, 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 company is the key provider of heat and heated domestic water for the city of Zielona Góra. In June 2008, a decision was made to merge Zielonogórska Energetyka Cieplna Sp. z o.o. (heat distribution) with EC Zielona Góra S.A. The merger was effected on 1 April 2009 under Article 492 1(1) of the Commercial Companies Code by transferring the whole assets of ZEC Sp. z o.o. to EC Zielona Góra S.A. in return for the shares in the increased share capital of the acquiring company. After the merger, the share capital of EC Zielona Góra S.A. increased by PLN 653 thousand to PLN thousand. In connection with the share capital increase, the company issued series D ordinary registered shares, which were acquired by KOGENERACJA S.A. (17,978 shares) and by the Municipality of Zielona Góra (8 152 shares). The former ZEC Sp. z o.o. continues to operate within EC Zielona Góra S.A. as a heat distribution plant. Renevis Sp. z o.o. (subsidiary until 30 June 2014; now EDF Ekoserwis Sp. z o.o.) The company was established in 1995 for the economic use of the combustion waste from KOGENERACJA S.A. The core business of Renevis Sp. z o. o. is: sale of coal combustion waste (UPS) complying with the relevant standards for the construction, road building and ceramics sector in Poland and abroad managing the area of ash and slag removal for KOGENRACJA S.A. in Wrocław, waste landfill in Kamień (municipality of Długołęka); Municipal Waste Processing and Recycling Plant in Sulęcin (municipality of Święta Katarzyna) transport services, including transport of products and waste, also for third parties supply of biomass for power companies as part of production of energy from renewable sources sale of road bases and stabilisers provision of professional services in waste management and environmental protection. On 30 June 2014, the Company sold 100% of its shares in Renevis Sp. z o.o. to EDF Polska S.A. f. Other connected entities As at 30 June 2015, KOGENERACJA S.A. did not have shares in other connected companies. 9

10 g. Activities of the other connected entities EDF Paliwa Sp. z o.o. The core business of the company is: supply of steam coal and biomass for EDF Group companies in Poland disposal of combustion waste (business discontinued in 2014). EDF Polska S.A. In Poland, EDF Group has 10% share of the electricity market, 15% share of the network heat market and employs approx people across the country. EDF Group is also the largest foreign investor in the energy sector. EDF is the largest producer of combined electricity and heat, providing heat to: Kraków, Gdańsk and Gdynia, Wrocław and Siechnica, Zielona Góra and Toruń. It also has a systemic coal-fired power plant in Rybnik with a capacity of MW. The Group also includes EDF Paliwa, a service provision company that purchases production fuel - coal and biomass. Furthermore, EDF in Poland trades in the electricity produced by the Polish plants owned by EDF Group (on 2 January 2014, the trading company EDF Energia Sp. z o.o. established in EDF Polska S.A. the Optimisation and Sales Directorate, Warsaw branch) and provides support services to EDF Group companies. h. Changes in the Group structure In the first half of 2015, no changes occurred in the Group structure. On 30 June 2014, an agreement was signed for the sale of shares in Renevis Inżynieria Środowiska Sp. z o.o., whereby KOGENERACJA S.A. sold to EDF Polska S.A. of Warsaw 58,200 shares, i.e. 100% stake in the Group's subsidiary Renevis Sp. z o.o. On 23 May 2014, the disposal of the shares was approved by the Supervisory Board of the Company. i. Equity investments within the Group In the first half of 2015, the Parent Company did not make any equity investments. j. Other equity investments As at 30 June 2015, the Company did not make any other equity investments. 10

11 8. Employment As at 30 June 2015 and 31 December in the years , the employment levels in Parent Company were as shown in the diagram below. As at 30 June 2015 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). 11

12 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 and red certificates. The sales of both products (in production units) in the first half of 2015 and 2014 are presented in the table below. Unit 30 June June 2014 Change (number) Sales of heat TJ Sales of electricity MWh (38 342) Totale sales of products in units TJ (61) Sale of heat in the first half of 2015 was TJ and increased by 2% year-on-year. The increase was caused by the lower air temperatures noted in the heating period compared with the previous year. Sale of electricity in the first half of 2015 was at MWh and was lower by MWh, i.e. 6% year-on-year. As a result of protracted overhaul of the BC3 unit, in January heat was produced using water boilers. Another reason for the lower electricity production in H compared with H was the lower production of electricity in the on-demand system (systemic services). Total sale of finished goods in the reporting period was TJ (including TJ for heat), down 1% on the corresponding period. 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 2014 Value (in PLN thousand) Structure (%) Value (in PLN thousand) Structure (%) Change (value) Sales of heat Sales of electricity Ancillary servicessales of electricity (9 334) Certificates CO 2 sales Other revenues Revenues from the sale of finished goods

13 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 2015 and 2014 are presented in the table below. Unit 30 June June 2014 Change (number) Sales of heat TJ Sales of electricity MWh (24 949) -cc gas unit MWh (24 949) Totale sales of products in units TJ Sales of heat in the first half of 2015 was at 683 TJ and increased by 23 TJ (3%) year-on-year. The higher sale of heat was particularly due to the higher demand for heat reported by customers, because of favourable weather conditions in the reporting period (lower average temperatures from February to April). Sales of electricity in the first half of 2015 was at MWh and was lower by MWh, i.e. by 3%, year-on-year. The decrease in the sale of electricity was due to an unplanned idleness of the CC Gas Unit from 22 December 2014 to 9 January 2014, and the idleness of the CC Gas Unit on 17 February, caused by a short-cut on the 110 kv line. Total sales of products in the reporting period was TJ, up 0.7% (23 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 2014 Value (in PLN thousand) Structure (%) Value (in PLN thousand) Structure (%) Change (value) Sales of heat Sales of electricity Certificates Other revenues (7 794) Revenues from the sale of finished goods Other revenues from the sales of products mainly include the estimated gas fee due under Article 46(5) of the Act on Power Purchase Agreements. 13

14 2. Key economic and financial figures of the Group a. Elements of the consolidated income statement In the first half of 2015, the Group s consolidated net income increased by PLN thousand (PLN thousand in the first half of 2015 and PLN thousand in the first half of 2014), i.e. up by 68%, with the change being mainly driven by an increase in the net income of EC Zielona Góra (up by PLN 28,069 thousand) and an increase in the operating profit of the Parent Company. In the reporting period, the Group s net income was mainly influenced by the gross profit on sales, which increased by 90% vs. the first half of 2014, and was chiefly attributable to the revenues from certificates, which grew by PLN thousand (including PLN in respect of yellow certificates in EC Zielona Góra S.A.), the revenues from the sales of heat in the Group, which increased by PLN thousand, and the revenues from the sales of electricity in EC Zielona Góra S.A., which increased by PLN thousand. in PLN thousand 30 June June 2014 Change (value) Revenue from sales Revenue from compensation for PPAs (3 528) Cost of sales ( ) ( ) Gross profit on sales Distribution expenses (1 289) (1 484) 195 General and administrative expenses (2 975) (2 841) (134) Other operating revenues/costs (93) Operating profit (EBIT) Net finance costs (5 251) (3 267) (1 984) Income tax (23 096) (10 358) (12 738) Net profit from continuing operations Net loss from discontinued operations (10 913) Net profit b. Impact of the net income of KOGENERACJA S.A. on the Group s net income In the first half of 2015, the Parent Company generated a net income of PLN thousand, down by PLN 55,101 thousand compared with the corresponding period of the previous year. The key financials of the Company are presented and discussed below. Selected items of the income statement of KOGENERACJA S.A. in PLN thousand 30 June June 2014 Change (value) Revenue from sales Cost of sales ( ) ( ) Gross profit on sales Distribution expenses (746) (797) 51 General and administrative expenses (1 894) (2 309) 415 Other operating revenues/costs (4 774) Operating profit (EBIT) Net finance revenues (75 941) Income tax (10 987) (4 604) (6 383) Net profit (55 101) 14

15 Revenues KOGENERACJA S.A. in PLN thousand 30 June June 2014 Change (value) Revenues from sales Revenues from the sale of finished goods including certificates including ancillary services (9 334) including CO 2 sales Revenues from the sale of merchandise and raw materials In the first half of 2015, the Company generated revenues 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 thousand. In the first half of 2014, the revenues were PLN thousand, including the revenues from the sales of finished goods of PLN thousand and the revenues from the sales of merchandise and raw materials of PLN thousand. The revenues from the sales of finished goods achieved in the first half of 2015 increased by 4% (by PLN thousand) mainly as a result of: higher revenues from the sale of electricity (up by PLN thousand) and lower revenues from the sale of additional systemic services (down by PLN thousand) higher revenues from the sale of heat (up by PLN thousand) higher revenues from the sale of energy certificates (up by PLN thousand). The total value of electricity sold fell by PLN 894 thousand vs. H as a result of the lower sales volume (down by approx. 6%) and the higher electricity price (up by approx. 10%). The increase in the price of heat was 4.2% and the price of heat power increased by 4.9%; this is an effect of the heat prices and heat tariffs for KOGENERACJA, which became effective on 1 October 2014 following approval of the President of the Energy Regulatory Office. At the same time, the volume of heat sales increased by 2% in the analysed period compared with the first half of In the first half of 2015, KOGENERACJA S.A. obtained revenues from the certificates for co-generated energy (red certificates) and energy from renewable sources co-firing of biomass (green certificates) for an amount of PLN thousand. Production of electricity through co-firing of wooden biomass fell by approx. 20% in the reporting period of 2015 vs. H1 2014: green energy production in H was MWh compared with MWh in H The prices of green certificates fell by 22%. Renewal of support for the producers of co-generated electricity and heat in April 2014 drove the sale of red certificates. In the first half of 2015, the Company sold CO 2 allowances, posting a net gain of PLN 432 thousand. Revenues from the sale of merchandise and raw materials in the first half of 2015 amounted to PLN thousand, and increased by PLN 65 thousand compared with the first half of 2014 as a result of re-sale of electricity produced by EC Muchobór and EC Zawidawie. c. Fixed costs and variable costs KOGENERACJA S.A. In the first half of 2015, variable costs relating to the generation of the products sold were 7.3% lower (by PLN thousand) year-on-year, amounting to PLN thousand. In the first half of 2014, these costs stood at PLN thousand. The lower variable costs is mainly a consequence of lower fuel costs, which decreased by PLN thousand, due to a 9% decrease in the volume of utilised coal, owing to the lower electricity production, and the lower price of coal with a higher calorific value. The change in other variable costs (up by PLN thousand) vs. H mainly resulted from: - higher cost of gas purchase (up by PLN thousand) - higher CO 2 costs (up by PLN thousand) due to lower limits and the need to purchase missing allowances - lower cost of other services (down by PLN 958 thousand), mainly due to reduced production of energy from biomass and the lower costs associated with the logistics of the process. 15

16 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 ( ) ( ) ( ) ( ) excise tax (203) (196) (203) (196) other variable costs (20 702) (17 916) (20 702) (17 916) Fixed costs ( ) ( ) (1 894) (2 309) (746) (797) ( ) ( ) staff costs (22 119) (26 191) (1 668) (1 933) (478) (559) (24 265) (28 683) overhauls (6 180) (7 934) (6 180) (7 934) depreciation (47 680) (41 249) (39) (24) - - (47 719) (41 273) services (25 910) (22 486) (50) (115) - - (25 960) (22 601) other fixed costs (8 857) (8 796) (137) (237) (268) (238) (9 262) (9 271) Value of goods and materials sold (663) (257) (663) (257) Total costs ( ) ( ) (1 894) (2 309) (746) (797) ( ) ( ) In the first half of 2015, fixed costs stood at PLN thousand and were higher by PLN thousand year-on-year. In H1 2014, fixed costs were PLN thousand. The increase in fixed costs in H was caused by: higher depreciation (up by PLN thousand), higher cost of external services (up by PLN thousand), as well as lower staff costs (down by PLN thousand) and lower overhaul costs (down by PLN thousand). Staff costs decreased by PLN thousand in the first half of 2015 as a result of: - lower restructuring provisions released (down by PLN 728 thousand) - lower other staff costs (down by PLN thousand), including PLN 4,764 thousand on account of salaries and social security in consequence of employment reduction by 56 persons (as a consequence of outsourcing of services in the area of coal handling and ash removal and the voluntary terminations programme). The cost of external services increased by PLN thousand as a result of new cost items associated with the outsourcing of coal handling services starting from Q The increase in the depreciation/amortisation (up by PLN thousand) is, inter alia, an effect of new fixed assets being put in use in H The decrease in overhaul costs (down by PLN 1,754 thousand) is due to the lower volume of overhauls in 2015 compared with the first half of 2014 associated with the construction of installations for denitrification and desulphurisation of flue gases in EC Wrocław. d. Other operating profit of KOGENERACJA S.A. In the first half of 2015, other operating profit was higher by PLN thousand year-on-year. Other operating income increased by PLN thousand, while other operating costs decreased by PLN 3,818 thousand. In first half of 2015, additional revenues of PLN thousand were posted as a result of reversal of the provision for liquidated damages claimed for investment delays on receipt of the related payment. In H no similar items were posted in the other operating income. In first half of 2015, other operating costs were PLN thousand, and in H were PLN thousand (down by PLN thousand). In the first half of 2014, the provision for landfill reclamation was increased by PLN 3,238 thousand. In H no similar items were posted in other operating costs. 16

17 e. Net finance income - KOGENERACJA S.A. In the first half of 2015, the net finance income was lower by PLN thousand than in the first half of 2014, mainly as a result of lower finance revenues. In the first half of 2015, the Company's finance revenues decreased by PLN thousand on account of the dividend received from the subsidiary EC Zielona Góra S.A., whose General Meeting adopted a resolution on profit distribution for 2014 (with PLN thousand allocated to the Parent Company) and a resolution on changes to the allocation of other reserves created from prior years profits (with PLN thousand allocated to the Parent Company). In the first half of2014, the payments were as follows: dividend of PLN thousand in respect of the 2013 profit for the Parent Company and a dividend of PLN thousand in respect of the profits earned in prior years. Finance expenses fell mainly as a result of lower interest charge, an effect of decreasing financial liabilities as part of the cash-pool system. f. Net income of KOGENERACJA S.A. In the first half of 2015, the Company earned a net income of PLN thousand compared with PLN thousand earned in the corresponding period of the previous year (a decrease of PLN thousand). The decrease in the net income of the Parent Company results from: the lower dividend received from the subsidiary EC Zielona Góra S.A. (down by PLN thousand) higher sales: an increase in revenues from sales of PLN thousand (4%), mainly driven by the favourable weather conditions and higher electricity and heat prices, combined with a decrease of PLN thousand (2%) in production cost, chiefly due to lower fuel costs award of red certificates (following approval of relevant legislation in April 2014), but coupled with a decrease in the prices of green certificates higher other operating profit by PLN thousand in other operation profit, mainly due to the lack of new provision costs, posted in H1 2014, and the release of a provision for liquidated damages for investment delays. g. Key ratios: ROA, ROE, ROCE (%) 30 June June 2014 Change (% ) Return on assets (ROA) 8,24 12,84 (36) Return on equity (ROE) 10,78 16,39 (34) Return on capital employed (ROCE) 3,66 2,40 52 The profitability ratios achieved by the Company in the first half of 2015 were lower compared with the first half of 2014: ROA fell by 36% while ROE by 34%, which is mainly the result of a decline in the net income earned by the Company in the reporting period (an decrease of 28%), with a concurrent increase in assets and equity (of 12% and more than 9%, respectively). The increase in ROCE was driven by the faster increase in the operating profit (103%) with a simultaneous increase in the capital employed (25%). The ratio calculation methodology is presented in point III 3 of this report. h. Impact of the net income of EC Zielona Góra S.A. on the Group s net income In the first half of 2015, the company generated a net income 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. 17

18 Elements of the income statement - EC Zielona Góra S.A. in PLN thousand 30 June June 2014 Change (value) Revenue from sales Revenue from compensation for PPAs (3 528) Cost of sales ( ) ( ) Gross profit on sales Distribution expenses (542) (687) 145 General and administrative expenses (1 313) (653) (660) Other operating revenues/costs (830) Operating profit (EBIT) Net finance costs (5 138) (2 125) (3 013) Income tax (11 887) (5 003) (6 884) Net profit Revenues - EC Zielona Góra S.A. in PLN thousand 30 June June 2014 Change (value) Revenuse from sales Revenues from the sale of finished goods including certificates Revenues from the sale of merchandise and raw materials Revenue from compensation for PPAs (3 528) In the first half of 2015, EC Zielona Góra S.A. generated revenues from the sale of finished goods of PLN thousand. In H1 2014, the revenues were by PLN thousand lower, amounting to PLN thousand. In the first half of 2015, revenues from the sale of heat were 8% higher year-on-year. The increase in sales was due to the higher volume of heat sold as a result of favourable weather conditions and the higher sales price. Sales also increased in the area of electricity. The 13% increase in the revenues from the sale of electricity was caused by the much higher sales prices despite the lower sales volume. The increase in revenues from certificates is attributable to their greater volume and price (the regulations concerning support for production in high-efficiency cogeneration came into force on 30 April 2014). Revenues from the sale of merchandise and raw materials were much higher, amounting to PLN thousand compared with PLN thousand achieved in the first half of 2014 as a result of extra sales of electricity at the Energy Exchange. Revenue from compensations for PPAs in the first half of 2015 were PLN thousand vs. PLN thousand earned in H The decrease of PLN thousand is due to the updated calculations and a change in the discount rate from 4.5% to 4%. 18

19 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 (97 862) ( ) (97 862) ( ) excise tax other variable costs (9 756) (6 702) (9 756) (6 702) Fixed costs (43 672) (46 322) (1 313) (653) (542) (687) (45 527) (47 662) staff costs (9 544) (12 037) (707) (317) - (89) (10 251) (12 443) overhauls (4 301) (4 093) (1) (4 301) (4 094) depreciation (19 094) (18 720) - - (14) (10) (19 108) (18 730) services (7 480) (7 563) (326) (126) (2) (38) (7 808) (7 727) other fixed costs (3 253) (3 909) (280) (210) (526) (549) (4 059) (4 668) Value of goods and materials sold (4 902) (3 089) (4 902) (3 089) Total costs ( ) ( ) (1 313) (653) (542) (687) ( ) ( ) In the first half of 2015, variable costs relating to the generation of the products sold amounted to PLN 107,618 thousand, down by PLN thousand year-on-year (PLN thousand was recorded in H1 2014). Variable costs decreased in the area of natural gas consumption. The cost of natural gas consumed fell by approx. 6% mainly as a result of lower demand for gas due to unplanned idleness of the CC Gas Unit in January. The decrease in the cost of gas consumption was also a result of the lower gas price. In turn, variable costs increased by PLN thousand in the area of other variable costs. The items that have the largest contribution to the structure of other variable costs are the cost of water consumption for the core business; the cost of energy usage; the cost of purchase of electricity in the balancing market; the fees connected with concluded electricity sale transactions and the costs associated with the shortage of CO 2. The increase in other variable costs was mainly driven by higher cost of purchase of electricity in the market, mainly to cover future contracts, and raising a provision for the shortage of CO 2. In the first half of 2015, fixed costs stood at PLN thousand and were lower by PLN thousand vs. H1 2014, when these costs amounted to PLN thousand. Staff costs and other fixed costs decreased by PLN thousand year-on-year. In the area of overhauls, depreciation/amortisation and external services, costs increased by a total of PLN 666 thousand. In the reporting period, staff costs decreased by PLN thousand year-on-year as a result of lower salary costs, an effect of the Company's restructure programmes (employment decrease by 18 persons). Overhaul costs increased by PLN 207 thousand mainly due to higher spend on the overhauls of heat distribution equipment and maintenance and repair of the heat recovery boiler. Furthermore, higher depreciation was reported as depreciation charges were calculated on a higher gross value of tangible assets. The costs of external services were at a similar level year-on-year. Other fixed costs fell by PLN 609 thousand compared with H An increase was reported in the value of goods and raw materials sold in the reporting period. In the first half of 2015, the company purchased PLN thousand worth of electricity from EDF Polska S.A. and TGE S.A. for the purpose of its resale. In the corresponding period of 2014, the value of the electricity purchased was PLN thousand. 19

20 Other operating profit of EC Zielona Góra S.A. In the first half of 2015, other operating profit was PLN thousand, while in H it amounted to PLN thousand. Other operating profit decreased by PLN 830 thousand in the current reporting period as a result of settlement of subsidies and a write-off of negative goodwill (on the revenue side) and posting impairment charges for receivables (on the cost side). Net finance income of EC Zielona Góra S.A. In the first half of 2015, the company posted a net finance loss of PLN thousand compared with a loss of PLN thousand in H In the first half of 2015, EC Zielona Góra S.A. reported finance revenues of PLN 645 thousand vs. PLN thousand generated in H Finance expenses in H were at PLN thousand while in the corresponding period of 2014 they amounted to PLN thousand. In H1 2015, the finance income was affected by the lower cash-pool interest received, while the finance expenses were influenced by a discount on the obligations in respect of stranded costs. Net income of EC Zielona Góra S.A. In the first half of 2015, the company generated a net income of PLN thousand. In the first half of 2014, the net income was PLN thousand, i.e. lower by PLN thousand. The profit increase in H was primarily attributable to the higher revenues from the sale of electricity and revenues from the sale of yellow certificates. Key ratios: ROA, ROE, ROCE - EC Zielona Góra S.A. (%) 30 June June 2014 Change (% ) Return on assets (ROA) 7,49 3, Return on equity (ROE) 31,65 11, Return on capital employed (ROCE) 80,89 15, The ROA ratio achieved by the company in H was higher compared with H as a result of the higher net income earned. ROE was higher year-on-year as a result of the higher value of equity. ROCE increased on account of the higher operating profit. Ratio calculation methodology is shown in point III 3 of this report. 3. Extraordinary circumstances which materially affected the Group s trading performance On 15 June 2015, the General Meeting of EC Zielona Góra adopted resolutions on: Distribution of profit for KOGENERACJA S.A. is to receive a dividend of PLN thousand (PLN per share). The dividend payment date is 26 August Payment of dividend from other reserves created from prior-year earnings and from supplementary capital. KOGENERACJA S.A. is to receive a dividend of PLN thousand in 2015 (PLN per share). The dividend payment date is 26 August The dividend payable to KOGENERACJA S.A. in two tranches will total PLN thousand. It was recognised in the unconsolidated financial statements for H as a revenue from finance activities. 20

21 4. Structure of assets and liabilities in the consolidated statement of comprehensive income a. Structure of the Group assets In the first half of 2015, the balance sheet total increased by PLN thousand. Non-current assets accounted for 80.2% of total assets. Tangible assets accounted for the major part (75.3%) of non-current assets. As at 31 December 2014, no-current assets accounted for 78.7% of total assets, while tangible assets accounted for 74.6% of total assets. In the structure of current assets, a decrease was observed in the share of inventories, mainly due to the lower volume of coal purchase in summer as a result of production seasonality; also the share of receivables in total assets decreased. in PLN thousand As at 30 June 2015 % of balance sheet total As at 31 December 2014 % of balance sheet total ASSETS I. Non-current assets current period current period copmarative period copmarative period 1. Property, plant and equipment , ,6 2. Intangible fixed assets, including: , ,2 - goodwill on related parties , ,0 3. Perpetual usufruct of land , ,7 4. Investment properties , ,8 5. Long-term receivables , ,3 6. Other long-term investments 4 0,0 4 0,0 7. Deferred tax assets ,1 Total non-current assets , ,7 II. Current assets 1. Inventories , ,2 2. Carbon-dioxide emission rights acquired for redemption 119 0, ,5 3. Short-term investments 16 0,0 12 0,0 4. Income tax receivables , ,0 5. Trade and other receivables , ,6 6. Cash and cash equivalents , ,0 Total current assets , ,3 Total Assets

22 b. Structure of the Group equity and liabilities In the structure of equity and liabilities, equity increased by PLN thousand, and liabilities fell by PLN thousand. In the structure of short-term receivables, a decrease was noted in the value of trade payables, mainly due to the seasonality of production. in PLN thousand EQ UITY AND LIABILITIES I. Equity As at 30 June 2015 % of balance sheet total As at 31 December 2014 % of balance sheet total current period current period copmarative period copmarative period 1. Share capital , ,2 2. Share premium , ,1 3. Other reserve capital , ,0 4. Retained earnings , ,6 Equity attributable to ordinary shareholders , ,9 Non- controlling interests , ,2 Total equity , ,1 II. Liabilities Non-current liabilities 1. Loans, borrowings and debt instruments , ,7 2. Employee benefit liabilities , ,0 3. Deferred income , ,5 4. Deferred tax liability , ,4 5. Other long-term liabilities , ,7 6. Long-term provisions , ,7 Total non-current liabilities , ,0 Current liabilities 1. Loans, borrowings and debt securities , ,1 2. Other short-term financial liabilities ,1 58 0,0 3. Income tax liabilities ,2 4. Trade and other payables , ,7 5. Employee benefit liabilities , ,5 6. Short-term provisions , ,4 Total current liabilities , ,9 Total liabilities , ,9 Total equity and liabilities , ,0 22

23 c. Liquidity ratios of the Group For 6-month-period ended 30 June 2015 For 6-month-period ended 30 June 2014 Change (%) Current liquidity 2,15 1,82 18 Quick liquidity 1,49 1,38 9 In the first half of 2015, the current ratio increased by 18%, while the quick ratio increased by 9% year-on-year as a result of a decrease in short-term liabilities in H (a decrease in financial obligations) coupled with a 28% increase in the value of inventories due to the reinstated system of certificates. 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 2015 are presented in the interim condensed financial statements of KOGENERACJA S.A. for the period ended 30 June 2015, point C Interim condensed unconsolidated financial statements, V Selected notes, Note 9 Related party transactions. b. Group transactions The key transactions with connected entities in the first half of 2015, taking into account intercompany eliminations, are presented in the interim condensed financial statements of KOGENERACJA S.A. for the year ended 30 June 2015, point B Interim condensed consolidated financial statements, 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 Parent 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 the first half of 2014, further annexes were signed, changing the structure of the companies participating in the cash-pool system and extending the terms of the respective agreements, with an unchanged value of the guarantees given by KOGENERACJA S.A. : 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. - Elektrociepłownia Zielona Góra S.A.; The guarantee expires on 31 August The total amount of the obligations that are partly guaranteed by the Company is PLN thousand. 23