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2015 ANNUAL REPORT Lietuvos Energija, UAB CONSOLIDATED ANNUAL REPORT, CONSOLIDATED AND COMPANY'S FINANCIAL STATEMENTS for the year ended 31 December 2015, prepared according to International Financial Reporting Standards as adopted by the European Union, presented together with the independent auditor’s report

1 2015 ANNUAL REPORT | Contents


Contents Consolidated annual report of the Company and the Group A Word of the Chairman of the Board

5

About the Group and the Company

6

Major events

10

Analysis of the Group’s financial and operational results

11

Results of operations of the Group companies

19

Market review

36

Review of the Company’s and the Group’s activities

39

Corporate responsibility

49

Corporate governance

51

Basic information about the Company and the Group

60

Independent auditor's report

69

Consolidated and company’s financial statements

72

Statements of financial position

73

Statements of comprehensive income

75

Statements of cash flows

76

Statements of changes in equity

77

Notes to the financial statements

79

2 2015 ANNUAL REPORT | Contents


Key financial indicators of the Lietuvos Energija group 2015

2014

Change (+/-)

Revenue

EUR million

1,095.8

972.7

EUR million 123.1

Purchase of electricity, gas, fuel and related services

EUR million

-774.0

-612.4

-161.6

26.4%

Operating expenses (1)

EUR million

-151.9

-143.3

-8.6

6.0%

Operating expenses (comparable)

EUR million

-110.1

-119.2

9.2

-7.7%

EBITDA (2)

EUR million

221.1

216.9

4.2

1.9%

%

20.2%

22.3%

Net profit

EUR million

55.3

-280.0

335.3

Net profit (comparable)

EUR million

127.9

118.2

9.7

At 31 Dec 2015

At 31 Dec 2014

EBITDA margin (3)

% 12.7%

8.2%

Change (+/-)

Total assets

EUR million

2,339.2

2,369.2

EUR million -29.9

% -1.3%

Equity

EUR million

1,304.5

1,308.9

-4.4

-0.3%

Borrowings

EUR million

420.7

391.6

29.1

7.4%

Borrowings, net (4)

EUR million

251.8

175.9

75.9

43.2%

Return on equity ratio (ROE) (5)

%

9.8%

9.0%

Equity ratio (6)

%

55.8%

55.2%

Borrowings, net / EBITDA

times

1.14

0.81

Borrowings, net / Equity

%

19.3%

13.4%

1) Operating expenses excluding costs attributable to purchase of electricity and related services, depreciation, amortisation, impairment and write-off expenses of property, plant and equipment; 2) Profit (loss) before tax + finance costs - finance income - dividends received + depreciation and amortisation expenses + impairment + write-offs of property, plant and equipment + effect of the discount for the gas price to consumers (see section 'EBITDA and Net Profit' for more detail); 3) EBITDA / Revenue; 4) Borrowings - cash and cash equivalents - short-term investments and term deposits - a portion of non-current other financial assets representing investments in debt securities; 5) Net profit (loss), restated annual value / equity at the end of the period; 6) Equity at the end of the period / total assets at the end of the period.

3 2015 ANNUAL REPORT | Key financial indicators of the Lietuvos Energija group


Lietuvos Energija Group achieved record-high revenue in 2015

Return on equity exceeds twice the target set by the Government for state-owned companies

9.80% 9.03%

160 140

118.2

120

60

6% 4% 2%

-0.86%

0%

40.8

-2%

20

-4%

0

-6%

-15

-40 2012 Net profit

4 2015 ANNUAL REPORT | Key financial indicators of the Lietuvos Energija group

8%

40

-20

EBITDA – 40% of the 2020 strategic objective has been achieved

127.9

2.29%

100 80

10%

-227,0

Comparable net profit 2013 40,8

Return on equity 2014

2015

-280,0

55,3

Low indebtedness enables to actively expand operations and pay dividends to the shareholder

Financial data is presented in million euros.

-8% -10%


A Word from the Chairman of the Board

Dear Customers, Partners, Employees and Shareholders By consistently implementing the set strategy the state-owned group of energy companies Lietuvos Energija has been improving its operational efficiency for several years in a row. In 2015, financial results continued to improve and the record-high profit was earned, efficiency was increasing, prices of services to consumers were declining, and better service quality indicators were attained. The successfully implemented programme for the improvement of the value chain served a basis for the further development of the Group's operations. Following the completion of the audit of the consolidated financial statements final annual performance results can be now assessed. In 2015, the record revenue was earned and the highest net profit was generated. We will therefore propose to pay to the state budget the highest amount of dividends, i.e. nearly EUR 86 million for the entire year of 2015. The amount of earnings before interest, taxes, depreciation and amortisation of Lietuvos Energija for 2015 was equal to EUR 221.1 million, which is EUR 4.9 million more than a year ago. Net comparable profitability amounted to EUR 127.9 million, which is 8.2% more as compared to 2014. The Group's revenue exceeded the amount of EUR 1 billion for the first time during its operations. In 2015, return on equity indicator of Lietuvos Energija was equal to 9.8%, which exceeded twice the return on equity target of 5% set by the Government for the state-owned companies. The record-high performance results were achieved due to a consistent work of the Group's employees.

5 2015 ANNUAL REPORT | A Word from the Chairman of the Board

In 2015, not only the Group's governance structure was reorganised, but also a 7.7% reduction in expenses of operating activities was achieved which further increased efficiency. At the same time, the scope of operations was expanded in the liquefied natural gas sector and renewable energy, the projects on the co-generation power plants were continued. Efforts made allow offering more favourable prices of the services to customers: fees for the connection to electricity networks and the price of natural gas for corporate entities were reduced. The agreements on liquefied natural gas signed with Statoil in 2016 and new electricity interconnections open up additional opportunities for the reduction of energy prices to Lithuanian residents and businesses in the middle of the year. Currently, we are half-way through the implementation of the established strategy. Its full completion will be achieved through the implementation of the operational expansion projects such as the acquisitions of the wind energy parks this year, construction of the new cogeneration power plants as well as through a higher efficiency of operations and provision of more and higher quality services to customers. Going forward, from 2016 we have concentrated customer service under the trade name GilÄ— and expanded the provision of electronic services. Gas and electricity customers can expect to receive high-quality fast service under one-stop-shop principle in the way most convenient to them. In future we plan to offer the services of other utility companies, single settlements at the common customer service centres, on the internet and by a smart phone application. By successfully implementing the 2020 strategy we expect to see further improvement of the Group's performance results and growth in value being created. Dr Dalius MisiĹŤnas Chairman of the Board and Chief Executive Officer of Lietuvos Energija, UAB


About the Group and the Company

6 2015 ANNUAL REPORT | A Word from the Chairman of the Board


About the Group and the Company

The Lietuvos Energija group is one of the largest state-owned groups of energy companies in the Baltic countries. The main activities of the Group include the generation and supply of electricity and heat, trading and distribution of electricity, trading and distribution of natural gas, as well as the servicing and development of the energy sector. The rights and obligations of the shareholder of the Lietuvos Energija group are implemented by the Ministry of Finance of the Republic of Lithuania. The Lietuvos Energija group with more than 5,300 employees manages and operates the key energy generation capacities of Lithuania that ensure the security of energy supply, a distribution network covering the entire territory of the country, and provides services to almost 1.6 million of consumers across Lithuania, offers electricity supply services to consumers abroad, operates gas distribution pipelines in the length of 8.5 thousand km, supplies gas to nearly 570 thousand consumers, implements development projects of strategic value and pursues the objective set forth in the National Energy Strategy. During 2015, 2.01 TWh of electricity were generated, 8.53 TWh of electricity were transmitted to consumers and 657 million m3 of natural gas were transported via gas distribution pipelines.

7 2015 ANNUAL REPORT | About the Group and the Company

The consolidated income of the Group for 2015 amounted to EUR 1,095.8 million and the Group's EBITDA totalled EUR 221.1 million. Net comparable profit for the 12-month period of 2015 amounted to EUR 127.9 million. The parent company of the Group, Lietuvos Energija, UAB (hereinafter “Lietuvos Energija” or “the Company”) is responsible for transparent management and coordination of activities of the entire Group, improvement of the efficiency in order to ensure the competitive servicing of consumers, and for socially responsible creation of the long-term value for shareholders. The Company analyses the activities of the Group, represents the Group, implements the rights and obligations of the shareholder, establishes operational guidelines and rules, and coordinates the activities in the areas of production, commerce, finance, law, strategy and development, human resources, risk management, audit, technology, communication, etc.


Structure of the Group At the reporting date, the Lietuvos Energija group consisted of 22 companies: the parent company and 21 directly and indirectly controlled companies. The main business activities of the Group are the generation of electricity and heat, transmission trading, distribution and supply, trade in natural gas and its distribution. Activities of the Group’s companies servicing these main types of business activities comprise ITT, real

8 2015 ANNUAL REPORT | Structure of the Group

estate, transport, repair and construction of energy facilities, professional development of employees, public procurement, accounting, administration of employment relationships and other services. The detailed list of the Group companies is presented on page 61 of this document. The organisational chart of the Group effective from 31 March 2016 is presented below.


The Group's strategy

MISSION –

VISION –

VALUES –

sustainable growth of value in the energy sector by promoting the economic and social development of the country.

to become the highest-value energy company in the Baltic countries.

responsibility, cooperation, results.

The main goal of the strategy of the Lietuvos Energija group is to double the value

Diversifying the operations. The diversification includes implementation of invest-

of the Group and to become the highest-value energy company in the Baltic countries by 2020. This value is perceived as a sustainable balance of three compo-

ment projects in the sectors of electricity, heat and natural gas. The projects increase the competitiveness of the Group and the national economy at large as well as the country's energy independence, optimisation of the production and trading portfolio, development of new activities by extending the value chain of the Lietuvos Energija group. These goals will be achieved using the available resources and infrastructure, investing in the creation of new infrastructure and effective governance, as well as through acquisitions.

nents: return on assets, improvement of competitiveness and responsibility towards employees, society and environment. The Group's return on assets is increased through the development – diversifying activities, indulging in new and economically feasible projects and activities, acquiring enterprises, ensuring the efficiency of daily operations and achieving the goals set by the shareholder. The Group will reinforce the country's competitiveness by ensuring a stable supply of electricity and natural gas, offering new products and promoting rational use of electricity and natural gas. The Group assumes responsibility towards society and its employees, proactively implements environmental requirements and ensures the continuity and improvement of skills

The main strategic directions of the Group: Ensuring quality services to consumers. The care is taken to achieve better servicing of consumers, develop electronic (time-saving) and new services responding to the needs of consumers, increase consumer choices and guarantee the reliability of generation, distribution and supply of electricity and of distribution and supply of natural gas.

9 2015 ANNUAL REPORT | The Group's strategy

Enhancing the efficiency of operations. The efficiency is pursued in the main activities of the Group, as well as in the provision of support functions, management of assets and other resources across all Group companies. In order to achieve higher efficiency, the management and control system of the Group companies is integrated by setting the common principles of business management, division, coordination and control of responsibilities. Efficiency improvement measures covering all Group companies or identical or very similar activities at the individual company level are also continued. Active sharing of best practices between companies is promoted and sought.

Building new organisational culture. A modern, effective and dynamic organisation is being created operating on the basis of common values, developing in a consistent and targeted manner the required competences and successors for key employees, and offering internal environment which encourages the involvement of employees.


Major events Q2

Q1 of 2015 On 1 January 2015, LITGAS started the supply of the minimum quantity of natural gas necessary for the LNG Terminal.

On 10 April 2015, the companies effecting the cogeneration power plants projects were established. On 22 April 2015, Lietuvos Energija and Kaunas University of Technology opened a joint applied research centre of Lietuvos Energija.

On 14 August 2015, plans on investments in the integrated business management system were announced.

On 31 August 2015, the merger terms of LESTO and Lietuvos Dujos were announced. On 29 April 2015, Lietuvos Energija allocated to the state budget EUR 52.6 million in dividends for the year 2014 the largest amount among state-owned companies. On 4 June 2015, the environmental impact assessment report on Vilnius co-generation power plant was presented.

10 2015 ANNUAL REPORT | Major events

Q4

Q1 of 2016 On 21 January 2016, Lietuvos Energija acquired two wind power parks with the total installed capacity of 42.3 MW.

On 28 July 2015, the general managers of the companies being reorganised were named.

18 August 2015, the Sponsorship Fund of Lietuvos Energija provided support of nearly EUR 600 thousand.

On 1 January 2015, lower electricity and gas distribution tarriffs were set for users. On 13 February 2015, the programme on the value chain clarification was presented.

Q3

On 15 October 2015, Lietuvos Energija and Fortum Heat Lietuva signed the shareholder agreement on the cogeneration power plant project. On 20 October 2015, the Management Coordination Centre recognised the Lietuvos Energija group as the best managed State capital entity in 2014.

On 5 February 2016, Lietuvos Dujų Tiekimas signed the agreement on the liquefied natural gas supply with Statoil under which more than a half of the gas demand (approx. 300 million cubic metres) will be satisfied this year. On 18 February 2016, Energijos Sprendimų Centras UAB was establised which will be developing projects on energy efficiency improvement and renewable energy resources.

On 31 December 2015, the most significant project of the year - the value chain clarification programme - was completed. The reorganised companies started to operate at the beginning of the year.

On 18 March 2016, Dr Dalius Misiūnas, the CEO of Lietuvos Energija, was elected as the Manager of the Year 2015.


kkkk

Analysis of the Group’s financial and operational results

11 2015 ANNUAL REPORT | Major events


Analysis of the Group’s financial and operational results 2015

2014

Change (+/-) +/%

TWh

2.01

1.84

0.17

9.3%

Distributed electricity via medium and low voltage networks

TWh

8.53

8.39

0.14

1.6%

Public and guaranteed supply Distributed to customers of independent suppliers

TWh TWh

3.12 5.41

3.22 5.17

-0.10 0.23

-3.1% 4.5%

min. units

66.0 0.84

71.6 0.90

-5.53 -0.06

-7.7% -7.0%

%

6.76%

7.31%

-0.01

-7.6%

billion m3 TWh billion m3 TWh

0.66 6.83 1.42 14.76

0.75 7.78 0.80 8.31

-0.09 -0.95 0.62 6.45

-12.2% -12.2% 77.6% 77.6%

min. units

0.25 0.0033

1.67 0.0060

-1.43 -0.027

KEY OPERATIONAL INDICATORS OF THE LIETUVOS ENERGIJA, UAB GROUP Electricity Generated electricity

Quality indicators of electricity supply SAIDI, min. (excl. force majeure) SAIFI, units (excl. force majeure) Technological costs in the distribution network Gas Distributed volume of gas Distributed volume of gas Volume of gas sold Volume of gas sold Quality indicators of gas supply SAIDI, min. (excl. force majeure) SAIFI, units (excl. force majeure)

With the growing economy of the country, electricity consumption increased during 2015. In the period from January to December, the amount of electricity distributed by the Group to consumers via medium and low voltage networks increased by 1.6% (0.14 TWh) and amounted to 8.53 TWh compared to 2014. The increase resulted from higher electricity consumption in the industry sector – 2.7% or 2.44 TWh more of electricity was distributed to this group of customers in 2015 compared to 2014 when 2.37 TWh of electricity was distributed. In 2015, the public and guaranteed supply of electricity of the Lietuvos Energija group was equal to 3.12 TWh (a 3.1% or 0.10 TWh decrease from the previous year). The supply of electricity to independent consumers increased and totalled 5.41 TWh (a 4.5% or 0.23 TWh increase).

12 2015 ANNUAL REPORT | Analysis of the Group’s financial and operational results

In 2015, the Lietuvos Energija group generated 2.01 TWh of electricity (9.3% more compared to the results of 2014). Compared to the previous reporting period, electricity generation volumes at Kaunas Algirdas Brazauskas Hydro Power Plant decreased by 13.6% (from 0.32 TWh in 2014 to 0.24 TWh in 2015). The level of electricity generation at Kruonis Pumped Storage Plant remained nearly unchanged – 0.67 TWh of electricity was produced and sold in 2015, which is more than in 2014 (0.66 TWh). The quantity of electricity generated by the combined-cycle gas turbine of the Elektrėnai complex was equal to 1.03 TWh, which is a 0.33 TWH or 47.9% increase compared to 2014 when 0.7 TWh of electricity was generated. The units of the Elektrėnai complex are used to produce electricity in order to ensure a reliable operation of the electricity system when due to repair, restricted throughput of other electricity generation sources or other reasons a shortage of electricity appears in the country and


its price rises in the electric power trading exchange. By organising electricity production in such a way, effective use of PSO service fees is ensured at the Elektrėnai complex. In 2015, technological costs in the distribution network declined – comprised 6.76% (7.31% in 2014). In 2015, the average duration of unplanned interruptions in electricity transmission (System Average Interruption Duration Index (SAIDI)), excluding the causes of force majeure circumstances, per customer, improved and was 66 minutes (71.6 minutes in 2014), and the average number of unplanned long interruptions (System Average Interruption Frequency Index (SAIFI)) per customer was 0.84 times compared to 0.90 times in 2014. With decreasing consumption of natural gas, the volume of gas distributed by the Group companies also decreased. In 2015, the Group companies distributed 6.83 TWh or around 0.66 billion cubic metres of gas, which is a 12.2% or 0.95 TWh decrease compared to 2014 when 7.78 TWh or 0.75 billion cubic metres of gas was distributed.

After the commencement of operations of the liquefied natural gas terminal and sale of gas to customers by the Group company LITGAS, the volume of gas sold by the Group companies increased and totalled 14.76 TWh (about 1.42 billion cubic metres) in 2015. This is 77.6% or 6.45 TWh more than the volume of natural gas sold by Lietuvos Dujos in 2014 (8.31 TWh or 0.8 billion cubic metres). In 2015, the average duration of unplanned interruptions in gas transportation (SAIDI ratio), excluding the effects of force majeure circumstances, per consumer was low and equal to 0.24 minute. (1.67 minutes in 2014), and the average number of interruptions in gas transportation (SAIFI ratio) per customer was 0.0033 time (0.006 time in 2014). Improvement in these ratios resulted from the absence of significant gas supply restrictions in 2015.

Electricity generation, distribution and sale, TWh 5.15

Distributed to customers of independent suppliers

5.17 5.41

3.06 Public and guaranteed supply

3.22 3.12

8.21

Distributed electricity via medium and low voltage networks

8.39 8.53

1.96 Generated electricity

1.84 2.01 0

13 2015 ANNUAL REPORT | Analysis of the Group’s financial and operational results

2 2013

4 2014

6 2015

8

10


Key financial indicators Dynamics of the Group's revenue by sector, 1400

As a result of an increase in revenue from gas transmission and distribution activity, this type of revenue increased and represented 28% of the Group's total revenue (17.5% in 2014). Due to decline in revenue from the service of electricity transmission the portion of this revenue declined from 38.6% in 2014 to 30% in 2015 in the overall revenue structure of the Group.

-2.0

-14.4

-4.5

400 200

Revenue for 2015

Transmission revenue

Revenue from other activities

Revenue from sale of electricity produced, electricity trade and supply

0

Group's revenue structure, % and in EUR million Electricity distribution revenue 315.2 29%

325.9 30%

2015 EUR 1,096 million

309.4 28%

14 2015 ANNUAL REPORT | Key financial indicators

-49.3

600

Revenue from gas distribution and sale

Revenue attributable to the activity of gas transmission and distribution, which is included in the Group’s statement of comprehensive income, increased by 85.4% or EUR 145.2 million from EUR 170 million in 2014 up to EUR 315.2 million in 2015.

1,095.8

-1.8

Revenue from provision of balancing, regulating and power reserve services

800

972.7

PSO service revenue of Lietuvos Energijos Gamyba

During the reporting period, revenue earned from the provision of electricity transmission service (30% or EUR 325.9 million), the sale of electricity produced, electricity supply and transmission trading (28% or EUR 309.4 million), and the activity of gas distribution and sale (29% or EUR 315.2 million) represented the major portion of all revenue earned. Compared to revenue earned in 2014, in 2015 due to increasing sales of electricity in the free market, revenue from the sales of generated electricity as well as electricity supply and transmission trading increased by 19.3% (by EUR 49.4 million from EUR 260 million to EUR 309.4 million). As a result of the reduction of the transmission price revenue from the electricity transmission service decreased by 13.1% or EUR 49.3 million, from EUR 375.3 million in 2014 down to EUR 325.9 million in 2015.

1000

0.5

49.4

145.2

Heat energy revenue

1200

in EUR million

Revenue from connection of new customers

In 2015, revenue of the Lietuvos Energija group increased by 12.7% or EUR 123.1 million compared to 2014 and reached EUR 1,095.8 million.

Revenue for 2014

Revenue

55.8 5%

58.7 6%

Revenue from provision of balancing, regulating and power reserve services PSO service revenue of Lietuvos Energijos Gamyba Heat energy revenue Revenue from connection of new customers Revenue from other activities Revenue from sale of electricity produced, electricity trade and supply Revenue from gas distribution and sale


Assets and equity

Group's operating expenses, in EUR million

In 2015, the Group’s assets decreased by 1.3% or EUR 29.9 million and amounted to EUR 2,339.2 million as at 31 December 2015 (31 December 2014: EUR 2,369.2 million). Reduction in the Group's assets resulted from more effective management of current assets. During 2015, the Group's inventories decreased by EUR 13 million or 24.5% and trade and other receivables declined by EUR 24.1 million or 15.8%.

160

In 2015, the equity of the Lietuvos Energija group decreased by 0.3% or EUR 4.4 million and amounted to EUR 1,304.5 million as at 31 December 2015 (31 December 2014: EUR 1,308.9 million). The Group's equity declined due to the payment of dividends in the fourth quarter of 2015 and the recognised impairment of non-current assets of Lietuvos Energijos Gamyba AB after the operation of units 5 and 6 of the Lithuanian Power Plant was discontinued. The Group's equity ratio remained nearly unchanged during 2015 and was equal to 55.8% as at 31 December 2015 (31 December 2014: 55.2%).

100

Operating and purchase expenses The Group's operating expenses increased by 6% (EUR 8.6 million) compared to 2014 and amounted to EUR 151.9 million in 2015. The increase in operating expenses was determined by acquired control of Lietuvos Dujos in June of 2014 – since then operating expenses of the taken-over gas transmission and distribution activity have been included in the Group’s operating expenses. Excluding these expenses, compared to 2014 comparable operating expenses of the Group decreased by 7.7% or EUR 9.2 million from EUR 119.2 million to EUR 110.1 million. During the reporting period, expenses of the Group for the purchase of electricity, gas, fuel and related services increased by 26.4% or EUR 161.6 million compared to 2014. The growth was determined by the inclusion of costs related to trade in gas, which totalled EUR 363.7 million in 2015, in the Group’s purchasing expenses. The Group, having acquired the controlling block of shares of Lietuvos Dujos AB, started the activity of trade in natural gas from June 2014. In 2015, the consolidated purchases of gas and fuel oil for the electricity generation decreased by 84% compared to 2014 from EUR 75.9 million to EUR 11.9 million, whereas the purchases of electricity and related services increased by 2.7% in 2015.

140 120

151.9 143.3

+6.0% 35.1

18.5 5.6

6.8

-7.7%

Expenses related to assets’ revaluation, disposal and dismantling and other oneoff expenses

80 60

119.2

110.1

Comparable expenses of operating activities

40 20 0 2014

2015

Group's purchase expenses of electricity, gas, fuel and other related services, in EUR million 900 774.0

800 700 600 500 400

612.4

+144% 363.8

Purchases of gas and heavy fuel oil for production

148.9 75.9

-84% 11.9

Purchases of electricity or related services

+2.7%

300 200

Purchases of gas and related services for trading

387.7

398.3

2014

2015

100 0

15 2015 ANNUAL REPORT | Key financial indicators

Operating expenses related to taken over operations of gas transmission and distribution, new projects


EBITDA and net profit In 2015, the Group’s earnings before interest, taxes, depreciation and amortisation (EBITDA) amounted to EUR 221.1 million, which is 1.9% or EUR 4.2 million more than EBIDTA of 2014, which was equal to EUR 216.9 million (EBITDA of 2015 does not include the negative effect of the discount for the price of gas in the amount of EUR 49.96 million applied to household and non-household customers in 2015 and a negative effect of of costs of previous periods amounting to EUR 5.3 million allocated to the results of operations of 2015, the elimination of a EUR 4.04 million positive effect of trade in liquefied gas, which will be used to reduce the Group's results of operations of the upcoming periods). The growth of EBITDA of the Group was determined by a positive change in the results of the activity of gas transmission and distribution in 2015. The Group's EBITDA margin for the reporting period slightly decreased and was equal to 20.2% (22.3% in 2014). This change was determined by a significantly lower profitability of the gas sales activity, compared to other core activities of the Group, which made up a significant share of the Group's revenue in 2015 and whose share in the Group's revenue structure increased in 2015.

Group's EBITDA sources, % 10%

11% Lietuvos dujos AB

22%

2015

LESTO AB

EBITDA

Lietuvos energijos gamyba AB

EUR 221.1 million

Other activities

57%

Dynamics of the Group's EBITDA by sector, in EUR million 300 250

216.9

21.6

0.8 -2.5

200 221.1

216.9 +1.9%

221.1 -15.6

150 100 50

16 2015 ANNUAL REPORT | Key financial indicators

EBITDA for 2015

Electricity generation

Electricity distribution and supply

Other activities

Gas supply and distribution

EBITDA for 2014

0


In 2015, the Group's investments increased by 15.4% or EUR 21 million and amounted to EUR 156.7 million compared to EUR 135.8 million in 2014. In 2015, investments were mostly allocated (66%) for the development and maintenance of the electricity distribution network. During 2015, there was a significant increase in investments in the maintenance of the electricity distribution network (EUR 21.1 million), the construction of the gas system (EUR 7.3 million), the reconstruction of the gas system (EUR 6 million); investments in other sectors also increased (EUR 22 million in total), except for EUR 6.6 million lower investments in the development of the distribution network, decrease in investments in the development of thermal energy generation capacities (by EUR 9.7 million) and in ITT (by EUR 3.5 million).

Group's investments structure, % 4% 4%

In light of these factors, comparable net profit of 2015 (EUR 127.9 million) was 8.2% or EUR 9.7 million larger than comparable net profit of 2014 (EUR 118.2 million).

2015

Net profit, in EUR million

45%

EUR 156.7 million

3% 5% 5%

-6.6

-3.5

5.0

1.4

156.7

Investments for 2015

-9.7

6.0

21.1

Maintenance of the electricity distribution network

120

7.3

Electricity generation capacities

135.8

Other investments

160

Reconstruction of gas systems

Group's investments by sector, in EUR milllion

Construction of gas systems

+8.2%

27%

ITT (IT, telecommunications and management systems)

Comparable net profit, in EUR million

Development of the distribution network ITT (IT, telecommunications and management systems) Heat energy generation capacities Construction of gas systems Maintenance of the electricity distribution network Electricity generation capacities Reconstruction of gas systems Other investments

7%

Development of the distribution network

The amount of net profit for 2015 was significantly affected by additional costs related to the gas price discount applied by the Group companies to household and nonhousehold customers in 2015 (total negative effect of EUR 42.5 million), significant negative impact (-EUR 4.5 million) of the revaluation of assets and transfer of costs from previous periods and negative impact (-EUR 25.6 million) of the revaluation of assets of Lietuvos Energijos Gamyba on the net profit of 2015. When comparing net profits of 2014 and 2015, a positive impact of lower depreciation and amortisation expenses on the net profit of 2015 should be assessed. This positive impact resulted from decrease in depreciation and amortisation expenses after the revaluation of assets of LESTO AB performed in December 2014 (+EUR 50.6 million).

Investments

Heat energy generation capacities

In 2015, the Group earned EUR 55.3 million in net profit, which is EUR 335.3 million more than net profit of 2014 (-EUR 280 million). The net result of 2014 was largely affected by the gas price discount provided by Gazprom to Lietuvos Dujos AB and the revaluation of assets of LESTO AB.

80 40

Investments for 2014

0

17 2015 ANNUAL REPORT | Key financial indicators


Borrowings The Group's net borrowings increased by EUR 75.9 million compared to the amount of net borrowings in 2014 and amounted to EUR 251.8 million as at 31 December 2015. The increase resulted from higher borrowings designated for the financing of the investment of the Group companies and payment of dividends to the shareholders of the Group companies in 2015. During 2015, the Group's borrowings increased by 7.4% or EUR 29.1 million and amounted to EUR 420.7 million as at 31 December 2015 compared to EUR 391.6 million as at 31 December 2014. The Group's cash balances and current investments amounted to EUR 168.9 million as at 31 December 2015, which is a EUR 46.8 million or 21.7% decrease compared to the year end of 2014 (EUR 215.7 million). Cash balances decreased due to investments made and dividends paid by the Group companies.

29.1

250

200

175.9

251.8

46.8

150 100 50

Borrowings, net, as at 31/12/2015

Borrowings

Cash and short-term investments

Borrowings, net, as at 31/12/2014

0

18 2015 ANNUAL REPORT | Key financial indicators

The Group's net borrowings to equity ratio increased from 13.4 times at the 2014 year-end to 19.3 times at the 2015 year-end. The current ratio of the Group's net borrowings remains to be rather low with respect to revenue earned and the capital structure as compared to respective indicators of the EU energy companies. A low ratio of the Group's borrowings and a high ratio of equity, profitability of operating activity indicate a solid and stable current financial position of the Group and its prospects, as well as the Group's financial capacities to implement investments required to ensure the provision of the existing services of the Group, to implement and finance new projects and safeguard a further development of the Group.

Group's borrowings,net to 12-month EBITDA ratio, times

Group's borrowings, net, in EUR million 300

As a result of the increase in the Group's borrowings, the Group's net borrowings to the last 12-month EBITDA ratio increased from 0.81 time at the 2014 year-end to 1.14 times at the 2015 year-end.

Group's borrowings,net to equity ratio, %


Results of operations of the Group companies

19 2015 ANNUAL REPORT | Key financial indicators


Results of operations of the Group companies Results of operations of LESTO AB LESTO is the Lithuanian electricity distribution network operator, the main functions of which include electricity transmission via distribution networks, connection of new equipment and objects of customers, operation, maintenance, management, development of distribution networks, ensurance of their safety and reliability, public and guaranteed electricity supply. LESTO was established in 2011 following the reorganisation of distribution networks companies RytĹł Skirstomieji Tinklai AB and VST AB by way of merger that ceased their activities as legal entities on 31 December 2010. At the end of 2015, LESTO operated electricity distribution networks with the length of around 122 thousand km; the company provided services to 1.67 million customers. With effect from 1 January 2016, these activities are continued by Energijos Skirstymo Operatorius AB.

Key financial results In 2015, LESTO invested EUR 117.6 million in the electricity distribution network, i.e. 15.9% more than in 2014. Investments in the modernisation and development of the network amounted to EUR 74.4 million and EUR 43.2 million, respectively. The service quality was improved for 10 thousand customers after the completion of the network modernisation project, which included 96 homestead cooperatives, in the last quarter. Purchase expenses of electricity and related services amounted to EUR 373.8 million during the twelve-month period of 2015 and decreased by 14.8% compared to a respective period of 2014. A decrease from 2014 was caused by lower electricity purchase price and PSO and transmission price components, decrease in the volume of the guaranteed electricity supply and technological losses.

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

581.8 83.1 124.8 72.5

650.7 83.0 128.9 -164.6

Assets Equity Borrowings Borrowings, net

881.5 433.1 247.0 228.0

816.3 394.1 222.1 218.0

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, %

21.5% 52.6% 1.82 16.7% 49.1%

19.8% 55.3% 1.69 -41.7% 48.3%

Number of employees, positions

2,178

2,229

Operational indicators INDICATORS Number of customers Quantity of electricity supplied to the distribution network Technological costs Quantity of electricity distributed

20 2015 ANNUAL REPORT | Results of operations of the Group companies

2015

2014

Unit s TW h %

1,673,80 1 9.15

1,627,23 8 9.06

6.9

7.4

TW h

8.53

8.4


Results of operations of Lietuvos Energijos Gamyba, AB Lietuvos Energijos Gamyba (LEG) is a company of strategic importance engaged in the activities of electricity and heat production, electricity supply, import and export and trade in electricity. Lietuvos Energijos Gamyba holds the largest electricity generation capacities in Lithuania which ensure the country‘s energy security. The company owns three generation entities: Lithuanian Power Plant, Kruonis Pumped Storage Power Plant and Kaunas Hydro Power Plant. The Company has permits of unlimited validity to engage in electricity generation activities. The company assumes the major responsibility for the improvement of effectiveness, competitiveness and transparency of the country‘s electricity sector and safeguarding interests of consumers. LEG sells electricity and provides electricity balancing and reactive power management services to public and independent suppliers operating in the Lithuanian market as well as exports electricity and sells electricity in the power exchange.

Key financial results In 2015, the Company's and the LEG Group's expenses amounted to EUR 208.6 million and EUR 219.3 million, respectively. In 2015, the LEG Group consisted of the following companies: LEG, Kauno Energetikos Remontas UAB (until 31 March 2015), Energijos Tiekimas UAB (until 31 March 2015), NT Valdos UAB (until 27 April 2015). Expenses attributable to purchase of electricity, related services and fuel for electricity generation represented the major portion of the Company's expenses (EUR 133.9 million or 64.2%) and the LEG Group's expenses (EUR 137.6 million or 62.8%). In 2015, the Company's and the LEG Group's depreciation and amortisation expenses amounted to EUR 22.4 million and EUR 22.6 million, respectively. The Company's and the LEG Group's EBITDA declined due to the resolutions of the National Control Commission for Prices and Energy (hereinafter "the Commission") currently disputed at the court regarding the results of the audit of the Company's activities in 2010-2012 and the Company's recognition as an operator with significant market power in the electricity generation services. Based on these resolutions the lower prices of the regulated services were established for the Company for 2015. This resulted in a negative impact on EBITDA and net profit for 2015 amounting to EUR 15.9 million and EUR 13.5 million, respectively. The Company's investments in property, plant and equipment and intangible assets amounted to EUR 14.1 million in 2015.

21 2015 ANNUAL REPORT | Results of operations of the Group companies

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

214.4 24.1 54.7 -0.2

233.2 22.4 65.2 33.4

Assets Equity Borrowings Borrowings, net

833.5 342.9 146.3 80.1

914.6 367.3 162.9 87.1

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, %

25.5% 23.4% 1.46 0.0% 41.1%

27.9% 23.7% 1.33 9.09% 40.2%

429

474

2015

2014

2.01

1.84

Number of employees, positions

Operational indicators INDICATOR Generated electricity

TWh


Results of operations of Lietuvos Dujos AB Lietuvos Dujos (LD) is the operator of the Lithuanian natural gas distribution network. Lietuvos Energija holding 96.6% of shares of Lietuvos Dujos is the main shareholder of the company. The activities of Lietuvos Dujos include the operation of the gas distribution infrastructure, ensurance of its safety, renewal and development, attraction of users and their connection to the gas distribution pipelines, as well as the provision of emergency response services of gas pipelines. The company operates 8.5 thousand km of gas distribution pipelines. On 1 January 2016, these activities were transferred to Energijos Skirstymo Operatorius AB. Until 1 November 2014, Lietuvos Dujos was engaged in both gas distribution and gas supply activities. The activity of natural gas supply was unbundled from Lietuvos Dujos in the implementation of the requirements of the Third Energy Package of the EU and the related legal acts. On 15 October 2014, Lietuvos Dujos and Lietuvos DujĹł Tiekimas signed the purchase and sale of a part of the business agreement, under which Lietuvos DujĹł Tiekimas acquired from Lietuvos Dujos a business of natural gas supply along with all attributable assets, rights and obligations. In December 2014, the total amount of the consideration for the acquired assets from Lietuvos Dujos was received.

Key financial results Organisational and operational changes implemented at Lietuvos Dujos in 2015 allowed increasing efficiency, streamlining the governance structure, reducing expenses and increasing value. The annual financial effect of changes carried out at Lietuvos Dujos in 2015 amounts to approx. EUR 2.3 million. In 2015, expenses of Lietuvos Dujos decreased by even 17% and amounted to EUR 41.3 million (EUR 49.8 million in 2014). Lietuvos Dujos increased its investments in 2015; they amounted to EUR 14 million, which is EUR 1.9 million or 15.7% more than in 2014. In 2015, larger investments were made in projects focused on higher reliability and on reconstruction and modernisation of gas systems. Increase in investments also resulted from the number of new users connected to the gas network and the rising volumes of construction of new gas systems in response to new connections.

22 2015 ANNUAL REPORT | Results of operations of the Group companies

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

56.4 28.6 24.1 12.9

55.6 30.4 20.3 5.9

Assets Equity Borrowings Borrowings, net

197.3 140.7 0.0 -7.9

214.8 165.6 0.0 -19.8

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, %

42.7%

36.5%

9.1% 71.3%

3.5% 77.1%

971

1,134

Number of employees, positions


Results of operations of NT Valdos, UAB NT Valdos, UAB is one of the largest companies in the area of property management and transport services in Lithuania. The company is engaged in the long-term and short-term lease of administrative, production and warehousing premises as well as long-term and short-term lease of territories and long-term and short-term lease of cars and special purpose motor vehicles and equipment, management of vehicle feet, accommodation and conference organisation services.

Key financial results In 2015, the Company's revenue increased by EUR 761 thousand (5%) compared to 2014. This change resulted from more effective management of motor vehicles and real estate, improved processes of sales and customer service. As at 31 December 2015, NT Valdos held real estate with an area of 297,827 square metres, which was registered with the state enterprise the Centre of Registers. As at 31 December 2014, real estate held by the Company covered the area of 241,890 square metres. In 2015, operating expenses increased by EUR 1,104 thousand (7%) compared to 2014. This change resulted mainly from change in the fair value of investment property, revaluation result of property, plant and equipment, depreciation and amortisation and other expenses (acquisition of movable property).

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

17.4 11.7 5.7 0.3

16.6 11.5 5.1 0.6

Assets Equity Borrowings Borrowings, net

110.6 88.2 1.5 1.4

91.4 88.0 0.0 -5.6

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, %

32.8% 1.6% 0.25 0.3% 79.7%

30.7%

240

219

Number of employees, positions

23 2015 ANNUAL REPORT | Results of operations of the Group companies

0.6% 96.2%


Results of operations of Duomenų Logistikos Centras UAB Duomenų Logistikos Centras UAB (known as Technologijų ir Inovacijų Centras UAB until 4 November 2013) is one of the largest operators of data transmission networks and data centres in the Baltic countries. The company provides data transmission services to companies and communication operators, manages data centres in which major companies, banks, telecommunication operators, cloud computing services providers store their equipment. Duomenų Logistikos Centras UAB was established in 2010 by joining IT, telecommunications and technological equipment management specialists who were employed at separate companies of the Lithuanian electricity sector. Until 2013, the company also provided IT sector maintenance and design services. Starting from 2014, the company provides only the services of the operator of data transmission networks and data centres. Duomenų Logistikos Centras transferred to the ownership of Technologijų ir Inovacijų Centras the set of assets related to non-commercial activity (IT maintenance and design services) of Duomenų Logistikos Centras UAB on 31 December 2013. In such a way the direct activity (function), i.e. data transmission and lease of data centres, of Duomenų Logistikos Centras was streamlined, whereas a non-commercial activity (function) of the company, i.e. maintenance and service of the IT sector of electricity companies of the group, was transferred to Technologijų ir Inovacijų Centras UAB. Proceeds received for the transferred assets were used to implement the decision of the shareholders of 30 April 2014 to reduce the company's authorised share capital by EUR 13 million (LTL 45 million).

Key financial results Duomenų Logistikos Centras UAB provides services to related companies. According to the Lithuanian Law on Corporate Income Tax the prices of services for the group companies should correspond to prices of similar transactions conducted between unrelated parties, i.e. the company's return is established according to market prices of equivalent services. Duomenų Logistikos Centras UAB provides services under the 'cost plus' basis which ensures a certain amount of profit corresponding to the functions performed.

24 2015 ANNUAL REPORT | Results of operations of the Group companies

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

4.9 3.9 1.0 -0.2

5.5 4.6 1.0 0.4

Assets Equity Borrowings Borrowings, net

8.4 4.4 3.2 1.7

9.3 4.8 3.5 2.6

20.4% 38.6% 1.7 -4.5% 52.4%

18.1% 53.6% 2.6 8.3% 52.0%

16

14

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, % Number of employees, positions


Results of operations of ELEKTROS TINKLO PASLAUGOS UAB Elektros Tinklo Paslaugos is a group company engaged in the construction, reconstruction, repair and technical maintenance, testing and diagnostic works of electricity equipment of 0.4 kV – 400 kV voltage for the companies of the electricity sector and external market. The company provides services to the Lithuanian energy sector companies and companies of other sectors and natural persons in Lithuania. Revenue received from energy projects, i. e. the repair, reconstruction, construction and technical maintenance of overhead lines, overhead cable lines, cable lines, 6-10 kV voltage transformers, 6-10 kV voltage distribution stations, 35 kV and higher voltage transformer substations, made up a major portion of the company‘s revenue.

Key financial results In 2015, revenue were EUR 3.6 million higher compared to 2014. This change resulted from the business expansion of Elektros Tinklo Paslaugos UAB. In 2015, expenses increased by EUR 4.8 million (21.2%) compared to 2014. This change was caused by higher revenue of Elektros Tinklo Paslaugos UAB and a respective increase in the cost of works. Profitability decreases due to growing competition in the market when participating in public tenders.

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX)* EBITDA Net profit

26.9 12.0 0.0 -0.6

23.3 10.6 1.2 0.4

Assets Equity Borrowings Borrowings, net

11.5 3.5 0.0 -0.4

10.9 7.0 0.0 -0.7

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, %

0.0%

5.1%

-17.1% 30.4%

5.7% 64.3%

Number of employees, positions 568 556 *services of subcontractors and acquisitions of materials were excluded from operating expenses of 2014 to provide comparable results.

25 2015 ANNUAL REPORT | Results of operations of the Group companies


Results of operations of Kauno Energetikos Remontas UAB Kauno Energetikos Remontas is one of the most experienced companies in the field of repair of energy equipment in Lithuania. The Company's principal activities are follows: electro-technical activities – reconstruction, repair and technical maintenance of power stations, repair of electricity equipment (transformers, engines, generators); mechanical activities – installation of boilers, technological pipes and other installation works; manufacturing activities – manufacturing of stacks, metal construction structures, pressure vessels; management of engineering projects.

Key financial results During the reporting period 44% of revenue was earned from the energy sector and 22% from foreign markets. Annual sales revenue per employee increased from EUR 129 thousand to EUR 134 thousand in 2015. In 2015, the value of contracts signed amounted to EUR 27 million, of which EUR 14 million is allocated for the works carried out in 2016. In 2015, the company's EBITDA was negative and equal to EUR -0.2 million and net profit was also negative and totalled -EUR 0.6 million. Such results were caused by costs related to the thermal energy production project (a biofuel boiler house) implemented in 2014-2015 that were incurred in 2015.

26 2015 ANNUAL REPORT | Results of operations of the Group companies

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX)* EBITDA Net profit

33.1 10.1 -0.2 -0.6

31.8 6.4 -2.8 -3.4

Assets Equity Borrowings Borrowings, net

17.2 5.4 2.8 2.4

21.0 5.3 2.9 1.8

-0.6% 44.4%

-8.9% 34.1%

-11.1% 31.4%

-64.1% 25.4%

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, %

Number of employees, positions 245 236 *services of subcontractors and acquisitions of materials were excluded from operating expenses of 2014 to provide comparable results.


Results of operations of Energijos Tiekimas UAB Energijos Tiekimasis the independent Lithuanian capital electricity supplier. The Company’s core line of business is independent supply of electricity, including supply, scheduling, forecasting, balancing, purchasing, sales, balancing energy, trade intermediation, import, export of electricity. The Company owns a company operating in Estonia (Geton Energy OU) and in Latvia (Geton Energy SIA) that are engaged in power supply. Energijos Tiekimas has the highest number of customers (over 6 thousand) among independent electricity suppliers in Lithuania. The company is the sole supplier of certified electricity produced from renewable energy resources in Lithuania.

Key financial results After the market of corporate consumers became fully open in Lithuania, small and medium enterprises remained the priority segment of Energijos Tiekimas. The customer base consistently increased throughout the year and reached 6,348 at the end of 2015, i.e. increased by 63 customers as compared to 6,285 customers in 2014. On 12 October 2015, the agreement on the sale and purchase of a part of the business was signed between Lietuvos Energijos Gamyba AB and Energijos Tiekimas. Under this agreement a part of the wholesale electricity trade activities, which covers trade in derivative financial instruments and provision of the balancing services not related to physical electricity trading, was transferred to Energijos Tiekimas on 1 January 2016. According to the decision of Lietuvos Energija UAB, the shareholder of Energijos Tiekimas, dated 23 December 2015 and the share subscription agreement dated 23 December 2015, a decision was made to increase the share capital of Energijos Tiekimas by the amount of EUR 16,240,000 by issuing 16,240,000 ordinary registered intangible shares with par value of EUR 1 each, which are paid by additional monetary contributions of the sole shareholder of Energijos Tiekimas.

27 2015 ANNUAL REPORT | Results of operations of the Group companies

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

72.3 1.0 2.4 2.1

67.2 1.0 0.9 0.7

Assets Equity Borrowings Borrowings, net

21.7 13.6 0.0 -13.7

12.0 2.9 0.0 -2.5

EBITDA margin, % Borrowings, net / Equity Borrowings, net / EBITDA Return on equity, % Equity / Assets, %

3.3%

1.3%

15.4% 62.7%

24.1% 23.8%

15

16

2015

2014

1.371

1.273

Number of employees, positions

Operational indicators INDICATOR Electricity sold

TWh


Results of operations of LITGAS UAB LITGAS is the enterprise of strategic importance to national security which was established in December 2012. LITGAS is engaged in liquefied natural gas (hereinafter “LNG”) trading activity and natural gas supply through the LNG Terminal in Klaipėda. Based on order of 10 February 2014 of the Minister of Energy the company was assigned with the functions of the designated supplier committed to ensure uninterrupted operation of the LNG Terminal in Lithuania. From the beginning of 2015, based on the agreement concluded with a supplier of liquefied natural gas, LITGAS supplied to the LNG Terminal a minimum quantity of natural gas, i.e. 540 million cubic meters, which is necessary for the ensurance of uninterrupted operation of the LNG Terminal. The gasification of liquefied natural gas and its supply to LITGAS customers through the natural gas transmission system of Lithuania was started.

Key financial indicators In 2015, LITGAS commenced the performance of the function of the designated supplier which is reflected by the financial results of LITGAS for 2015 compared to 2014 when preparatory works related to the function of the designated supplier were conducted and the LNG trial freight was utilised. Major operating expenses incurred in 2015 are related to wages and salaries and related tax, legal and other expenses. Expenses incurred during the first and ninth months of 2015 were assessed by the Commission and included in the gas supply price of the designated supplier for 2016. Expenses incurred during the tenth and twelfth months of 2015 will be assessed by the Commission at the end of 2016 and included in the gas supply price of the designated supplier for 2017.

28 2015 ANNUAL REPORT | Results of operations of the Group companies

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA EBITDA adjusted* Net profit Net profit adjusted*

209.3 1.1 8.1 4.1 4.9 1.5

31.7 0.9 0.0

Assets Equity Borrowings Borrowings, net

46.4 17.1 20.0 16.6

49.1 12.1 0.0 -4.8

1.9% 97.1% 4.04 8.7% 36.9%

0.0%

EBITDA margin adjusted, % Borrowings, net / Equity, % Borrowings, net / EBITDA adjusted Return on equity, % Equity / Assets, %

-0.7

-5.7% 24.6%

Number of employees, positions 14 13 in expenses and income of the designated supplier was eliminated, which resulted from the difference between the planned and actual LNG acquisition and realisation prices and quantities. *deviation


Results of operations of Lietuvos Dujų Tiekimas UAB The core line of business of Lietuvos Dujų Tiekimas (LDT) is the supply, purchase (import) and sale of natural gas to consumers. The company was established on 2 September 2014. The company is wholly-owned by Lietuvos Energija. On 10 October 2014, the National Control Commission for Prices and Energy issued to Lietuvos Dujų Teikimas the natural gas supply licence. On 15 October 2014, LDT and Lietuvos Dujos signed the purchase and sale of a part of the business agreement, under which LDT acquired from Lietuvos Dujos the business of natural gas supply along with all attributed assets, rights and obligations. In December 2014, the total amount of the consideration for the acquired assets from Lietuvos Dujos was received. The activity of natural gas supply was unbundled from Lietuvos Dujos in the implementation of the requirements of the Third Energy Package of the EU and the related legal acts. LDT commenced its activities on 2 November 2014 and currently supplies natural gas to energy, industrial and business companies and household customers. The total number of the company's customers reaches more than 560 thousand.

Key financial indicators In 2015, sales revenue of Lietuvos Dujų Tiekimas reached EUR 226.9 million, whereof EUR 63.7 million from sale of natural gas to household customers and EUR 163.2 million from sale of natural gas to business companies. Income from natural gas transmission, resale of distribution services and the LNG Terminal fee amounted to EUR 57.2 million. Income from sale of natural gas totalled EUR 169.8 million.

29 2015 ANNUAL REPORT | Results of operations of the Group companies

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA EBITDA adjusted* Net profit Net profit adjusted*

227.0 4.7 -37.5 9.8 -35.0 8.4

31.7 0.9 0.0

Assets Equity Borrowings Borrowings, net

96.8 22.3 0.0 -35.8

49.1 12.1 0.0 -4.8

Borrowings, net / EBITDA Return on equity, % Equity / Assets, %

37.6% 23.0%

-5.7% 24.6%

-0.7

Number of employees, positions 97 141 *negative results of operations in 2015 were determined by provisions established for onerous contracts due to amounts refunded to customers of Lietuvos Dujų Tiekimas related to a retrospective reduction of the natural gas import price for the period from 1 January 2013 to 30 April 2014 and a share of the import price reduction transferred to household and non-household customers.


Results of operations of the public institution Centre of Training for Energy Specialists The main activities of the public institution Republican Centre of Training for Energy Specialists include adult professional training, qualification development, certification, seminars and conferences. The company provides trainings for workers, engineers, managers and executives working in the fields of electricity and heat sector management, occupational safety and health, welding and hoisting equipment work organisation and gas sector. The company provides regular trainings to and certifies foremen responsible for the maintenance of potentially dangerous equipment and heads of special works.

Key financial indicators The institution's expenses totalled EUR 1,173 thousand, the majority of which (61.6%) represented employment-related expenses, training expenses made up 9.0%, property lease expenses – 5.6%, telecommunication expenses – 3.2%, transport maintenance expenses – 2.5% and other expenses – 13.8%.

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

1.2 1.2 0.1 0.0

1.0 0.9 0.1 0.1

Assets Equity Borrowings Borrowings, net

0.2 -0.2 0.0 0.0

0.1 -0.2 0.0 -0.1

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, %

8.3%

12.5%

145

163

Number of employees, positions* *the number of employees includes lectors

30 2015 ANNUAL REPORT | Results of operations of the Group companies


Results of operations of VAE SPB UAB VAE SPB was incorporated on 23 May 2012. In 2012 and 2013, the company was dormant. The core line of business of VAE SPB is the development of the nuclear power plant project in Lithuania. The company took over previously carried out preparatory works, projects and programmes related to nuclear energy. The company ensures the continuity of works related to this project and is prepared to directly participate in implementing the project of a new nuclear power plant. The company also coordinates the activities related to new technologies and their application in the activity sectors of the group of energy companies, participates in the projects being implemented, engages in scientific activities, provides consultations, and conducts research. The company actively analyses the needs and opportunities for consulting services related to nuclear energy in the Lithuanian and foreign markets.

Key financial indicators In 2015, the company's operating expenses amounted to EUR 1.018 thousand, of which EUR 773 thousand represented remuneration expenses. As at 31 December 2015, VAE SPB had 11 (31 December 2014: 17) employees with 3.5 positions in total (31 December 2014: 16 positions in total) under employment contracts.

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

0.0 1.0 -1.0 -1.0

0.0 0.2 -0.2 -0.2

Assets Equity Borrowings Borrowings, net

0.2 0.2 0.0 -0.2

0.2 0.1 0.0 -0.1

100.0%

85.3%

11

17

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, % Number of employees, positions

31 2015 ANNUAL REPORT | Results of operations of the Group companies


Results of operations of Technologijų ir Inovacijų Centras UAB Technologijų ir Inovacijų Centras UAB is one of the largest ITT companies in Lithuania providing IT and telecommunication services to the electricity sector companies. The company's activities are organised following the best global management practices, information related to the company's activities is managed according to the requirements of ISO 9001 and ISO 27001 standards. Technologijų ir Inovacijų Centras UAB was registered on 4 December 2013. On 31 December 2013, Technologijų ir Inovacijų Centras acquired from Duomenų Logistikos Centras the set of assets related to non-commercial activity (IT maintenance and design services) of Duomenų Logistikos Centras. With effect from 1 January 2014, Technologijų ir Inovacijų Centras commenced its activity, i.e. maintenance and service of the IT sector of electricity companies of the group. The company's activities are focused solely on the maintenance and servicing of IT sector of the Lietuvos Energija group.

Key financial indicators Technologijų ir Inovacijų Centras provides services to related companies. According to the Lithuanian Law on Corporate Income Tax the prices of services for the group companies should correspond to prices of similar transactions conducted between unrelated parties. Technologijų ir Inovacijų Centras provides services under the 'cost plus' basis which ensures a certain amount of profit corresponding to the functions performed.

32 2015 ANNUAL REPORT | Results of operations of the Group companies

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

14.4 9.9 2.9 0.5

13.3 10.7 2.6 0.5

Assets Equity Borrowings Borrowings, net

9.7 6.7 0.0 -0.9

9.3 5.7 0.2 0.2

20.1%

19.8% 3.7%

7.5% 69.1%

8.7% 61.3%

187

190

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, % Number of employees, positions


Results of operations of Verslo Aptarnavimo Centras UAB Verslo Aptarnavimo Centras was registered on 30 July 2014. The company's activities are focused on the servicing of the Lietuvos Energija group of companies by providing the services of the organisation and performance of public procurements, accounting and employment relationship administration. The company's personnel is formed of competitive specialists of the mentioned activity areas, the majority of whom used to work at the Lietuvos Energija group of companies. Verslo Aptarnavimo Centras commenced the provision of public procurement services from 1 October 2014 and the provision of accounting services was started from 1 December 2014. The provision of employment relationship administration services was started in 2015.

Key financial indicators Verslo Aptarnavimo Centras earned profit of EUR 65 thousand. The company's profitability is not high as in 2015 substantial expenses related to the improvement of operational efficiency were incurred. Verslo Aptarnavimo Centras provides services to related companies. According to the Lithuanian Law on Corporate Income Tax the prices of services for the group companies should correspond to prices of similar transactions conducted between unrelated parties. Verslo Aptarnavimo Centras provides services under the 'cost plus' basis which ensures a certain amount of profit corresponding to the functions performed.

33 2015 ANNUAL REPORT | Results of operations of the Group companies

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

3.8 3.8 0.1 0.1

0.3 0.5 -0.2 -0.2

Assets Equity Borrowings Borrowings, net

1.1 0.5 0.0 -0.4

0.5 0.4 0.0 -0.3

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, %

2.6%

-54.5%

20.0% 45.5%

-50.0% 70.9%

171

121

Number of employees, positions


Results of operations of Elektroninių Mokėjimų Agentūra UAB On 19 August 2015, Lietuvos Energija, UAB and Kauno Energetikos Remontas UAB signed the share purchase and sale agreement by which Lietuvos Energija, UAB acquired 100% of shares of Elektroninių Mokėjimų Agentūra UAB. The company is engaged in the provision of financial services: collection of payments for utility services and other periodical payments from customers and their distribution to service providers.

Key financial indicators In 2015, the company was dormant. In Q4 of 2015, Gotlitas UAB was renamed to Elektroninių Mokėjimų Agentūra UAB, its share capital was increase up to EUR 700,000 and the profile of its activities was changed. On 22 December 2015, the Bank of Lithuania issued to the company the licence of a payment institution No 28 and from 2016 the company started to provide financial services, i.e. collection and distribution of payments. The main customers of Elektroninių Mokėjimų Agentūra UAB are companies providing utility and other services that receive periodical payments for services rendered.

Financial indicators in EUR million, unless otherwise stated

2015

2014

Revenue Operating expenses (OPEX) EBITDA Net profit

0 0.0 0 0

0.2 0.2 0 0

Assets Equity Borrowings Borrowings, net

0.5 0.5 0.0 0.0

0.4 0.4 0.0 0.0

100%

100%

1

1

EBITDA margin, % Borrowings, net / Equity, % Borrowings, net / EBITDA Return on equity, % Equity / Assets, % Number of employees, positions

34 2015 ANNUAL REPORT | Results of operations of the Group companies


Results of operations of Vilniaus Kogeneracinė Jėgainė UAB

Results of operations of Kauno Kogeneracinė Jėgainė UAB

During the performance of preparatory works for the implementation of the cogeneration power plants projects Lietuvos Energija established a special purpose company Vilniaus Kogeneracinė Jėgainė UAB for the project's implementation in Vilnius. The company's establishment is stipulated by Resolution of the Government of the Republic of Lithuania dated 28 May 2014 on the recognition of the projects as economic projects of the state significance. Based on the assessments performed in Vilnius the complex of the cogeneration power plants burning waste and biofuel is expected to produce thermal input of up to 274 MW and electric power of up to 145 MW.

During the performance of preparatory works for the implementation of the cogeneration power plants projects Lietuvos Energija, UAB established a special purpose company Kauno Kogeneracinė Jėgainė UAB for the project's implementation in Kaunas. Under Resolution No 486 of the Government of the Republic of Lithuania dated 28 May 2014 the investments of the municipalities and/or companies under their control and/or private partners were expected to be attracted for the formation of the company's capital. Having analysed the proposals received from partners Lietuvos Energija, UAB decided to implement the project together with the partner FORTUM HEAT LIETUVA UAB. The shareholder agreement between Lietuvos Energija, UAB, FORTUM HEAT LIETUVA UAB and the company on the acquisition of shares of Kauno Kogeneracinė Jėgainė UAB was signed on 15 October 2015.

Key financial indicators Vilniaus Kogeneracinė Jėgainė UAB carried out preparatory works for the implementation of the projects on cogeneration power plants and did not earn any revenue. Operating expenses amounted to EUR 61 thousand, whereof EUR 34 thousand represented remuneration and related expenses, IT and telecommunication expenses amounted to EUR 10 thousand, legal expenses – EUR 0.5 thousand and other expenses (purchases, accounting, employment relationship administration and others) – EUR 17 thousand. Based on the assessments performed in Kaunas the complex of the cogeneration power plants burning waste and biofuel is expected to produce thermal input of up to 70 MW and electric power of up to 24 MW.

Financial indicators of Vilniaus Kogeneracinė Jėgainė in EUR million, unless otherwise stated

2015

Revenue Operating expenses (OPEX) EBITDA Net profit Assets Equity Borrowings Borrowings, net Borrowings, net / Equity, % Equity / Assets, % Number of employees, positions

0 -0.1 -0.1 -0.1 1.0 0.9 0.0 0.0 0.0% 100% 13

35 2015 ANNUAL REPORT | Results of operations of the Group companies


Market review

36 2015 ANNUAL REPORT | Results of operations of the Group companies


Economic environment Consumption of electricity, natural gas, goods and services is closely linked with the growth and development of the Lithuanian economy. The results of operations of the Lietuvos Energija group are also affected by these factors.

connections from 2016, after the construction of electricity transmission lines to Sweden and Poland, allows importing nearly the total amount of electricity needed by the Baltic countries and reducing energy prices in the market.

A slight increase in the GDP of the European Union caused by growing consumption has been observed for four consecutive years. The economic growth is encouraged by lower prices of raw materials and energy resources, incentive monetary policy resulting in favourable terms of financing, the cheaper euro against other main currencies. The positive impact of these factors is expected to be seen in 2016 as well. Growth prospects can be limited by additional risks related to the declining growth of the economies of China and developing countries, the economic recession in Russia, weak global trade or geopolitical tensions in the neighbouring countries.

According to data of the electricity transmission network operator Litgrid AB, 10.86 terawatt hours of electricity were consumed in Lithuania in 2015, which is 1.4% more than in 2014. This is the highest consumption level since 2009. The annual volume of electricity produced in the country is equal to 4.6 TWh, i.e. 13% more than in 2014. Nearly a half of this volume was generated by the power plants using renewable energy sources.

GDP growth in 2016 is forecast to rise to 1.9% for the EU as a whole and to 1.7% for the euro area, according to the European Commission's forecast issued in February 2016. In 2017, growth is expected to reach 2% and 1.9%, respectively. The Lithuanian economy will grow by 2.9% in 2016 and 3.4% in 2017 due to growth in domestic consumption and export (European Commission. European Economic Forecast Winter 2016). In its forecast issued at the beginning of 2016, the Bank of Lithuania also projects that the Lithuanian economy will grow. The Bank of Lithuania as a supervisory institution projects that the growth of GDP of Lithuania should reach 2.6% in 2016 and 3.4% in 2017, according to the forecast presented on 17 March. The major commercial banks operating in Lithuania also positively assess the country's economic growth prospects. They project that the GDP growth should reach 2.8–3% in 2016 and 3–3.4% in 2017. A favourable economic environment, with other circumstances remaining unchanged, will have a positive impact on the consumption of electricity and natural gas.

Lithuanian electricity market The Baltic countries produce less electricity than they consume. This mismatch is extremely marked in Lithuania which produced only around one-third (33%) of its total electricity consumption in 2015. The development of electricity transmission inter-

37 2015 ANNUAL REPORT | Economic environment

6.0 5.5

Average eletricity price at Nord Pool Spot exchange

5.0 4.5 4.0 3.5 2014

2015

2016

3.0 2.5

In 2015, the average electricity price prevailing at the Nord Pool Spot electricity exchange Lithuania bidding area (NPS LT) was equal to 4.19 euro ct/kWh and was 16.3% lower compared to the price that prevailed in 2014 (5.1 euro ct/kWh). Compared to 2013 (4.89 euro ct/kWh) the electricity price was 14.3% lower. A significant decline in the price was caused by changes in the demand and supply ratio and drop in the prices of gas. Warmer weather in winter and the stability of electricity supply also contributed to the decline in prices. The average temperature in winter of 2015 was 2.5 degree higher than in 2014.


In 2015, the highest average monthly price of electricity was recorded at the electricity exchange in October – the price increased by 4.9% up to 5.64 euro ct/kWh compared to a respective period of the previous year. The growth in electricity prices was caused by the early start of cold weather and repairs of electricity transmission interconnections in Latvia and Russia.

In 2015, Lietuvos Dujos AB transported 6.8 TWh (646.3 million cubic metres) of natural gas to customers via gas distribution pipelines, which is 13.6% less than in the previous year. As the consumption of natural gas declines, the risk of rise in a tariff increases as the infrastructure maintenance costs are allocated to a lower quantity of natural gas.

After the removal of quotas of the sponsored electricity generation from 2016 the power plant of Lietuvos Energijos Gamyba discontinued the generation of subsidised electricity, except for when it is necessary for the ensurance of the stability and safety of the power system.

Gas consumption is expected to become stable in future and the number of new users will increase. This may be enabled by the lower gas price which allows new customers choosing a convenient way of heating. Due to decline in the gas price this type of fuel becomes one of the most attractive sources of energy. Rising competition in the gas market and the record-low price of oil over the recent years will probably guarantee even more attractive price of gas to consumers and increase the number of users.

In February 2016, the lowest average weekly price was recorded over the operation period of Nord Pool Spot exchange in Lithuania On 15–21 February, the average electricity price prevailing at the Nord Pool Spot electricity exchange Lithuania bidding area was equal to 2.77 euro ct/kWh and was 33% lower compared to the same period last year. This was the reaction of the electricity market in response to the commencement of operation of the interconnection between Lithuania and Sweden under the trial regime on 18 February.

Lithuanian natural gas market The main factors affecting the projected consumption level of natural gas include the development of the use of renewable energy sources and the prices of competing energy sources (biofuel, fuel oil, etc.). The National Energy Independence Strategy stipulates that by 2020 renewable energy sources should represent at least 23% of the total energy consumption (at least 20% in the electricity sector, at least 60% in the central heating sector and at least 10% in the transport sector). In consideration of the strategic objectives of Lithuania a number of energy and commercial entities make extensive investments that would enable to use a different type of fuel and start using renewable energy sources. All these developments determine decline in the consumption level of natural gas in Lithuania. According to the data of the natural gas transmission system operator Amber Grid AB the quantity of natural gas transported to all consumers of Lithuania was equal to 26.2 TWh, which is 1.8% less compared to 2014 when 26.6 TWh of natural gas were transmitted. Last year the natural gas consumption declined as a result of 0.4 degree Celsius higher average annual temperature and higher consumption of alternative fuel.

38 2015 ANNUAL REPORT | Economic environment

The gas price for household customers decreased by nearly a third over the period of three years. When comparing prices for the years 2013 and 2016, the price currently paid by household customers of the second category who use natural gas for heating is 30% lower: the price of 1 cubic metre was equal to EUR 0.89 in 2013 and in 2016 it is equal to approx. EUR 0.45. The average price of natural gas to non-household customers dropped by more than a half during the comparable period. From the beginning of 2015 LITGAS, acting as a designated supplier in Lithuania and ensuring the required quantity of gas for the Klaipėda LNG Terminal, could ensure up to 90% of the natural gas demand of the Baltic countries through the LNG Terminal. Under the new commercial agreement signed with Statoil Lietuvos Dujų Tiekimas will meet more than a half (around 300 million cubic metres) of the natural gas demand of customers in 2016. This allowed reducing the natural gas supply prices to customers even despite the unfavourable change in the pricing applied by Gazprom. In 2016, LITGAS and Statoil negotiated better terms of the agreement on the designated supply, therefore costs of the designated supply decline by EUR 38.7 million this year. Having assessed the projected gas consumption level the reduction of these costs would result in an average decrease of each megawatt hour of gas consumed in Lithuania in 2016 by an average of EUR 1.7. The optimisation of the gas purchase portfolio of Lietuvos Dujų Tiekimas is expected to generate savings of EUR 11 million. The overall savings resulting from these two developments will amount to EUR 50 million. The implementation of the natural gas interconnection with Poland will further expand the range of the natural gas supply sources in future.


Review of the Company’s and the Group’s activities

Review of the Company’s and the Group’s activities 39 2015 ANNUAL REPORT | Review of the Company’s and the Group’s activities


The review of the activities of the Lietuvos Energija group covers the period from 1 January 2015 to the date of the preparation of the report.

Completion of the value chain clarification In 2015, the most significant project at the Lietuvos Energija group was completed, i.e. the programme focused on identifying central activities of the Group. During the implementation of this programme the central activities of the Group were identified, they were distributed among the company in a way that would ensure more efficient operations of the Group, creation of the highest value and provision of additional benefits to customers (similar activities were merged, the customer service was centralised). By 2020, the total estimated benefit of these changes for customers and shareholders will amount to EUR 64 million. The new structure of the Group became effective from 1 January 2016 when the joint companies started their activities. The revised operational concept led to improvement of customer service, operational efficiency and reduction of costs. The largest benefits of the changes are expected for the customers. Customers were offered a simple and convenient 'single window' servicing arrangement, the servicing and the processes were standardised, new services were provided, the procedures of connection to the engineering networks and other procedures were accelerated. The programme aimed at identifying central components of the value chain was divided into 4 main fields of activity: production, supply/trading, network and customer service, at the same time conducting the project for the operations of contracting companies.

Focus on customer, quality and efficiency by ESO On 1 January 2016, Energijos Skirstymo Operatorius (ESO), a company established on the basis of LESTO and Lietuvos Dujos, started its operations. It provides the services of electricity supply and distribution, and natural gas distribution to more than 1.6 million customers. Mr Liudas Liutkevičius, a former head of Lietuvos Dujos, was appointed as the Chairman of the Board and Chief Executive Office of ESO. ESO joined the best competences of both companies – synergy of these two companies leads to improvement of the Group's efficiency as a result of lower operating expenses, and as many as possible benefits to electricity and natural gas users. It is estimated that the merger will result in a 5% decline in operating expenses and the annual savings effect will amount to EUR 3.6 million.

40 2015 ANNUAL REPORT | Review of the Company’s and the Group’s activities

ESO has 5 regional divisions located in the cities of Vilnius, Kaunas, Klaipėda, Šiauliai and Panevėžys. Divisions established in the regional centres coordinate the work of the dispatch centres located in the surrounding districts, plan repair, development and modernisation works of electricity and gas distribution networks. On 11 January 2016, the symbolic stroke of the bell marked the beginning of trade in ESO shares at Nasdaq Vilnius stock exchange. The ESO logo also appeared in Times Square in New York on the occasion of share trading.

Joint service under the trade name Gilė Starting from the beginning of 2016, customers of ESO, Lietuvos Dujų Tiekimas and Energijos Tiekimas are serviced in a joint service centre Gilė which is managed by the Group company Verslo Aptarnavimo Centras. Electronic services are provided at the self-service website www.manogile.lt. The smart phone application was also presented. The joint customer service arrangement accumulated the best practices and through the ‘single window' facility enables the companies to provide the key services in the ways most convenient to the customers – online, by telephone or at a customer service centre. The servicing at a joint service portal is made even more convenient due to a possibility to pay by a single transfer for two services – electricity and natural gas. Other companies providing utility services, such as water, heat suppliers, are also invited to become part of the joint customer servicing arrangement. The concentration of customer servicing specialists in a single company of the Group – Verslo Aptarnavimo Centras – allows reducing operational costs, increasing flexibility and enables creating additional benefits for customers. Verslo Aptarnavimo Centras Verslo also started the administration of payments, provision of accounting services and management of amounts owed. The Gilė customer service centres are established in Vilnius, Kaunas, Klaipėda, Šiauliai, Panevėžys, Alytus, Marijampolė, Utena and Visaginas. They were mainly established in the premises of the former customer service centres of LESTO and Lietuvos Dujų Tiekimas. The centres provide the possibility to learn how to use the Gilė application and the self-service portal www.manogile.lt. In other cities ESO continues cooperation with partners – public libraries and Lietuvos Paštas AB. In libraries special self-service stations www.manogile.lt are available and the postal units offer the possibility to receive the passbook for the payment of elec-


tricity free of charge or check electricity consumption readings. Enquiries on electricity and gas-related issues will be answered round the clock by calling 1802. In case of gas discharge customers can use the emergency service line 1804.

Concentration of electricity trading and clarification of production activities Electricity production activity has been concentrated with the company Lietuvos Energijos Gamyba, while wholesale electricity trading activity has been separated and transferred to the company Energijos Teikimas. This ensures greater flexibility in the market, possibilities to offer new products in view of customers' needs. On 12 October 2015, Lietuvos Energijos Gamyba sold commercial wholesale electricity trade to Energijos Teikimas. The transferred part of the business covered trade in derivative financial instruments and provision of the balancing service not related to physical electricity trading. Following the transfer Lietuvos Energijos Gamyba continues to receive income from sale of electricity in the market which was produced at the power plans under its control and from the provision of system services. The maximum value of the transaction may reach EUR 21.1 million, of which EUR 13.1 million will be paid by the end of March 2017. The additional amount of EUR 8 million (EUR 2 million each year) may be paid by 2019 depending on the results of the operations of the business being transferred. Energijos Teikimas took over the wholesale electricity trading activity from 1 January 2016. Mr Vidmantas Salietis was appointed to the position of the Chief Executive Officer of Energijos Tiekimas.

EnePRO – a new player in the electricity contracting market From 1 January 2016, Elektros Tinklo Paslaugos (ETP) and Kauno Energetikos Remontas (KER), two energy services companies controlled by the Lietuvos Energija Group, were reorganised by way of merger and a single company was established named Energetikos Paslaugų ir Rangos Organizacija (EnePRO). Mr Martynas Pargaliauskas was appointed to the position of the Chief Executive Officer of the new company. EnePRO was established for the purpose of concentrating competences and experience of the two companies and creating a single strong energy services and contracting company which will provide the services of construction, reconstruction, repair and maintenance of electricity equipment and other services. The synergy of two similar and complementing companies offer more possibilities to develop complex and targeted solutions, expand the range of the service portfolio,

41 2015 ANNUAL REPORT | Review of the Company’s and the Group’s activities

increase the company's competitiveness in the energy services market, reduce operating costs and contribute to enhancing the Group's value. EnePRO directs its attention towards increasing operational efficiency by introducing the LEAN tools and other advanced practices.

Reorganisation of Lietuvos Dujų Tiekimas UAB and LITGAS UAB postponed On 29 December 2015, the reorganisation of the natural gas supply and trade companies Lietuvos Dujų Tiekimas UAB (LDT) and LITGAS UAB was postponed, the implementation of which had to result in the merger of LITGAS with LDT. The merger was delayed until the final preparation and agreement of the legal and regulatory base applicable to the operation of the LNG Terminal and the designated supply. The merger of LITGAS and LDT would allow providing services more efficiently, increasing their range and promoting flexibility. The former Chief Executive Office of LITGAS Mr Dominykas Tučkus moved to Lietuvos Energija on 4 January 2016 and was appointed as the Board member and the Production and Service Director. The acting head of LITGAS, until its merger with Lietuvos Dujų Tiekimas, is the company's director for development Mr Vytautas Čekanavičius.

Diversification of activities Diversification of activities of the Group companies is one of the main preconditions for increasing the value of the Group. By 2020, the Group plans to invest around EUR 1 billion in the following areas: heat sector by constructing new or upgrading the existing co-generation power plants, supply and trade in natural gas utilising the potential of the LNG Terminal, renewable energy sources.

Co-generation power plant projects in Vilnius and Kaunas The Lietuvos Energija group implements the projects on the construction of modern waste and biofuel-fired high-efficiency co-generation power plants in Vilnius and Kaunas. New power plants will produce heat and electricity and ensure lower heat production prices for consumers of these cities as well as additional production of local electricity at a competitive price and will solve waste management problems. By Resolution of the Government of the Republic of Lithuania dated 28 May 2014 the projects were recognised as projects of state significance.


Lietuvos Energija is implementing the project in Vilnius independently, however, an opportunity for partners to be invited to take part in other phases of the project implementation is established. The Environmental Protection Agency has recognised the planned operations of Vilnius co-generation power plant as permissible. On 8 May 2015, the Lietuvos Energija group published an international tender for the turn-key construction works of Vilnius co-generation power plant. The object of the procurement comprises all works, services, equipment and materials, which will be used to design and construct a new co-generation power plant in Vilnius. The buyer is a special-purpose company Vilniaus Kogeneracinė Jėgainė UAB, which was established by Lietuvos Energija for the implementation of the project. On 12 October 2015, the successful potential contractors were delivered the technical specifications according to which the potential contractors are drawing up and will submit the final binding tenders. The tender consists of two parts – construction of waste incineration and biofuel cogeneration facilities. The planned electric capacity of waste incineration facility will be about 18 megawatts and its thermal capacity – about 53 MW, while electric and thermal capacity of biofuel facilities will be 70 MW and 174 MW, respectively. On 26 October 2015, the Board of Lietuvos Energija approved the new Articles of Association of Vilniaus Kogeneracinė Jėgainė UAB, and approved its Board with Mindaugas Keizeris, Nerijus Rasburskis and Valdas Lukoševičius as its elected members. Mr Saulius Barauskas was appointed as the General Manager of Vilniaus Kogeneracinė Jėgainė. In Kaunas, Lietuvos Energija is developing a co-generation power plant project with a partner Fortum Heat Lietuva UAB. After the approval by the Government on 28 September, on 15 October Lietuvos Energija and Fortum Heat Lietuva UAB signed the agreement which defined the terms for the obligations of the partners, and the conditions for the joint investment into the construction of a new waste co-generation power plant in Kaunas The European Commission passed its clearance decision for the concentration regarding Kauno Kogeneracinė Jėgainė UAB. According to the shareholder agreement, Lietuvos Energija owns 51% of the shares of the joint venture Kauno Kogeneracinė Jėgainė UAB, thus ensuring the State control over the project as provided for in the Resolution of the Government. The joint venture will have the Board consisting of three members, two of whom will be appointed by Lietuvos Energija and one member will be an independent Board member. The Company's authorised capital will amount to EUR 24-40 million depending on the

42 2015 ANNUAL REPORT | Review of the Company’s and the Group’s activities

amount of financial support received from the EU. The total investment in the project will amount to EUR 147 million. On 31 March 2016, the partners signed the statement on the completion of the transaction. The Board of Kauno Kogeneracinė Jėgainė UAB consists of Mr Nerijus Rasburskis (Director of Co-generation Power Plant Project Service of Lietuvos Energija), Mr Vitalijus Žuta (the CEO of Fortum Heat Lietuva UAB) and Mr Andrius Vilkauskas (the independent member of the Board). Mr Ramūnas Paškauskas holds the postion of the CEO. In Q4 of 2015, Kauno Kogeneracinė Jėgainė UAB publicly released the technical specifications of the main technological facilities. Subject to these specifications, after the receipt of the comments and proposals from the market participants, in 2016 the public tenders for the following main components of the future waste power plant are continued: the boiler, the gas turbine and the generator, the equipment for the purification of smokes, the cranes and engineering-project management services. The new high-efficiency co-generation power plant burning waste as fuel planned to be constructed in Kaunas is expected to have electric and thermal capacity of 24 MW and 70 MW, respectively. Such capacities will enable to more rationally use 200 thousand tons of waste accumulating in the region and produce around 500 GWh of heat and 170 GWh of electricity.

Liquefied natural gas becoming a competitive alternative On 5 February 2016, the Group company Lietuvos Dujų Tiekimas signed the agreement regarding the supply of liquefied natural gas (LNG) with Statoil, under which more than a half of the gas demand (approx. 300 million cubic metres) will be satisfied this year. After the assessment of proposals of Gazprom and other LNG suppliers the company Statoil was selected due to the most favourable economic terms and pricing offered. The agreement will enable Lietuvos Dujų Tiekimas to diversify its portfolio and retain stable prices of natural gas supply to customers despite the unfavourable change in the pricing applied by Gazprom. On 16 February 2016, the first commercial cargo of Lietuvos Dujų Tiekimas of approx 70 thousand cubic metres of LNG arrived to the Klaipėda Seaport. The half of the gas carrier's capacity was acquired from Statoil. The other half of the gas carrier's capacity comprised LNG designated to Achema, i.e. also 70 thousand cubic metres of LNG. LITGAS, a natural gas trading company belonging to the Group, provides the required quantity of natural gas, which is necessary for the operation of the LNG Terminal, to the regulated energy producers from 1 January 2015.


On 17 November 2015, the Lithuanian Parliament approved the amendments to the Law on the LNG Terminal implementing the new allocation of expenses related to LNG supply and designated supply to all users of the natural gas system depending on their maximum demand declared. The new LNG Terminal maintenance model stipulates that the National Control Commission for Prices and Energy shall establish the average gas market price for which gas would be sold by LITGAS to the heat and electricity producers and the difference between the acquisition cost and the sale price as well as other expenses related to the designated supply would be covered using revenue from the power fee collected from all gas users. On 18 February 2016, LITGAS signed the revised agreement on the designated supply with Norwegian company Statoil. Considering the declining demand for natural gas in the energy sector, which is obliged to use gas from the LNG Terminal, the annual quantity was reduced by around a third, i.e. from approx. 5.5 TWh (approx. 540 million cubic metres) down to approx. 3.6 TWh (350 million cubic metres). The validity period of the agreement was extended until the end of 2024 and will coincide with the validity period of the agreement on the lease of the FSRU Independence. The price formula was also revised bringing closer the price of LNG supplied under this agreement to the prices of gas supplied via gas pipelines. LITGAS projects that the average import price of LNG in 2016 may reach around EUR 16-21 for megawatt hour compared to EUR 29.04 for megawatt hour in 2015.

services as the entity investing in energy efficiency measures and covering the investments made using future energy savings during the validity term of the agreement. The company's operations will allow achieving the highest impact of energy efficiency and at the same time avoid incurring large initial investments by the owners of buildings or equipment. On 19 February 2016, the announcement on the street lighting project in Širvintos, which was the first one based on the ESCO model principles, was released. This project is implemented by Energijos Tiekimas in the municipality of Širvintos region where around 70% of lamps held by the municipality and consuming the largest quantity of electricity will be replaced with modern LED type lamps. It is estimated that the municipality of the region will save about 75% of electricity consumed for the street lighting per year due to the introduction of advanced technologies.

Assessment of possibility to take over the third co-generation power plant

The amendments to the agreement are expected to result in a decrease in the maintenance costs of the Klaipėda LNG Terminal by more than a third (approx. EUR 34 million) and lead to lower energy prices to end users: annual expenses of heating users are expected to be EUR 11.3 million lower, electricity users are expected to save EUR 9.8 million, industrial customers – approx. EUR 7 million and household and nonhousehold users of gas – EUR 2 million and EUR 3.6 million, respectively.

On 16 October 2015, a taking over by the Municipality of Vilnius of the third co-generation power plant was announced by the Group. The transaction will make it possible to establish a more objective value of the third co-generation power plant corresponding to market conditions, and assess the possibilities for its further use. Until then, neither the Municipality of Vilnius, nor the state-owned group of companies Lietuvos Energija has had a possibility to assess the technological condition of the power plant's equipment or to determine the value of its assets corresponding to market conditions. The Group cooperates with the municipality and explores possibilities for obtaining the highest added value from the power plant for electricity and heating users. Prior to taking over an asset of that volume, it is necessary to carry out its diligent technical, financial and economic analysis; the value of the power plant will have to be determined by competent property valuers.

ESCO projects implemented by a new company

Completion of the heat production infrastructure project in Elektrėnai

In February 2016, Lietuvos Energija established a new company Energijos Sprendimų Centras UAB which will be developing projects on energy efficiency improvement and renewable energy resources in Lithuania and abroad. During the sitting of the Board held on 19 February the Board of Lietuvos Energija elected Mr Donatas Černiauskas as the CEO of Energijos Sprendimų Centras UAB.

In 2015, Lietuvos Energija completed the implementation of the project Construction of Thermal Energy Generation Capacities and Steam Generation Capacities in the Lithuanian Power Plant and put into operation new steam and biofuel boiler houses as efficient and economical thermal energy generation capacities independent of electricity generation.

The operations of the new company will be based on the ESCO (Energy Service Company) model which defines the company providing energy efficiency improvement

The construction of the steam boiler house was completed at the beginning of 2015. This steam boiler house with the capacity of 49.8 MW was installed for the purpose of maintaining heat reserves, ensuring heat energy production during the coldest periods of the year as well as launching the units of the Reserve Power Plant. The boiler

43 2015 ANNUAL REPORT | Review of the Company’s and the Group’s activities


house ensures an uninterrupted production of thermal energy, the launching of electricity generation capacities at the Reserve Power Plant from the standstill. The construction of the biofuel boiler house was completed in 2015. Two biofuel boilers with condensing economisers were fully installed. Their total thermal capacity reaches 40 MW. The construction works of the biofuel boiler house structures were completed, the completion procedures with respect to the structures were performed.

Two wind power parks added to the Group's portfolio In January 2016, Lietuvos Energija acquired two companies operating wind power parks in Lithuania and Estonia – Eurakras UAB and Tuulueenergia OU. The existing electricity generation capacities of the state-owned group of companies were increased by additional 42.3 megawatts (MW). The wind power parks held by Lietuvos Energija are expected to produce around 136 thousand MWh of electricity per year, which is the quantity that could meet the annual electricity demand of Klaipėda city residents. Eurakras UAB, a Lithuanian company acquired, operates the park consisting of 8 wind turbines with the capacity of 24 MW located in the villages of Geišiai and Rotuliai II in Jurbarkas region. Lietuvos Energija acquired 75% of shares of this company from Renagro UAB and the investment entity BaltCap. Wind turbines for this wind power park were produced by the German company Nordex. The installed capacity of each turbine is equal to 3 MW, the height of the tower reaches 120 metres and the diameter of the rotor – 117 metres. This wind power park was constructed only recently – the building completion statement and the permit for electricity generation were issued at the end of December 2015. During the auction on the allocation of promotion quotas organised by the National Control Commission for Prices and Energy on 22 February 2013, the wind power park of Eurakras was granted the promotion quota for electricity generation. Electricity produced by the wind power park will be purchased at the tariff of EUR 71 per MWh for 12 years. The company Tuulueenergia operates the park consisting of 6 wind turbines with the capacity of 18.3 MW in the locations of Mali and Tamba in Estonia. Lietuvos Energija acquired 100% of shares of this company from BaltCap and minority shareholders. All six wind turbines were produced by the German company Enercon. The installed capacity of each turbine is equal to 3 MW, the height of the tower reaches 99 metres and the diameter of the rotor – 101 metres. This wind power park was put into operation at the beginning of 2015. The wind power park of Tuulueenergia was installed using two types of support: a part of the park was constructed using the investment support and with respect to the other part a promotional tariff was ensured, which is

44 2015 ANNUAL REPORT | Review of the Company’s and the Group’s activities

paid for 12 years in Estonia as of the commencement of the operation of the park (a fixed premium of EUR 53.7 per MWh is added to the electricity market price). The total consideration for both transactions is equal to EUR 28 million. The enterprise multiple (enterprise value-to-EBITDA ratio), after the assessment of the borrowings of the companies, ranges from 9 to 10 times. These acquisitions were mostly financed using borrowed funds. On 5 August 2015, Lietuvos Energija publicly invited owners of the wind power parks to consider the possibilities of selling the infrastructure operated.

Assessment of wind energy potential in Kruonis Pumped Storage Power Plant At the beginning of 2015, the complex measurements of wind speed, directions and other meteorological conditions were completed in the territory of Kruonis Pumped Storage Power Plant in order to carry out an initial assessment of the potential of the land plot for the installation of the wind power park. Based on favourable wind measurement results the company initiated the preparatory works for the installation of the wind power park in the territory of Kruonis Pumped Storage Power Plant. In 2015, the following works were conducted: the study on the impact of Kruonis wind power park on NATURA 2000 territories; feasibility study on the assessment of wind resources and potential power production volumes and the environmental impact assessment programme. Currently, the environmental impact assessment report is being drafted, which is expected to be finalised by the middle of 2016.

International companies choose Duomenų Logistikos Centras In February 2016, Hurricane Electric Internet Services, the world’s largest IPv6-native Internet backbone, announced its latest Point of Presence (PoP) at Duomenų Logistikos Centras (DLC), Juozapaviciaus str. 13, Vilnius, as the start of its operations in the Baltic countries. With this new PoP, customers of DLC and companies in Lithuania will have direct access to Hurricane Electric’s robust IPv4 and IPv6 network. DLC customers will also now have the opportunity to exchange IP traffic with Hurricane Electric’s global network On 21 January 2015, DLC opened the 3,000 km data transmission network Baltic Highway, which was officially opened and thought the network of high throughput connected Vilnius and Tallinn with one of the largest data transmission centres in the world – Frankfurt via Riga, Warsaw and Berlin. In July 2015, aiming to increase revenue


from the data centres service and diversify operations DLC offered a new micro-colocation service – customers who wish to store only one server can now keep their equipment at Data Inn, the most advanced Tier III data centre in Lithuania.

Enhancing the efficiency of operations Higher efficiency of activities of the Group ensures the balance between higher profit and return for shareholders and lower tariffs for consumers. The strategy of Lietuvos Energija for 2014–2020 provides that higher operational efficiency will be achieved by applying the most advanced management practices in corporate governance, planning and monitoring of activities, finance, procurement, risk management and internal audit areas. The Group currently has an installed and developed uniform management and control system, it has an approved management and control system policy, risk management policy and methodology, integrated planning and monitoring system policy, innovation management policy, project management policy and procedure, a process management standard, portfolio formation and monitoring procedure currently being drawn up, etc. The uniform management and control system facilitate progress towards higher efficiency and synergy in the activities of the Group companies and the implementation of goals set.

Centralisation and improvement of efficiency of processes With a view to improving the processes that support the principal activities of the Group and reducing their expenses, the Lietuvos Energija group companies concentrated the part of functions supporting the principal activity in a separate company, i.e. Verslo Aptarnavimo Centras UAB. Verslo Aptarnavimo Centras UAB provides to the Group companies the services of public procurement, accounting and administration of employment relationships. The aim of centralisation of the processes of public procurement, accounting and administration of employment relationships is to standardise the processes, achieve higher transparency and efficiency and accelerate them. Such model of concentration of the supporting processes is in line with the best international practices. The administration of the employment relationship of the Group was started through Verslo Aptarnavimo Centras UAB at the beginning of 2015 In 2015, Lietuvos Energija optimised the use of office premises located in Vilnius and thus plans to save about EUR 1 million during the period of three years and to create

45 2015 ANNUAL REPORT | Review of the Company’s and the Group’s activities

conditions for employees of the Group to be in closer cooperation. Centralisation and optimisation of the management of real estate allowed the Group to reduce its expenses for rent of premises by almost a third and occupied areas – by three times throughout Lithuania in 4 years. Following the centralisation of real estate management and its concentration with the company NT Valdos, aiming to enhance efficiency and focus on principal activities, the Group launches the sale of real estate which is not of strategic importance to the power sector. The first auction of real estate administered by NT Valdos was organised on 26 February 2016. The participants were offered the objects suitable for administrative, warehousing, production purposes, including several residential or recreational objects. In total 8 objects for EUR 1.265 million were sold at the auction. The Group carries out the centralisation of the management of motor vehicles as well – a single procurement for the car lease services for 14 companies of the Group was started on 3 April 2015. Such decisions are expected to reduce costs incurred for the administration of the Group's vehicle fleet. On 5 January 2016, Lietuvos Energija also announced the procurement for the overdraft with the two-year maturity. This short-term lending facility will be available to all companies of the Group, therefore there will be no need for acquiring such services separately. The centralised treasury management will allow reducing the Group's overdraft limit by half compared to the limit obtained by the companies individually. This will lead to lower interest expenses incurred by the Group when obtaining financing for working capital and higher treasury management effectiveness. On 1 February 2016, the Board of Lietuvos Energija approved the project to enhance the Group's treasury activities – the management of a part of treasury functions is planned at the Group level. Interest charged for the overdraft will be linked with the euro area overnight interbank interest rate (EONIA). In case of the effective interbank interest rate becoming negative, this interest rate will be deemed to be equal to zero. The option to postpone the overdraft's repayment term equal to 24 months for the additional term of 12 months will be available. The repayment of the overdraft will not be secured with pledges of the Group's assets. The credit terms will not provide any restrictions on obtaining additional borrowings or engaging in economic activities.


Single integrated business management system is planned On 14 August 2015, Lietuvos Energija announced about its plans to transfer to a single integrated business management system, thus seeking to increase its operating efficiency, flexibility and to create better possibilities for expansion. The estimated duration of the project of exceptional scope is three years. The Group will publish an international open tender procedure for the selection of an implementer of the integrated business management system, which would cover common business management, accounting and customer service as well as technological asset management information systems. The implementer will also have to provide support services for three years after the deployment of the system. Customers of the Lietuvos Energija group should also feel the benefit of the new system – due to the single and modern system, the Group companies will be able to provide services to customers in a more qualitative and flexible way: create more flexible service plans, better service customers in service centres and via self-service channels; system reliability and speed will increase.

Operation of units 5 and 6 in Elektrėnai is terminated On 8 December 2015, the Board of Lietuvos Energijos Gamyba made a decision to terminate the operation of two more units (units 5 and 6) of the Reserve Power Plant in Elektrėnai from 2016. Dismantling works of these units are expected to start at the beginning of 2017 after the completion of the dismantling of units 1 and 2. The dismantling of units 5 and 6 of the power plant with their capacity reaching 300 MW was stipulated in the company's long-term strategy announced in the middle of 2014. The units are dismantled due to a poor technical condition, low potential of capacity utilisation in future and high maintenance costs. These units that started to produce electricity back in 1967-1968 were not operating for several years and have been preserved.

Ensuring the quality of services Investments in electricity network and services The Group’s company LESTO that operated until 2016 serviced more than 1.64 million customers and devoted great attention to the development and modernisation of the power grid, consistently expanded and improved the provided services considering the changing needs of its customers (these activities are continued by ESO from 2016). During 2015, LESTO connected 28,504 new electricity customers, i.e. 7.8% more than

46 2015 ANNUAL REPORT | Review of the Company’s and the Group’s activities

in the respective period of 2014, when 26,433 new customers were connected. Admissible electric power of newly connected customers was 386,863 kW, which is 15.2% more than in 2014 (335,910 kW). On 27 October 2015, the World Bank published its business regulation ranking 'Doing Business 2016', in which in terms of the 'getting electricity' indicator Lithuania from the 66th place progressed to the 54th. The indicator was significantly improved due to the simplification and acceleration of the procedures for getting electricity to new customers, namely, a reduction in the number of connection procedures, within one year the connection process was shortened by one week. According to the methodology used by the World Bank, the duration of getting electricity to businesses this year was reduced by 42 calendar days to 95 days. Compared to 2014, the average duration of the connection to the electricity distribution network for businesses decreased by as many as ten calendar days and for private customers – by four days. Currently, objects of business customers are connected to the distribution network within an average of 45 calendar days and those of private customers – within 47 calendar days compared to 2011, when business customers were connected to electricity networks within an average of 65 days and private customers – within 61 days. ESO continues the buyout of electricity networks of homestead cooperatives, thus ensuring a reliable and secure supply of electricity and carried out the projects of network modernisation co-financed from the EU structural funds. In 2015, the company completed two network modernisation projects during which the distribution networks of 76 and 17 homestead cooperatives were reconstructed. ESO plans to carry out a major modernisation of the distribution network over the next ten years. In order to ensure the provision of reliable, safe and smart services, the company plans to invest EUR 1.7 billion in the modernisation and renewal of the network by 2025. In 2015, LESTO replaced 86,051 units of electricity meters that no longer meet the meteorological requirements and installed 23,845 units of electricity metering devices for new customers. By investing in the modernisation and automation of electricity metering devices, during the period of 12 months, LESTO connected 2,228 units of electricity metering devices to the automated data reading system, thus increasing the number of electricity metering devices operated by the company, the data of which are read in a remote manner, to 27,338.


On 8 January 2016, ESO, in cooperation with the consortium of the Lithuanian and foreign companies which was announced as the winner of the international public tender, started preparing for the installation of smart meters. Such devices will be installed for 3 thousand ESO customers. By implementing the pilot project ESO aims to assess the effectiveness of smart meters and their benefit for customers. An hourly electricity consumption will be displayed on a special screen or on the Gilė self-service website www.manogile.lt. ESO specialists will receive detailed information about the quality of electricity supplied and the condition of the network.

New gas consumers are connected The Group supplies natural gas to about 560 thousand private customers and about 9.5 thousand corporate and public sector customers. About 89 thousand household customers use gas for heating their houses, while the majority of customers, about 471 thousand, use gas in stoves for cooking. Corporate customers, thermal power producers and public sector objects are the largest consumers of gas – the annual volume used is equal to 5.28 TWh (500 million cubic metres). Private customers consume approx. 1.54 TWh (146 million cubic metres) of gas per year. In 2015, Lietuvos Dujos invested EUR 7.3 million for connecting new customers compared to investments of EUR 5.7 million in 2014. The company built 82.7 km of gas distribution pipelines (87.3 km a year ago) and connected 4,078 new customers to the gas pipelines, which is 13.5% more compared to 2014 when 3,592 new customers were connected to the gas distribution system. On 1 December 2015, Lietuvos Dujos drafted the investment plan for 2016–2025 which presents long-term investment objectives, directions and scopes. Investment needs for the maintenance of the electricity distribution network were planned after having identified the investment directions and the categories of assets in the worst technical condition. In the period from 2016 to 2025, the estimated need for investments in the electricity distribution network is equal to EUR 141.1 million or EUR 14.1 million per year on average. The major part of the planned investments will be directed towards the construction of new gas pipelines and customer connections. One of the largest investment in new gas system construction projects was the gasification of the Tauragė region municipality territory launched in 2015. All the works related to the Tauragė municipality gasification are scheduled to be completed by the end of 2016. A medium pressure distribution gas pipeline construction project at Pramonės Avenue in Kaunas was completed in 2015. The gas pipeline was built for a corporate customer Dirbtinis Pluoštas. The investment under the project amounted

47 2015 ANNUAL REPORT | Review of the Company’s and the Group’s activities

to nearly EUR 87 thousand. Further, a nearly 2 km long gas pipeline was built as part of the project for the improvement of infrastructure services for the residents in a new private house area in Noreikiškės settlement, Kaunas region. The investment under this project amounted to more than EUR 63 thousand. In 2015, EUR 6.7 million was invested in projects of reconstruction of gas systems and gas distribution reliability and safety ensurance projects (compared to EUR 5.8 million in 2014). 157 gas pipeline closing devices were reconstructed, 246 remote control and data reading systems in gas pressure regulating equipment and at gas consumers were installed and about 13.5 thousand gas meters were replaced. On 7 October 2015, Lietuvos Dujos concluded agreements with the companies Mano Būstas, Elektrovoltas and Inlinen making them responsible for checking gas meters of the least risky customers of Lietuvos Dujos using gas only for cooking. For the purpose of increasing its performance efficiency, decreasing costs and seeking to focus on the principal activities creating the largest value for the shareholder and the customers, the company outsourced part of its non-principal operating functions to third party suppliers. In 2016, Energijos Skirstymo Operatorius plans to build over 100 km of gas distribution pipelines and connect nearly 4 thousand new customers to the gas distribution system.

Service prices to customers continue to decline On 1 January 2016, new electricity prices as adjusted in view of the amendments to the Law on the LNG Terminal were announced – the price of electricity for household customers declined by an average of 0.2 cent per kWh. In 2016, the price cap for the electricity distribution service via medium voltage networks is equal to 1 euro cent/kWh, i.e. by 0.178 euro cent lower than in 2015. In 2016, the price cap for the electricity distribution service via low voltage networks is equal to 1.766 euro cent/kWh, i.e. by 0.216 euro cent higher than in 2015. This price increases due to the larger needs for investments in the modernisation of low voltage networks. The total weighted natural gas distribution tariff decreased by around 1% compared to 2015. On 30 November 2015, the National Control Commission for Prices and Energy (the Commission) approved the gas price for household customers for the first half of 2016 – as of 1 January 2016 household customers pay for gas the same price as in the second half of 2015. Stable prices for household customers were retained due to the


application of an additional discount which equalises fluctuations in the prices for the natural gas import and infrastructure services. As of 1 June 2015, tariffs for access to electricity networks have decreased for new customers. A statistical new consumer planning to get access to electricity pays EUR 230. Corporate customers pay EUR 758 less than up until now. Decrease in the electricity tariffs was achieved due to a lower budget of the public interest obligations (VIAP). On 26 October 2015, the Commission approved the VIAP budget for 2016 of EUR 139.981 million (11.5% down from 2015). As the VIAP quotes were abolished, the electricity production at co-generation plants and the Elektrėnai power plant of Lietuvos Energijos Gamyba will no longer be supported, while in 2015 the support for the electricity production in Elektrėnai amounted to EUR 50.59 million. Within this amount EUR 11.578 million were allocated as support to secure the energy system reserve service provided by Lietuvos Energijos Gamyba. On 1 October 2015, LESTO started electricity exchanges with the production entities which have installed small sun power plants and carry out production activities. The price for the use of infrastructure was set – the methodology of its calculation was approved by the Commission on 17 July. The prices for the use of the medium and low voltage networks were established at 1.59 euro cent/kWh and 3.04 euro cent/kWh, respectively.

High customer service quality ensured The satisfaction surveys conducted in autumn 2015 among the customers of the Lietuvos Energija group companies LESTO, Lietuvos Dujos and Lietuvos Dujų Tiekimas yielded the results exceeding the average indicators among the European and other world utility service providers. The customer satisfaction index among private users of electricity increased by 4 points since last year and stood at 80, 2 and 76 points, respectively, for corporate customers. The respective figures for private users of natural gas are 80 points and 77 points for corporate customers. The customer satisfaction index for Lietuvos Dujų Tiekimas reached 81 points. The results exceed the average customer satisfaction indices of European and other global utility service providers; the European average index stands at 70, and 73 points globally. This high customer satisfaction index was mostly achieved to the customer service improvement initiatives launched by the Lietuvos Energija group – joint customer service centres, centralised activities, more efficient processes, faster and higher quality services.

48 2015 ANNUAL REPORT | Review of the Company’s and the Group’s activities

During 2015, LESTO improved all principal customer satisfaction indicators. The experience of private customers of LESTO exceeded the expectations, as the number of complaints decreased by 7 percentage points, the professionalism of the servicing personnel was rated highly positively, promptly provided assistance, convenient servicing both online (www.manoelektra.lt), or at a short number 1802.

Return for shareholders Lietuvos Energija allocated EUR 29.83 million in dividends for the first half of 2015 by paying them to the state budget. The state-owned group of companies Lietuvos Energija allocated EUR 52.6 million in dividends for 2014, which represent the hight return among the state-owned companies. Dividends paid by the companies controlled by Lietuvos Energija to the shareholders for the first half of 2015 amounted to as follows: EUR 21.742 million or EUR 0.036 per share paid by LESTO; EUR 2.667 million or EUR 0.0042 per share paid by Lietuvos Energijos Gamyba; EUR 10.348 million or EUR 0.0356 per share paid by Lietuvos Dujos. Dividends paid by Energijos Skirstymo Operatorius for the second half of 2016 amounted EUR 30.596 million.


Corporate responsibility

Relationships with employees and society

Environmental protection

Responsible and transparent market operations

The Lietuvos Energija group aims to conduct its operations in a responsible manner with a particular regard to corporate social responsibility (CSR). The Group seeks to ensure that its operations are based on the principles laid down in the Global Compact, a United Nations initiative. The latter principles define corporate responsibility in the areas of human rights, rights at work, environment, and anti-corruption. The model of socially responsible business of the Lietuvos Energija group is implemented through targeted and consistent activities in the following areas: relationships with employees and society, environmental protection and responsible and transparent market operations.

Lietuvos Energija has a purpose of ensuring a long-term progress of business and society, aims to contribute to the development of society and promotion of its welfare. The Group has established the Sponsorship Fund and supports initiatives and projects that are significant to the state and society. In its operations the Group seeks to use advanced measures, technologies and processes that help reducing the impact of operations on environment, promoting efficient management and utilisation of resources; it implements activities to reduce costs and waste. The Group companies promote and actively participate in environmental campaigns and preventive programmes.

Lietuvos Energija aims to reduce the impact of its operations on the environment, community, and other businesses, and to joint its efforts with public authorities and non-governmental organisation in dealing with social and environmental issues, thereby contributing to the development of the society and economic growth.

The companies of Lietuvos Energija pay particular attention to the education of society and businesses in the field of energy (including security, energy efficiency and promotion of rational energy consumption) by creating its own initiatives and engaging in those organised by society, encouraging responsibility and awareness; it actively cooperates with local communities.

Social responsibility and environmental protection In its responsible activities Lietuvos Energija follows social responsibility policies approved by the Board that provide common CSR directions and principles to be followed by all companies of the Group aiming to create the conduct and standards of socially responsible and sustainably developed business of the Lietuvos Energija group.

49 2015 ANNUAL REPORT | Corporate responsibility

Safety Safety of operations is one of the most important priorities of the Lietuvos Energija group. All companies of the Group are required to follow the Occupational Safety and Health Policies. Top-level managers are responsible for safe and healthy work environment.


Transparency The Lietuvos Energija group has approved the zero-tolerance policy against corruption, which applies to all employees of the Group and its interested parties, i.e. contractors, suppliers, consultants, agents and other intermediaries. The zero-tolerance policy against corruption is being improved, updated and supplemented. Persons responsible for the implementation of this policy have been appointed. The policy sets out public commitments to comply with legal norms applicable to the operations and to fight corruption. All employees of the Group are acquainted with this policy and its requirements, educational anti-corruption programmes are conducted. The Group has clearly established procedures regarding gifts and other benefits. The single Trust Line is available for the Group's employees and all interested parties – its telephone number and email are announced publicly, indicated on the website. The Group commits to ensure confidentiality and keep the identity of the person giving the information secret.

Accountability For more information on corporate responsibility and initiatives conducted please visit the websites indicated below (the sections of social responsibility and CSR progress reports): http://www.le.lt/lt/socialine-atsakomybe/12, www.eso.lt/Socialinėatsakomybe, https://gamyba.le.lt/lt/socialine-atsakomybe.

Sponsorship Pursuant to the Order of the Minister of Finance of the Republic of Lithuania, Lietuvos Energija has set up the Sponsorship Fund (the Fund), which supports initiatives and projects that are significant to the state and society.

50 2015 ANNUAL REPORT | Corporate responsibility

In 2015, the Fund allocated support for 19 projects and activities; the support totalled nearly EUR 600 thousand. At the national level, support was allocated for the project Šeimos Namučiai (Sweet Family Home) of the charity and support fund Mamų Unija (Mothers’ Union), participation of the disabled of Lithuania in Paralympic Games (Lithuanian Sports Federation of People with Disabilities), Š. Marčiulionis basketball academy, which trains basketball talents for cadet, junior and national Lithuanian men’s basketball team, Kaunas men’s basketball club Žalgiris, development of St. Christopher Chamber Orchestra in order to increase access to culture for residents of Lithuania and the event held by the Baltic Institute of Advanced Technology called Tyrėjų Naktis 2015 (Researcher’s Night 2015).

Recognition of activities Recognition for management. On 18 March 2016, the weekly magazine Veidas elected Dr Dalius Misiūnas, the Chief Executive Office of the group of energy companies Lietuvos Energija, as the Manager of the Year 2015. This is the first time that this prestigious award, which is being organised for sixteen years, was granted to the CEO of the state-owned company. Social responsibility initiative of the year. The project initiated by LESTO Darni Mokykla (Sustainable School) was elected as the social responsibility initiative of the year during the Swedish business award ceremony held in 2015. The aim of the project is to encourage communities of educational institutions to use energy resources efficiently and preserve environment. Relationship with investors. Three awards were granted for progress achieved by Lietuvos Dujos and LESTO in strengthening relationship with investors in 2015 at the stock exchange event Nasdaq Baltic Market Awards 2015. Lietuvos Dujos was classified as the third best company in terms of the progress achieved. LESTO was ranked third in the categories of the Best Annual and Corporate Management Report and the Best Interactive Investor Relation. Recognition for transparency. In 2015, the Corporate Accountability Survey conducted by Transparency International Lithuania Branch ranked Lietuvos Energija as the second best publicly reporting major company in Lithuania.


Corporate governance

The aim of the Lietuvos Energija group, with the State of Lithuania as its shareholder, is to ensure effective and transparent operations. In order to achieve this aim, the reorganisation of governance was carried out in 2013, during which the corporate governance of the Group was reorganised and improved. The new governance structure and model of the Group has been developed on the basis of the most advanced international and national practices, following the recommendations published by the Organisation for Economic Cooperation and Development, having regard to the Corporate Governance Code of companies listed on the NASDAQ OMX Vilnius exchange, Guidelines on the Governance for State-owned Enterprises recommended by the Baltic Institute of Corporate Governance. The corporate governance model of the power generation companies’ group was implemented in observance of the Corporate Governance Guidelines approved by the Ministry of Finance of the Republic of Lithuania on 7 June 2013 (the Guidelines are available at www.le.lt).

51 2015 ANNUAL REPORT | Corporate governance

The primary goal of the corporate governance is to achieve the effect of synergy aligning different activities of the Lietuvos Energija group companies and targeting them at the achievement of the common goals at the Group level. The Group’s governance structure has been formed according to the principles of corporate governance and contributes to their implementation. The Company’s shareholder is the State which controls 100% of its shares. The rights and obligations of the shareholder are implemented by the Ministry of Finance of the Republic of Lithuania, which adopts the main decisions relating to the implementation of the ownership rights and obligations. On 19 October 2015, the Management Coordination Centre recognised the Lietuvos Energija group as the best managed State capital entity in 2014. High scores were given for transparency and management. Compared to 2013, the Group improved the good management index by 8%, and scored 8.44 points out of 10 possible.


Supervisory bodies Supervisory Council The Supervisory Council is a collegial supervisory body provided for in the Articles of Association of the Company and elected by the General Meeting of Shareholders for a term of four years. The Supervisory Council of Lietuvos Energija consists of seven members – natural persons representing the Ministry of Finance, the Ministry of Energy, the Ministry of Economy, the Office of the Government of the Republic of Lithuania, and three independent members. The Chairman of the Supervisory Board is elected from the members of the Supervisory Board. This model of formation of the Supervisory Council complies with the principles of corporate governance. The composition of the Supervisory Council functioning at Lietuvos Energija as at 31 December 2015 was as follows*:

Šarūnas Kliokys (born in 1959)

Antanas Danys (born in 1975)

Dr Virginijus Lepeška (born in 1955)

Tomas Garasimavičius (born in 1978)

Aloyzas Vitkauskas (born in 1954)

Rasa Noreikienė (born in 1959)

Rokas Baliukovas (born in 1977)

Chairman, independent member

Independent member

Independent member

Member

Member

Member

Member from 17/12/2014

Educational background

Vytautas Magnus University; Baltic Management Institute, Master's degree in Business Administration (EMBA); Vilnius University, Economist’s Diploma.

Vilnius University, Master’s degree in Business Administration (MBA); Boston College, Bachelor’s degree

Vilnius University, Doctoral degree in Social Sciences.

Creighton University, Master’s studies of Political Science; Institute of International Relations and Political Science (IIRPS) of Vilnius University, Master’s studies of Political Science; IIRPS of Vilnius University, Bachelor's degree in Political Science.

Vilnius Civil Engineering Institute, Post-graduate studies of Technical Sciences; Vilnius Civil Engineering Institute, Master’s degree in Civil Engineering.

Kaunas University of Technology, Master’s degree in Public Administration; Vilnius University, Lawyer’s speciality.

Kaunas University of Technology, Bachelor's degree in Electrical Engineering; Šiauliai University, Master's degree in Power Engineering; Šiauliai University, Master's degree in Management and Business Administration.

Workplace, position

Chairman of the Board of Ekonovus UAB, Chairman of the Board of Avestis UAB; Chairman of the Board and Executive Director of Šiaulių Plento Grupė UAB; Chairman of the Board Kilimai AB; Member of the Board of the state enterprise Centre of Registers, Member of the Board of the association EUROCHAMBERS, President of the Lithuanian Chamber of Commerce, Industry and Crafts

Director of Grinvest PTE.LTD; Development Director of Kaštonų Kalva UAB; Member of the Board of Lanestead OU; Member of the Board Balaef OU; Chairman of the Board of Neo Finance UAB; Director of Asian Pacific Green Energy Pte. Ltd.

Consultant, Chairman of the Board Government of the Republic of of Organizacijų Vystymo Centras Lithuania, Advisor to the Prime UAB; Consultant at OVC Mokymai Minister for Energy. UAB; Advisor to the Chairman of the Board of Vilandra UAB; Advisor to General Manager of AL Holdingas UAB; Member of the Board of the Association Mentor Lietuva; Member of the Board of the public institution Paramos Vaikams Centras; Member of the Commission for the Selection of Candidates for Judge.

Ministry of Finance of the Republic of Lithuania; Deputy Minister.

Ministry of Economy of the ReMinistry of Energy of the Repubpublic of Lithuania; Deputy Minis- lic of Lithuania; Deputy Minister. ter.

*None of the members of the Supervisory Council has any ownership interest in the capital of the Company or the Group of the companies.

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The main functions and responsibilities of the Supervisory Council are as follows: election and removal of the Board Members, supervision of activities of the Board and the CEO, provision of comments to the General Meeting of Shareholders on the Company’s strategy, a set of financial statements, appropriation of profit or loss, and annual report. The Supervisory Council also addresses other matters within its competence. The Supervisory Council is functioning at the Group level, i.e. where appropriate, it addresses the issues related not only to the activities of the Company, but also to the activities of its subsidiaries or the activities of their management and supervisory bodies.

Committees of the Supervisory Council For the purpose of effective fulfilment of its functions and obligations, the Supervisory Council forms the committees. The committees of the Supervisory Board provide their conclusions, opinions and proposals to the Supervisory Council within their competence. A committee consists of at least three members, of whom at least one member is a member of the Supervisory Council and at least one member is an independent member. The following committees have been established at Lietuvos Energija: 

Risk Management Supervision Committee is responsible for the submission of conclusions or proposals to the Supervisory Council on the functioning of management and control system in the Group and (or) main risk factors and implementation of risk management or prevention measures; Audit Committee is responsible for the submission of the objective and impartial conclusions or proposals to the Supervisory Council on the functioning of the audit and control system in the Group; Appointment and Remuneration Committee is responsible for the submission of conclusions or proposals on the matters of appointment, removal or promotion of the Board Members to the Supervisory Council, also for the assessment of activities of the Board and its members and for issuing the respective opinion. The functions of the committee also cover the formation of the common remuneration policy at the Group level, establishment of the amount and composition of remuneration, principles of promotion, etc.

Where appropriate, the Company may also form other ad hoc committees (e.g. for addressing specific issues, preparation, supervision or coordination of strategic projects, etc.).

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Audit Committee Member of the Committee Rasa Noreikienė Chair of the Committee

Number of shares of the Company and the Group companies held -

Workplace Ministry of Economy of the Republic of Lithuania, Vice-Minister

Danielius Merkinas Independent member

-

Finance Director of Nordnet UAB

Aušra Vičkačkienė Member

-

Gintaras Adžgauskas Member

-

Ministry of Finance of the Republic of Lithuania, Director of the Asset Management Department Director of the Lithuanian Committee of the World Energy Council

Irena Petruškevičienė Independent member

-

Member of Audit Development Committee of the European Commission

Main functions of the Committee are as follows: 

to monitor the process of preparation of financial statements of the Company and the Group companies, with a special focus on the relevance and consistency of accounting methods used; to monitor the effectiveness of internal controls and risk management systems of the Company and the Group companies, to analyse the need for and relevance of these systems and perform the review of the existing internal control management systems; to monitor the adherence to the principles of independence and objectivity by the certified auditor and audit company, to provide related recommendations, as well as proposals for the selection of an audit company; to monitor the audit performance processes of the Company and the Group companies, to examine the effectiveness of audit and response of the administration to the recommendations provided in the management letter; to monitor the effectiveness of the internal audit function of the Company and the Group companies, to analyse the need for and relevance of this function, to provide recommendations on the need for, effectiveness of the internal audit function, and on other internal audit related matters; to provide proposals for the internal audit plans of the Company and the Group companies, recommendations for the regulations of the internal audit units of the Company and the Group companies, appointment and dismissal of the head of a structural unit performing the functions of the internal audit, approval of his (her) job description, imposition of incentives and penalties;


 

to monitor the compliance of activities of the Company and the Group companies with laws and other legal acts of the Republic of Lithuania, articles of association and operational strategy; to assess and analyse other issues attributed to the competence of the Committee by the decision of the Supervisory Council; to perform other functions related to the functions of the Committee set forth by legal acts of the Republic of Lithuania and in the Corporate Governance Code of companies listed on NASDAQ Vilnius Stock Exchange.

Risk Management Supervision Committee Number of shares of the Company and the Group companies held Antanas Danys Chairman of the Committee -

Member of the Committee

Number of shares of the Company and the Group companies held Aloyzas Vitkauskas Chairman of the Committee Virginijus Lepeška Independent member Tomas Garasimavičius Member

Workplace

Director of Grinvest PTE.LTD General Manager of Schmitz Cargobull Baltic UAB Director of Dovirma UAB Advisor to the Prime Minister of Lithuania for Energy

 

Main functions of the Committee are as follows:          

Workplace Ministry of Finance of the Republic of Lithuania, Vice-Minister Chairman of the Board of Organizacijų Vystymo Centras UAB Advisor to the Prime Minister of Lithuania for Energy

Main functions of the Committee are as follows:

Member of the Committee

Raimundas Petrauskas Independent member Donatas Kaubrys Independent member Tomas Garasimavičius Member

Appointment and Remuneration Committee

to monitor the identification, assessment and management of risks relevant for the accomplishment of goals of the Company and the Group companies; to assess the relevance of internal control procedures and risk management measures with respect to the identified risks; to assess the status of implementation of risk management measures; to monitor the implementation of risk management process; to analyse financial possibilities for the implementation of risk management measures; to assess the risks and risk management plan of the Company and the Group companies; to assess the regular risk identification and assessment cycle; to control the establishment of risk registers, analyse their data and provide proposals; to monitor the drafting of risk management related internal documents; to perform other functions attributed to the competence of the Committee by the Supervisory Council.

54 2015 ANNUAL REPORT | Corporate governance

 

 

to assess and provide proposals on the long-term remuneration policy of the Company and Group companies (the main fixed part of the remuneration, performance based remuneration, pension insurance, other guarantees and forms of remuneration, compensations, termination benefits, other parts of the remuneration package), principles of compensation for costs related to the individual’s performance; to assess and provide proposals on the policy of bonuses of the Company and the Group companies; to monitor the compliance of the policy of remunerations and bonuses of the Company and the Group companies with the international practice and good governance practice recommendations, and provide respective proposals for the improvement of the policy of remunerations and bonuses; to provide proposals concerning bonuses upon appropriation of profit (losses) to be appropriated of the Company and the Group companies of the respective financial year; to assess the terms and conditions of agreements of the Company and the Group companies with members of management bodies of the Company and the Group companies; to assess the procedures of recruitment and selection of candidates to members and senior management of the Company and the Group companies and establishment of the qualification requirements; to perform regular reviews of the structure, size, composition and activities of the management and supervisory bodies of the Company and the Group companies; to supervise how members of management bodies and employees of the Company and Group companies are notified of the professional development possibilities and how they upgrade their skills regularly; to supervise and assess the implementation of measures ensuring the continuity of operations of the management bodies and employees of the Company and the Group companies; to perform other functions attributed to the competence of the Committee by the Supervisory Council.


Management bodies Board The Board is a collegial management body provided for in the Articles of Association of the Company. The members of the Board are elected for a term of four years and removed by the Supervisory Council on the proposal of the Appointment and Remuneration Committee. The Board consists of five members and elects from among its members the Chairman of the Board – the Chief Executive Officer of the Company. The members of the Board, acting within their competence, must ensure the proper performance of the Company’s activities / supervision of the respective areas at the Group level. The composition of the Board functioning at Lietuvos Energija as at 31 December 2015 was as follows*:

Dr Dalius Misiūnas (born in 1978)

Ilona Daugėlaitė (born in 1970)

Darius Kašauskas (born in 1972)

Mindaugas Keizeris (born in 1980)

Chairman of the Board, CEO

Member of the Board, Organi- Member of the Board, Finance and Member of the Board, Strategy and sational Development Director Treasury Director Development Director

Dominykas Tučkus (born in 1981)

Dalia Andrulionienė (born in 1971)

Member of the Board, Pro- Member of the Board, Production duction and Services Director and Services Director from from 04/01/2016 02/03/2015 to 27/11/2015

Educational background

Lund University, Doctoral degree in Vilnius University, Master’s degree Technological Sciences; in Hydrogeology and Engineering Lund University, Master’s degree in In- Geology. dustrial Electrical Engineering and Automatics; Kaunas University of Technology, Bachelor's degree in Electrical Engineering.

ISM University of Management and Economics, Doctoral studies of Social Sciences in the field of Economics; ISM University of Management and Economics, BI Norwegian Business School, Master’s degree in Management; Vilnius University, Master’s degree in Economics.

Vilnius University, Master’s degree in International Business. Vilnius University, Bachelor’s degree in Business Administration and Management.

L. Bocconi University (Italy), Master's degree in Finance; L. Bocconi University (Italy), Degree in Business Management and Administration.

Workplaces, position

Chairman of the Supervisory Council of Lietuvos Energijos Gamyba AB (until 2 Dec 2015); Chairman of the Supervisory Council of Energijos Skirstymo Operatorius AB (from 3 Dec 2015); Member of the Board of Directors of the Association Eurelectric; President of the Lithuanian Power Association; President of the Alumni Association of Kaunas University of Technology; Member of the Board of the Sponsorship Fund of Lietuvos Energija; Member of the Council of the Lithuanian Confederation of Industrialists.

Chairman of the Supervisory Council of LESTO AB (until 31 December 2015); Chairman of the Supervisory Council of Lietuvos Dujos AB (until 31 Dec 2015); Chairman of the Board of NT Valdos UAB; Member of the Broad of Kauno Energetikos Remontas UAB (until 31 Dec 2015); Chairman of the Board of Verslo Aptarnavimo Centras UAB (until 6 Jan 2016); Chairman of the Board of Elektroninių Mokėjimų Agentūra UAB, Chairman of the Board of Duomenų Logistikos Centras UAB.

Chairman of the Supervisory Council of Lietuvos Energijos Gamyba AB (from 2 Dec 2015); Chairman of the Board of Elektros Tinklo Paslaugos UAB (until 31 Dec 2015); Chairman of the Board of Energijos Teikimas UAB (until 8 Feb 2016); Chairman of the Board of LITGAS UAB (until 11 Jan 2016); Chairman of the Board of Kauno Energetikos Remontas UAB (until 31 Dec 2015); Member of the Board of Lietuvos Dujų Tiekimas UAB (until 11 Jan 2016); Chairman of the Board of Energetikos Paslaugų ir Rangos Organizacija UAB (from 26 Oct 2015); Chairman of the Board of Vilniaus Kogeneracinė Jėgainė UAB (from 6 Nov 2015), Member of the Board of the Sponsorship Fund of Lietuvos Energija, Member of the Supevisory Council of Elektroninių Mokėjimų Agentūra UAB.

Member of the Supervisory Member of the Board of Energijos Council of Lietuvos Energijos Skirstymo Operatorius AB (from 3 Dec Gamyba AB; 2015). Chairman of the Board of LITGAS UAB; Member of the Board of Lietuvos Dujų Tiekimas UAB; Member of the Board of Energijos Tiekimas UAB; Member of the Supervisory Council of Elektroninių Mokėjimų Agentūra UAB. Member of the Board of HOB O; Member of the Board of Tuuleenergia OU, Member of the Board of EURAKRAS UAB.

Member of the Supervisory Council of LESTO AB (until 31 Dec 2015); Member of the Supervisory Council of Lietuvos Dujos AB (until 31 Dec 2015); Member of the Supervisory Council of Energijos Skirstymo Operatorius AB (from 3 Dec 2015); Chair of the Board of Technologijų ir Inovacijų Centras UAB; Member of the Board of Elektros Tinklo Paslaugos UAB (until 31 Dec 2015); Chair of the Board of Duomenų Logistikos Centras UAB (until 22 Jan 2016); Chair of the Board of Verslo Aptarnavimo Centras UAB (from 6 Jan 2016); Member of the Supervisory Council of Elektroninių Mokėjimų Agentūra UAB.

*None of the members of the Board has any ownership interest in the capital of the Company or the Group of the companies.

55 2015 ANNUAL REPORT | Corporate governance

BI Norwegian Business School, Executive Master, Management program; Vilnius University, Master’s degree in Economics and Management.


Organizational culture and employees Employees of the Company are the key element in implementing the operational strategy of the Lietuvos Energija group. The aim is to build and maintain the organisational culture based on values that motivate employees to assume responsibility, cooperate, and joint efforts to achieve the best result. In implementing the objectives set by the shareholder and pursuing a socially responsible business, we aim at attracting and retaining skilled specialists at the Group and creating with them the long-term partnership relationships and joint successful future while ensuring the mutual benefits. As at 31 December 2015, the Group had 5,3791 employees. During the year the number of employees of the Lietuvos Energija group decreased by 4% or by 223 employees. Company

Structure of the Company’s employees according to educational background, %

2.6 1.3

96.2

Total number of employees

Lietuvos Energija, UAB LESTO AB Lietuvos Energijos Gamyba, AB Lietuvos Dujos AB Technologijų ir Inovacijų Centras UAB Duomenų Logistikos Centras UAB Energijos Tiekimas UAB Kauno Energetikos Remontas UAB Elektroninių Mokėjimų Agentūra UAB ELEKTROS TINKLO PASLAUGOS UAB NT Valdos, UAB Public Institution Centre of Training for Energy Specialists LITGAS UAB VAE SPB UAB Verslo Aptarnavimo Centras UAB Lietuvos Dujų Tiekimas UAB Vilniaus Kogeneracinė Jėgainė UAB Total 1

As at 31 December 2015, the Company had 78 employees. The total of 96.2% of the Company’s employees have higher university education, of whom 6 have doctoral degrees. The Company employs two certified professional project managers (PRINCE2 and PMP), one certified financial analyst (CFA), one certified internal auditor (CIA), one certified fraud examiner (CFE), two certified risk management assurance experts (CRMA), five employees holding the professional Board Member’s qualification of the Baltic Institute of Corporate Governance. The employees are active members of the associations, unions, and academic community (Business Council of Kaunas University of Technology, Supervisory Council of the Lithuanian Energy Institute, Technological Development Committee under the Agency for Science, Innovation and Technology).

Number of valid employment contracts.

56 2015 ANNUAL REPORT | Corporate governance

78 2178 429 971 187 16 15 245 1 568 240

0%

10% 20% Higher education

30% 40% 50% 60% 70% 80% 90% 100% Advanced vocational education Secondary education

The total of 56.1% of the Group’s employees have higher university education, of whom 19 have doctoral degrees, 28% of employees have acquired advanced vocational education and 13% have secondary education.

Structure of the Group’s employees according to educational background, % 28.0

56.1

13.0

2.9

145 0%

14 11 171 97 13 5,379

10%

20%

Higher education

30%

40%

50%

60%

Advanced vocational education

70%

80%

90%

Secondary education

100% Other


The percentage of men and women employed at the Group is equal to 75.8% and 24.2%, respectively. The breakdown of managers by gender is similar, i.e. male managers make up 77.8% and female managers – 28.2%.

Breakdown of all employees by gender 24%

Breakdown of managers by gender

Men

Women

72% Men

Women

The total wage bill of the Company for January –December 2015 amounted to EUR 2,005 thousand.

Average monthly wage of the Company's employees before tax during January – December 2015 Category of employees

6,788

Top-level managers

4,878

Medium-level managers

3,273

Experts, specialists

1,801

As at 31 December 2015, the Group had 5,379 employees. The total wage bill of the Group for January–December 2015 amounted to EUR 42.757 million.

Average monthly wage of the Group's employees before tax during January– December 2015 Average monthly wage, in EUR

Chief executive officer (CEO)

4,734

Top-level managers

4,004

Medium-level managers

2,079

Experts, specialists, workers

57 2015 ANNUAL REPORT | Corporate governance

The overall evaluation of employees' competences was initiated for the third time during which employees will receive feedback from their direct supervisors, subordinates and peers. Processes related to career management, structuring of rotation systems are being successfully continued (171 employees were rotated within the Group companies, 236 employees achieved career advancement within a company in 2015).

Development of competences

Average monthly wage, in EUR

Chief executive officer (CEO)

Category of employees

Following the reorganisation of the management of the Group in 2014 attention was focused on a coordinated development of the organisation, management of human resources, formation of a new organisational culture, enhancement of efficiency of organisation of operations, development and maintenance of competences. In 2015, the project on the clarification of human resources management was prepared and its implementation was started. The human resources management functions are planned to include corporate (at Lietuvos Energija), partnership (at the Group companies) and administrative (at Verslo Aptarnavimo Centras). The human resources management consulting function is being formed and internal partners will be available for the heads of the companies to consult on personnel management issues. Human resources management partners will be able to allocate more time for a daily coaching of the heads of the companies, leadership development within the organisation, thus increasing competence in the field of human resources management.

28%

76%

Development of the organisation and its culture

984

The Lietuvos Energija group is consistently taking care of the professional development of employees and ensures that employees possess all certificates established by laws that are necessary for their work and improve the required competences. In 2015, internal and external training courses were organised at the Lietuvos Energija for 10,917 times, i.e. two times per employee on average. Individual companies of the Group organised various training courses on the development of general, professional and management competences, e.g. leadership, team formation, change management, communication, project management, business process management, etc.In 2015, the internal team of lecturers was formed. The lecturers of the academy participates in the programmes of professional development of managers and new employees of the Group, and engages in the development of competences of employees. Opportunities of internship. The Group companies create conditions for students of higher education institutions and vocational schools to apply their theoretical knowledge and acquire practical skills. In 2015, the internship programme was accomplished by 243 students at the Group, whereof 15 were employed at the Company later on.


Supervisory bodies of the listed companies of the Group On 3 December 2015, following the reorganisation of LESTO AB and Lietuvos Dujos AB by way of merger the company Energijos Skirstymo Operatorius AB (ESO) was established, which started its activities from 1 January 2016 and on 31 December 2015, LESTO AB and Lietuvos Dujos AB ceased their activities and were removed from the register.

The composition of the Supervisory Council functioning at ESO from 1 January 2016 was as follows: Participation in the capital of the Com- Term of office pany and Group companies, % Dalius Misiūnas 3 Dec 2015 – Chairman Dec 2019 Full name

Workplace

Lietuvos Energija, UAB, Chief Executive Officer

Ilona Daugėlaitė Member

-

3 Dec 2015 – Dec 2019

Lietuvos Energija, UAB, Director of Organisational Development

Petras Povilas Čėsna Independent member

-

3 Dec 2015 – Dec 2019

LITEXPO, Chairman of the Board

The composition of the Supervisory Council functioning at Lietuvos Energijos Gamyba, AB as at 31 December 2015 was as follows: Participation in the capital of the Company and Group companies, %

The composition of the Supervisory Council functioning at LESTO AB as at 31 December 2015 was as follows: Full name

Participation in the capital of the Company and Group companies, %

Term of office

Workplace

Darius Kašauskas Chairman

-

July 2013 – 31 December 2015

Lietuvos Energija, UAB, Finance and Treasury Director

Petras Povilas Čėsna Independent member

-

September 2013 – 31 December 2015

LITEXPO, Chairman of the Board

Ilona Daugėlaitė Member

-

July 2013 – 31 December 2015

Lietuvos Energija, UAB, Director of Organisational Development

The composition of the Supervisory Council functioning at Lietuvos Dujos as at 31 December 2015 was as follows:

Mindaugas Keizeris Chairman from 2 Dec 2015

-

20 Nov 2014 – August 2017

Lietuvos Energija, UAB, Strategy and Development Director

Participation in the capital of the Com- Term of office pany and Group companies, % Darius Kašauskas November 2014 – Chairman 31 December 2015

Pranas Vilkas Independent member

-

August 2013 – August 2017

-

Petras Povilas Čėsna Independent member

-

November 2014 – 31 December 2015

LITEXPO, Chairman of the Board

Dominykas Tučkus Member

-

21 Dec 2015 – August 2017

Lietuvos Energija, UAB, Production and Services Director

Ilona Daugėlaitė Member

-

November 2014 – 31 December 2015

Lietuvos Energija, UAB, Organisational Development Director

Dalius Misiūnas Chairman from 2 Dec 2015

-

August 2013 – 2 December 2015

Lietuvos Energija, UAB, Chief Executive Officer

Full name

Term of office

Workplace

58 2015 ANNUAL REPORT | Corporate governance

Full name

Workplace

Lietuvos Energija, UAB, Finance and Treasury Director


Management bodies of the listed companies of the Group As at 31 December 2015, the Board of Energijos Skirstymo Operatorius AB comprised as follows:

Full name

Participation in the capital of the Company and Group companies, %

Liudas Liutkevičius Chairman

-

Eglė Čiužaitė Member Dalia Andrulionienė Member Rytis Borkys Member Dalius Svetulevičius Member

-

Term of office

Workplace

31 Dec 2015 – Energijos Skirstymo Operatorius AB, Chief Dec 2019 Executive Officer 3 Dec 2015 – Dec 2019 3 Dec 2015 – Dec 2019 3 Dec 2015 – Dec 2019 3 Dec 2015 – Dec 2019

-

Energijos Skirstymo Operatorius AB, Director of Finance and Administration Service Energijos Skirstymo Operatorius AB, Services Director Energijos Skirstymo Operatorius AB, Director of Network Maintenance Service Energijos Skirstymo Operatorius AB, Director of Network Development Service

General Manager: Liudas Liutkevičius, Chief Executive Officer of Energijos Skirstymo Operatorius AB.

As at 31 December 2015, the Board of LESTO AB comprised as follows:

Full name

Participation in the capital of the Company and Group companies, %

Term of office

September 2013 – 31 December 2015

LESTO AB, Chief Executive Officer

Andrius Bendikas Member Sergejus Ignatjevas Member Virgilijus Žukauskas Member

-

September 2013 – 31 December 2015 31 December 2015

LESTO AB, Director of Finance and Administration Service LESTO AB, Customer Services Director

September 2013 – 31 December 2015

LESTO AB, Electricity Network Service Director

General Manager: Aidas Ignatavičius, Chief Executive Officer of LESTO AB.

Participation in the capital of the Company and Group companies, %

Term of office

Workplace

Liudas Liutkevičius Chairman

-

November 2014 – November 2018

Lietuvos Dujos AB, Chief Executive Officer

Giedrė Glinskienė Member Nemunas Biknius Member (until 30 Jan 2015) Valentina Birulienė Member Dalius Svetulevičius Member from 9 Feb 2015

-

November 2014 – November 2018 November 2014 – November 2018

Lietuvos Dujos AB, Director of Finance and Treasury Service Lietuvos Dujos AB, Director of Service Provision and Development Service

November 2014 – November 2018 February 2015 – November 2018

Lietuvos Dujos AB, Director of Organisational Development Service Lietuvos Dujos AB, Director of Gas Network Service

-

-

General Manager: Liudas Liutkevičius, Chief Executive Officer of Lietuvos Dujos AB.

As at 31 December 2015, the Board of Lietuvos Energijos Gamyba, AB comprised as follows: Full name

-

-

Full name

Workplace

Aidas Ignatavičius Chairman

-

As at 31 December 2015, the Board of Lietuvos Dujos AB comprised as follows:

Participation in the capital of the Company and Group companies, %

Juozas Bartlingas Chairman Adomas Birulis Member Eglė Čiužaitė Member Darius Kucinas Member Vidmantas Salietis Member

-

Term of office

September 2013 – September 2017 September 2013 – September 2017 September 2013 – 2 December 2015 September 2013 – September 2017 September 2013 – September 2017

Workplace

Lietuvos Energijos Gamyba, AB, Chief Executive Officer Lietuvos Energijos Gamyba, AB, Director of Business Development Department Lietuvos Energijos Gamyba, AB, Director of Finance and Legal Department Lietuvos Energijos Gamyba, AB, Director of Production Department Lietuvos Energijos Gamyba, AB, Director of Wholesale Electricity Trade Department, Energijos Tiekimas, UAB, Chief Executive Officer

General Manager: Juozas Bartlingas, Chief Executive Officer of Lietuvos Energijos Gamyba, AB.

59 2015 ANNUAL REPORT | Corporate governance


Basic information about the Company and the Group The Annual Report of Lietuvos Energija and its subsidiaries is prepared in compliance with Resolution No 1052 of the Government of the Republic of Lithuania of 14 July 2010 On the Approval of the Guidelines for Ensuring the Transparency of Activities of the State-owned Enterprises and Appointment of the Coordinating Authority and published on the Company’s internet website at www.le.lt. Company name

Lietuvos Energija, UAB

Company code

301844044

Authorised share capital

EUR 1,212,156 thousand (LTL 4,179,849,289)

Paid-up share capital

EUR 1,212,156 thousand

Address

Žvejų g. 14, LT-09310, Vilnius, Lithuania

Telephone

(8 5) 278 2998

Fax

(8 5) 278 2115

E-mail

biuras@le.lt

Website

www.le.lt

Legal form

Private limited liability company

Date and place of registration

28 August 2008, Register of Legal Entities

Register accumulating and storing data about the Company

Register of Legal Entities, State Enterprise the Centre of Registers

60 2015 ANNUAL REPORT | Basic information about the Company and the Group

On 13 February 2013, the Company’s shares were transferred to the Ministry of Finance by right of trust. With effect from 30 August 2013, the Company's name Visagino Atominė Elektrinė UAB was changed to Lietuvos Energija, UAB. As at 31 December 2015, the authorised share capital was divided into ordinary registered shares with the nominal value of LTL 1 (EUR 0.29) each. All the shares are fully paid.

The Company’s shareholders The Republic of Lithuania represented by the Ministry of Finance of the Republic of Lithuania

Share capital (EUR ‘000)

%

1,212,156

1,095.7


Information on subsidiaries, branches and representative offices Companies directly or indirectly controlled by Lietuvos Energija, UAB at the end of the reporting period (31 December 2015) were as follows: Company

Registered office address

Effective ownership interest at 31 Dec 2015, (%)

Share capital (EUR ‘000) at 31 Dec 2015

Lietuvos Energijos Gamyba, AB

Elektrinės g. 21, Elektrėnai

96.1

184,174

Electricity generation, supply, import, export and trade

LESTO AB (until 31 Dec 2015)

Aguonų g. 26, Vilnius

94.4

175,144

Electricity supply and distribution to end users

Lietuvos Dujos AB (until 31 Dec 2015)

Aguonų g. 24, Vilnius

96.6

84,299

Natural gas supply and distribution to end users

NT Valdos, UAB

Geologų g. 16, Vilnius

100

85,550

Disposal of real estate, other related activities and service provision

Duomenų Logistikos Centras UAB

A. Juozapavičiaus g. 13, Vilnius

79.6

4,028

Support services for information technology and telecommunications

ELEKTROS TINKLO PASLAUGOS UAB (until 31 Dec 2015) Kauno Energetikos Remontas UAB (until 31 Dec 2015) LITGAS UAB

Motorų g. 2, Vilnius

100

2,582

Chemijos g. 17, Kaunas

100

4,421

Construction, repair and maintenance of electricity networks and related equipment, connection of customers to the grid Repairs of energy equipment, manufacturing of metal structures

Žvejų g. 14, Vilnius

66.7

13,050

Supply of liquid natural gas via terminal and trade in natural gas

Elektroninių Mokėjimų Agentūra UAB

Žvejų g. 14, Vilnius

100

437

Energijos Tiekimas UAB

P. Lukšio g. 1, Vilnius

100

10,000

VšĮ Energetikų mokymo centras

Jeruzalės g. 21, Vilnius

100

85

Professional development and further training of energy specialists

Geton Energy OÜ

Narva mnt 5, 10117 Tallinn

100

35

Electricity supply

Geton Energy SIA

Bezdelingu 12, LV-1048, Riga

100

28

Electricity supply

Technologijų ir Inovacijų Centras UAB

A. Juozapavičiaus g. 13, Vilnius

97.8

6,440

IT and telecommunication, and other services

VAE SPB UAB

Smolensko g. 5, Vilnius

100

293

Business and other management consultations

Verslo Aptarnavimo Centras UAB

P. Lukšio g. 5 b, Vilnius

97.0

580

Lietuvos Dujų Tiekimas UAB

Žvejų g. 14, Vilnius

100

870

Public procurement organisation and implementation, accounting, personnel administration services Gas supply

Lietuvos energijos“ paramos fondas

Žvejų g. 14, Vilnius

100

3

Vilniaus Kogeneracinė Jėgainė UAB Kauno Kogeneracinė Jėgainė UAB

Žvejų g. 14, Vilnius Žvejų g. 14, Vilnius

100 100

1,003 3

61 2015 ANNUAL REPORT | Basic information about the Company and the Group

Profile of activities

Provision of payment collection services Electricity and natural gas supply

Provision of support for projects, initiatives and activities of public interest Modernisation of the district heating sector in the city of Vilnius Modernisation of the district heating sector in the city of Kaunas


Information on securities of the Group companies The shares of LESTO, Lietuvos Energijos Gamyba and Lietuvos Dujos have been listed on the Main List of NASDAQ Vilnius Stock Exchange. The trading of shares of the companies was started on 17 January 2011, 1 September and 23 April 2011, respectively. The shares of the companies are traded only at NASDAQ Vilnius Stock Exchange.

Structure of the authorised share capital and shareholders owning more than 5 per cent of the issuer’s authorised share capital as at 31 December 2015 Company

Total nominal value of shares (in EUR)

ISIN code

Securities' abbreviation

Trading list

LESTO AB

175,143,931.97

LT0000128449

LES1L

BALTIC MAIN LIST

Lietuvos Energija, UAB

94.39%

Lietuvos Energijos Gamyba, AB

184,174,248.35

LT0000128571

LNR1L

BALTIC MAIN LIST

Lietuvos Energija, UAB

96.13%

Lietuvos Dujos AB

84,298,864.6

LT0000116220

LDJ1L

BALTIC MAIN LIST

Lietuvos Energija, UAB

96.64%

Information about agreements with securities intermediaries Lietuvos Energija has not concluded any agreements with intermediaries of public trading in securities, because its securities are not traded on the stock exchange.

Group companies: Lietuvos Energijos Gamyba, AB As at 31 December 2015, the company had issued 635,083,615 ordinary registered shares with the nominal value of EUR 0.29. Shares of Lietuvos Energijos Gamyba have been listed on the main list of NASDAQ OMX Vilnius stock exchange. ISIN code of the issue is LT0000128571. Lietuvos Energijos Gamyba has concluded the securities accounting agreement on the accounting of securities issued and management of personal securities accounts with SEB Bankas AB.

62 2015 ANNUAL REPORT | Information on securities of the Group companies

Full name of the shareholder (name of the company)

Percentage of voting rights conferred by shares owned

Lietuvos Dujos AB As at 31 December 2015, the company had issued 290,685,740 ordinary registered shares with the nominal value of EUR 0.29. Shares of Lietuvos Dujos AB have been listed on the main list of NASDAQ OMX Vilnius Stock Exchange. ISIN code of the issue is LT0000116220. Lietuvos Dujos AB has concluded the agreement on the accounting of securities issued by the company and management of personal securities accounts with SEB Bankas AB. LESTO AB As at 31 December 2015, the company had issued 603,944,593 ordinary registered shares with the nominal value of EUR 0.29. Ordinary registered shares of LESTO were listed on the main list of NASDAQ OMX Vilnius Stock Exchange. ISIN code of the issue is LT0000128449. The authorised manager of securities accounts of LESTO is SEB Bankas AB.


Dynamics of the price of securities In 2016, Energijos Skirstymo Operatorius, which was established after the merger of LESTO and Lietuvos Dujos, became the largest company listed on the stock exchanges of the Baltic countries in terms of the market capitalisation. On 31 March, the company's capitalisation amounted to EUR 781 million. During 2015, the price of shares of LESTO decreased by 6.81%. The lowest price of shares was equal to EUR 0.89 and the highest price reached EUR 1.09 during the year. During 2015, the price of shares of Lietuvos Energijos Gamyba declined by 13.97% and it fluctuated in the range from EUR 0.65 to EUR 0.94. During 2015, the price of shares of Lietuvos Dujos rose by 9.54% and it fluctuated in the range from EUR 0.606 to EUR 0.9 per share. To compare, the OMX Vilnius Index increased by 7.42% during 2015.

Dynamics of the price of securities, in EUR per share 1.1

1.0

0.9

0.8

0.7

0.6

0.5

0.4 LESTO 0.3

63 2015 ANNUAL REPORT | Information on securities of the Group companies

Lietuvos Dujos

Lietuvos Energijos Gamyba

Energijos skirstymo operatorius


Main events at the Group that occurred until the date of the preparation of the Report  Lietuvos Dujų Tiekimas reduced the price of natural gas for 2015 for corporate customers and non-household customers by nearly a fifth. (1 January 2015).  Lietuvos Dujos started to publicly announce data about the actual caloric value of natural gas (thermal value) supplied to the network. (1 January 2015).  LITGAS started the supply of the minimum quantity of natural gas required for the LNG Terminal to the regulated energy producers. (1 January 2015).  Vilnius Regional Administrative Court accepted the complaint of Lietuvos Energijos Gamyba in respect of the annulment of Resolution No O3-941 of the Commission of 11 December 2014. (16 January 2015).  Lietuvos Energijos Gamyba became a market maker in the financial derivatives of electricity for Latvia bidding area. (20 January 2015).  The 3,000 km data transmission network of high throughput Baltic Highway was officially opened. (21 January 2015).  Vilnius Regional Administrative Court accepted the complaint of Lietuvos Energijos Gamyba in respect of a partial annulment of Resolution No O3-941 of the Commission of 19 December 2014. (21 January 2015).  Vilnius Regional Administrative Court accepted the complaint of LESTO in respect of the annulment of the Resolution of the Commission of 19 December 2014 On the Scheduled Audit of LESTO AB and Resolutions passed on the grounds of this Resolution. (23 January 2015).  LITGAS signed the natural gas supply contracts with the Estonian company Eesti Energia and with Reola Gaas, the company of Alexela Group (27 January 2015).  Tomas Šidlauskas resigned from the position of a Board Member of Lietuvos Dujos. (30 January 2015).  LESTO announced its plans to invest EUR 1.7 billion in the modernisation of the network by 2025. (3 February 2015).  The Estonian regulatory authority granted an exception to LITGAS allowing it to trade in natural gas in Estonia without establishing a branch. (19 February 2015).  LITGAS ensured the gas transit through the territory of Latvia by signing the agreement with Latvijas Gaze. (20 February 2015).

 LITGAS signed the memorandum on the supply of gas from the US terminal Delfin LNG. (26 February 2015).  LITGAS signed a Master Trade Agreement with Cheniere Marketing. (27 February 2015).  During the sitting of the Board of Lietuvos Energija the concept of the programme aimed at identifying central components of the value chain of the Group was approved. (27 February 2015).  A complaint of LESTO was accepted at Vilnius Regional Administrative Court in respect of the annulment of Resolutions No O3-11 of 19 January 2015 of the Commission On the Establishment of Price Caps for Distribution Services of LESTO AB Via Medium and Low Voltage Networks for 2016-2020. (10 March 2015).  Lietuvos Energija acquired 100% of shares of Elektros Tinklo Paslaugos from LESTO, and 100% of shares of Energijos Teikimas and 100% of shares of Kauno Energetikos Remontas from Lietuvos Energijos Gamyba. (31 March 2015).  Lietuvos Energija completed the assessment of the offers submitted by potential partners regarding the co-generation power plants in Vilnius and Kaunas. As neither of the submitted offers met the project objectives, the selection procedure was terminated in Vilnius. (31 March 2015).  LESTO simplified and shortened the electricity instillation procedures for new customers. (3 April 2015)  LESTO announced its plants to commence a public procurement for a long-term loan of EUR 70 million. (15 April 2015).  Lietuvos Energija acquired shares of NT Valdos from its subsidiaries and Litgrid. 27 April 2015)  The General Meetings of Shareholders approved that LESTO, Lietuvos Energijos Gamyba and Lietuvos Dujos will pay dividends amounting to EUR 12.1 million EUR, EUR 21.72 million and EUR 28 million, respectively. (27 April 2015)  The court gave its final refusal to investigate the complaint of LESTO in respect of the conclusion of the Public Procurement Office. (28 April 2015)

64 2015 ANNUAL REPORT | Main events at the Group that occurred until the date of the preparation of the Report


 Vilnius Regional Administrative Court rejected the complaint of Lietuvos Energijos Gamyba of 16 September 2014 in respect of the annulment of Resolution No O3757 of the Commission of 7 August 201 4 On the Results of the Study on the Electricity Generation Market. (30 April 2015).  Lietuvos Energijos Gamyba received the statement on the completion of the construction of the biofuel boiler house at the Elektrėnai Complex. (6 May 2015).  The Commission stated that the dispute between Kauno Termofikacijos Elektrinė and LITGAS relating to the obligations for Kauno Termofikacijos Elektrinė to acquire a part of the quantity of gas required for the LNG Terminal and the payment for gas supplied has been actually resolved. (7 May 2015).  The international tender for the turn-key construction works of Vilnius co-generation power plant was announced. (8 May 2015).  LESTO and a Finish bank Pohjola Bank signed the agreement on the long-term loan of EUR 75 million. (15 May 2015).  The Commission agreed the investments of Lietuvos Energijos Gamyba for 2015 with the total value of approx. EUR 5.6 million. (15 May 2015).  The Supreme Administrative Court of Lithuania accepted the appeal of Lietuvos Energijos Gamyba in respect of the ruling of Vilnius Regional Administrative Court of 30 April 2015. (15 May 2015).  The Commission approved the proposal of Lietuvos Dujų Tiekimas to extend the term during which the gas price for household customers would be decreased using the EUR 11.75 million gas discount for the period of one year until the end of the first half of 2017.  Lietuvos Energija signed the cooperation agreement with Fortum Heat Lietuva UAB for the development of the co-generation power plant project in Kaunas. (20 May 2015).  Klaipėdos Nafta started the search for potential purchasers of a third of the block of shares of LITGAS. (21 May 2015).  The Commission agreed the natural gas tariffs for household customers for Lietuvos Dujų Tiekimas for the second half of 2015. The gas price remained stable. (28 May 2015).  The Extraordinary Meetings of Shareholders of Lietuvos Dujos and LESTO approved the preparation of the terms of the reorganisation of the companies by way of merger. (29 May 2015).  The legal form of branches of Lietuvos Dujos was revoked by establishing Vilnius, Kaunas, Klaipėda and the Northern (after the merger of Šiauliai and Panevėžys regions) Gas Network Regional Departments. The territories serviced by the regional departments of Lietuvos Dujos were distributed differently. (1 June 2015).

 The tariffs for access to electricity networks have changed for new customers. A statistical new consumer planning to get access to electricity pays EUR 230 less. (1 June 2015).  The Commission imposed a fine of EUR 300 thousand on LESTO for the violations identified in the expense verification act and instructed to correct the reports on regulated expenses for the years 2011–2013. (6 June 2015).  LESTO signed the agreement on the modernisation of the network management system. In cooperation with partners the system will be installed by IGE Energy Management Services Limited, a company of General Electric. (30 June 2015).  During the Meetings of Shareholders of the Group companies LESTO, Lietuvos Energijos Gamyba and Lietuvos Dujos a decision was made to appoint PricewaterhouseCoopers as the auditor of the companies' and consolidated financial statements for 2015. (1 July 2015).  The credit line limit of LITGAS was reduced from EUR 83.33 million to EUR 70.0 million. (2 July 2015).  The share capital of Vilniaus Kogeneracinė Jėgainė UAB was increased to EUR 1,003 thousand. (4 July 2015).  The Commission agreed the amendments to the procedure for the establishment of the projected acquisition price of gas applicable to energy producers. (9 July 2015).  Vilnius Regional Administrative Court accepted the complaint of LESTO for investigation in respect of the Resolution of the Commission under which a fine for violating regulated activity was imposed on the company. (10 July 2015).  The Commission issued to Lietuvos Energijos Gamyba the notice of the electricity trading transparency violation committed on 30 June 2014 and 1 July as a result of a human error. (15 July 2015).  The project on the integration of gas pipelines between Nemenčinė and Kairėnai was launched in Vilnius. (20 July 2015).  Lietuvos Dujų Tiekimas UAB, Lietuvos Dujos AB and Gazprom PAO signed a trilateral agreement, under which the Company formally took over all rights and obligations related to the natural gas supply agreement between Gazprom PAO and Lietuvos Dujos AB of 1999. (3 August 2015).  Lietuvos Energija released a public proposal to owners of wind turbines and announced its plans to acquire wind turbines and their parks with the capacity of at least 50 MW. (5 August 2015).  Lietuvos Energija announced about its plans to start applying the single integrated business management system. (14 August 2015).

65 2015 ANNUAL REPORT | Main events at the Group that occurred until the date of the preparation of the Report


 Sponsorship Fund of Lietuvos Energija allocated support to 19 projects and activities that amounted to nearly EUR 600 thousand. (17 August 2015).  Lietuvos Energija signed the share purchase-sale agreement with Kauno Energetikos Remontas UAB, under which it acquired 100% of shares of Gotlitas UAB for a consideration of EUR 61 thousand. (19 August 2015).  The Commission approved the price for the use of electricity networks for customers producing electricity for the year 2015. (20 August 2015).  The terms of the reorganisation of LESTO and Lietuvos Dujos were announced. (31 August 2015).  The terms of the reorganisation of Lietuvos Dujų Tiekimas and LITGAS were publicly announced. (2 September 2015).  The Environmental Protection Agency has recognised the operations of Vilnius cogeneration power plant as permissible. (3 September 2015).  In response to the proposal made by Mr Robertas Dargis, President of the Lithuanian Confederation of Industrialists, Mr Dalius Misiūnas agreed to take the position of the Vice-President of the Lithuanian Confederation of Industrialists. The Praesidium of the Lithuanian Confederation of Industrialists approved the candidacy of Mr Dalius Misiūnas during the sitting held on 8 September. (8 September 2015).  Electricity exchanges with the production entities which have installed small sun power plants have started. (1 October 2015).  Lietuvos Energijos Gamyba was issued a thermal power supply licence (1 October 2015).  Lietuvos Energijos Gamyba sold commercial wholesale electricity trade to Energijos Teikimas. The transaction value may reach the amount of EUR 21.1 million. (12 October 2015).  Lietuvos Energija and Fortum Heat Lietuva signed the agreement on investments in Kaunas co-generation power plant. (15 October 2015).  The Board of Lietuvos Energija passed a decision to rename Gotlitas UAB to Elektroninių Mokėjimų Agentūra UAB, and its share capital was increase up to EUR 700,000. (26 October 2015).  The Commission approved the 2016 PSO budget for the electricity sector in the total amount of EUR 139.981 million. Within this amount EUR 11.578 million were allocated as support to secure the energy system reserve service provided by Lietuvos Energijos Gamyba. (26 October 2015).  Lietuvos Energijos Gamyba issued the certificate on the take-over of the new biofuel boiler house in Elektrėnai to the general contractor. (22 October 2015).

 The Commission established the price caps for capacity reserve services of Lietuvos Energijos Gamyba for 2016. (22 October 2015).  The Board of Vilniaus Kogeneracinė Jėgainė was elected whose composition was as follows: Mindaugas Keizeris, Nerijus Rasburskis, Valdas Lukoševičius (independent member). (26 October 2015).  The Commission established the price cap of the natural gas distribution service for 2016 equal to EUR 7.92 per MWh. (29 October 2015).  The Commission established the price cap of electricity public supply for household customers for 2016. (6 November 2015).  Lietuvos Dujos transferred 34% of shares of GET Baltic UAB to Amber Grid AB to. The shares were sold for the market share price established by the independent property valuer amounting to EUR 130,832. (6 November 2015).  Vilnius Regional Administrative Court rejected the complaints of Lietuvos Energijos Gamyba in respect of the annulment of Resolutions of the Commission of 30 October and 11 December 2014. (17 November 2015).  Mr Dalius Misiūnas resigned from the Supervisory Council of Lietuvos Energijos Gamyba. His candidacy was approved at the Supervisory Council of Energijos Skirstymo Operatorius. (18 November 2015).  LESTO and Pohjola Bank Plc. signed the agreement on the granting of the longterm loan of EUR 70 million. (19 November 2015).  The European Commission passed its clearance decision for the concentration regarding Kauno Kogeneracinė Jėgainė UAB implemented by Lietuvos Energija and Fortum Heat Lietuva UAB. (25 November 2015).  On 1 December 2015, Lietuvos Dujos prepared the investments plan for 2016-2025 stipulating the investment need of EUR 141.1 million until 2025 (1 December 2015).  The appeal of Lietuvos Energijos Gamyba was accepted in respect of the ruling of Vilnius Regional Administrative Court of 17 November 2015 whereby the company's complaints for the annulment of the Commission's Resolution No O3-875 of 30 October 2014 and Resolution No O3-934 of 11 December 2014 were rejected. (2 December 2015).  The shareholders of LESTO and Lietuvos Dujos approved the reorganisation of the companies by forming ESO. The Extraordinary Meeting of Shareholders of ESO elected the Supervisory Council consisting of Dr Dalius Misiūnas, Ilona Daugėlaitė and Petras Povilas Čėsna. The composition of the Board was as follows: Dalia Andrulionienė, Eglė Čiužaitė, Rytis Borkys and Dalius Svetulevičius. (3 December 2015).

66 2015 ANNUAL REPORT | Main events at the Group that occurred until the date of the preparation of the Report


 The authorised share capital of Energijos Tiekimas was increased to EUR 17 million and the Board of Lietuvos Energija approved the conclusion of the agreements on the limit of the credit, guarantees and sureties with the company. (7 December 2015).  On 8 December 2015, Aidas Ignatavičius informed of his resignation from the positions of the Chairman of the Board and CEO of LESTO and ESO from 1 January 2016 (8 December 2015).  The Board of Lietuvos Energijos Gamyba passed a decision to discontinue the operation of units 5 and 6 of the Reserve Power Plant. (8 December 2015).  The biofuel boiler house in Elektrėnai held by Lietuvos Energijos Gamyba was pledged to Nordea Bank AB. (9 December 2015).  Energijos Skirstymo Operatorius AB (ESO) was registered with the Register of Legal Entities. (11 December 2015).  The State Energy Inspectorate issued the permits to ESO entitling to engage in the operation of electric and natural gas facilities. (16 December 2015).  Mr Dominykas Tučkus was appointed as the Board Member of Lietuvos Energijos Gamyba. (21 December 2015).  Vilnius Regional Administrative Court rejected the complaint of LESTO whereby it requested to partially annul the Resolutions of the Commission dated 17 October 2014. (22 December 2015).  The Bank of Lithuania issued the licence for Elektroninių Mokėjimų Agentūra entitling to engage in operations. (22 December 2015).  The Commission changed the price caps for electricity public supply for 2016 (8.086 cents/kWh (excl. VAT) via medium voltage networks, 9.852 cents/kWh (excl. VAT) via low voltage networks). (23 December 2015).  NL Valdos acquired real estate of Lietuvos Dujos for EUR 16.5 million. (23 December 2015).  The reorganisation of Lietuvos Dujų Tiekimas and LITGAS by way of merger was postponed (28 December 2015).  Lietuvos Energijos Gamyba and Energijos Tiekimas signed the statement of the transfer and acceptance of a part of the business. Under this statement, Energijos Teikimas took over the rights of ownership to a part of the wholesale commercial electricity trading activity from 1 January 2016. (30 December 2015).  Mr Mindaugas Kvekša was appointed as the Board Member and Finance and Administration Department Director of Lietuvos Energijos Gamyba. (31 December 2015).

 The procurements for the equipment of Kaunas co-generation power plant were started: the boiler, the turbine and the generator, the equipment for the purification of smokes, the cranes and engineering services. (31 December 2015).  The activities of Energijos Skirstymo Operatorius AB (ESO), which was established on the basis of LESTO and Lietuvos Dujos, were started. The new self-service website was launched www.manogile.lt. (1 January 2016).  The activities of Energetikos Paslaugų ir Rangos Organizacija (EnePRO), which was established on the basis of Elektros Tinklo Paslaugos and Kauno Energetikos Remontas, were started. (1 January 2016).  Lietuvos Energija announced the procurement for the overdraft of EUR 60 million with the two-year maturity. (5 January 2016).  The trading in shares of ESO was started at the Nasdaq Vilnius stock exchange. (11 January 2016).  Mr Mindaugas Keizeris was revoked from the Boards of Lietuvos Dujų Tiekimas and LITGAS and Mr Dominykas Tučkus was appointed to take over these positions. (11 January 2016).  The Lithuanian Consumer Association filed a claim to the court whereby it alleges that Lietuvos Dujų Tiekimas fails to refund the overpayment for natural gas. (12 January 2016).  Vilnius Regional Court rejected the claim of Vilniaus Energija against Lietuvos Dujų Tiekimas for a EUR 19 million overpayment for gas. (21 January 2016).  Lietuvos Energija acquired two companies operating wind power parks in Lithuania and Estonia – Eurakras UAB and Tuulueenergia OU. (21 January 2016).  Energijos Teikimas joined the electricity financial derivatives’ exchange Nasdaq Commodities. (28 January 2016).  The announcement on the auction of real estate of NT Valdos to be held on 26 February 2016 was released. (1 February 2015).  The process of acquisition of shares from the minority shareholders of the former public limited liability company LIETUVOS ELEKTRINĖ was started. The established price paid for the calculated quantity of shares of Lietuvos Energijos Gamyba being purchased is equal to EUR 1.2959 per share (2 February 2016).  The following persons were elected to the Board of Energijos Tiekimas: Dominykas Tučkus, Ieva Lauraitytė and Edvardas Jatautas (independent member). (2 February 2016).  Vilnius Regional Administrative Court rejected the complaint of LESTO whereby it requested to annul the Resolution of the Commission dated 19 December 2014 On the Scheduled Audit of LESTO. (5 February 2016).

67 2015 ANNUAL REPORT | Main events at the Group that occurred until the date of the preparation of the Report


 The National Association of Electric Energy and the Association of Gas merged and became the National Power Association. (8 February 2016).  LITGAS signed the revised agreement on the designated supply with Norwegian company Statoil. The amendments to the agreement are expected to result in a decrease in the maintenance costs of the Klaipėda LNG Terminal by more than a third. (18 February 2016).  The Commission designated Lietuvos Dujų Tiekimas as an operator with Significant Market Power in wholesale and retail trade markets. (18 February 2016).  Mr Augustas Dragūnas was appointed to the positions of the Board Member and Finance and Administration Service Director of ESO. He replaced Ms Eglė Čiužaitė who was appointed as the Chair of the Board and CEO of Lietuvos Energijos Gamyba. Before that the resignation of the former CEO of Lietuvos Energijos Gamyba was satisfied and he as well as Mr Vidmantas Salietis were revoked from the company's Board. (19 February 2016).

 During the auction of real estate of NT Valdos 8 objects for EUR 1.265 million were sold. (26 February 2016).  Lietuvos Dujų Tiekimas reduced the prices for natural gas for this year to corporate customers by an average of 16%. (25 February 2016).  Lietuvos Energija and SEB Bankas signed the agreement on the overdraft of EUR 40 million with the two-year maturity. (7 March 2016)  After the completion of the agreed preparatory works the group of energy companies Lietuvos Energija and Fortum Heat Lietuva UAB signed the statement on the completion of the transaction on Kaunas Kogeneracinė Jėgainė UAB. (18 March 2016).  Dividends relating to the second half year allocated by Energijos Skirstymo Operatorius amount to EUR 30.596 million. (29 March 2016).

Lietuvos Energija, UAB Chief Executive Officer 7 April 2015

Dr Dalius Misiūnas

68 2015 ANNUAL REPORT | Main events at the Group that occurred until the date of the preparation of the Report


This version of our report is a translation from the original, which was prepared in Lithuanian language. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the original language version of our report takes precedence over this translation.

Independent Auditor’s Report To the shareholder of Lietuvos Energija UAB Report on the financial statements We have audited the accompanying stand-alone and consolidated financial statements of Lietuvos Energija UAB (“the Company”) and its subsidiaries (“the Group”) set out on pages 73 to 135, which comprise the stand-alone and consolidated statements of financial position as of 31 December 2015 and the stand-alone and consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes comprising a summary of significant accounting policies and other explanatory information (“the financial statements”). Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. PricewaterhouseCoopers UAB, J. Jasinskio g. 16B, LT-o3163 Vilnius, Lithuania T: +370 (5) 239 2300, F:+370 (5) 239 2301, Email: vilnius@lt.pwc.com, www.pwc.com/lt PricewaterhouseCoopers UAB, company code 111473315, is a private company registered with the Lithuanian Register of Legal Entities


Basis for qualified opinion According to the Group’s accounting policy, property, plant and equipment (except for the Power Plants, distribution networks and related installations, gas technological equipment and constructions, information technology and telecommunication equipment) are carried at revalued amounts, being their fair values as of the date of revaluation less subsequent accumulated depreciation and impairment losses. As explained in note 4, Group’s management has assessed the fair values of property plant and equipment as of 31 December 2014 and accounted for the related revaluation. The management did not determine the fair values of property, plant and equipment with carrying amount of EUR 1,303 million as of 31 December 2013, although impairment indicators existed as of that date. Consequently, we were unable to assess in which period the revaluation results should have been recognised, and by which amount the depreciation expense of the comparative period presented in these financial statements should have been adjusted. Our audit opinions on the financial statements for the years ended 31 December 2014 and 2013 were modified accordingly. Our opinion on the current period’s financial statements is therefore modified because of the effect of this matter on the comparability of the current period's figures and the corresponding figures. As of 31 December 2014, the Group’s management assessed the recoverable amount of goodwill and recognised an impairment loss. The management did not determine the recoverable amount of goodwill with carrying amount of EUR 51.6 million as of 31 December 2013, although impairment indicators existed as of that date. Consequently, we were unable to assess in which period the impairment loss should have been recognised, and by which amount the goodwill impairment loss of the comparative period presented in these financial statements should have been adjusted. Our audit opinions on the financial statements for the years ended 31 December 2014 and 2013 were modified accordingly. Our opinion on the current period’s financial statements is therefore modified because of the effect of this matter on the comparability of the current period's figures and the corresponding figures. The Company accounts for its investments in subsidiaries at cost less impairment losses. As of 31 December 2014, the Company’s management assessed the recoverable amount of investments in subsidiaries and recognised an impairment loss. The management did not determine the recoverable amount of investments will with carrying amount of EUR 504.7 million as of 31 December 2013, although impairment indicators existed as of that date. Consequently, we were unable to assess in which period the impairment loss should have been recognised, and by which amount the impairment loss of the comparative period presented in these financial statements should have been adjusted. Our audit opinions on the financial statements for the years ended 31 December 2014 and 2013 were modified accordingly. Our opinion on the current period’s financial statements is therefore modified because of the effect of this matter on the comparability of the current period's figures and the corresponding figures.


Qualified opinion In our opinion, except for the effects of the matters referred to in Basis for qualified opinion paragraph, the financial statements present fairly, in all material respects, the financial position of the Company and the Group as of 31 December 2015, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Report on other legal and regulatory requirements Furthermore, we have read the consolidated annual report for the year ended 31 December 2015 set out on pages 3 to 68 and have not noted any material inconsistencies between the financial information included in it and the audited financial statements for the year ended 31 December 2015. On behalf of PricewaterhouseCoopers UAB

Rimvydas JogÄ—la Partner Auditor's Certificate No.000457 Vilnius, Republic of Lithuania 7 April 2016


CONSOLIDATED AND COMPANY’S FINANCIAL STATEMENTS for the year ended 31 December 2015, prepared according to International Financial Reporting Standards as adopted by the European Union, presented together with independent auditor’s report

The Company’s and the Group’s consolidated financial statements were approved by Lietuvos Energija UAB management and signed on 7 April 2016:

Dalius Misiūnas Chief Executive Officer

72 ANNUAL FINANCIAL STATEMENTS 2015 | General information

Darius Kašauskas Finance and Treasury Director

Edita Steponavičienė Verslo Aptarnavimo Centras UAB, Director of Accounting Department acting under Order No V-020 of 24 April 2015


Lietuvos Energija UAB, company code 301844044, Žvejų g. 14, LT-09310 Vilnius, Lithuania STATEMENT OF FINANCIAL POSITION At 31 December 2015 All amounts in EUR thousands unless otherwise stated Group Group Notes

ASSETS Non-current assets Intangible assets Property, plant and equipment Prepayments for non-current assets Investment property Investments in subsidiaries Investments in associates Amounts receivable after one year Long-term investments Other non-current assets Deferred income tax assets Total non-current assets Current assets Inventories Prepayments Trade receivables Other amounts receivable Other current assets Prepaid income tax Short-term investments Cash and cash equivalents Non-current assets held for sale Total current assets TOTAL ASSETS

6 7 8 9 10 15 11 20

12 12 13 14

15 16

At 31 December 2015

Notes

At 31 December 2014

21,539 1,631,117 1,267 48,519 6 243,153 3,288 6,488 1,955,377

15,334 1,621,089 7 37,394 123 240,812 4,696 7,574 8,203 1,935,232

39,974 40,170 107,066 20,977 798 5,757 4,561 164,341 383,644 209 383,853 2,339,230

53,013 9,338 130,534 21,557 645 7,247 15 211,019 433,368 576 433,944 2,369,176

EQUITY AND LIABILITIES Equity Share capital Reserves Retained earnings (deficit) Equity attributable to owners of the parent Non-controlling interests Total equity Liabilities Non-current liabilities Non-current borrowings Finance lease liabilities Grants and subsidies Deferred income tax liabilities Provisions Deferred income Other non-current amounts payable and liabilities Total non-current liabilities Current liabilities Current portion of long-term debts Current borrowings Current portion of finance lease liabilities Trade payables Advance amounts received Income tax liabilities Provisions Other current amounts payable and liabilities Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES

73 ANNUAL FINANCIAL STATEMENTS 2015 | General information

17 18

At 31 December 2015

At 31 December 2014

1,212,156 91,148 (49,264)

1,210,568 92,039 (42,547)

1,254,040 50,445 1,304,485

1,260,060 48,830 1,308,890

277,805 473 296,437 26,648 5,084 53,602

250,015 42 304,449 21,436 8,543 53,973

24

9,033 669,082

17,550 656,008

19 19

99,023 43,232

128,076 13,456

155 92,119 39,386 1,314 23,333

18 142,405 40,030 12,032 5,884

67,101 365,663 1,034,745

62,377 404,278 1,060,286

2,339,230

2,369,176

19 21 20 23 22

25

23 26


Lietuvos Energija UAB, company code 301844044, Žvejų g. 14, LT-09310 Vilnius, Lithuania STATEMENT OF FINANCIAL POSITION At 31 December 2015 All amounts in EUR thousands unless otherwise stated

Notes

ASSETS Non-current assets Property, plant and equipment Subsidiaries and other investments Amounts receivable after one year Long-term investments Deferred income tax assets Total non-current assets Current assets Prepayments Trade receivables Other amounts receivable Short-term investments Cash and cash equivalents Non-current assets held for sale Total current assets TOTAL ASSETS

Company At 31 At 31 December December 2015 2014

7 9 10 15

286 1,102,286 238,975 50 1,341,597

9 968,386 238,975 4,696 32 1,212,098

12 13 14 15 16

6 4,760 4,561 13,179 22,506 77 22,583 1,364,180

3 2,102 15 31,347 33,467 77 33,544 1,245,642

74 ANNUAL FINANCIAL STATEMENTS 2015 | General information

Notes

EQUITY AND LIABILITIES Equity Share capital Reserves Retained earnings (deficit) Total equity Liabilities Non-current liabilities Other non-current amounts payable and liabilities Total non-current liabilities Current liabilities Trade payables Advance amounts received Income tax liabilities Other current amounts payable and liabilities Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES

Company At 31 At 31 December December 2015 2014

17 18

1,212,156 4,255 83,289 1,299,700

1,210,568 74 34,323 1,244,965

24

17,873 17,873

23 23

25

443 28 223 45,913 46,607 64,480 1,364,180

188 159 307 654 677 1,245,642

26


Notes Revenue Sales revenue Other income Total revenue

27 28

Operating expenses Purchases of electricity, gas for 29 trade and related services Purchases of gas and heavy fuel oil for production Depreciation and 6,7,21 amortisation Wages and salaries and related expenses Repair and maintenance expenses Revaluation of non-current 7,8 assets Other expenses 30 Total operating expenses Operating profit (loss) Negative goodwill on acquisition of Lietuvos Dujos AB Share of result of investment under the equity method Re-measurement of investment under the equity method Finance income Finance costs Share of results of associates Profit (loss) before tax Current year income tax expense

33 33 33 31 32 9

34

Group 2015

2014

1,048,021 47,745 1.095.766

Company 2015 2014

926,065 46,624 972,689

1,992 2 1.994

Notes

2 2

(761,490)

(536,527)

-

-

(12,511)

(75,853)

-

-

(74,237)

(131,917)

(3)

(4)

(93,705)

(76,534)

(2,735)

(2,652)

(27,196)

(34,721)

-

-

(1,277) (60,257) (1,030,673) 65,093

(416,501) (91,547) (1,363,600) (390,911)

14,445 11,707 13,701

(59,668) (62,324) (62,322)

-

44,660

-

-

-

43,209

-

-

5,632 (6,549) -

(28,379) 5,422 (7,824) 291

99,885 (2,321) -

146,717 (120) -

64,176

(333,532)

111,265

84,275

(2,140)

(15,394)

(262)

(158)

75 ANNUAL FINANCIAL STATEMENTS 2015 | General information

Deferred income tax (expense)/benefit Net profit (loss)

20, 34

Net profit (loss) Attributable to: Owners of the parent Non-controlling interests

Group 2015

Company 2015 2014

2014

(6,740) 55,296

68,965 (279,961)

14 111,017

24 84,141

49,216 6,080

(261,428) (18,533)

111,017 -

84,141 -

1,080

(165.893)

-

-

1,080

(165,893)

-

-

(26)

74

(26)

74

(26)

74

(26)

74

Other comprehensive income (loss) Items that will not be reclassified subsequently to profit or loss Gain (loss) on revaluation of non-current assets Items that will not be reclassified subsequently to profit or loss, total Items that will be reclassified subsequently to profit or loss Change in fair value of available-for-sale financial assets Items that will be reclassified subsequently to profit or loss, total Other comprehensive income (loss) Total comprehensive income (loss) for the year

1,054

(165,819)

(26)

74

56,350

(445,780)

110,991

84,215

Attributable to: Owners of the parent Non-controlling interests

50,256 6,094

(417,972) (27,808)

110,991 -

84,215 -


Notes

Group At 31 Dec At 31 Dec 2015 2014

Company At 31 Dec At 31 Dec 2015 2014

Notes

Cash flows from operating activities Net profit (loss) for the year Adjustments for non-monetary expenses (income): Depreciation and amortisation Impairment of goodwill Impairment of intangible assets and property, plant and equipment Impairment of financial assets Revaluation of investment property Result of revaluation of property, plant and equipment Impairment of investments in subsidiaries and associates/(reversal) Share of (profit) of associates and joint ventures (Gain) loss on disposal of investments in subsidiaries and associates Income tax expense (benefit) (Depreciation) of grants Increase (decrease) in provisions Inventory write-down expenses (income) (Gain) loss on disposal/write-off of noncurrent assets (other than financial assets) Emission allowance revaluation expenses (income) Emission allowances utilised Elimination of results of financing and investing activities: Interest (income) Interest expenses Other finance (income) costs Changes in working capital: Increase) decrease in trade receivables and other amounts receivable (Increase) decrease in inventories, prepayments and other current assets Increase (decrease) in amounts payable, deferred income and advance amounts received Income tax (paid) Net cash flows from (used in) operating activities

55,296

(279,961)

111,017

84,141

86,439 -

143,880 51,582

3 -

4 -

30,133 (2,289) 1,407

-

-

-

(130)

416,501

-

-

30

-

-

(16,216)

58,344

9

13

(291)

-

-

(21) 8,880 (12,202) 13,819 (1,077)

(53,571) (11,963) 2,426 (822)

248 -

135 -

6,7 6 7, 21 8

34 21 12

6

31 32

3,710

3,963

-

-

(370) 2,992

2,908

-

-

(4,957) 4,456 1,418

(4,693) 6,991 106

(6,060) 419 (91,923)

(4,870) 116 (141,847)

26,902

(20,705)

(3,315)

(52)

(16,209)

35,828

(3)

-

(60,158) (12,624)

3,370 (14,142)

322 -

(11) -

125,428

281,407

(5,508)

(4,040)

76 ANNUAL FINANCIAL STATEMENTS 2015 | General information

Cash flows from investing activities (Acquisition) of property, plant and equipment and intangible assets Disposal of property, plant and equipment and intangible assets Loans (granted) Loan repayments received (Acquisition) disposal of investments in subsidiaries and associates Grants received Bonds redeemed Interest received Change in non-controlling interest resulting from changes in the Group’s structure Dividends received Acquisition of LESTO AB shares from minority shareholders Acquisition of Lietuvos Dujos AB shares Net cash flows from (used in) investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Finance lease payments Interest paid Dividends paid Acquisition of LESTO AB shares from minority shareholders Increase in share capital of LITGAS UAB Reduction of share capital of Duomenų Logistikos Centras UAB Net cash flows from (used in) financing activities Increase (decrease) in cash and cash equivalents (including overdraft) Cash and cash equivalents (including overdraft) at the beginning of the year Cash and cash equivalents (including overdraft) at the end of the year

35 9 33

35 9

16 16

Group At 31 Dec At 31 Dec 2015 2014

Company At 31 Dec At 31 Dec 2015 2014

(148,722)

(142,848)

(280)

(3)

306 96

1,495 (29,000) -

-

(29,000) -

125 9,362 145 4,629

5,779 6,987 47,181 3,893

(54,627) 131 6,507

(20,218) 47,181 4,205

(320) -

1,924

93,825

141,720

-

(102,746)

-

(34,142) (139,411)

(134,379)

(207,335)

45.556

(29,668)

282,048 (282,031) 120 (4,329) (62,035)

98,149 (40,685) (28) (6,675) (35,230)

(372) (57,844)

14,623 (14,623) (116) (24,604)

-

(34,142)

-

-

-

4,014

-

-

-

(2,731)

-

-

(66,227)

(17,328)

(58,216)

(24,720)

(75,178)

56,744

(18,168)

(58,428)

197,988

141,244

31,347

89,775

122,810

197,988

13,179

31,347


Equity attributable to owners of the Group Group Balance at 1 January 2014 Change in fair value of available-for-sale financial assets, net of deferred income tax Revaluation of property, plant and equipment, net of deferred income tax Total other comprehensive income (loss) for the year Net profit (loss) for the year Total comprehensive income (loss) for the year Transfer of revaluation reserve to retained earnings (transfer of depreciation, net of deferred income tax) Transfer to reserves and movement in reserves Dividends Increase in share capital Acquisition of shares from non-controlling interest Acquisition of subsidiary Reduction of share capital of DuomenĹł Logistikos Centras UAB Increase in share capital of LITGAS UAB Disposal of supply business from Lietuvos Dujos AB to Lietuvos DujĹł Tiekimas UAB Other structural changes Balance at 31 December 2014 Balance at 1 January 2015 Revaluation of property, plant and equipment, net of deferred income tax Change in fair value of available-for-sale financial assets, net of deferred income tax Total other comprehensive income (loss) for the year Net profit (loss) for the year Total comprehensive income (loss) for the year Transfer of revaluation reserve to retained earnings (transfer of depreciation, net of deferred income tax) Transfer to reserves and movement in reserves Dividends Share capital conversion result Acquisition of shares from non-controlling interest Correction of previous year errors for Kauno Energetikos Remontas UAB Balance at 31 December 2015

Notes

35

35 17

1,584,405

Noncontrolling interest 197,466

1,781,871

-

74

-

74

74 74

(261,428) (261,428)

(156,617) (156,543) (261,428) (417,971)

(9,276) (9,276) (18,533) (27,809)

(165,893) (165,819) (279,961) (445,780)

(14,579) 28,105 -

(188,703) (2) -

14,579 188,341 (24,604) 54,154 -

(24,604) 32,636 83,935 -

(10,626) (118,077) 8,040

(35,230) 32,636 (34,142) 8,040

-

-

-

-

-

(2,654) 3,935

(2,654) 3,935

1,210,568

24,362

67,630

47

1,659 (42,547)

1,659 1,260,060

(1,659) 214 48,830

214 1,308,890

1,210,568

24,362

67,630

47

(42,547)

1,260,060

48,830

1,308,890

-

-

1,066

-

-

1,066

14

1,080

-

-

-

(26)

-

(26)

-

(26)

-

-

1,066 1,066

(26) (26)

49,216 49,216

1,040 49,216 50,256

14 6,080 6,094

1,054 55,296 56,350

-

-

(6,614)

-

6,614

-

-

-

1,588 -

4,413 2

141

27 -

(4,440) (57,844) (166)

(57,844) 1,588 (23)

9 (4,191) (297)

9 (62,035) 1,588 (320)

1,212,156

28,777

100 62,323

48

(97) (49,264)

3 1,254,040

50,445

3 1,304,485

Revaluation reserve

Other reserves

Retained earnings

Share capital

Legal reserve

1,177,932

22,322

210,721

188,678

(15,248)

-

-

-

74

-

-

(156,617) (156,617) (156,617)

32,636 -

362 1,678 -

-

77 ANNUAL FINANCIAL STATEMENTS 2015 | General information

Subtotal

Total


Company Balance at 1 January 2014 Change in fair value of available-for-sale financial assets, net of deferred income tax Total other comprehensive income (loss) for the year Net profit for the year Total comprehensive income for the year Increase in share capital Dividends Balance at 31 December 2014 Balance at 1 January 2015 Change in fair value of available-for-sale financial assets, net of deferred income tax Total other comprehensive income (loss) for the year Net profit for the year Total comprehensive income for the year Transfer to reserves Dividends Share capital conversion effect Balance at 31 December 2015

78 ANNUAL FINANCIAL STATEMENTS 2015 | General information

Notes

35

35 17

Share capital

Other reserves

Legal reserve

Retained earnings

Total

1,177,932 32,636 1,210,568

-

74 74 74 74

(25,214) 84,141 84,141 (24,604) 34,323

1,152,718 74 74 84,141 84,215 32,636 (24,604) 1,244,965

1,210,568 1,588 1,212,156

4,207 4,207

74 (26) (26) (26) 48

34,323 111,017 111,017 (4,207) (57,844) 83,289

1,244,965 (26) (26) 111,017 110,991 (57,844) 1,588 1,299,700


1 General information activities in the fields of finance, law, strategy and development, human resources, risk management, audit, technology, communication and other.

Lietuvos Energija UAB (hereinafter “the Company”) is a private limited liability company registered in the Republic of Lithuania. The address of the Company’s registered office is Žvejų g. 14, LT-09310, Vilnius, Lithuania. The Company is a limited liability profit-seeking entity registered on 28 August 2008 with the Register of Legal Entities managed by the public institution the Centre of Registers. Company code 301844044, VAT payer’s code LT10004278519. The Company has been established for an indefinite period.

The Company seeks to ensure effective operation of group companies, implementation of goals related to the group’s activities set forth in the National Energetic Independence Strategy and other legal acts, ensuring that it builds a sustainable value in a socially responsible manner. The Company is wholly owned by the State of the Republic of Lithuania.

The Company is a parent company, which is responsible for the management and coordination of activities of group companies engaged in electric power and heat production and supply, electric power import, export, distribution and trade, natural gas distribution and supply, as well as in service and development of electric energy industry.

Company’s shareholder Republic of Lithuania represented by the Lithuanian Ministry of Finance

The Company analyses the activities of group companies, represents the whole group, implements its shareholders’ rights and obligations, defines operation guidelines and rules, and coordinates the

31 December 2015 Share capital % 1,212,156

100.00

31 December 2014 Share capital % 1,210,568

100.00

The Group consists of Lietuvos Energija UAB and subsidiaries directly or indirectly controlled by the Company:

Company name

Office address

Effective ownership interest at 31 Dec 2015 (%)

Share capital (EUR ‘000) at 31 Dec 2015

Lietuvos Energijos Gamyba AB AB LESTO Lietuvos Dujos AB NT Valdos UAB Duomenų Logistikos Centras UAB

Elektrinės g. 21, Elektrėnai Aguonų g. 26, Vilnius Aguonų g. 24, Vilnius Geologų g. 16, Vilnius A. Juozapavičiaus g. 13, Vilnius

96.1 94.4 96.6 100.00 79.6

184,174 175,144 84,299 85,550 4,028

ELEKTROS TINKLO PASLAUGOS UAB

Motorų g. 2, Vilnius Chemijos g. 17, Kaunas Žvejų g. 14, Vilnius

100.00 100.00 66.66

2,582 4,421 13,050

Žvejų g. 14, Vilnius P. Lukšio g. 1, Vilnius Jeruzalės g. 21, Vilnius Narva mnt 5, 10117 Tallinn Bezdelingu 12, LV-1048, Riga A. Juozapavičiaus g. 13, Vilnius Smolensko g. 5, Vilnius

100.00 100.00 100.00 100.00 100.00 97.8 100.00

437 10,000 85 35 28 6,440 293

P.Lukšio g. 5 b, Vilnius Žvejų g. 14, Vilnius Žvejų g. 14, Vilnius Žvejų g. 14, Vilnius Žvejų g. 14, Vilnius

97.0 100.00 100.00 100.00 100.00

580 870 3 1,003 3

Kauno Energetikos Remontas UAB LITGAS UAB Elektroninių Mokėjimų Agentūra UAB (former Gotlitas UAB) Energijos Tiekimas UAB Energetikų Mokymo Centras VšĮ Geton Energy OÜ Geton Energy SIA Technologijų ir Inovacijų Centras UAB VAE SPB UAB Verslo Aptarnavimo Centras UAB Lietuvos Dujų Tiekimas UAB Lithuanian Energy Support Fund Vilniaus Kogeneracinė Jėgainė UAB Kauno Kogeneracinė Jėgainė UAB

As at 31 December 2015, the Group and the Company had 5,379 and 78 employees, respectively (31 December 2014: 5,602 and 61 employees, respectively).

79 ANNUAL FINANCIAL STATEMENTS 2015 | General information

Profile of activities

Electricity generation, supply, import, export and trade Electricity supply and distribution to end users Natural gas supply and distribution to end users Operation of real estate, other related activities and provision of services Support services for information technology and telecommunications Construction, repair and maintenance of electricity networks and related equipment, connection of customers to the grid Repairs of energy equipment, manufacturing of metal structures Supply of liquid natural gas via terminal and trade in natural gas (100% of votes) Provision of payment collection services Supply of electricity and natural gas Professional development and continuing training of energy specialists Supply of electricity Supply of electricity Provision of IT, telecommunication and other services Business and other management consultations Organisation and execution of public procurement, accounting, legal and personnel administration services Gas supply Provision of support for projects, initiatives and activities of public interest Modernisation of district heating supply in Vilnius city Modernisation of district heating supply in Kaunas city


The Company‘s management approved these financial statements on 7 April 2016. The Company’s shareholders have a statutory right to approve or not to approve these financial statements and require that management prepare a new set of financial statements.

2 Summary of significant accounting policies The principal accounting policies adopted in the preparation of the Company's and the Group’s financial statements for the year ended 31 December 2015 are summarised below.

2.1

Basis of preparation

These financial statements have been prepared in accordance with and comply with International Financial Reporting Standards (IFRS) as adopted by the European Union. The Group’s and the Company’s financial statements as at and for the year ended 31 December 2015 have been prepared on a historical cost basis, except for property, plant and equipment measured at revalued amount, investment property, emission allowances and certain financial instruments measured at fair value. a)

Adoption of new and/or amended International Financial Reporting Standards (IFRSs) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC)

The following IFRSs and amendments were adopted by the Company for the first time in the financial year ended 31 December 2015: IFRIC 21, ‘Taxes’ The interpretation clarifies the accounting for an obligation to pay a levy that is not income tax. The obligating event that gives rise to a liability is the event identified by the legislation that triggers the obligation to pay the levy. The fact that an entity is economically compelled to continue operating in a future period, or prepares its financial statements under the going concern assumption, does not create an obligation. The same recognition principles apply in interim and annual financial statements. The application of the interpretation to liabilities arising from emissions trading schemes is optional. This interpretation had no impact on the Company's/Group‘s financial statements. Annual improvements to 2013 IFRSs The improvements consist of changes to four standards. The basis for conclusions on IFRS 1 is amended to clarify that, where a new version of a standard is not yet mandatory but is available for early adoption; a first-time adopter can use either the old or the new version, provided the same standard is applied in all periods presented. IFRS 3 was amended to clarify that it does not apply to the accounting for the formation of any joint arrangement under IFRS 11. The amendment also clarifies that the scope exemption only applies in the financial statements of the joint arrangement itself. The amendment of IFRS 13 clarifies that the portfolio exception in IFRS 13, which allows an entity to measure the fair value of a group of financial assets and financial liabilities on a net basis, applies to all contracts (including contracts to buy or sell non-financial items) that are within the scope of IAS 39 or IFRS 9. IAS 40 was amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive. The guidance in IAS 40 assists preparers to distinguish between investment property and owner-

occupied property. Preparers also need to refer to the guidance in IFRS 3 to determine whether the acquisition of an investment property is a business combination. These amendments had no impact on the Company's/ Group’s financial statements. Other standards, amendments and interpretations that became effective for the financial year beginning on 1 January 2015 were not relevant to the Company/Group. b)

New standards, amendments and interpretations that are not yet effective

Other new standards, amendments and interpretations effective for annual periods beginning on or after 1 January 2016 that have not been adopted in preparing these financial statements: IFRS 9, 'Financial instruments: Classification and measurement' Key features of the new standard are: Financial assets are required to be classified into three measurement categories: those to be measured subsequently at amortised cost, those to be measured subsequently at fair value through other comprehensive income (FVOCI) and those to be measured subsequently at fair value through profit or loss (FVPL). Classification for debt instruments is driven by the entity’s business model for managing the financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). If a debt instrument is held to collect, it may be carried at amortised cost if it also meets the SPPI requirement. Debt instruments that meet the SPPI requirement that are held in a portfolio where an entity both holds to collect assets’ cash flows and sells assets may be classified as FVOCI. Financial assets that do not contain cash flows that are SPPI must be measured at FVPL (for example, derivatives). Embedded derivatives are no longer separated from financial assets but will be included in assessing the SPPI condition. Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in other comprehensive income, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. - IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model. There is a ‘three stage’ approach which is based on the change in credit quality of financial assets since initial recognition. In practice, the new rules mean that entities will have to record an immediate loss equal to the 12-month ECL on initial recognition of financial assets that are not credit impaired (or lifetime ECL for trade receivables). Where there has been a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. The model includes operational simplifications for lease and trade receivables. - Hedge accounting requirements were amended to align accounting more closely with risk management. The standard provides entities with an accounting policy choice between applying the hedge accounting requirements of IFRS 9 and continuing to apply IAS 39 to all hedges because the standard currently does not address accounting for macro hedging.

80 ANNUAL FINANCIAL STATEMENTS 2015 | Summary of significant accounting policies


This standard is effective for annual periods beginning on or after 1 January 2018; not yet endorsed by the EU. The Company/Group is currently assessing the impact of the new standard on the financial statements. Annual improvements to 2012 IFRSs The improvements consist of changes to seven standards. IFRS 2 was amended to clarify the definition of a ‘vesting condition’ and to define separately ‘performance condition’ and ‘service condition’. The amendment is effective for share-based payment transactions for which the grant date is on or after 1 July 2014. IFRS 3 was amended to clarify that (1) an obligation to pay contingent consideration which meets the definition of a financial instrument is classified as a financial liability or as equity, on the basis of the definitions in IAS 32, and (2) all non-equity contingent consideration, both financial and non-financial, is measured at fair value at each reporting date, with changes in fair value recognised in profit and loss. Amendments to IFRS 3 are effective for business combinations where the acquisition date is on or after 1 July 2014. IFRS 8 was amended to require (1) disclosure of the judgements made by management in aggregating operating segments, including a description of the segments which have been aggregated and the economic indicators which have been assessed in determining that the aggregated segments share similar economic characteristics, and (2) a reconciliation of segment assets to the entity’s assets when segment assets are reported. The basis for conclusions on IFRS 13 was amended to clarify that deletion of certain paragraphs in IAS 39 upon publishing of IFRS 13 was not made with an intention to remove the ability to measure short-term receivables and payables at invoice amount where the impact of discounting is immaterial. IAS 16 and IAS 38 were amended to clarify how the gross carrying amount and the accumulated depreciation are treated where an entity uses the revaluation model. IAS 24 was amended to include, as a related party, an entity that provides key management personnel services to the reporting entity or to the parent of the reporting entity (‘the management entity’), and to require to disclose the amounts charged to the reporting entity by the management entity for services provided. These improvements are effective for annual periods beginning on or after 1 February 2015. The Company/Group is currently assessing the impact of these amendments on its financial statements. IFRS 15, 'Revenue from contracts with customers' The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed. The standard is effective for annual periods beginning on or after 1 January 2018; not yet endorsed by the EU. The Company/Group is currently assessing the impact of this standard on its financial statements.

Annual improvements to 2014 IFRSs The amendments impact 4 standards. IFRS 5 was amended to clarify that change in the manner of disposal (reclassification from "held for sale" to "held for distribution" or vice versa) does not constitute a change to a plan of sale or distribution, and does not have to be accounted for as such. The amendment to IFRS 7 adds guidance to help management determine whether the terms of an arrangement to service a financial asset which has been transferred constitute continuing involvement, for the purposes of disclosures required by IFRS 7. The amendment also clarifies that the offsetting disclosures of IFRS 7 are not specifically required for all interim periods, unless required by IAS 34. The amendment to IAS 19 clarifies that for post-employment benefit obligations, the decisions regarding discount rate, existence of deep market in high-quality corporate bonds, or which government bonds to use as a basis, should be based on the currency that the liabilities are denominated in, and not the country where they arise. IAS 34 will require a cross reference from the interim financial statements to the location of "information disclosed elsewhere in the interim financial report". These improvements are effective for annual periods beginning on or after 01 January 2016. The Company/Group is currently assessing the impact of these amendments on its financial statements. Disclosure initiative – Amendments to IAS 1 The Standard was amended to clarify the concept of materiality and explains that an entity need not provide a specific disclosure required by an IFRS if the information resulting from that disclosure is not material, even if the IFRS contains a list of specific requirements or describes them as minimum requirements. The Standard also provides new guidance on subtotals in financial statements, in particular, such subtotals (a) should be comprised of line items made up of amounts recognised and measured in accordance with IFRS; (b) be presented and labelled in a manner that makes the line items that constitute the subtotal clear and understandable; (c) be consistent from period to period; and (d) not be displayed with more prominence than the subtotals and totals required by IFRS standards. These amendments are effective for annual periods beginning on or after 1 January 2016. The Company/Group is currently assessing the impact of these amendments on its financial statements. IFRS 16, ‘Leases’ The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. This standard is effective for annual periods beginning on or after 1 January 2019; not yet endorsed by the EU. The Company/Group is currently assessing the impact of the new standard on its financial statements. Other standards and amendments that have been published but not yet effective are expected not to have significant impact on the Group/Company.

81 ANNUAL FINANCIAL STATEMENTS 2015 | Summary of significant accounting policies


2.2

Consolidation

Consolidation The consolidated financial statements of the Group include the financial statements of the parent company Lietuvos Energija UAB and its directly and indirectly controlled subsidiaries. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Control is generally obtained by holding more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The financial statements of subsidiaries have been prepared using uniform accounting policies and for the same reporting period as that covered by the financial statements of the parent company. On consolidation, all inter-company transactions, balances and unrealised gains and/or losses on transactions among the Group companies are eliminated. Non-controlling interest represents a part of profit or loss and net assets which is not controlled by the Group. Non-controlling interest is reported separately in the consolidated statement of comprehensive income. The share of equity attributable to the non-controlling interest and to the owners of the parent is shown separately in the consolidated balance sheet. Business combinations IFRS 3, ‘Business combinations' is not applied to business combinations involving entities under common control, therefore, for the purpose of these financial statements business combinations involving entities under common control were accounted for using the ‘pooling of interest’ method. Acquisition of subsidiaries which are not part of the Company's group are accounted for using the acquisition method. The cost of an acquisition is measured as the fair value of the assets transferred, the equity interest issued and liabilities incurred or assumed at the date of exchange. All acquisitionrelated costs are expensed when incurred. The acquiree's assets acquired, liabilities and contingent liabilities meeting recognition criteria laid down in IFRS 3 ‘Business combinations' are identified. They are recognised at their fair values at the acquisition date. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement. Non-controlling interest in the acquiree is initially measured at the non-controlling interest’s proportional share of the fair value of the net assets, liabilities and contingent liabilities recognised. Changes in ownership interest in a subsidiary that do not result in changes in control Transactions with non-controlling interests that do not result in a loss of control are presented within equity, i.e. as transactions with equity owners. The difference between the fair value of the consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded as equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

2.3

Investments in subsidiaries (Company)

A subsidiary is an entity directly or indirectly controlled by a parent company. In the parent company’s balance sheet investments in directly controlled subsidiaries are stated at acquisition cost less impairment loss, where the investment’s carrying amount in the parent company's balance sheet exceeds its estimated recoverable amount.

2.4

Investments in associates and joint ventures

An associate is an entity over which the Group/Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. In the parent company’s balance sheet investments in associates are stated at acquisition cost less impairment loss, where the investment’s carrying amount in the parent’s balance sheet exceeds its estimated recoverable amount. In the consolidated financial statements of the Group results of operations, assets and liabilities of associates are accounted for using an equity method, except when the investment is classified as held-for-sale and it is recognised according to IFRS 5 ‘Non-current assets held for sale and discontinued operations’. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the investee, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s share of assets in that associate are not recognised, unless the Group had incurred legal or indirect obligations or made payments on behalf of the associate or joint venture. Any excess of the cost of acquisition over the fair value of the Group’s share of net identifiable assets, liabilities and contingent liabilities of the associate at the date of acquisition is recognised as deemed goodwill. The goodwill is included in the net book amount of the investment and is assessed for impairment as part of the investment. Any excess of the fair value of the Group’s share of net identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in the statement of comprehensive income. Where the Group company conducts transactions with an associate of the Group, unrealised profits or losses are eliminated to the extent of the Group’s interest in the relevant entity. Financial guarantees provided for the liabilities of the associates are initially recognised as an investment in associates at estimated fair value and as a financial liability in the balance sheet. The fair value is estimated as the difference between the fair value of the liability secured with guarantee and the fair value of analogous liability not secured with guarantee. Subsequent to initial recognition this financial liability is amortised and recognised as income depending on the related amortisation / repayment of the associate’s financial liability to the bank. If there are indications that the associate may fail to fulfil its obligations to the bank, a financial liability of the Company is accounted for at the higher of amortised cost and the value estimated according to IAS 37, ‘Provisions, contingent liabilities and contingent assets’. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers. Until 6 November 2015, the Group had ownership interest in joint venture GET Baltic UAB, which was jointly controlled and the venturers had a contractual arrangement that established joint control over the economic activities of the entity. In the financial statements the Group recognised its ownership interest in the joint venture using the equity method. Under the equity method, the value of the

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investment in a joint venture was measured in the statement of financial position at the cost as adjusted to recognise changes in the Group’s share of the net assets of the investee. The Group’s share of the results of operations of the joint venture was recognised in the income statement. The Group's share of unrealised gains or losses arising from transactions between the Group and the joint venture owned by it, were eliminated.

2.5

Foreign currency translation

difference between depreciation based on the revalued amount of the asset (when the carrying amount increases after revaluation) charged to profit or loss in the statement of comprehensive income and depreciation based on the asset’s original acquisition cost is transferred from revaluation reserve to retained earnings, net of deferred income tax. Depreciation of property, plant and equipment is calculated using the straight-line method to allocate the acquisition cost/revalued amounts to their residual values over their estimated useful lives (number of years), as follows:

(a) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in the euros (EUR), which is the Company’s functional and presentation currency as from 1 January 2015. On 1 January 2015, Lithuania became a full-fledged member of the euro zone and the national currency the litas was replaced by the euro. The euro was adopted at exchange rate of 3.4528 litas to 1 euro. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rate of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

2.6

Property, plant, and equipment

Property, plant and equipment is stated at cost or revalued amount. Property, plant and equipment, including categories of assets of the Hydro Power Plant, Pumped Storage Power Plant, structures and machinery of Thermal Power Plant (Combined Cycle Unit and Reserve Power Plant), gas distribution pipelines, gas technological equipment, as well as IT and telecommunication equipment, is accounted for at cost less accumulated depreciation and impairment. All other property, plant and equipment are shown at revaluated amounts, based on periodic (at least every 5 years) valuations by external independent valuers or by the Group's management, less subsequent accumulated depreciation and subsequent accumulated impairment losses. Cost includes replacement costs of components of property, plant and equipment when incurred and when these costs meet the recognition criteria of property, plant and equipment. Any accumulated depreciation and impairment losses at the date of revaluation are eliminated against gross carrying amount of the asset and net amount is restated to the revalued amount of the assets. All other repairs and maintenance costs charged to the statement of comprehensive income as incurred. Increases in the carrying amount arising on revaluation of property, plant and equipment are recognised in other comprehensive income and credited to the revaluation reserve in shareholders’ equity. If the carrying amount of property, plant and equipment increases after revaluation and the carrying amount of these assets has suffered impairment in previous periods as a result of which expenses were recognised, the amount of the increase in the asset’s carrying amount, net of depreciation, is deducted from expenses which were included in the statement of comprehensive income in previous periods and the remaining amount of the increase is credited against the revaluation reserve. Decreases that offset previous increases of the same asset are recognised in other comprehensive income and charged against the revaluation reserve directly in equity; all other decreases are charged to profit or loss in the statement of comprehensive income. Each year the

Buildings Structures and machinery - electricity and communications equipment - electricity distribution equipment - electricity equipment - other equipment Assets of Hydro Power Plant, Pumped Storage Power Plant, Reserve Power Plant and Combined Cycle Unit: Assets of Hydro Power Plant and Pumped Storage Plant: - hydrotechnical waterway structures and equipment - pressure pipelines - hydrotechnical turbines - other equipment Assets of Reserve Power Plant: - structures and infrastructure - thermal and electricity equipment - measuring devices and equipment - other equipment Assets of Combined Cycle Unit: - structures and infrastructure - electricity lines - electricity generation equipment Gas distribution pipelines and their equipment Motor vehicles IT and telecommunication equipment Other property, plant and equipment: - tools, other property, plant and equipment

8-75 20-25 15-45 15-35 5-50

75 50 25-40 8-15 10-70 10-60 5-30 8-15 20-50 20-40 20-50 18 - 55 2-35 3-10 4-10

Property, plant and equipment include spare parts, spare equipment and maintenance equipment when they meet the definition of property, plant and equipment. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate. Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial time (more than one year) to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets (Note 2.17). When property is retired or otherwise disposed of, the cost and related accumulated depreciation are derecognised and any related gains or losses are included in profit or loss in the statement of comprehensive income. Gains or losses on disposal of property, plant and equipment are determined

83 ANNUAL FINANCIAL STATEMENTS 2015 | Summary of significant accounting policies


as proceeds received on disposal less the book value of assets disposed. When revalued assets are disposed, the corresponding portion of revaluation reserve is transferred to retained earnings (deficit). Subsequent repair costs are included in the asset’s carrying amount, only when it is probable that future economic benefits associated with these costs will flow to the Group and the Company and the costs can be measured reliably. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are recognised as expenses in the statement of comprehensive income during the financial period in which they are incurred. Construction in progress is transferred to appropriate categories of property, plant and equipment when it is completed and ready for its intended use.

2.7

Intangible assets

The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. In assessing value in use, the expected future cash flows are discounted to their present value using the discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the item of comprehensive income. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the item of comprehensive income.

(a) Patents and licences Patents and licences are stated at cost. Trademarks and licences acquired in business combination are recorded at fair value at the date of acquisition. Trademarks and licences are accounted for at cost less accumulated amortisation. Amortisation is calculated using a straight-line basis over the estimated useful life of 3 to 5 years or a specific validity term of a licence and/or patent, if any. Useful life is reviewed on year-by-year basis. (b) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (2 to 4 years). (c) Emission allowances For detailed description of accounting policy for emission allowances see Note 2.23. (d) Other intangible assets Intangible assets expected to provide economic benefits in future periods are valued at acquisition cost less subsequent accumulated amortisation and any accumulated impairment losses. Amortisation is calculated on the straight-line basis over the estimated economic useful life of 3 to 4 years.

2.8

Impairment of non-financial assets

At each reporting date, the Group/Company reviews the book values of its property, plant and equipment and intangible assets to determine whether there are any indications that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is impossible to estimate the recoverable amount of an individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is estimated. Where a reasonable and consistent basis of allocation can be identified, assets are also allocated to individual cash-generating units, otherwise they are allocated to the smallest groups of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at each reporting date, and whenever there is an indication that the asset may be impaired.

2.9

Investment property

Investment property, which consists of the Group’s buildings and structures, is held to earn rentals or for capital appreciation. Investment property is recognised initially at acquisition cost, and subsequently at fair value which is determined by independent properly qualified property valuers and based on recent experience in valuation of assets of similar nature. Investment property is not depreciated, and gain or loss on change in the fair value of investment property is recognised in profit or loss in the statement of comprehensive income for the reporting period. Transfers to and from investment property are made only when there is an evidence of change in the purpose of use of assets. Certain immovable property may be occupied by the Group, with the remainder being held for rental yields or for capital appreciation. If part of immovable property occupied by the Group can be sold separately, the Group accounts for such property separately. The portion that is owner-occupied is accounted for under IAS 16, and the portion that is held to earn rentals is accounted for under IAS 40.

2.10 Non-current assets held for sale Non-current assets held for sale are stated at the lower of the carrying amount and fair value less costs to sell if the carrying amount is recovered principally through a sale transaction rather than through a continuing use.

2.11 Financial assets The Group/Company classifies its financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans granted and receivables. The classification of financial assets is based on the purpose of financial assets acquired, the management’s intentions and whether the investments are quoted in active market. The management determines the classification of financial assets at initial recognition. Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the Group/Company commits to purchase or sell the asset. Financial assets are initially recognised at fair value, plus directly attributable transaction costs for investments not carried at fair value through profit or loss. The subsequent measurement of financial assets depends on their classification as follows:

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Financial assets at fair value through profit or loss

Impairment of financial assets

The Group’s financial assets measured at fair value through profit or loss includes the derivative financial instruments only (see Note 2.12).

At each reporting date the Group and the Company assess whether there is an indication that financial assets may be impaired. A financial asset is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial assets. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For financial assets carried at amortised cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of expected future cash flows, estimated using the original effective interest rate.

Held-to-maturity financial assets Held-to-maturity investments are non-derivative financial assets traded in active market with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. Held-to-maturity investments are measured at amortised cost using the effective interest rate method. Effective interest rate method is used to calculate amortised cost of financial assets and allocate interest income over the relevant period. The effective interest rate exactly discounts estimated future cash inflows or outflows to net carrying amount of financial assets over the expected life of the financial instrument or a shorter period, if necessary. Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. Management determines the appropriate classification of its investments at the time of the purchase. Available-for-sale securities are measured at fair value based on quoted bid prices or amounts derived from discounted cash flow models. Unrealised gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are recognised directly in equity through the statement of changes in equity except for impairment losses and foreign exchange gains or losses. When such financial assets are derecognised the cumulative revaluation gain or loss previously recognised in equity is reclassified to profit or loss in the statement of comprehensive income. However, interest received on such financial assets calculated using the effective interest rate is recognised as income of the reporting period. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the date of the preparation of the statement of financial position, in which case they are classified as non-current assets. Loans and receivables are initially recognised at acquisition cost (fair value of consideration transferred) and subsequently carried at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss in the statement of comprehensive income when these assets are derecognised, impaired or amortised. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised by reference to the work actually completed at the end of each reporting period, i.e. using the stage of completion (otherwise referred to as the percentage of completion) method for long-term contracts. Under this method, contract revenue and contract costs are measured by reference to the percentage of actual costs incurred and actual revenue earned to date to estimated total contract costs and contract revenue

The carrying amount of the financial asset is directly reduced by the amount of estimated impairment loss, except for trade receivables, for which impairment is recorded through allowance account. Impaired trade receivables are written-off when they are identified as irrecoverable. If subsequent to the reporting date the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed and recognised in the statement of comprehensive income to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date that would have been determined had no impairment loss been recognised for the asset in prior years. Derecognition of financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: - the rights to receive cash flows from the asset have expired; - the right to receive cash flows from the asset is retained, but an obligation is assumed to pay them in full without material delay to a third party under a “pass through” arrangement; or - the rights to receive cash flows from the asset are transferred and either (a) substantially all the risks and rewards of the asset have been transferred, or (b) substantially all the risks and rewards of the asset have neither been transferred nor retained, but control of the asset has been transferred.

2.12 Derivative financial instruments Derivative financial instruments are classified as held for trading and they initially recognised at fair value, and subsequently are also measured at fair value. The fair value is determined with reference to quoted market prices or using valuation techniques encompassing the present market values or contractual prices of assets relating to financial instruments, and all other inputs. Derivative financial instruments are classified as assets when their fair value is positive, and they are classified as liabilities when their fair value is negative. Gain or loss on these financial instruments is recognised in profit or loss in the statement of comprehensive income within finance income or finance costs.

2.13 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the firstin, first-out (FIFO) method, expect for natural gas and liquefied natural gas, the cost of which is determined using the weighted average costing method. The cost of inventories comprises purchase

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price, taxes (other than those subsequently recoverable by the Group and the Company from the tax authorities), transportation, handling and other costs directly attributable to the acquisition of inventories. Cost does not include borrowings costs. Net realisable value is the estimated selling price in the ordinary course of business, less attributable variable selling expenses.

2.14 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown under liabilities within current borrowings in the balance sheet.

2.15 Share capital Ordinary shares are classified as equity. When an entity acquires its own shares, the shares acquired are deducted from equity. For the purpose of the statement of comprehensive income, no gain or loss is recognised on the purchase, sale, issue or cancellation of the entity’s own equity instruments. Share premium represents the difference between the nominal value of the new share issue and the fair value of consideration received for shares sold.

2.16 Trade payables Trade payables are recognised when the other party has performed its obligations under the contract. Trade payables are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.

2.17 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost. Any difference between the amount at initial recognition and the redemption value is recognised in profit or loss in the statement of comprehensive income over the period of the borrowings using the effective interest rate method. Borrowings are classified as current liabilities unless the Company and the Group has an unconditional right to defer settlement of the liability for at least 12 months after the financial reporting date. Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial time (more than one year) to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets until those assets are completely ready for use or sale. Interest income that relate to temporal investment of borrowed funds until their use for the acquisition of the assets are deducted from the acquisition cost of the assets.

2.18 Income tax and deferred income tax Income tax Income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount of income tax are those that are enacted or substantively enacted at the balance sheet date. Current income tax is calculated on profit for the year, net of deferred income tax. Calculation of income tax is based on requirements of the Lithuanian regulatory legislation on taxation. In 2015 and 2014, a standard income tax rate of 15% was applicable to the companies in Lithuania. Tax losses can be carried forward for indefinite period, except for losses incurred as a result of disposal of securities and/or derivative financial instruments. Such carrying forward is disrupted if the Company terminates the activities that caused these losses, except when the Company discontinues its activities due to the reasons that are beyond the Company’s control. The losses from disposal of securities and/or derivative financial instruments can be carried forward for 5 consecutive years and only be used to reduce the taxable income earned from the transactions of the same nature. Deferred income tax Deferred income tax is accounted for using the liability method. Deferred tax assets and deferred tax liability are recognised for future tax purposes to reflect differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax liabilities are recognised on all temporary differences that will increase the taxable profit in future, whereas deferred tax assets are recognised to the extent that is probable to reduce the taxable profit in future. Deferred income tax assets and liabilities are not recognised when temporary differences arise from goodwill (or negative goodwill) or from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss. The carrying amounts of deferred income tax assets are reviewed at each date of the statement of financial position and reduced to the extent it is no longer probable that sufficient taxable profit will be available against which such deferred income tax assets could be utilised in full or in part. Deferred income tax assets are reduced to an amount which is likely to reduce the taxable profit in future. Deferred income tax is determined using tax rates that are expected to apply when the related deferred income asset is realised or the deferred income tax liability is settled. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. Current and deferred income tax Current and deferred income tax are recognised as income or expenses and included in net profit or loss for the reporting period, except for the cases when tax arises from a transaction or event that is recognised directly in equity or other comprehensive income in the same or subsequent period or on business combination.

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2.19 Employee benefits Social security contributions The Company and the Group pay social security contributions to the State Social Security Fund (the Fund) on behalf of its employees based on the defined contribution plan in accordance with the local legal requirements. A defined contribution plan is a plan under which the Group and the Company pay fixed contributions into the Fund and will have no legal or constructive obligations to pay further contributions if the Fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior period. The social security contributions are recognised as an expense on an accrual basis and are included within remuneration expenses. Termination benefits Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company and the Group recognise termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Non-current benefits are recognised at present value discounted using market interest rate. Actuarial gains or losses arising from adjustments based on experience or from changes in actuarial assumptions are recognised immediately within the Group's and the Company's other comprehensive income in the statement of comprehensive income. All past service costs are recognised immediately. Long-term employee benefits Each employee of retirement age who terminates his/her employment with the Group and the Company upon retirement is entitled to receive a payment equal to 2-6 monthly salaries according to Lithuanian laws and the terms of the collective employment agreement. A liability for such pension benefits is recognised in the statement of financial position and it reflects the present value of these benefits at the date of the balance sheet. The aforementioned non-current liability for pension benefits to employees at the date of the statement of financial position is estimated with reference to actuary valuations using the projected relative unit method. The present value of the defined non-current liability for pension benefits to employees is determined by discounting the estimated future cash flows using the effective interest rates as set for government bonds denominated in a currency in which the benefits will be paid to employees and that have maturity term similar to that of the related liability.

2.20 Provisions Provisions are recognised when the Group/Company has a legal obligation or irrevocable commitment as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group/Company expects that provision amount in part or in full will be compensated, e.g. under the insurance contract, compensation to be received is recorded as a separate asset, but only when it is virtually certain. Expenses related to provisions are recorded in the statement of comprehensive income, net of compensation receivable. If the effect of the time value of money is material, the amount of provision is discounted using the effective pre-tax discount rate based on the interest rates for the period and taking into account specific risks associated with the provision as

appropriate. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance costs. Provisions for onerous contract Provisions for onerous contract represent liabilities that are initially recognised at fair value and subsequently at the end of each reporting period they are measured at present value using the effective interest rate method.

2.21 Revenue and expense recognition Revenue is recognised to the extent that it is probable that the economic benefits associated with a transaction will flow to the Group and the Company and the amount of revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable for the sale of goods or services, net of value added tax, returns and discounts. Revenue from sale of electricity to end customers The Group’s revenue from sale of electricity to end customers includes production, transmission, distribution, supply, public service obligations (PSO) and other services rendered in the process of sale of electricity to end customers. The prices of transmission, distribution and PSO services provided by the Group companies are regulated by the National Commission for Energy Control and Prices (hereinafter “the Commission”). Revenue from electricity sales to household customers is recognised when electricity is supplied and payment for it is made. An estimate of accrued revenue is made to record electricity supplied but not yet declared by household customers at the end of each reporting period. This estimate is based on historical experience and average payment for electricity period by the customers. Revenue from electricity sales to business customers is recognised when electricity is supplied based on the actual consumption of electricity which is determined with reference to meter readings. Regulation of tariffs and profitability Profitability of individual Group companies and their individual activities is regulated by the National Control Commission for Prices and Energy through the service tariffs approved for the next periods. The level of tariffs depends on the projected costs and volume of services for the next period, the extent to which the previous period earnings are at variance with the regulated level, and other factors. Actual costs of regulated activities incurred by the Group during the year may be at variance with the projected costs that are considered during the approval of the tariffs, and the actual volume of services may be at variance with the projected one. Accordingly, actual earnings from regulated activities may be at variance with the regulated level, and the resulting difference will affect the future tariffs of services. The Group does not recognise assets and liabilities of the regulated activities that are intended to eliminate the mismatches between the current year earnings and the regulated level, provided the difference will be recovered/refunded through the provision of services in the future.

87 ANNUAL FINANCIAL STATEMENTS 2015 | Summary of significant accounting policies


Tariffs for electricity and gas distribution are regulated by the Commission by establishing the price caps. The specific prices for the distribution services are established by the Group company, which is a distribution network operator, within the limits approved by the Commission. Sale of liquefied gas to regulated consumers is regulated through setting the sale prices. Tariffs for electricity transmission and PSO services are regulated by the Commission by establishing the cap prices for the services. The specific prices and tariffs for the transmission and PSO services are established by the service provider that is not part of the Group and within the limits approved by the Commission. Tariffs of electricity sold by the producers and independent suppliers as well as tariffs for capacity reserve services are not regulated, except when the producer or independent supplier holds more than 25% of the market, in which case the procedure for tariff setting is established by the Commission. Tariffs for import and export of electricity are not regulated. Revenue from provision of PSO services When providing PSO services the Group earns income and incurs expenses. PSO service fees are the fees paid to the suppliers of electricity under public service obligations scheme (based on pre-set annual quantities and prices of services). Subsequently, these services are provided to the distribution system operators and electricity users at a tariff established by the Commission. The Group's company engaged in the production of electricity generates income from public service obligation fees (PSO service fees). PSO service fees are the fees payable to the producers of electricity under a public service obligations scheme based on pre-determined annual quantities and prices of services set by the Commission. The tariff is established by the Commission based on the estimates of variable electricity production costs provided by the producers. The Group's subsidiary, which is a distribution network operator, collects PSO service fees from users at tariffs established by the Commission and transfers the fees to the electricity transmission system operator (a company which does not belong to the Group), which is responsible for the allocation of PSO service fees to electricity producers. Fees collected from users for PSO services, which are later allocated to electricity producers that do not belong to the Group, are recognised based on the actual amount of electricity consumed and at tariffs established by the Commission. PSO service fees that are later allocated to the Group's subsidiary engaged in electricity production are recognised based on variable costs actually incurred, although monthly payments made by the electricity transmission system operator to the electricity producer are established based on pre-determined quantities and prices. The Commission approves the actual receivable amount of PSO services fees within a year after the end of the reporting period and the difference is paid to the electricity transmission system operator within a second year after the end of the reporting period. Thus, the difference between accrued income and actually paid amounts during a year is recognised as a non-current amount receivable/payable (under the line items ‘Amounts receivable after one year’ or ‘Other non-current amounts payable and liabilities’). At the end of the upcoming year, this amount is reclassified as a current amount receivable/payable (under the line items ‘Other amounts receivable’ or ‘Trade payables’). Amounts payable each month by the distribution network subsidiary to the electricity transmission system operator are recognised as current amounts payable (under the line item 'Trade payables').

Revenue from distribution and supply of natural gas Revenue from non-household customers for the distribution of natural gas is recognised on a monthly basis with reference to the readings of measuring devices reported by the customers or, if such readings have not been reported by the customers, with reference to the quantities of gas calculated according to the methodology for the calculation of quantities of natural gas approved by the distributor. Revenue from non-household customers for supply of natural gas is recognised on a monthly basis with reference to the readings of measuring devices reported by the customers and checked by the distribution system operator (on an accrual basis). Revenue from household customers is recognised on a monthly basis with reference to the readings of measuring devices reported by the customers and taking into account the adjustments for mismatches between the quantities of gas declared and the quantities of gas actually consumed (on an accrual basis). Construction contracts When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised by reference to the work actually completed at the end of each reporting period, i.e. using the stage of completion (otherwise referred to as the percentage of completion) method for long-term contracts. Under this method, contract revenue and contract costs are measured by reference to the percentage of actual costs incurred and actual revenue earned to date to estimated total contract costs and contract revenue. Income from new customer connection Fees received after 1 July 2009 for the connection of new customers and producers to electricity network and for the dislocation and reconstruction of electricity network facilities on request of the customer, producer or any other entity, are recognised as revenue upon connection. The above-mentioned fees received before 1 July 2009 were initially recognised as deferred income and subsequently recognised as income on a proportionate basis over the useful life of the related newly created property, plant and equipment. The related costs comprising the acquisition cost of property, plant and equipment and other costs were capitalised and depreciated over the estimated useful life of the assets capitalised. Payments made by users for the connection to the gas system are recorded as deferred income and recognised as income over the depreciation period of the capitalised assets concerned. Revenue from sale of services Income from sale of services is recognised in the period when the services have been rendered with reference to the stage of completion of the specific transaction, which is determined as a percentage of services actually rendered compared with the total services to be rendered. Income from sale of services is recognised when it is probable that economic benefits will be received in relation to the services rendered and a reliable estimate of the amount of income can be made. Income is recognised when services are rendered. Income from sale of goods Income from sale of goods is recognised when all risks associated with loss or damage to goods, as well as any incremental costs arising from events occurring subsequent to the delivery of goods to the

88 ANNUAL FINANCIAL STATEMENTS 2015 | Summary of significant accounting policies


carrier or to the agreed place of destination, are transferred from the Group to a buyer under the standard sale terms (INCOTERMS) agreed with the buyer, and the recoverability of the related amounts receivable is reasonably certain.

Intangible assets

Interest income

After the initial recognition emission allowances are revalued at fair value using the active market prices. Increases in the carrying amount arising on the revaluation of emission allowances are presented in other comprehensive income and credited against revaluation reserve directly to equity and decreases in excess of the previously accumulated amount in the revaluation reserve are recognised in the profit or loss in the statement of comprehensive income. On realisation of emission allowances, the respective positive balance of the revaluation reserve is taken directly to retained earnings.

Interest income is recognised on accrual basis using the effective interest rate method. For the purpose of the cash flow statement, interest received is attributed to investing activities, whereas for the purpose of the statement of comprehensive income, interest received is recognised as finance income. Dividend income Dividend income is recognised after the shareholders’ rights to receive payment have been established. Dividends received are attributed to investing activities in the statement of cash flows. Dividends of subsidiaries, attributable to the parent company, are eliminated in the consolidated financial statements. Lease income Lease income is recognised on a proportionate basis over the lease period. Expense recognition Expenses are recognised in the statement of comprehensive income as incurred by the accrual method.

2.22 Emission allowances Based on the EU Directive 2003/07/EC, the greenhouse gas emissions trading scheme was developed which came into force on 1 January 2005. The first period of operation of this scheme covered 3 years from 2005 to 2007; the second period covered 5 years from 2008 to 2012, and the third period covers 7 years from 2013 to 2020. The Scheme’s operation period is in line with the period established under the Kyoto Agreement. The system functions on 'cap' and 'trade' basis. The governments of the EU Member States are required to set caps for each emission unit in the scheme and for the period of implementation. These caps are specified in the National Allocation Plan to be developed by a responsible authority of each Member State (in Lithuania – the Ministry of Environment). The National Allocation Plan determines the annual emission amount (measured as tons of carbon dioxide equivalent) for each emission unit and each period and allocates annual emission allowances. Entities involved in the trading scheme of emission allowances are entitled throughout the period from 2008 to 2020 to use emission reduction units that are accepted in the EU trading scheme of emission allowances, but not in excess of 20% of total quantity of emission allowances allocated to them during the period from 2008 to 2012. A Member State has an obligation to allocate emission allowances by 28 February of each year in accordance with the National Allocation Plan (a part of emission allowances are set aside for new units). A Member State is to assure that an operator of each emission unit will submit data on the unit’s actual amount of greenhouse gas emissions during the current calendar year not later than by 30 April of the next year.

The EU emission allowances are treated as intangible assets that were provided by the state or acquired by an entity in the form of non-monetary grant and that should be accounted for at fair value at the moment of their issuance or transfer.

Government grant The EU emission allowances provided to the Group at no consideration are treated as a non-monetary government grant which is recognised at fair value at the date of its receipt or issuance. Subsequently, the government grant is recognised as income in proportion to emission allowances utilised during the validity period of emission allowances or upon their disposal. Provision for the utilisation of emission allowances As the Group makes emissions, a liability arises to pay for these emissions to the state using emission allowances, the nominal value of which is equal to the quantity of emissions. Such liability is a provision which is estimated at a value equal to expenses to be incurred by the Group for the settlement of liability at financial reporting date. The liability can be offset against intangible assets only when the actual quantity of emissions is approved by an appropriate regulatory state authority. Changes in the value of liability are recognised in the statement of comprehensive income. Lending of emission allowances Lending of emission allowances is a sale transaction during which assets is disposed and the right to receive emission allowances is acquired. The right to receive emission allowances is recognised as other non-current assets. Such assets are initially recognised at acquisition cost, and subsequently such assets are tested for impairment as described in Note 2.8.

2.23 Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. Leases where substantially all the risks and rewards of ownership of assets leased are transferred to the lessee are classified as finance lease. An operating lease is a lease other than a finance lease. Where the Company and (or) the Group are lessors Operating lease income is recognised on a straight-line basis over the lease term. Initial direct costs are added to the carrying amount of the asset leased and recognised over the lease term similarly as lease income.

89 ANNUAL FINANCIAL STATEMENTS 2015 | Summary of significant accounting policies


Where the Company and (or) the Group are lessees

2.25 Dividend distribution

Finance leases are capitalised at the commencement of the lease at the lower of the fair value of the property leased and at the present value of the minimum lease payments. Respective finance lease liability is recorded in the balance sheet. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability so as to produce a constant rate of interest on the outstanding balance of the liability. Finance charges are charged to the statement of comprehensive income.

Dividend distribution to the Company‘s shareholders is recognised as a liability in the Group‘s and the Company‘s financial statements in the period in which the dividends are approved by the Company‘s shareholders.

Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. Financial lease A finance lease is a lease whereby a company (a lessee) pays the total price of the asset and interest over the lease term and usually becomes the owner of the asset at the end of the lease term. Following the transfer of the asset to the lessee under the lease contract, the lessor records amounts receivable after one year at the amount which is equal to net investment in finance lease. The amount equal to net investment in finance lease is shown as non-current financial assets. At the end of the reporting period long-term debts to be covered within one year are reclassified to current amounts receivable. Amounts receivable by the lessor should be measured at the end of the reporting periods and if necessary reduced by the amounts of doubtful amounts receivable. Assets acquired under finance leases are depreciated over the estimated useful lives of assets. If the Group does not intend to exercise the option to acquire the asset leased at the end of the lease term, the asset is depreciated over the shorter of the useful life of the asset and the lease term.

2.24 Grants and subsidies Asset-related grants Government and the EU asset-related grants comprise grants received in the form of non-current assets or intended for the acquisition of non-current assets. Grants are initially recorded at the fair value of the asset received and subsequently recognised in the statement of comprehensive income by reducing the depreciation charge of the related asset over the expected useful life of the asset. Upon the revaluation of non-current assets grants related to non-current assets in respect of which impairment was recognised on revaluation are written off. Income-related grants Government and the European Union grants received as a compensation for the expenses or unearned income of the current or previous reporting period, also, all the grants, which are not grants related to assets, are considered as grants related to income. The income-related grants are recognised as used in parts to the extent of the expenses incurred during the reporting period or unearned income to be compensated by that grant. These grants are presented in the statement of comprehensive income, less related expenses.

2.26 Contingencies Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of income or economic benefits is probable.

2.27 Events after the reporting period All events after the reporting period (adjusting events) are accounted for in the financial statements provided that they are related to the reporting period and have a significant impact on the financial statements. Events after the reporting period that are significant but are not adjusting events are disclosed in the notes to the financial statements.

2.28 Related parties Related parties are defined as shareholders, Board members, their close family members, stateowned enterprises and companies that directly or indirectly (through the intermediary) control the Group or are controlled by, or are under common control with the Group, provided such relationship empowers one of the parties to exercise control or significant influence over the other party in making financial and operating decisions.

2.29 Inter-company offsetting When preparing the financial statements, assets and liabilities, as well as revenue and expenses are not set off, except the cases when a certain IFRS specifically requires such set-off.

2.30 Fair value Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels in the fair value hierarchy: Level 1: fair value of assets is based on quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: fair value of assets is based on other observable market data, directly or indirectly. Level 3: fair value of assets is based on non-observable market data.

Payments made by users for the connection to the Group's gas system are recorded as deferred income and recognised as income over the depreciation period of the capitalised assets concerned. Such income is shown in the line item 'Sales revenue' of the income statement.

90 ANNUAL FINANCIAL STATEMENTS 2015 | Summary of significant accounting policies


Fair values of financial instruments

3 Financial risk management 3.1

Financial risk factors

The Group and the Company are exposed to a variety of financial risks in their operations: market risk (including foreign exchange risk, interest rate risk in relation to cash flows), credit risk and liquidity risk. In managing these risks the Group companies seek to mitigate the impact of factors which could adversely affect the Group’s and the Company’s financial performance results. Market risk Foreign exchange risk As from 1 January 2015, Lithuania adopted euro as its official currency. Group‘s/Company‘s purchases and sales are mostly denominated in euros. Transactions denominated in other currencies (USD) are insignificant at the Group level. In 2015, the Group companies used derivative financial instruments intended to manage the foreign exchange risk. These instruments, however, were expired at the end of 2015, and no new instruments were used. Interest rate risk The Group’s income and cash flows are affected by fluctuations in market interest rates because most of the Group’s loans and borrowings had variable interest rates as of 31 December 2015. The Group has financial assets measured at fair value with fixed interest rates, therefore, it is exposed to fair value interest rate risk. Time deposits bear fixed interest rate, therefore, they are not affected by interest rate risk. The following table demonstrates the sensitivity of the Group’s/Company’s profit to potential shift in interest rates.

Group

Increase/decrease in percentage points

(Decrease)/increase in profit

The Group’s derivative financial instruments, the Company’s and the Group’s available-for-sale financial assets (Level 1), the Company’s price premium payable on acquisition of subsidiaries (Level 3) are measured at fair value. All other financial assets and financial liabilities are recognised initially at cost and subsequently measured at amortised cost, less impairment loss. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is determined on the basis of quoted market prices, discounted cash flow models and option pricing models as appropriate. The carrying amount of the Group's and the Company’s financial assets and financial liabilities approximated their fair value except for mortgage loans granted (see Note 10), borrowings of the Group company Lietuvos Energijos Gamyba AB (see Note 19) and amounts receivable on disposal of Litgrid AB. As at 31 December 2015, the carrying amount of the Group's and the Company's amounts receivable on disposal of Litgrid AB (see Note 10) was equal to EUR 238,975 thousand (31 December 2014: EUR 238,975 thousand), and the fair value amounted to approx. EUR 247,350 thousand (31 December 2014: EUR 241,350 thousand). The fair value was determined on the basis of discounted cash flows using 1.00% (31 December 2014: 1.40%) discount rate. Their fair value is attributed to Level 3 in the fair value hierarchy. The following methods and assumptions are used to estimate the fair value of each class of financial instruments: a) The carrying amount of current trade and other receivables, current trade and other payables and current interest-bearing borrowings approximates their fair value. b) The fair value of non-current interest-bearing borrowings (including current and non-current portion) is estimated by discounting contractual future cash flows at interest rate established based on the quoted market price for the same or similar loans or on the current rates available for debt with the same maturity profile. The fair value of the mentioned borrowings, except for mortgage loans (see Note 10), borrowings of Lietuvos Energijos Gamyba AB (see Note 19) and amounts receivable from Litgrid AB, approximates their carrying amounts. Credit risk

2015 2014

+0.3/-0.3 +0.5/-0.5

Company 2015 2014

Increase/decrease in percentage points +0.3/-0.3 +0.5/-0.5

(42)/42 (65)/65

(Decrease)/increase in profit 51/(51) 115/(115)

91 ANNUAL FINANCIAL STATEMENTS 2015 | Financial risk management

The Group’s and the Company’s exposure to credit risk arises from operating activities of the companies (trade and other amounts receivable) and from financing activities (cash and cash equivalents, time deposits, loans granted). The Group is not exposed to significant credit risk concentration related to trade receivables and other amounts receivable. Principally all trade receivables and other amounts receivable of the Company are due from related parties (see Note 37). Loans granted of the Company and the Group principally consist of the loan granted to EPSO- G (see Note 37). The Group and the Company temporarily invest free liquid funds only in low-risk money market instruments and debt securities, i.e. time deposits, debentures, Lithuanian government bonds. The priority objective of the Group’s and the Company’s treasury management is to ensure security of funds and maximise return on investments in pursuance of this objective. Risk of counterparties defaulting is managed by entering into transactions with reliable financial institutions with a long-term


credit rating (in foreign currency) not lower than ‘A-‘ according to the rating agency Fitch Ratings (or an equivalent rating of other rating agencies). The credit risk on cash in banks is limited because the Group and the Company conduct transactions with the banks with high credit ratings assigned by international credit rating agencies. The Group and the Company hold cash balances and time deposits in accounts of the major banks in Lithuania assigned with a long-term credit rating not lower than ‘A-‘ according to the rating agency Fitch Ratings. The maximum exposure to credit risk as at 31 December 2015 and 31 December 2014 was equal to the carrying amount of financial assets. Group

2014

2015

2014

Amounts payable measured at amortised cost Borrowings and finance lease liabilities Trade payables (Note 25) and noncurrent amounts payable (Note 24) Other amounts payable

420,688

391,607

-

-

93,648 35,545

143,788 32,147

45,995 361

188 307

Liabilities measured at fair value Total

549,881

567,542

17,819 64,175

495

Company

2015

2014

2015

2014

Trade and other receivables Loans granted and receivables Available-for-sale financial assets: Available-for-sale financial assets

125,878 239,707

151,597 239,761

4,549 238,975

1,602 238,974

4,548

4,711

4,561

4,711

Cash and cash equivalents Total Off-balance sheet commitments: Open guarantees issued Total

164,341 534,474

211,019 607,088

13,179 261,264

31,347 276,634

67,430 67,430

73,645 73,645

67,430 67,430

73,645 73,645

Trade and other amounts receivable:

Liquidity risk The liquidity risk is managed by planning future cash flows of each Group company and ensuring sufficient cash and availability of funding through committed credit facilities and overdrafts to support their operating activities. The refinancing risk is managed by ensuring that borrowings over a certain period were repaid from available cash, from cash flows expected from operating activities of the Group companies over that period, and from unwithdrawn committed credit facilities which have to be repaid in later periods. As at 31 December 2015, the Group’s current ratio (total current assets / total current liabilities) and quick ratio ((total current assets – inventories) / total current liabilities) were 1.05 and 0.94, respectively (31 December 2014: 1.07 and 0.94, respectively) The guarantee granted by the Company to LITGAS UAB, which was intended to serve as a security under the credit facility agreements signed by LITGAS UAB with the credit institutions and under the long-term liquefied natural gas (LNG) purchase agreements signed with the LNG suppliers, expired on 23 February 2016. The table below summarises the Group‘s and the Company’s financial liabilities by category: Group

2015

Company

92 ANNUAL FINANCIAL STATEMENTS 2015 | Financial risk management


The table below summarises the maturity profile of the Group’s and the Company‘s financial liabilities under the contracts (based on contractual undiscounted payments of interest-bearing financial liabilities and the carrying amounts of other financial liabilities): Company

Group

Interest-bearing borrowings, finance lease and other liabilities Trade payables Other amounts payable At 31 December 2015

2015 3 months to 1 year

Less than 3 months

60,067 91,954 32,507 184,528

87,945 255 2,912 91,112

1 to 5 years

224,223 674 224,897

3 months to 1 year

Less than 3 months

Interest-bearing borrowings, finance lease and other liabilities Trade payables Other amounts payable At 31 December 2014

Company

Interest-bearing borrowings, finance lease and other liabilities Trade payables Other amounts payable At 31 December 2015

1 to 5 years

60,661 765 61,426

432,896 93,648 35,419 561,963

Total

Over 5 years

59,566

123,312

164,563

56,633

404,074

141,612 32,148 233,326

792 124,104

1,383 165,946

56,633

143,787 32,148 580,009

Less than 3 months

443 361 804

2015 3 months 1 to 5 to 1 years year

45,552 45,552

19,400 19,400

Total

Over 5 years

Total

Over 5 years

2014 Group

Less than 3 months

2014 3 months 1 to 5 to 1 years year

Total

Over 5 years

-

64,952 443 361 65,756

Interest-bearing borrowings, finance lease and other liabilities Trade payables Other amounts payable At 31 December 2014

3.2

188 307 495

-

-

-

188 307 495

Capital risk management

Pursuant to the Lithuanian Law on Companies, the authorised share capital of a public limited liability company must be not less than EUR 40 thousand, the authorised share capital of a private limited liability company must be not less than EUR 2.5 thousand, and the shareholders’ equity must be not lower than 50% of the company’s authorised share capital. As at 31 December 2015 and 2014, the Company and all Group companies, except for Energetikų Mokymo Centras VŠĮ (Public Institution Training Centre for Energy Specialists), complied with these requirements. The latter company has obtained a confirmation from Lietuvos Energija UAB certifying that financial support will be provided for not less than 12 months after the approval of its financial statements. When managing the capital risk, the Group companies seek to maintain an optimal capital structure in a long run to ensure a consistent implementation of capital cost and risk minimisation objectives. The Group companies form their capital structure in view of internal factors relating to operating activities, the expected capital expenditures and developments and in view of business strategy of the Group companies, as well as based on external current or expected factors significant to operations relating to markets, regulation and local economic situation.

4 Critical accounting estimates and judgements used in the preparation of the financial statements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The preparation of financial statements according to International Financial Reporting Standards as adopted by the European Union requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and costs and contingencies. Change in the underlying assumptions, estimates and judgements may have a material effect on these consolidated financial statements of the Group and stand-alone financial statements of the Company.

93 ANNUAL FINANCIAL STATEMENTS 2015 | Critical accounting estimates and judgements used in the preparation of the financial statements


Revaluation and impairment of assets The Group accounts for property, plant and equipment (except for assets of power plants, gas distribution pipelines, gas technological equipment and IT and telecommunication equipment) at revalued amount in accordance with International Accounting Standard 16 ‘Property, plant and equipment’. Revaluation of assets of subsidiaries, except for LESTO AB, and fair value measurement As at 31 December 2015, an independent valuation at the Group level was carried out in respect of Lietuvos Dujos AB (buildings), Kauno Energetikos Remontas UAB and NT Valdos UAB (buildings and structures). The valuation of assets was conducted by independent valuers. Property, plant and equipment of subsidiary Lietuvos Dujos AB was measured at fair value on business combination (Note 33). In September 2015, the whole category of buildings was subject to revaluation with reference to the value determined by independent property valuers – Korporacija Matininkai UAB and Ober-Haus Nekilnojamas Turtas UAB. The valuation was performed using the sales comparison approach. In the opinion of management of Lietuvos Dujos AB, in 2015 there were no significant changes in the fair value of other categories of property, plant and equipment that are stated at revalued amounts. As at 31 December 2014, property, plant and equipment of subsidiary Lietuvos Dujos AB was measured at fair value on business combination (Note 33). As at 31 December 2015, the fair value of property, plant and equipment of subsidiary Kauno Energetikos Remontas UAB was determined by independent valuer using the sales comparison approach (analogous sale prices) in respect of the category of immovable property. Valuation of other categories of assets was carried out using in parallel the sales comparison and the replacement cost methods. Assets that were evaluated using the replacement cost method were tested for impairment, as a result of which no indications of impairment were identified. In November 2015, valuation of all buildings and structures of subsidiary NT Valdos UAB was carried out by independent valuer InReal UAB using the sales comparison approach (analogous sale prices) and the income approach. In the opinion of management of NT Valdos UAB, the adjusted values of these assets under the above-mentioned approach as at 1 December 2015 approximated their fair value as at 31 December 2015. As at 31 December 2014, independent valuation of assets was performed at the Group with respect to NT Valdos UAB (buildings, structures and motor vehicles), LESTO AB and Lietuvos Dujos AB (buildings, structures and motor vehicles). The valuation was carried out by independent valuation companies and the Group's valuation specialists.

management using the income approach. In the opinion of management, the fair value of assets did not differ significantly from the carrying amount, and accordingly no revaluation result was recognised. The fair value of assets of LESTO AB and the recoverable amount of investment in LESTO AB were determined for the purpose of the Company's separate financial statements using the same assumptions which are described in more detail in section Valuation of investments in subsidiaries in the Company's separate financial statements. Revaluation of assets of LESTO AB in 2014 LESTO AB accounts for its property, plant and equipment at revalued amount in accordance with IAS 16, ‘Property, plant and equipment’. As part of the implementation of the provisions of paragraph 31 of IAS 16, in 2014 the Company carried out valuation of its property, plant and equipment with reference to the valuation report delivered by Ernst&Young Baltic UAB, and determined the fair value of property, plant and equipment (including construction in progress) equal to EUR 683 million as at 31 December 2014. It was concluded that the fair value of property, plant and equipment was EUR 618 million lower than the net book amount of EUR 1,301 million as at 31 December 2014. A significant change in the fair value of property, plant and equipment was mainly caused by application of economic obsolescence. In view of the decisions adopted during 2009-2015 by the National Control Commission for Prices and Energy (the Commission) and based on economic obsolescence estimates (using the income approach for valuation of assets), the value of property, plant and equipment of LESTO AB was lower than that determined under the cost approach. Valuation of property, plant and equipment of LESTO AB was carried out using the income approach and cost approach. Valuation of assets was carried out in the following stages: (i) replacement cost of new assets was determined; (ii) physical and functional obsolescence of assets was estimated; (iii) possible recoverability of assets was assessed (using the income approach). The assessment under the income approach was based on the following key assumptions of LESTO AB: When determining the price cap for the distribution services for 2016–2020 in its Certificate No O5-16 of 19 January 2015, the Commission approved the rate of return on investments equal to 6.79% for this period; This rate was used to determine return on investments in 2016. The rate of return on investments equal to 6.13% as established by the Commission was used in 2015. In respect of the remaining forecast cash flow period (2017–2024), the rate of return on investments equal to 7.5% as calculated by the Company was used assuming that the Company's legal claim would be satisfied in terms of application of improper rate of return on investments; Cash flows were discounted using a pre-tax discount rate of 7.5%;

As at 31 December 2015, other Group companies did not carry out valuation of assets stated at revalued amounts, because revaluations were performed not more than 4 years ago and there are no indications of a significant difference between the net book amount and market value of assets stated at revalued amount.

Operating expenses of LESTO AB for 2016–2020 were projected according to the approved longterm plans of LESTO AB. Starting from 2012, the changes were projected in view of the projected changes in the average annual consumer price index and the changes in work pay at the time of valuation;

Revaluation of assets of LESTO AB in 2015

It was assumed that additional profit will be earned in individual regulatory periods due to the planned operational efficiency of the company;

As at 31 December 2015, LESTO AB reviewed its property, plant and equipment for any significant differences between the carrying amount and the fair value. The fair value was determined by

Investments for 2015–2024 were estimated in view of the approved ten-year investment plan;

94 ANNUAL FINANCIAL STATEMENTS 2015 | Critical accounting estimates and judgements used in the preparation of the financial statements


In the opinion of LESTO AB, the amount of EUR 16.46 million, by which LESTO AB's revenue for 2015 was reduced by the Commission, was reasonably included in the operating expenses of the regulated activity for 2011–2013, and assumed that the court would pass a favourable ruling for LESTO AB, and the aforementioned amount would be included by the Commission in the level of LESTO AB's revenue for 2017. In the opinion of LESTO AB, the additional component in the regulated asset base as set in the Procedure for Determining Regulated Prices in Electric Energy Sector approved by the Lithuanian Government Resolution of 24 September 2014 ("the Government Resolution"), which is calculated as the difference between the carrying amount of the assets and the regulated asset base and which arose as at 30 June 2014, had to be included in the cost of capital when determining the level of revenue of LESTO AB for 2015-2016. LESTO AB filed a claim to the court regarding the inclusion of the aforementioned additional component in the level of revenue, and included the cash flows relating to the additional component of the regulated asset base in forecast cash flows with probability of 50%. In 2014, LESTO AB performed the sensitivity analysis on fair value measurement in respect of changes in unobservable inputs using the following scenarios: Sensitivity analysis scenario I: as a result of changes in the current regulatory environment and when determining the level of LESTO AB's revenue by the Commission for the period 2017-2024, the return on investment in respect of the additional component of the regulated asset base (as approved under the Government Resolution) would not be taken into consideration, and accordingly, LESTO AB's revenue for the forecast period (2015-2024) would be EUR 122.22 million lower and the fair value of PP&E would be EUR 601 million lower. Sensitivity analysis scenario II: as a result of rejection of LESTO AB's claim by judicial authorities, whereby LESTO AB appealed against the Commission's Resolution No O3-944 of 19 December 2014 On the Amendment to the Commission’s Resolution No O3-845 of 17 October 2014 On recalculating the price caps for electricity distribution services provided by LESTO AB through medium and low voltage networks for the year 2015, on the basis of which the Company's revenue from the distribution activity was reduced by the amount of EUR 16.46 million, LESTO AB's revenue for the forecast period (2015-2024) would be EUR 16.46 million lower and the fair value of PP&E would be EUR 669 million lower. Sensitivity analysis scenario III: as a result of changes in the current regulatory environment and when determining the level of LESTO AB's revenue by the Commission for the period 2017-2024, the return on investment (at 100% extent) in respect of the additional component of the regulated asset base (as approved under the Government Resolution) would be taken into consideration, and accordingly, LESTO AB's revenue for the forecast period (2015-2024) would be EUR 120 million higher and the fair value of PP&E would be EUR 762.6 million higher. Impairment of assets measured at cost The Group makes an assessment, at least annually, whether there are any indications that the carrying amount of property, plant and equipment has been impaired. If that is the case, the Group makes an impairment test.

As at 31 December 2015 and 31 December 2014, the Group’s management tested for impairment the property, plant and equipment of Kruonis Pumped Storage Power Plant and Kaunas Hydro Power Plant named after Algirdas Brazauskas and did not identify any impairment indications thereon. In view of Lietuvos Energijos Gamyba AB's management decision at the end of 2015 on dismantling of units 5 and 6 of the Reserve Power Plant, the Group recognised impairment loss of EUR 36.7 million equal to the net book amount of units 5 and 6 of the Reserve Power Plant as at 31 December 2015. In view of Lietuvos Energijos Gamyba AB's management decision at the end of 2014 on dismantling of units 1 and 2 of the Reserve Power Plant, the Group recognised impairment loss of EUR 11.5 million equal to the net book amount of units 1 and 2 of the Reserve Power Plant as at 31 December 2014. As at 31 December 2015 and 2015, the rest of property, plant and equipment of the Reserve Power Plant, Combined Cycle Unit and the new Biofuel and Steam Boiler Houses (hereinafter "the Elektrėnai Complex") was tested for impairment, as a result of which it was determined that the recoverable amount of assets of the Elektrėnai Complex exceeded the carrying amount equal to EUR 542 million as at 31 December 2015 (31 December 2014: the recoverable amount of the Elektrėnai Complex exceeded the carrying amount equal to EUR 590 million). Consequently, no impairment loss was recognised. The Elektrėnai Complex is treated as a single cash generating unit due to the following reasons:  The transmission system operator treats each power plant as a single cash generating unit irrespective of the number of individual units that constitute the power plant.  All units of the Reserve Power Plant and the Combined Cycle Unit can be used for both, electricity generation and provision of capacity reserve services. The situation of which unit at a specific moment is used for electricity generation or activation of capacity reserve depends on the system’s needs, the technical condition of the units (e.g. scheduled repair works, disruptions in operations of units), potential disruptions in supply of natural gas, etc.  Electricity and thermal power generation and provision of capacity reserve services at the Elektrėnai Complex are considered to be regulated activities.  The new Biofuel and Steam Boiler Houses share the same infrastructure with other facilities of the Elektrėnai Complex (electricity connections, heating networks, other pipelines, pumps, chemical bar, etc.), which accounts for the major part of all assets operated by the Elektrėnai Complex. The steam boilers have been mounted in the same building as the old units of the Elektrėnai Complex, and the main purpose of the steam boilers (representing 99.3% of assets of the steam boiler) is to activate the electricity generation units of the Elektrėnai Complex in "cold season" operation mode and to produce steam energy that is necessary to maintain the infrastructure of the Elektrėnai Complex.  The new Biofuel and Steam Boiler Houses supply thermal power that is necessary to maintain the infrastructure of the Elektrėnai Complex and activate the electricity generation units of the Elektrėnai Complex.  When establishing the prices for the regulated services, the National Control Commission for Prices and Energy ("the Commission") takes into account all variable and fixed costs of the Reserve Power Plant and the Combined Cycle Unit, allocates and compensates a part of these costs against capacity reserve revenue and the remaining part against the PSO service fees. The electricity buy-up price is established for electricity produced at the Elektrėnai Complex. The Biofuel and Steam Boiler Houses provide the same services as the electricity production facilities of the Elektrėnai Complex. Part of fixed and variable costs and assets of the Boiler Houses is allocated to PSO and tertiary capacity reserve services

95 ANNUAL FINANCIAL STATEMENTS 2015 | Critical accounting estimates and judgements used in the preparation of the financial statements


provided by electricity production units of the Elektrėnai Complex. The price for PSO and tertiary capacity reserve services is determined for the whole Elektrėnai Complex collectively rather than for individual facilities. The recoverable amount of cash generating units was estimated with reference to the value-in-use calculations. These calculations take into account the pre-tax cash flow forecasts based on the financial budgets approved by the management for the period of five years. Continuous cash flow is estimated using the discounted cash flow in the fifth year. The management estimated the projected operating profit in view of historical data, forecasts of position in the market and effective legal acts. Key assumptions used in performing the impairment test as at 31 December 2015 were as follows: 1. The value in use was estimated with reference to the most up-to-date budget for the year 2016, the financial plan covering the period 2017-2020, the projected pre-tax discounted cash flows using a pre-tax weighted average cost of capital (WACC) of 6.26% (2014: 6.53%). The WACC was estimated with reference to long-term borrowing cost in the market and the effective average Euro Interbank Offered Rate (EURIBOR). 2. Cash flow forecasts are prepared by the management as a result of financial projections based on the financial performance results, market development expectations and regulatory environment. The projections of revenue from regulated activities also take into account the depreciation expenses of property, plant and equipment and the return on investments, which is calculated on the value of assets used in the regulated activities. When estimating the return on investments, the management used the rate of return on investments set by the Commission for the year 2016, which was 5.35%. As a result of the analysis, the Group's management determined that it was not necessary to recognise any impairment losses as at 31 December 2015 and 2014, except for the impairment losses for units 5 and 6 of the Reserve Power Plant. Had the discount rate increased by 0.5 p.p. in 2015 and 2014, the value in use of the Elektrėnai Complex would exceed the carrying amount.

2.

3.

The impairment test of investment in LESTO AB was performed by the Company based on the following key assumptions: 1.

2.

3. 4.

5. 6.

7.

Valuation of investments in subsidiaries in the Company’s separate financial statements Although the shares of the Company’s subsidiaries LESTO AB, Lietuvos Energijos Gamyba AB and Lietuvos Dujos AB are traded on Vilnius Stock Exchange, the Group's management believes this market is not active enough so that the quoted stock prices could be treated as equivalent to the fair value of investments in subsidiaries at the reporting date.

8.

LESTO AB

9.

As at 31 December 2015, the Company tested for impairment its investment in subsidiary LESTO AB using the discounted cash flow method and recognised reversal of impairment of EUR 38.9 million, which largely resulted from changes in the regulatory environment. Following the reversal of impairment, the investment's recoverable amount (which is equivalent to its fair value) was equal to EUR 522.0 million as at 31 December 2015 (31 December 2014: EUR 483.1 million). Discounted cash flows were calculated in accordance with the following legal acts and methodologies regulating the distribution and supply activities, effective as at 31 December 2015: 1.

Methodology for Setting Price Caps for Electricity Transmission, Distribution and Public Supply Services and Public Energy Price Caps (“the Methodology“) approved by the

Commission’s Resolution No O3-3 of 15 January 2015 and amended by Resolution No O3572 of 29 October 2015; Description of the Requirements for Accounting Separation and Cost Allocation of Electric Power Sector Companies and Requirements Related to Accounting Separation (“the Description“) approved by the Commission’s Resolution No O3-112 of 29 April 2014 and amended by Resolution No O3-507 of 18 September 2015; Methodology for Setting the Rate of Return on Investments (“the WACC Methodology“) approved by the Commission‘s Resolution No O3-510 of 22 September 2015.

The cash flow forecast covered the period until 2055, because the distribution activity is regulated on the basis of the regulated asset base, which mostly consists of assets with long useful life (40 years) - electricity lines; When determining the price cap for the distribution services for 2016–2020 in Certificate No O5-16 of 29 October 2015, the Commission approved the rate of return on investments equal to 5.24% for this period. This rate was used to determine the return on investments over the entire cash flow forecast period; The cash flows were discounted using a pre-tax discount rate of 6.6%; LESTO AB's operating expenses for 2016–2020 were projected according to the approved long-term plans of LESTO AB. Starting from 2021, the changes were estimated in view of the forecast changes in the average annual consumer price index and the work pay prevailing at the time of the assessment. Based on the provisions of the Description, a part of operating expenses incurred by LESTO AB is not included in the regulated prices of the distribution and supply activity; It was assumed that in different regulatory periods additional profit would be earned as a result of the planned performance efficiency (such possibility is established in the Methodology); Investments were projected for the period 2016–2025 under the approved ten-year investment plan. Starting from 2026, investments were reduced proportionately under the assumption that all items of technological assets that are currently fully depreciated or will become fully depreciated over the period until 2055 will be recovered until 2055; LESTO AB's cost of capital (return on investments and depreciation of non-current assets) was calculated and taken into account when determining the prices for electricity distribution and supply services for other regulatory periods, in accordance with the long-run average incremental cost (LRAIC) model (hereinafter “the Model“) and in view of paragraph 7 of the Methodology; The Company did not take into account the potential favourable outcomes from the litigation processes.

The Company performed the sensitivity analysis on the impairment test in respect of changes in unobservable inputs: 1.

The changes in discount rates have a significant impact on the result of valuation. The sensitivity analysis showed that a 0.5 p.p. change in discount rate would result in increase in impairment reversal up to EUR 101.9 million (at discount rate of 6.10%) or in impairment of EUR 17.0 million (at discount rate of 7.10%).

96 ANNUAL FINANCIAL STATEMENTS 2015 | Critical accounting estimates and judgements used in the preparation of the financial statements


2.

If for the periods starting from 2021, the return on investments set by the Commission when determining the revenue level for LESTO AB was 10% lower (i.e. equal to 4.72%), the forecast revenue of LESTO AB (for the period 2016-2055) would be lower by EUR 318 million. This would result in additional impairment of EUR 23.3 million.

As at 31 December 2014, the Company performed the impairment test in respect of its investment in the subsidiary LESTO AB and recognised impairment of EUR 55.8 million. The impairment test in respect of the investment in LESTO AB took into consideration the assumptions used in long-term forecasts (as described in section 'Revaluation of assets of LESTO AB in 2014', with additional adjustments made to cash flows to reflect the development prospects of LESTO AB as a company (i.e. not only the cash flows generated from property, plant and equipment). Discounted cash flows were adjusted in view of net financial debt and investments in subsidiaries. Lietuvos Dujos AB As at 31 December 2015, the Company tested for impairment its investment in subsidiary Lietuvos Dujos AB using the discounted cash flow method and recognised impairment of EUR 20.4 million, which largely resulted from changes in the regulatory environment. The Company estimated the fair value and value in use of the investment, and determined that the value in use was higher and, therefore, treated as the recoverable amount of the investment. Following the impairment, the recoverable amount of the investment was equal to EUR 151.6 million as at 31 December 2015 (31 December 2014: EUR 174.8 million). For the impairment test of investment in Lietuvos Dujos AB, the Company used the following key assumptions: 1.

2.

3.

4.

The value in use was estimated with reference to the financial plan covering the period 20162020, the projected pre-tax discounted cash flows using a pre-tax weighted average cost of capital (WACC) of 6.60%. Cash flow forecasts were prepared by the management in the course of financial projections based on the financial performance results, market development expectations and regulatory environment. The projections of revenue from regulated activities also took into account the depreciation expenses of property, plant and equipment and the return on investments, which was calculated on the value of assets used in the regulated activities. When estimating the return on investments, the management used the rate of return on investments set by the Commission, which was 7.09% for the years 2016-2018 and 5.59% for the year 2019 and beyond. The value in use calculations included only the investments necessary to maintain the current asset base and approved under the financial plan, whereas the fair value calculations included the investments intended for the development and modernisation of the asset base. The forecast cash flows were calculated with reference to historical data, natural gas consumption forecasts and effective legal acts.

The Company performed the sensitivity analysis on the impairment test in respect of changes in unobservable inputs: 1.

The rate of return on investments (starting from 2019) has a significant impact on the result of valuation. The sensitivity analysis showed that a 1 p.p. change would result in increase in impairment up to EUR 35.4 million (at rate of return of 4.59%) or decrease in impairment down to EUR 5.4 million (at rate of return of 7.10%). If starting from 2019 the rate of return on investments did not change (i.e. remain at 7.09% level), the recoverable amount would

2.

be equivalents to the fair value, which would be equal to EUR 178.2 million (representing EUR 6.2 million surplus of the recoverable amount over the cost of investment); The changes in discount rate also have a significant impact on the result of valuation. The sensitivity analysis showed that a 1 p.p. change in discount rate would result in increase in impairment up to EUR 34.4 million (at discount rate of 7.60%) or decrease in impairment down to EUR 1.9 million (at discount rate of 5.60%).

Lietuvos Energijos Gamyba AB As at 31 December 2015, the Company tested for impairment its investment in subsidiary Lietuvos Energijos Gamyba AB and determined no impairment in respect of the investment as at 31 December 2015. As at 31 December 2015, in the opinion of the Company's management there were no indications of impairment in respect of the investment in Lietuvos Energijos Gamyba AB. Duomenų Logistikos Centras UAB As at 31 December 2015, the Company tested for impairment its investment in subsidiary Duomenų Losgistikos Centras UAB and determined no impairment in respect of the investment as at 31 December 2015. As at 31 December 2015, in the opinion of the Company's management there were no indications of impairment in respect of the investment in Duomenų Losgistikos Centras UAB. VAE SPB UAB As at 31 December 2015, the Company tested for impairment its investment in subsidiary VAE SPB UAB and recognised impairment of EUR 1,168 thousand. LITGAS UAB As at 30 June 2015, the Company tested for impairment its investment in subsidiary Litgas UAB using the discounted cash flow method. Discounted cash flows were calculated in accordance with the effective legal acts and methodologies regulating the activity of the designated supplier and taking into consideration the most probable scenario for the development of the natural gas trade activity and uncertainties existing in the liquefied natural gas industry. Discounted cash flows were calculated using a discount rate of 9.72%, which is established as the required return on the share capital. As a result of the analysis, the Company's management determined that the impairment of the investment in Litgas UAB was equal to EUR 1,092 thousand as at 30 June 2015 and 31 December 2015. As at 31 December 2015, there were no indications of impairment in respect of other investments in subsidiaries of the Company. Consideration paid on disposal of Litgrid AB As part of the implementation of the requirements of the Law on Electricity, the Lithuanian Government passed Resolution No 826 on 4 July 2012 Regarding the establishment of the private limited liability company and investment of state-owned assets, whereby the Ministry of Energy was committed to establish a private limited liability company and make all necessary decisions in order to transfer the shares of Litgrid AB held by Lietuvos Energija UAB to a newly established private limited liability company EPSO-G UAB in return for a certain consideration based on the market value of shares established by independent valuers. The independent valuer determined the market value in respect of 97.5% of shares of Litgrid AB using the income approach.

97 ANNUAL FINANCIAL STATEMENTS 2015 | Critical accounting estimates and judgements used in the preparation of the financial statements


The purchase-sale agreement of shares of Litgrid AB provide for a premium to the final price, the amount of which depends on the regulatory environment in the future periods. On 15 January 2015, the Commission approved a new regulation methodology (LRAIC) under which the Commission set the price caps for Litgrid AB's transmission services via high voltage networks for the period 20162020. On 21 September 2015, the Commission approved the amendments to the methodology, under which the price caps for electricity transmission via high voltage networks were recalculated for the period 2016-2020 and approved under Resolution of 19 October 2015. In view of the above-mentioned developments, the Company assessed the price premium and determined that according to the purchase-sale agreement of shares of Litgrid AB the price premium was equal to zero as at 31 December 2015 and 2014. Assessment of price premiums in establishing the acquisition cost of shares Price premium for the shares of NT Valdos UAB In April 2015, the Company acquired the shares of NT Valdos UAB from LESTO AB, Lietuvos Energijos Gamyba AB, Duomenų Logistikos Centras UAB and Litgrid AB, thereby resulting in 100% direct control over NT Valdos UAB. See Note 9 for a more detailed information on share acquisition transactions. The premium to the basic sale price established for the acquired shares is payable by 31 March 2019, the amount of which may vary depending on the financial performance of NT Valdos UAB. The maximum amount of the price premium is equal to EUR 19,400 thousand. The Company's management assumed that NT Valdos UAB will achieve the financial performance targets, and accounted for the maximum price premium of EUR 19,400 thousand within amounts payable. The price premium was discounted to present value using an average interest rate set by the Bank of Lithuania on borrowings in excess of EUR 1,000 thousand, which was equal to 2.65% at the date of discounting. The acquisition cost of the investment in NT Valdos UAB was reduced by the amount of discounting. The discounting effect will subsequently be recognised as finance costs. Price premium for the shares of Kauno Energetikos Remontas UAB On 31 March 215, the Company signed the share purchase-sale agreement with Lietuvos Energijos Gamyba AB, under which it acquired 100% (i.e. 15,244,112) of ordinary registered shares of Kauno Energetikos Remontas UAB. Kauno Energetikos Remontas UAB on the commission of Lietuvos Energijos Gamyba AB implements the biofuel boiler plant project, in respect of which a provision of EUR 3,853 thousand was recognised in the financial statements of Kauno Energetikos Remontas UAB as at 31 December 2014. If the loss from the biofuel boiler plant project increases or decreases by more than EUR 50 thousand, the purchase-sale price of shares of Kauno Energetikos Remontas UAB will be adjusted by 89% of the amount of this change. As at 31 December 2015, in view of the fact that the loss from the biofuel boiler plant project increased, the Company's management estimated that the acquisition cost of the shares of Kauno Energetikos Remontas UAB should be EUR 436 thousand lower. The Company reduced accordingly the

acquisition cost of investment in Kauno Energetikos Remontas UAB from EUR 4,778 thousand to EUR 4,342 thousand. Change in tax treatment of goodwill Based on the purchase-sale agreement dated 15 October 2014, Lietuvos Dujos AB transferred its natural gas supply activities (together with related assets, rights and obligations) to Lietuvos Dujų Tiekimas UAB. Based on the transfer-acceptance statements, the title of ownership to part of operations (natural gas supply activities) was passed to Lietuvos Dujų Tiekimas UAB on 31 October 2014. Under the purchase-sale agreement, Lietuvos Dujų Tiekimas UAB paid for the natural gas supply activities (together with related assets, rights and obligations) a price which corresponded to the market value of natural gas supply business determined by independent valuers - EUR 17,510 thousand. Whereas the carrying amount of net assets of the supply activity was equal to EUR 74,434 thousand at the date of business acquisition. The significant difference between the consideration paid and the carrying amount of net assets of the acquired business arose from the requirements of the International Financial Reporting Standards, according to which the impact of a retrospective reduction of the price for natural gas imported from Gazprom PAO for non-household customers for the period from 1 January 2013 to 30 April 2014 could not be recognised as expenses of the current period. In assessing the tax risk and in view of the correspondence between the Company and the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania ("the Tax Authorities"), the difference between the value of the acquired net assets related to the natural gas supply activity (EUR 74,434 thousand) and the market value of the natural gas supply activity established by the independent valuer (EUR 17,510 thousand) was treated by the Company as a negative goodwill and income tax was assessed thereon in 2014. Seeking to clarify the tax aspects of this transaction, Lietuvos Dujų Tiekimas UAB requested that the Tax Authorities submit a binding decision, because the investigated tax issues are directly related to future natural gas sale transactions, though they are affected by the retrospective reduction of the price for imported natural gas previously received from Gazprom OAO. On 30 April 2015, Lietuvos Dujų Tiekimas UAB received the binding decision of the Tax Authorities, whereby, considering a number of circumstances of the transaction, the difference between the value of the acquired net assets related to the natural gas supply activity and the market value of the natural gas supply activity established by the independent valuer should not be treated as negative goodwill, and accordingly, no income tax should be assessed thereon. Since the tax effects of the business acquisition transaction (amounting to EUR 8,539 thousand in 2014) was recognised by the Group within profit or loss in the statement of comprehensive income, the adjusted income tax amount in 2015 (based on the binding decision of the Tax Authorities) was also recognised as adjustment to profit or loss in the statement of comprehensive income. Useful lives of property, plant and equipment The estimation of the useful lives of items of property, plant and equipment is a matter of judgement based on the experience with similar assets. However, other factors, such as technical or commercial obsolescence and physical wear and tear, result in the diminution of the economic benefits embodied in the assets. Management assesses the remaining useful lives in accordance with the current technical conditions of the assets and estimated period during which the assets are expected to earn benefits for the Group. The following key factors are considered: (a) expected usage of the assets;

98 ANNUAL FINANCIAL STATEMENTS 2015 | Critical accounting estimates and judgements used in the preparation of the financial statements


(b) expected physical wear and tear, which depends on operational factors and maintenance programme; and (c) technical or commercial obsolescence arising from changes in market conditions. Accrued revenue Revenue from household customers is recognised when payments are received. Accordingly, at the end of each reporting period the amount of income earned but not yet paid by household customers is estimated and accrued by the management of the Group company operating the distribution networks. Accrued revenue is estimated as 1/3 of total payments for electricity received in December. Accrued revenue is based on past experience and average term of settlement for electricity. The management has estimated that the majority of household customers declare and make payments for the electricity consumed on approx. the 20th day of the month, while electricity is supplied for a full month (30 or 31 days). Consequently, the electricity consumed during the remaining 10 days is proportionally calculated referring to the total volume of electricity provided to the electricity supply network (the actually known variable) and the total volume of electricity declared by household customers during December and multiplied by the average rate per 1 kWh (Note 14). Consumption of overdeclared electricity With effect from 2015 and beginning of 2016, the Group reduced the prices for electricity, however a part of household customers declared more electricity than they have actually consumed. The Group has estimated the overdeclared amount. In 2014 and 2015, the estimated difference was accounted for as advance amounts received. Accounting for customer connection fees Until 1 July 2009, the Group recognised customer connection fees to the electricity network as deferred revenue. Such deferred revenue was recognised as income over the period of 31 days, i.e. an average useful life of electricity equipment installed by the Group on connection of new customers to the grid. The Group is the only provider of electricity distribution services to the customers across the entire territory of Lithuania, therefore management believes that the period of customer relations is close to infinite. As a result, the average useful life of electricity equipment installed by the Group upon customer connection is used as the best estimate of the period over which the customer connection fees are recognised as income. After 1 July 2009, based on IFRIC 18 interpretation, the newly connected customers to the grid do not obtain any additional future benefits as compared to the rest of customers, consequently, the provision of customer connection services is treated as completed and income from connection is recognised upon the connection of a new customer (Note 22). The Group recognises customer connection fees to the gas system as deferred revenue, i.e. customer connection fees received after 30 June 2014 when the gas distribution network operator became part of the Group. Such deferred revenue is recognised as income over the period of 55 years, i.e. an average useful life of gas network equipment installed upon the connection of new customers. The Company is the only provider of electricity distribution services to the customers from 41 municipalities of Lithuania, therefore management believes that the period of customer relations is close to infinite. As a result, the average useful life of gas equipment installed by the Group upon customer connection is used as the best estimate of the period over which the customer connection fees are recognised as income.

Impairment of amounts receivable Impairment losses for amounts receivables are determined based on the management’s estimates on recoverability and timing relating to the amounts that will not be collectable according to the original terms of receivables. This determination requires significant judgement. Judgement is exercised based on significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments. Current estimates of the management could change significantly as a result of change in situation in the market and the economy as a whole. Recoverability rate also highly depends on success rate and actions employed relating to recovery of significantly overdue amounts receivable. Amounts receivable are assessed to determine their value and impairment individually or collectively in a group of similar receivables. In case of individually assessed receivables for impairment, the Group takes into account the available or accessible data from external sources of information on market trends and forecasts, the possible credit enhancements (collateral) provided for receivables and events providing evidence of impairment of receivables such as, for example, fulfilment of contractual terms, the borrower's actual performance, etc. In case of collectively assessed receivables for impairment, the Group takes into account the historical statistics, and reviews annually whether the provisioning rates used for collectively assessed receivables are in line with the historical data of impairment of receivables, and that the provisioning rates used for collectively assessed receivables are approved for the upcoming year. Provisions for the utilisation of emission allowances The Group estimates provisions for utilisation of emission allowances based on the actual emissions over the reporting period multiplied by the market price for one unit of emission allowances. The quantity of actual emissions is approved by a responsible state authority during four months after the end of the year. Based on historic experience, the Group’s management does not expect any significant differences to arise between the estimated provision at 31 December 2015 and the quantity of emissions which will be approved in 2016. Accrued revenue from PSO service fees The variable part of PSO service fees is estimated with reference to variable costs incurred during the reporting period. The producers ensuring the security of electric power supply and reserves of energy system, submit their PSO service fee estimates to the Commission which include breakdown of variable electric power production costs – natural gas, heavy fuel oil, emission allowance costs, and costs for reagent desulphurisation. The variable part of PSO service fees for the upcoming calendar year is estimated based on the expected variable costs for the production of the approved quota of the sponsored electricity. In view of the differences between the approved and actual costs of regulated activity in 2015 and restatements for the effects of the legally disputed resolutions of the Commission on revenue from regulated activities for 2015, the management of the Group recognised refundable PSO amount of EUR 7,018 thousand as at 31 December 2015 within ‘Other non-current amounts payable and liabilities‘ to be compensated during 2017 (31 December 2014: refundable amount of EUR 14,706 thousand within ‘Other non-current amounts payable and liabilities“ to be compensated during 2016) (Note 24).

99 ANNUAL FINANCIAL STATEMENTS 2015 | Critical accounting estimates and judgements used in the preparation of the financial statements


Accrued revenue from capacity reserve services Based on Methodology for establishing the prices for electricity and capacity reserve services approved by Resolution No. O3-229 of the Commission, the Group’s management accounted for receivable amount of capacity reserve services equal to EUR 533 thousand as at 31 December 2015 under the line item ‘Other non-current amounts payable and liabilities’ to be compensated during 2017 (Note 10) (31 December 2014: receivable amount of capacity reserve services equal to EUR 697 thousand was recognised under the line item ‘Other amounts receivable after one year’ to be compensated during 2016).

5 Reclassification of comparative information As from 2015, the Group reports the costs of purchases of gas for trade within ‘Purchases of electricity, gas for trade and related services‘. Until 31 December 2014, these costs were reported together with the costs of ‘Purchases of gas and heavy fuel oil‘. In order to ensure comparability of information, the comparative figures (for 2014) were reclassified. As from 2015, the Group reports the costs of subcontracting and material for construction work within ‘Repair and maintenance expenses‘ in the statement of comprehensive income. Until 31 December 2014, these costs were reported within ‘Other expenses‘. In order to ensure comparability of information, the comparative figures (for 2014) were reclassified.

Before reclassification Sales revenue Other income Total revenue Purchases of electricity, gas for trade or related services Purchases of gas and heavy fuel oil for production Depreciation and amortisation Wages and salaries and related expenses Repair and maintenance expenses Revaluation of non-current assets Other expenses Total operating expenses Operating profit (loss)

926,065 46,624 972,689

Reclassification of purchases of gas for trade -

2014 Reclassification of subcontracting and material for constructio n work -

Before reclassification 926,065 46,624 972,689

(387,673)

(148,854)

-

(536,527)

(224,707) (131,917)

148,854 -

-

(131,917)

(76,534) (29,924) (416,501) (96,344) (1,363,600) (390,911)

-

(4,797) 4,797 -

(76,534) (34,721) (416,501) (91,547) (1,363,600) (390,911)

Before reclassification Negative goodwill on acquisition of Lietuvos Dujos AB Share of result of investment under the equity method Re-measurement of investment under the equity method Finance income Finance costs Share of results of other associates

Reclassification of purchases of gas for trade

2014 Reclassification of subcontracting and material for constructio n work

Before reclassification

44,660

-

-

44,660

43,209

-

-

43,209

(28,379) 5,422 (7,824) 291

-

-

(28,379) 5,422 (7,824) 291

Profit (loss) before tax Current year income tax expense Deferred income tax (expense)/income Net profit (loss)

(333,532) (15,394)

-

-

(333,532) (15,394)

68,965 (279,961)

-

-

68,965 (279,961)

Attributable to: Owners of the parent Non-controlling interests

(261,428) (18,533)

-

-

(261,428) (18,533)

Total other comprehensive income (loss)

(165,819)

-

-

(165,819)

Total comprehensive income (loss) for the year

(445,780)

-

-

(445,780)

Attributable to: Owners of the parent Non-controlling interests

(417,972) (27,808)

-

-

(417,972) (27,808)

(75,853)

100 ANNUAL FINANCIAL STATEMENTS 2015 | Reclassification of comparative information


6 Intangible assets Group At 31 December 2013 Acquisition cost Accumulated amortisation Net book amount Net book amount at 31 December 2013 Additions Reclassified to/from PP&E Increase on acquisition of subsidiary Emission allowances utilised/Write-offs Grant received Disposals Impairment Revaluation of emission allowances Amortisation charge Net book amount at 31 December 2014 At 31 December 2014 Acquisition cost Accumulated amortisation Net book amount Net book amount at 31 December 2014 Additions Reclassified to/from PP&E Write-offs Emission allowances utilised Revaluation of emission allowances Return of emission allowances lent Grant received (emission allowances) Amortisation charge Net book amount at 31 December 2015 At 31 December 2015 Acquisition cost Accumulated amortisation Net book amount

Patents and licenses

Computer software

Emission allowances

Other intangible assets

Goodwill

Total

265 (25) 240

5,319 (3,522) 1,797

8,313 8,313

1,340 (116) 1,224

51,676 (94) 51,582

66,913 (3,757) 63,156

240 1,164 29 313 (390) 1,356

1,797 266 1,968 314 (75) (1,069) 3,201

8,313 (2,908) 2,328 2,798 10,531

1,224 691 (1,635) (4) (30) 246

51,582 (51,582) -

63,156 2,121 362 627 (2,908) 2,328 (79) (51,582) 2,798 (1,489) 15,334

2,891 (1,535) 1,356

9,395 (6,194) 3,201

10,531 10,531

526 (280) 246

-

23,343 (8,009) 15,334

1,356 87 1 (592) 852

3,201 403 1,501 (91) (1,746) 3,268

10,531 (2,992) 2,144 4,615 2,140 16,438

246 2,191 (1,423) (33) 981

-

15,334 2,681 79 (91) (2,992) 2,144 4,615 2,140 (2,371) 21,539

2,836 (1,984) 852

10,760 ( 7,492) 3,268

16,438 16,438

1,259 ( 278) 981

-

31,293 (9,754) 21,539

As at 31 December 2014, as part of valuation of assets of LESTO AB, the Group tested goodwill for impairment and wrote off full amount of goodwill of EUR 51,582 thousand.

101 ANNUAL FINANCIAL STATEMENTS 2015 | Intangible assets


The fair value of emission allowances is determined with reference to the prices available on the active market, and accordingly, it is within Level 1 of the fair value hierarchy. At the end of each reporting period, emission allowances are measured with reference to year-end market prices, with resulting differences included in operating expenses. In 2015, the Group did not capitalise any emission allowances. In 2014, as part of testing of the Biofuel Boiler House, the Group capitalised the emission allowances utilised during the testing by adding their value of EUR 4 thousand to the cost of the Biofuel Boiler House. The Group and the Company have no internally generated intangible assets.

7 Property, plant and equipment

Group

At 31 December 2013 Cost or revalued amount Accumulated depreciation Accumulated impairment Net book amount Net book amount at 31 December 2013 Additions Increase on acquisition of subsidiary Revaluation Disposals Write-offs Impairment Reversal of impairment Reclassifications between categories Reclassified to assets, intangible assets Reclassified to assets held for sale Reclassified from (to) inventories Reclassified to investment property Depreciation charge Reclassified to finance lease Net book amount at 31 December 2014 At 31 December 2014 Cost or revalued amount Accumulated depreciation Accumulated impairment Net book amount

Land

Buildings

Structures and machinery

Gas distribution pipelines and related installations

Gas technological equipment and installations

Structures and machinery of Hydro Power Plant, Pumped Storage Power Plant

-

-

203,770 (63,505) 140,265

952,131 (348,912)

2,011 2,011

129,743 (25,022) (7) 104,714

1,620,758 (416,158) 1,204,600

2,011

104,714

1,204,600

-

-

-

198 14,986 (45,625) (373) (81) (383) 1 817 60 (2,074) (6,291)

1,169 1,212 (560,866) (145) (3,820) (50) 102,044 ( 90,233) -

255 100,102 (132) 174 5,970 (1,558) -

4,336 (26) (8) 13 518 (222) -

2,011

66,948

653,911

104,811

2,011 2,011

68,190 (1,242) 66,948

658,802 (4,891) 653,911

106,368 (1,557) 104,811

Structures and machinery of Thermal Power Plant

Motor vehicles

IT and telecommu nication equipment

Other PP&E

603,219

26,794 (11,137) 15,657

19,964 (10,262) 9,702

33,036 (13,742) ( 2) 19,292

140,265

603,219

15,657

9,702

36 557 55 (7,900) -

287 (139) (11,461) 1,680 284 (25,373) -

4,808 3,274 (1,063) (488) (421) (2,873) (1,106)

5,899 758 56 (259) (4) 107 (9) (2,837) -

4,611

133,013

568,497

17,788

4,833 (222) 4,611

204,418 (71,405) 133,013

921,772 (341,814) (11,461) 568,497

19,330 (1,542) 17,788

Construction in progress

Total

27,448 (7,280) 20,168

3,015,655 (888,738) (7,289) 2,119,628

19,292

20,168

2,119,628

392 4,580 (9,495) (6) (6) 2,232 (5,104) -

138,371 1,061 (51) (114,925) (423) -

151,415 130,309 (616,993) (1,436) (4,102) (11,720) 13 (363) (421) 330 (2,074) (142,391) (1,106)

13,413

11,885

44,201

1,621,089

24,283 (10,870) 13,413

13,382 (1,497) 11,885

44,424 (223) 44,201

2,067,813 (435,040) (11,684) 1,621,089

(Cont’d on the next page)

102 ANNUAL FINANCIAL STATEMENTS 2015 | Property, plant and equipment


Group

Net book amount at 31 December 2014 Additions Revaluation Disposals Write-offs Reclassifications between groups Reclassified to assets, intangible assets Reclassified to assets held for sale Reclassified to investment property Reclassified to finance lease Reclassified from (to) inventories Impairment Reversal of impairment Depreciation charge Net book amount at 31 December 2015 At 31 December 2015 Cost or revalued amount Accumulated depreciation Accumulated impairment Net book amount

Land

Buildings

2,011

Structures and machinery

Gas distribution pipelines and related installations

Gas technological equipment and installations

Structures and machinery of Hydro Power Plant, Pumped Storage Power Plant

Structures and machinery of Thermal Power Plant

Motor vehicles

IT and telecommu nication equipment

Other PP&E

Construction in progress

Total

-

66,948 44 1,308 (612) (14) 3,658 (11,973) (3,380)

653,911 1,133 125 (56) (2,605) 109,715 (559) (32,093)

104,811 15 (2) 9,018 (3,232)

4,611 (2) 515 (454)

133,013 18 722 28 (7,954)

568,497 1,045 34,572 175 (36,734) 148 (25,426)

17,788 7,325 (29) (330) (1) 10 (46) (1,957) 48 (6) (4,923)

13,413 1,274 (93) (15) 8,036 (15) (3) (4,704)

11,885 377 (424) (17) (3,863) (1,902)

44,201 136,508 (21) (43) (162,383) (64) 146 -

1,621,089 147,739 1,404 (1,536) (2,699) (79) (46) (12,532) (1,957) 394 (36,740) 148 (84,068)

2,011

55,979

729,571

110,610

4,670

125,827

542,277

17,879

17,893

6,056

18,344

1,631,117

2,011 2,011

60,698 (4,719) 55,979

766,198 (36,627) 729,571

115,398 (4,788) 110,610

5,344 (674) 4,670

205,122 (79,295) 125,827

887,174 (307,330) (37,567) 542,277

23,801 (5,922) 17,879

34,604 (16,711) 17,893

8,145 (2,089) 6,056

18,567 ( 223) 18,344

2,127,062 (458,155) (37,790) 1,631,117

In 2015 and 201, the Group's property, plant and equipment (excluding structures and machinery of Hydro Power Plant, Pumped Storage Power Plant and Thermal Power Plant (Combined Cycle Unit, Reserve Power Plant), gas distribution pipelines, gas technological equipment and IT and telecommunication equipment) was accounted for at revalued amount.

103 ANNUAL FINANCIAL STATEMENTS 2015 | Property, plant and equipment


Company At 31 December 2013 Cost or revalued amount Accumulated depreciation Accumulated impairment Net book amount Net book amount at 31 December 2013 Additions Acquisition cost of assets transferred to VAE SPB UAB Reversal of impairment of assets transferred to VAE SPB UAB Depreciation charge Net book amount at 31 December 2014

Other PP&E

Construction in progress

Information on valuations carried out by other subsidiaries in previous periods is presented in Note 4.

Total

The table below contains information on the results of revaluation performed in 2015:

25 (15) 10

7,057 (7,057) -

7,082 (15) (7,057) 10

10 3

-

10 3

(7,048)

(7,048)

7,048

7,048

-

(4) 9

(4) 9

Group

Increase (decrease) in carrying amount

Net book amount at 31 December 2014 Additions Depreciation charge Net book amount at 31 December 2015 At 31 December 2015 Cost or revalued amount Accumulated depreciation Net book amount

28 (19) 9

-

28 (19) 9

9 (3) 6

280 280

9 280 (3) 286

28 (22) 6

280 280

308 (22) 286

In 2015, the Group performed valuation of assets of Kauno Energetikos Remontas UAB that are stated at revalued amount. The valuation was carried out by independent property valuers using the sales comparison approach (analogous sale price) for the category of immovable property. For other categories of assets, the sales comparison approach and the replacement cost approach were used in parallel. The impairment test of assets, the valuation of which was based on the replacement cost approach, showed that there were no indications of possible impairment. In November 2015, the Group company NT Valdos UAB performed revaluation of its buildings and structures with reference to the Reports on Assessment of Market Value of Immovable Property prepared by independent property valuer InReal UAB. In September 2015, the Group company Lietuvos Dujos AB performed revaluation of its buildings with reference to the value determined by independent property valuers – Korporacija Matininkai UAB and Ober - Haus Nekilnojamas Turtas UAB. The valuation was based on the sales comparison approach.

104 ANNUAL FINANCIAL STATEMENTS 2015 | Property, plant and equipment

Recognised in profit or loss

Total revaluation effect

1,274

130

1,404

1,274

130

1,404

The table below contains information on the results of revaluation performed in 2014:

Group At 31 December 2014 Cost or revalued amount Accumulated depreciation Net book amount

Decrease in other comprehensive income and revaluation reserve in equity

Increase (decrease) in carrying amount Grants written off

Decrease in other comprehensive income and revaluation reserve in equity

Recognised in profit or loss

Total revaluation effect

(195,169)

(421,824)

(616,993)

(195,169)

5,323 (416,501)

5,323 (611,670)


In the opinion of management, the carrying amount of principally all assets stated at revalued amount as at 31 December 2015 did not differ significantly from their fair value. The table below presents the distribution of the Group’s property, plant and equipment based on fair value hierarchy levels as at 31 December 2015 (see Note 2.30 for the description of fair value hierarchy levels).

Group

Level 1 Quoted prices in active markets

Land Buildings Structures and machinery Motor vehicles Other property, plant and equipment Construction in progress Total

Level 2 Other directly or indirectly observable inputs

Level 3 Unobservable inputs

Total

-

1,880 6,891

79 49,088

1,959 55,979

Construction in progress and other PP&E were mostly attributed to Level 3 of fair value hierarchy. The valuation of assets within Level 3 was based on the income approach.

-

3,078 16,881

725,519 971

728,597 17,852

During 2015, the Group companies capitalised interest expenses of EUR 111 thousand on borrowings intended to finance development of non-current assets (2014: EUR 348 thousand) The average capitalised interest rate was 0.29% (2014: 1.20%).

-

118

5,475

5,593

-

28,848

12,297 793,429

12,297 822,277

The Group has significant commitments to purchase property, plant and equipment to be fulfilled in later periods. As at 31 December 2015, the Group‘s commitments to purchase or construct property, plant and equipment amounted to EUR 20.1 million (31 December 2014: EUR 17.7 million).

Level 1

Land Buildings Structures and machinery Motor vehicles Other property, plant and equipment Construction in progress Total

Structures and machinery were attributed to Levels 2 and 3 of fair value hierarchy. The valuation of assets within Level 2 was based on the market approach and cost approach. The valuation of assets within Level 3 was based on the income approach. The valuation was based on data and information available to the valuer to make accurate forecasts of future cash flows. Motor vehicles were attributed to Levels 2 and 3 of fair value hierarchy. The valuation was based on the market approach and cost approach.

The table below presents distribution of the Group’s property, plant and equipment based on fair value hierarchy levels as at 31 December 2014 (see Note 2.30 for the description of fair value hierarchy levels).

Group

Buildings were attributed to Levels 2 and 3 of fair value hierarchy. The valuation of buildings attributed to Level 2 was based on the market approach and cost approach. The valuation of assets attributed to Level 3 was based on the income approach.

Quoted prices in active markets -

Level 2 Other directly or indirectly observable inputs

Level 3 Unobservable inputs

8 Investment property Group

Investment property

Total

1,880 22,720

79 44,227

1,959 66,947

-

5,150

648,751

653,901

-

17,426

237

17,663

-

282

11,418

11,700

-

47,458

11,281 715,993

11,281 763,451

Land was mostly attributed to Level 2 of the fair value hierarchy. The valuation was based on the market approach and cost approach.

105 ANNUAL FINANCIAL STATEMENTS 2015 | Investment property

As at 31 December 2015, the Group had pledged to the banks its property, plant and equipment in amount of EUR 345,297 thousand (31 December 2014: EUR 333,298 thousand) (Note 19).

Carrying amount at 31 December 2013 Reclassified to assets held for sale Reclassification from property, plant and equipment Increase in value Decrease in value Carrying amount at 31 December 2014

35.225 (209) 2,074 585 (281) 37,394

Carrying amount at 31 December 2014 Reclassification from property, plant and equipment Increase in value Decrease in value Carrying amount at 31 December 2015

37,394 12,532 515 (1,922) 48,519

In 2015, the Group's income from lease of investment property amounted to EUR 2,652 thousand (2014: EUR 2,315 thousand). In 2015 and 2014, the Company had no investment property.


The table below presents distribution of the Group’s investment property based on fair value hierarchy levels as at 31 December 2015 (see Note 2.30 for the description of fair value hierarchy levels). Level 1 Group

Level 2 Other directly or indirectly observable inputs

Quoted prices in active markets

Level 3 Unobservable inputs

Total

Buildings Structures

-

-

47,148 1,371

47,148 1,371

Total

-

-

48,519

48,519

The table below presents distribution of the Group’s investment property based on fair value hierarchy levels as at 31 December 2014 (see Note 2.30 for the description of fair value hierarchy levels). Level 1 Group

Buildings Structures Total

Level 2 Other directly or indirectly observable inputs

Quoted prices in active markets

-

Level 3 Unobservable inputs

-

36.713 681 37.394

Total

36.713 681 37.394

The fair value of investment property as at 31 December 2015 and 2015 was determined in December 2015 and 2014, respectively. Valuations were carried out by independent property valuers using the market approach and income approach. Investment property is attributed to Level 3 of fair value hierarchy. The valuation was based on data and information available to the valuer for making accurate forecasts of future cash flows. Future cash inflows were estimated with reference to comparable object rental prices, adjusted for location, condition and other factors affecting the value, and with reference to the actual rental prices of the subject object, adjusted for the occupancy rate. In the opinion of the Group's management, the value of investment property determined using the above-mentioned approach approximated its fair value as at 31 December 2015 and 2014.

9 Investments in subsidiaries and associates

prices for end users of electricity. The authorised share capital of these companies is equal to EUR 2,900 each, divided into 10,000 shares with the nominal value of EUR 0.29 each. The subscribed shares were paid up on 20 February 2015. On 31 March 2015, the Company signed a sale-purchase agreement of shares with Lietuvos Energijos Gamyba AB, under which the Company acquired 100% (15,244,112) of ordinary registered shares of Kauno Energetikos Remontas UAB and 100% (750,000) of ordinary registered shares of Energijos Tiekimas UAB. The acquisition cost of shares of Kauno Energetikos Remontas UAB amounted to EUR 4,778 thousand, and the acquisition cost of shares of Energijos Tiekimas UAB amounted to EUR 6,883 thousand. Following this transaction, the Company still has indirectly controlled subsidiaries Geton Energy SIA and Geton Energy OU. The shares were acquired for the market value of shareholding determined by independent property valuer. As described in Note 4, the acquisition cost of Kauno Energetikos Remontas UAB was reduced by EUR 436 thousand as at 31 December 2015 in view of the fact that the loss from biofuel boiler house project increased. On 31 March 2015, the Company signed a sale-purchase agreement of shares with LESTO AB, under which the Company acquired 100% (18,904) of ordinary registered shares of ELEKTROS TINKLO PASLAUGOS UAB. The shares were acquired for the market value of shareholding of EUR 7,695 thousand, which was determined by independent property valuer. On 27 April 2015, the Company signed a sale-purchase agreement of shares with its subsidiaries and with Litgrid AB, under which the Company acquired the shares of NT Valdos UAB, which was indirectly controlled before that date. The shares were acquired for the market value of shareholding determined by independent property valuer. The table below present information on acquisition of the shares of NT Valdos UAB: Company from which the shares of NT Valdos UAB were acquired

LESTO AB Lietuvos Energijos Gamyba AB Duomenų Logistikos Centras UAB Litgrid AB Total

Number of shares

Ownership interest, %

Base purchase price

Price premium (Note 4)

1,692,666

57,30

41,176

11,120

1,232,897

41,73

29,987

8,099

17,384 10,193 2,953,140

0,59 0,35 99,97

424 252 71,839

114 67 19,400

Acquisition and establishment of subsidiaries On 19 February 2015, new companies were established: Vilniaus Kogeneracinė Jėgainė UAB (Cogeneration Power Plant in Vilnius) and Kauno Kogeneracinė Jėgainė UAB (Cogeneration Power Plant in Kaunas). Their activity is focused on modernisation of heat sectors in Vilnius and Kaunas by building a complex of cogeneration power plants that use waste and biofuel. The new power plants will generate significant volume of energy at a competitive price enabling to ensure more favourable

The recognised price premium for the shares of NT Valdos UAB amounting EUR 19,400 thousand and payable 2019, was discounted to the present value at an average interest rate of 2.65% published by the Bank of Lithuania (Note 4), and the discounting effect on initial recognition of investment amounted to EUR 1,895 thousand. As a result of these transactions, Lietuvos Energija UAB acquired 100% control over the shares of NT Valdos UAB.

106 ANNUAL FINANCIAL STATEMENTS 2015 | Investments in subsidiaries and associates


On 19 August 2015, the Company signed a sale-purchase agreement of shares with Kauno Energetikos Remontas UAB, under which the Company acquired 100% (100) of ordinary registered shares of Gotlitas UAB. The acquisition cost of shares amounted to EUR 61 thousand. In October 2015, Gotlitas UAB was renamed to Elektroninių Mokėjimų Agentūra UAB. Elektroninių Mokėjimų Agentūra UAB is engaged in the provision of payment collection services. An agreement between Lietuvos Energija UAB and FORTUM HEAT LIETUVA UAB came into force on 15 October 2015 in relation to Kauno Kogeneracinė Jėgainė UAB, under which the commitment of partners and joint business conditions were confirmed for making joint investments in a new Cogeneration Power Plant in Kaunas. It is planned to construct a new highly-efficient cogeneration power plant in Kaunas that will use waste as fuel, with electricity capacity of 24 MW, and thermal power generation capacity of 70 MW. It is indicated in the agreement that upon the completion of the transaction, Lietuvos Energija UAB will control 51% of shares of Kauno Kogeneracinė Jėgainė UAB, whereas FORTUM HEAT LIETUVA UAB will control accordingly 49% of its shares. The authorised share capital of Kauno Kogeneracinė Jėgainė UAB will be partly increased from in-kind contributions following the estimation of their fair value, whereas the remaining part will be settled in cash contributions. The European Commission’s authorisation in relation to concentration of operations was obtained on 23 November 2015, and increase in share capital was initiated in 2016 (Note 38). On 6 November 2015, Lietuvos Dujos AB and Amber Grid AB signed a sale-purchase agreement of shares, under which Lietuvos Dujos AB sold the shares of GET Baltic UAB to Amber Grid AB, representing 34% of share capital of GET Baltic UAB. The shares were sold for the market value of the shareholding of EUR 131 thousand, which was determined by independent property valuer.

Following the registration of updated Articles of Association on 14 October 2015, the share capital of Energijos Tiekimas UAB was increased by issuing 782,500 ordinary registered intangible shares with the nominal value of EUR 1 each. On 23 December 2015, the share capital of Energijos Tiekimas UAB was increased by issuing 16,240,000 ordinary registered intangible shares with the nominal value of EUR 1 each. As at 31 December 2015, the unpaid part of the share capital amounted to EUR 7,240 thousand. On 24 August 2015, the Company made a decision to increase the share capital of Elektroninių Mokėjimų Agentūra UAB by issuing 347,104 ordinary registered shares with the total issue price of EUR 347 thousand, i.e. the share capital of Elektroninių Mokėjimų Agentūra UAB was increased up to EUR 350 thousand. On 28 August 2015, the amendments to the Articles of Association of Elektroninių Mokėjimų Agentūra UAB were registered with the Register of Legal Entities. On 26 October 2015, the Company made a decision to increase the share capital of Elektroninių Mokėjimų Agentūra UAB by issuing 350,000 ordinary registered shares with the total issue price of EUR 350 thousand, i.e. the share capital of Elektroninių Mokėjimų Agentūra UAB was increased up to EUR 700 thousand. As at 31 December 2015, the unpaid part of the share capital amounted to EUR 263 thousand. On 6 November 2015, the amendments to the Articles of Association of Elektroninių Mokėjimų Agentūra UAB were registered with the Register of Legal Entities.

Increase and decrease in share capital Based on the decision of the sole shareholder on 24 April 2015, the share capital of ELEKTROS TINKLO PASLAUGOS UAB was reduced by way of annulment of 10,000 thousand ordinary registered shares with the nominal value of EUR 0.29 each. The total value of all annulled shares was EUR 2,900 thousand. The updated Articles of Association were registered and a decrease in the share capital was accounted for on 20 July 2015. On 4 July 2015, the share capital of Vilniaus Kogeneracinė Jėgainė UAB was increased up to EUR 1,004 thousand by way of issuing 3,450,000 ordinary registered shares.

107 ANNUAL FINANCIAL STATEMENTS 2015 | Investments in subsidiaries and associates


The Group's structure as at 31 December 2015:

Company name

Country of business

Company type

Group's effective ownership interest, % (equal to percentage of voting rights) -

Non-controlling interest's effective ownership interest, % (equal to percentage of voting rights) -

Profile of activities

Lietuvos Energija UAB

Lithuania

Parent company

Lietuvos Energijos Gamyba AB

Lithuania

Subsidiary

96.13

3.87

Holding company Electricity generation, supply, import, export and trade

LESTO AB

Lithuania

Subsidiary

94.39

5.61

Electricity supply and distribution to end users

Lietuvos Dujos AB

Lithuania

Subsidiary

96.64

3.36

Provision of natural gas distribution services, rational development of natural gas distribution infrastructure

NT Valdos UAB

Lithuania

Subsidiary

100.00

-

Duomenų Logistikos Centras UAB

Lithuania

Subsidiary

79.64

20.36

Elektros Tinklo Paslaugos UAB

Lithuania

Subsidiary

100.00

-

Construction, repair and maintenance of electricity networks and related equipment, connection of customers to the grid

Kauno Energetikos Remontas UAB

Lithuania

Subsidiary

100.00

-

Repairs of energy equipment, manufacturing of metal structures

LITGAS UAB

Lithuania

Subsidiary

66.67*

33.33*

Elektroninių Mokėjimų Agentūra UAB (formerly Gotlitas UAB)

Lithuania

Subsidiary

100.00

-

Energijos Tiekimas UAB

Lithuania

Subsidiary

100.00

-

Supply of electricity and natural gas

Energetikų Mokymo Centras VŠĮ

Lithuania

Subsidiary

100.00

-

Professional training and development of energy specialists

Geton Energy OU

Estonia

Indirectly controlled subsidiary

100.00

-

Electricity supply

Geton Energy SIA

Latvia

Indirectly controlled subsidiary

100.00

-

Electricity supply

Technologijų ir Inovacijų Centras UAB

Lithuania

Subsidiary

97.80

2.20

VAE SPB UAB

Lithuania

Subsidiary

100.00

-

Verslo Aptarnavimo Centras UAB

Lithuania

Subsidiary

97.00

3.00

Lietuvos Dujų Tiekimas UAB

Lithuania

Subsidiary

100.00

-

Purchase (import) of natural gas and sales to end users

Lithuanian Energy Support Fund

Lithuania

Subsidiary

100.00

-

Provision of support for projects, initiatives and activities of public interest

Vilniaus Kogeneracinė Jėgainė UAB

Lithuania

Subsidiary

100.00

-

Modernisation of district heating sector in Vilnius city

Kauno Kogeneracinė Jėgainė UAB

Lithuania

Subsidiary

100.00

-

Modernisation of district heating sector in Kaunas city

Disposition of real estate, other related activities and provision of related services; lease of motor vehicles and provision of related services IT and telecommunication support services

Supply of liquefied natural gas via terminal and trade in natural gas Provision of payment collection services

IT and telecommunication support services Business and other management consultations; development of a new nuclear power plant project in Visaginas Public procurement, accounting and employment relations administration services

* The Group’s effective ownership interest is equal to the percentage of voting rights held, except for LITGAS UAB, in which the Group holds 100% of voting rights.

108 ANNUAL FINANCIAL STATEMENTS 2015 | Investments in subsidiaries and associates


The Group's structure as at 31 December 2014:

Company name

Country of business

Company type

Group's effective ownership interest, % (equal to percentage of voting rights) -

Non-controlling interest's effective ownership interest, % (equal to percentage of voting rights) -

Profile of activities

Lietuvos Energija UAB

Lithuania

Parent company

Lietuvos Energijos Gamyba AB

Lithuania

Subsidiary

96.13

3.87

Electricity generation, supply, import, export and trade

LESTO AB

Lithuania

Subsidiary

94.39

5.61

Electricity supply and distribution to end users

Lietuvos Dujos AB

Lithuania

Subsidiary

96.64

3.36

Provision of natural gas distribution services, rational development of natural gas distribution infrastructure Disposition of real estate, other related activities and provision of related services; lease of motor vehicles and provision of related services

Lithuania

Indirectly controlled subsidiary

94.71

5.29

Lithuania

Subsidiary

79.64

20.36

Elektros Tinklo Paslaugos UAB

Lithuania

Indirectly controlled subsidiary

94.39

5.61

Kauno Energetikos Remontas UAB

Lithuania

Indirectly controlled subsidiary

96.13

3.87

LITGAS UAB

Lithuania

66.67*

33.33*

Gotlitas UAB (renamed to Elektroninių Mokėjimų Agentūra UAB as from October 2015)

Lithuania

Indirectly controlled subsidiary

96.13

3.87

Lithuania

Indirectly controlled subsidiary

96.13

3.87

Lithuania

Subsidiary

100.00

-

Geton Energy SIA

Latvia

Indirectly controlled subsidiary

96.13

3.87

Geton Energy OU

Estonia

Indirectly controlled subsidiary

96.13

3.87

Technologijų ir Inovacijų Centras UAB

Lithuania

Subsidiary

97.80

2.20

Subsidiary

100

-

Subsidiary

97.00

3.00

NT Valdos UAB Duomenų Logistikos Centras UAB

Energijos Tiekimas UAB Energetikų Mokymo Centras VŠĮ

VAE SPB UAB Verslo Aptarnavimo Centras UAB

Lithuania Lithuania

Subsidiary

Holding company

IT and telecommunication support services Construction, repair and maintenance of electricity networks and related equipment, connection of customers to the grid Repairs of energy equipment, manufacturing of metal structures Supply of liquefied natural gas via terminal and trade in natural gas Accommodation services Supply of electricity and natural gas Professional training and development of energy specialists Electricity supply Electricity supply IT and telecommunication support services Business and other management consultations; development of a new nuclear power plant project in Visaginas Public procurement, accounting and employment relations administration services

Lietuvos Dujų Tiekimas UAB

Lithuania

Subsidiary

100

-

Purchase (import) of natural gas and sales to end users

Lithuanian Energy Support Fund

Lithuania

Subsidiary

100

-

Provision of support for projects, initiatives and activities of public interest

* The Group’s effective ownership interest is equal to the percentage of voting rights held, except for LITGAS UAB, in which the Group holds 100% of voting rights.

109 ANNUAL FINANCIAL STATEMENTS 2015 | Investments in subsidiaries and associates


As at 31 December 2015, the Company held ownership interest in the following Group companies: Group company Subsidiaries: LESTO AB Lietuvos energijos gamyba AB Lietuvos dujos AB NT Valdos UAB Energijos tiekimas UAB LITGAS UAB ELEKTROS TINKLO PASLAUGOS UAB Kauno energetikos remontas UAB Duomenų logistikos centras UAB Technologijų ir inovacijų centras UAB VAE SPB UAB Lietuvos dujų tiekimas UAB Elektroninių mokėjimų agentūra UAB Energetikų mokymo centras VšĮ Verslo aptarnavimo centras UAB Lithuanian Energy Support Fund Vilniaus kogeneracinė jėgainė UAB Kauno kogeneracinė jėgainė UAB

Acquisition cost

Impairment

538,874 294,832 172,047 89,373 16,666 8,689 4,795 4,342 7,268 3,218 1,018 869 495 309 295 3 1,004 3 1,144,100

(16,869) (20,436) (1,092) (2,563) (1,168) (42,128)

Contribution against loss

314 314

Carrying amount

522,005 294,832 151,611 89,373 16,666 7,597 4,795 4,342 4,705 3,218 164 869 495 309 295 3 1,004 3 1,102,286

Ownership interest (%)

94.39 96.13 96.64 100.00 100.00 66.67 100.00 100.00 79.64 50.00 100.00 100.00 100.00 100.00 51.00 100.00 100.00 100.00

As at 31 December 2014, the Company held ownership interest in the following Group companies: Group company Subsidiaries: LESTO AB Lietuvos energijos gamyba AB Lietuvos dujos AB LITGAS UAB Duomenų logistikos centras UAB Technologijų ir inovacijų centras UAB VAE SPB UAB Lietuvos dujų tiekimas UAB Energetikų mokymo centras VšĮ Verslo aptarnavimo centras UAB Lithuanian Energy Support Fund

Investments: NT Valdos UAB

Acquisition cost

Impairment

Contribution against loss

Carrying amount

538,874 294,832 172,047 8,689 7,268 3,218 293 869 309 295 3

(55,781) (2,563) -

4 -

483,093 294,832 172,047 8,689 4,705 3,218 297 869 309 295 3

1,026,697

(58,344)

4

968,357

29 29 1,026,726

(58,344)

4

29 29 968,386

110 ANNUAL FINANCIAL STATEMENTS 2015 | Investments in subsidiaries and associates

Ownership interest (%)

94.39 96.13 96.64 66.67 79.64 97.80 100.00 100.00 100.00 97.00 100.00

0.03


The Group's investments in associates and joint ventures as at 31 December 2015 and 2014 were as follows: 2015 2014 Group's Group's Group Carrying Carrying interest interest amount amount (%) (%) Geoterma UAB GET Baltic UAB Nordic Energy Link AS Total Group’s share of loss of associates Carrying amount

2,142 (2,142) -

23.44 -

2,142 123 2,265 (2,142) 123

23.44 34.00 25.00

Movements on the account of investments in associates and joint ventures during the periods ended 31 December 2015 and 2014 were as follows: Group Carrying amount at 1 January Acquisition of joint venture on business combination Disposal/liquidation of associate Dividends received from associate Share of result of associates and joint ventures Carrying amount at 31 December

2015 123 (99) (24) -

2014 8,341 123 (6,417) (1,924) 123

Disposal/liquidation of associate The Group did not account for its share of loss of associate Geoterma UAB, because amount of loss exceeded the Group's cost of investment. The share of loss not recognised amounted to EUR 331 thousand (2014: EUR 254 thousand). The table below presents the financial position and financial performance results of associates as at and for the year ended 31 December 2015 (unaudited): Assets

Geoterma UAB

7,037

Liabilities

7,782

Sales revenue 1,252

Net profit/(loss) for the year (329)

On 6 November 2015, Lietuvos Dujos AB and Amber Grid AB signed a sale-purchase agreement of shares, under which Lietuvos Dujos AB sold the shares of GET Baltic UAB to Amber Grid AB, representing 34% of share capital of GET Baltic UAB. The shares were sold for the market value of the shareholding of EUR 131 thousand, which was determined by independent property valuer. On 19 March 2014, the General Meeting of Shareholders of Nordic Energy Link AS (NEL) decided to put it into liquidation. On 19 March 2014, NEL bought out 10% of shares from its shareholders on a proportionate basis. The Group sold 860,000 ordinary registered shares for LTL 1,898 thousand. On 29 December 2014, NEL bought out the remaining shares from its shareholders. The Group sold 7,740,000 ordinary registered shares for LTL 18,056 thousand. On 19 March 2014, NEL paid out dividends of LTL 6,643 thousand to the Group. Loss on liquidation of associate NEL was recognised in the Group's statement of comprehensive income within 'Finance costs'. On 31 December 2014, NEL was deregistered from the Register of Legal Entities.

The table below presents the financial position and financial performance results of associates as at and for the year ended 31 December 2014 (unaudited): Assets

Geoterma UAB GET Baltic UAB Nordic Energy Link AS

7,893 3,997 207

Liabilities

8,325 3,635 206

Sales revenue 2,094 150 96

Net profit/(loss) for the year (465) (50) (1,051)

111 ANNUAL FINANCIAL STATEMENTS 2015 | Investments in subsidiaries and associates


Summarised statement of financial position of the Group companies as at 31 December 2015 and 2014: Current assets and liabilities Total net current Liabilities assets

Company name Year AB LESTO 2015 2014 Lietuvos energijos gamyba AB 2015 2014 Lietuvos dujos AB 2015 2014 Kauno energetikos remontas UAB 2015 2014 Energijos tiekimas UAB 2015 2014 Geton Energy SIA 2015 2014 Geton Energy OÜ 2015 2014 Duomenų logistikos centras UAB 2015 2014 NT Valdos UAB 2015 2014 ELEKTROS TINKLO PASLAUGOS UAB 2015 2014 LITGAS UAB 2015 2014 Technologijų ir inovacijų centras UAB 2015 2014 Verslo aptarnavimo centras UAB 2015 2014 Lietuvos dujų tiekimas UAB 2015 2014 Elektroninių mokėjimų agentūra UAB 2015 2014

Assets

Non-current assets and liabilities Total net non-current Liabilities assets

Assets

Net assets

105,169 68,187

(200,521) (228,365)

(95,352) (160,178)

776,334 748,064

(247,907) (193,766)

528,427 554,298

433,075 394,120

129,658 120,393

(54,741) (74,286)

74,917 46,107

703,816 794,244

(435,833) (473,073)

267,983 321,171

342,900 367,278

32,326 36,817

(12,894) (7,058)

19,432 29,759

164,971 178,461

(43,665) (42,630)

121,306 135,831

140,738 165,590

10,685 14,822

(10,066) (13,503)

619 1,319

6,563 6,090

(1,813) (2,177)

4,750 3,913

5,369 5,232

21,452 11,747

(8,178) (9,174)

13,274 2,573

278 297

-

278 297

13,552 2,870

403 573

(203) (548)

200 25

-

-

-

200 27

59 29

-

59 29

-

-

-

59 29

2,534 2,221

(3,576) (791)

(1,042) 1,430

5,837 7,014

(408) (3,625)

5,429 3,389

4,387 4,819

8,073 8,539

(21,022) (2,162)

(12,949) 6,377

102,509 82,876

(1,319) (1,299)

101,190 81,577

88,241 87,954

8,216 7,656

(7,963) (3,827)

253 3,829

3,328 3,265

(85) (69)

3,243 3,196

3,496 7,025

46,358 48,982

(29,331) (37,058)

17,027 11,924

33 196

-

33 196

17,060 12,120

4,397 2,821

(2,936) (3,601)

1,461 (780)

5,262 6,522

(39) (12)

5,223 6,510

6,684 5,730

1,067 519

(637) (151)

430 368

35 -

-

35 -

465 368

92,859 112,648

(72,231) (60,447)

20,628 52,201

3,977 2,188

(2,266) (5,561)

1,711 (3,373)

22,339 48,828

482 423

(36)

482 387

14 -

-

14 -

496 387

Data in the table above have been taken from the financial statements of subsidiaries and exclude adjustments for consolidation purposes.

112 ANNUAL FINANCIAL STATEMENTS 2015 |


Summarised statement of profit or loss and other comprehensive income of the Group companies for 2015 and 2014:

Company name/ Year AB LESTO 2015 2014 Lietuvos energijos gamyba AB 2015 2014 Lietuvos dujos AB 2015 As from 30 June 2014 Kauno energetikos remontas UAB 2015 2014 Energijos tiekimas UAB 2015 2014 Geton Energy SIA 2015 2014 Geton Energy OÜ 2015 2014 Duomenų logistikos centras UAB 2015 2014 NT Valdos UAB 2015 2014 ELEKTROS TINKLO PASLAUGOS UAB 2015 2014 LITGAS UAB 2015 2014 Technologijų ir inovacijų centras UAB 2015 2014 Verslo aptarnavimo centras UAB 2015 As from 30 July 2014 Lietuvos dujų tiekimas UAB 2015 As from 2 September 2014. UAB Elektroninių mokėjimų agentūra 2015 2014

Revenue

Profit (loss) before income tax

Income tax expense (benefit)

Net profit (loss) from continuing operations

Net profit from discontinued operations

Other comprehensive income (loss)

Total comprehensive income (loss) for the year

Profit (loss) attributable to noncontrolling interest

Dividends paid to non-controlling interest

580,961 650,710

85,514 (193,552)

(12,967) 28,951

72,547 (164,601)

-

(331,480)

72,547 (496,081)

3,972 (27,830)

1,898 6,853

214,395 203,200

3,889 37,987

(4,120) (4,580)

(231) 33,407

-

-

(231) 33,407

(9) 1,292

943 2,463

56,442 84,681

15,058 (54,485)

(2,123) 11,220

12,935 (43,265)

-

443 4,914

13,378 (38,351)

449 360

1,286 1,196

32,855 31,415

(689) (3,496)

144 (21)

(545) (3,517)

-

673 -

128 (3,517)

45 (136)

-

72,290 67,229

2,406 850

(352) (108)

2,054 742

-

-

2,054 742

1,416 29

-

4,956 1,350

207 3

(31) -

176 3

-

-

173 3

-

-

205 2

30 (2)

-

30 (2)

-

-

30 (2)

-

-

4,893 5,534

(149) 505

(12) (116)

(161) 389

-

-

(161) 389

(33) 79

63 114

17,401 16,640

274 637

55 (80)

329 557

-

(36) 1,272

293 1,829

726 97

-

26,939 23,329

(697) 570

61 (127)

(636) 443

-

-

(636) 443

(602) 25

-

209,294 31,654

5,796 (808)

(873) 133

4,923 (675)

-

-

4,923 (675)

1,641 (225)

-

14,362 13,312

531 609

(74) (105)

457 504

-

-

457 504

10 11

-

3,826 331

53 (180)

12 -

65 (180)

-

-

65 (180)

2 (5)

-

226,927 81,670

(36,932) (458)

1,904 31

(35,028) (427)

-

-

(35,028) (427)

-

-

1 163

(11) 4

2 (9)

(9) (5)

-

-

(9) (5)

-

-

Data in the table above have been taken from the financial statements of subsidiaries and exclude adjustments for consolidation purposes.

113 ANNUAL FINANCIAL STATEMENTS 2015 |


Summarised statement of cash flows of the Group companies for the years 2015 and 2014:

Company name/ Year AB LESTO 2015 2014 Lietuvos energijos gamyba AB 2015 2014 Lietuvos dujos AB 2015 As from 1 July 2014 Kauno energetikos remontas UAB 2015 2014 Energijos tiekimas UAB 2015 2014 Geton Energy SIA 2015 2014 Geton Energy OÜ 2015 2014 Duomenų logistikos centras UAB 2015 2014 NT Valdos UAB 2015 2014 ELEKTROS TINKLO PASLAUGOS UAB 2015 2014 LITGAS UAB 2015 2014 Technologijų ir inovacijų centras UAB 2015 2014 Verslo aptarnavimo centras UAB 2015 As from 30 July 2014 Lietuvos dujų tiekimas UAB 2015 As from 2 September 2014 Elektroninių mokėjimų agentūra UAB 2015 2014

Cash flows from operating activities

Income tax (paid) recovered

Net cash flows from operating activities

Net cash flows from investing activities

Net cash flows from financing activities

Net increase (decrease) in cash flows

Cash and cash equivalents at the beginning of the year

Cash and cash equivalents at the end of the year

(81,188) (88,811)

(19,133) (3,489)

6,603 9,244

(8,701) (17,945)

(1,829) (1,302)

106,924 101,544 25,364 86,572

8,597 3,086

(43,535) (65,486)

(9,574) 24,172

75,750 51,578

28,411 44,156

3,049 (2,442)

31,460 41,713

(4,944) 13,649

(38,333) (35,611)

(11,817) 19,751

19,751 -

1,495 (2,881)

(29)

1,495 (2,910)

(202) (417)

(2,017) 2,199

(724) (1,128)

696 1,825

2,622 1,826

(282) (120)

2,340 1,706

219 (313)

8,621 (873)

11,180 520

2,484 1,964

260 (253)

-

260 (253)

-

(262) 288

(2) 35

58 23

31 (2)

-

31 (2)

-

-

31 (2)

28 30

1,216 (110)

(354)

1,216 (464)

(2) 3,328

(632) (10,131)

582 (7,267)

892 8,159

13,664 2,484 56 58 59 28 1,474 892

4,744 4,072

(55) 80

4,689 4,152

(11,717) (3,897)

1,490 (1)

(5,538) 254

5,605 5,351

67 5,605

3,259 1,239

(91) (53)

3,168 1,186

(552) (247)

(2,913) (68)

(297) 871

687 (184)

390 687

(19,367) (7,649)

-

(19,367) (7,649)

(29)

(2,105) 11,913

(21,472) 4,235

4,836 601

(16,636) 4,836

2,650 2,940

(378) -

2,272 2,940

(1,677) (9,103)

478 5,949

1,073 (214)

(211) 3

862 (211)

57 (254)

-

57 (254)

(3) -

31 548

85 294

294 -

379 294

(28,218) 49,369

-

(28,218) 49,369

183 13,623

849

(28,035) 63,841

63,841 -

35,806 63,841

(27) 19

(16) -

(43) 19

(12) 393

118 -

63 412

416 4

479 416

119,738 111,094

(12,814) (9,550)

27,193 87,874

Data in the table above have been taken from the financial statements of subsidiaries and exclude adjustments for consolidation purposes.

114 ANNUAL FINANCIAL STATEMENTS 2015 |

(2,098) (8,701) 66,176 75,750 7,934 19,751 (28) 696


The fair value of mortgage loans was estimated on the basis of cash flows discounted at a rate of 1.78% (2.11% as at 31 December 2014). The discount rate corresponds to the interest rate published by the Bank of Lithuania on lending facilities to non-financial institutions and households. The fair value of mortgage loans is attributed to Level 3 in the fair value hierarchy. The Group’s mortgage loans were discounted using a weighted average interest rate of 7.74% as at 31 December 2015 (2014: 7.69%). The fair values of mortgage loans are presented below:

10 Amounts receivable after one year Amounts receivable after one year consist of as follows: 2015 Mortgage loans granted Amount receivable on disposal of Litgrid AB Loan granted Unbilled accrued revenue from electricityrelated sales Finance lease. Amounts receivable on emission allowances lent Other non-current receivables Total Less: impairment allowance Carrying amount

Group 2014

2014

Company 2014

738 209,975 29,000

863 209,974 29,000

209,975 29,000

209,975 29,000

533

-

-

-

1,938

931

-

-

214

427

-

-

1,844 244,242 (1,089) 243,153

859 242,054 (1,242) 240,812

238,975 238,975

238,975 238,975

Information on the fair value of amount receivable from EPSO-G on disposal of Litgrid and a loan granted is presented in Note 3.1. In May 2014, a loan was granted and loan repayment terms were amended in relation to the disposal of shares of Litgrid AB in 2012. Based on the amended repayment terms, interest rates were reviewed and changed. On 17 June 2014, a loan subordination agreement was signed between the bank, the Company and EPSO-G UAB. Based on the agreement, the loan granted by the Company to EPSO-G UAB in amount of EUR 52,000 thousand was subordinate to the bank and to the credit agreement signed between the bank and EPSO-G UAB. On 13 May 2015, EPSO-G UAB covered its financial debt to the credit institution and the agreement between the Company and EPSO-G UAB on subordination of loans in respect of EPSO-G was treated as expired. As at 31 December 2015, amounts receivable on emission allowances lent consisted of future proceeds under the lending agreement signed with STX BV. The fair value of amounts receivable on emission allowances lent is attributed to Level 3 in the fair value hierarchy. Accrued revenue from electricity sales is attributed to Level 3 in the fair value hierarchy. The fair value of accrued revenue does not significantly differ from its carrying amount. The mortgage loans comprise loans granted to private individuals for the term of 25 years. The mortgage loans are repayable in instalments by the year 2027. The mortgage loans are secured over residential property. The current portion of these loans amounted to EUR 84 thousand (2014: EUR 76 thousand) and was accounted for under 'Other receivables' (Note 14). These loans were issued with a fixed interest rate ranging from 0.1 to 1%.

115 ANNUAL FINANCIAL STATEMENTS 2015 | Amounts receivable after one year

Group 2015 Fair value of loans granted Carrying amount of loans granted (non-current and current part)

2014

Company 2015 2014

765

854

-

-

630

708

-

-

Movements on the impairment allowance account during the years ended 31 December 2015 and 2014: Group 2015 At 1 January Impairment Reversal of impairment At 31 December

2014

1,242 (153) 1,089

1,934 (692) 1,242

Company 2015 2014 -

-

11 Other non-current assets Other non-current assets consist of as follows: Group

Right to receive emission allowances in future Less: impairment Carrying amount

Company 2015 2014

2015

2014

5,087 (1,799)

9,702 (2,128)

-

-

3,288

7,574

-

-

As at 31 December 2011, 400,000 emission allowances were lent under the terms of a lending agreement concluded on 1 December 2009 with STX Services BV. The agreement expires in 2021. On 16 April 2012, additional 650,000 emission allowances were lent under the terms of a lending agreement signed on 13 April 2012 with CF partners (UK) LLP. On 7 April 2015, CF Partners (UK) LLP returned 650,000 emission allowances. Impairment of emission allowances was estimated with reference to the market prices of emission allowances as at 31 December 2015 and 2014.


12 Inventories

The Group‘s and the Company‘s prepayments as at 31 December 2015 and 2014 were as follows: Group 2015

2014

Company 2015 2014

Group 2015

Natural gas Consumables, raw materials and spare parts Electricity and gas meters Heavy fuel oil Other Total Less: write-down allowance Carrying amount

29,471 5,979 775 5,519 1,110 42,854 (2,880) 39,974

44,246 6,332 803 4,771 818 56,970 (3,957) 53,013

-

-

The Group's inventories recognised as expenses during the year ended 31 December 2015 were as follows: Group

Natural gas Heavy fuel oil Other inventories Total

2015

2014

355,471 1,916 16,500 373,887

219,397 1,360 14,432 235,189

-

Group

Carrying amount at 1 January Additional impairment Reversal of impairment Carrying amount at 31 December

3,957 106 (1,183) 2,880

2014 4,194 504 (741) 3,957

-

-

The acquisition cost of the Group's inventories carried at net realisable value as at 31 December 2015 amounted to EUR 16,964 thousand (31 December 2014: EUR 52,244 thousand). Movements on the account of inventory write-down to net realisable value were recognised in the statement of comprehensive income within 'Other expenses'. As at 31 December 2015, the Company's subsidiary LITGAS UAB had pledged to Swedbank AB all its current inventories of goods and all rights of claim arising from sale of liquefied natural gas, as an asset complex. As at 31 December 2015, the Group's inventories pledged as collateral amounted to EUR 20,000 thousand (31 December 2014: EUR 34,665 thousand) (Note 19).

116 ANNUAL FINANCIAL STATEMENTS 2015 | Inventories

5,171 474 239 3,454 9,338

Group 2015 2014

Company 2015 2014 -

28,200 8,669 1,154 721 249 1,177 40,170

1 5

1 2

6

3

13 Trade receivables

Company 2015 2014

Movements on the account of inventory write-down to net realisable value during 2015 and 2014 were as follows: 2015

Prepayments for natural gas Deposits related to power exchange Deferred expenses Prepayments for non-current assets Prepayments for services Other prepayments Total

Company 2015 2014

2014

Receivables on sales of electricity in Lithuania Receivables on exports of electricity Receivables on sales of gas from nonhousehold users Receivables on sales of gas from household users Other trade receivables Total Less: impairment of trade receivables Carrying amount

69,706 253 30,577 2,563 16,945 120,044 (12,978) 107,066

Company 2015 2014

78,310 2,107

-

-

49,221

-

-

1,982 13,305 144,925 (14,391) 130,534

-

-

Movements on the account of provision for impairment during 2015 and 2014 were as follows: Group

Company

2015

2014

14,391 2,009 (3,422)

15,804

-

-

Impairment charge for the year Write-offs

1,592 (3,005)

-

-

At 31 December

12,978

14,391

-

-

At 1 January

2015

2014

Impairment of receivables was recognised in the statement of comprehensive income within 'Other expenses'.


The table below presents the ageing analysis of trade receivables that were not identified as doubtful: Group

Not past due Up to 30 days 30-60 days 60–90 days 90-120 days Over 120 days Carrying amount

Company 2015 2014

2015

2014

89,896 7,923 2,186 954 381 5,726 107,066

117,409 5,796 1,476 996 597 4,260 130,534

-

15 Investments Long-term investments comprise as follows:

-

Group 2015 2014 Available-for-sale financial assets

-

4,696

-

4,696

Carrying amount

-

4,696

-

4,696

Short-term investments comprise as follows: Group

The fair values of trade receivables as at 31 December 2015 and 2014 approximated their carrying amount.

14 Other amounts receivable Group 2015 2014 Value added tax Unbilled accrued revenue from electricity sales (including related VAT) Unbilled accrued revenue from electricityrelated sales Accrued revenue for gas Current portion of mortgage loans Amounts receivable on LNG shipment for testing Current portion of finance lease Other amounts receivable Total Less: impairment allowance of other amounts receivable Carrying amount

2015 Available-for-sale financial assets Interest receivable Carrying amount

Company 2015 2014

5,611

1,545

211

501

5,286

6,293

-

-

5,061 84

5,527 76

-

-

1,324 3,860 21,226

4,177 4,582 22,200

4,549 4,760

1,601 2,102

(249)

(643)

-

-

20,977

21,557

4,760

2,102

The fair value of other amounts receivable as at 31 December 2015 and 2014 approximated their carrying amount.

Company 2014

4,534 27 4,561

2015

15 15

2014

4,534 27 4,561

15 15

As at 31 December 2015 and 2014, the Group’s/Company’s available-for-sale financial assets consisted of LTL-denominated Lithuanian Government bonds, the redemption date of which is in 2016. As at 31 December 2015, the weighted average annual interest rate on bonds was 1.67% (31 December 2014: 1.67%). In 2014 the Group/Company sold part of securities, which were classified as held-to-maturity as at 31 December 2013, prior to their maturity and classified the remaining securities as available-for-sale financial assets, and measured them at fair value. The Company does not expect to classify its securities as held-to-maturity for the upcoming 2 years, i.e. until 31 May 2016. Fair value of investments As at 31 December 2015 and 2014, Lithuanian Government bonds were stated at fair value. The fair value of debt securities is attributed to Level 1 in the fair value hierarchy and it was determined with reference to the highest bid price (including accrued interest) offered for the respective debt securities by one of three commercial banks in Lithuania, available as at 31 December 2015 and 2014. Table of movements on the accounts of available-for-sale financial assets: Group 2015 At 1 January Additions Redeemed (including interest thereon) At 31 December

117 ANNUAL FINANCIAL STATEMENTS 2015 | Other amounts receivable

Company 2015 2014

4,696 (162) 4,534

2014 51,803 (47,107) 4,696

Company 2015 2014 4,696 (162) 4,534

51,803 (47,107) 4,696


16 Cash and cash equivalents Group

Company

2015 Cash at bank and on hand Overnight deposits Carrying amount

2014

164,341 164,341

182,296 28,723 211,019

2015

2014

13,179 13,179

31,347 31,347

For the purpose of cash flow statement, cash and cash equivalents, and bank overdrafts were as follows: Group 2015

The Lithuanian Finance Ministry (the Ministry) who manages by the right of trust the Company's shares owned by the state resolved to increase the Company's share capital by EUR 32,636 thousand based on Order No 1K-060 of 21 February 2014 Regarding increase of share capital of Lietuvos Energija UAB and amendment to Finance Minister's Order No 1K-251 of 16 July 2013 On amendment to Articles of Association of Visagino Atominė Elektrinė UAB and formation of Supervisory Council. On 21 February 2014, the Ministry and the Company signed an agreement for the subscription of shares, under which the Company committed to provide 112,685,657 ordinary registered shares, whereas the Ministry committed to subscribe for and pay a full issue price of newly issued shares by in-kind contribution representing the shares of Lietuvos Dujos AB owned by the state. On 6 March 2014, the share capital of Lietuvos Energija UAB was increased from EUR 1,177,932 thousand to EUR 1,210,568 thousand. Nominal value and issue price of newly issued shares was equal to EUR 0.29 each. The value of the Ministry's shareholding in Lietuvos Dujos AB, i.e. 17.7%, was determined based on the provisions of the Law on Companies, and was equal to the weighted average 6-month market price of EUR 32,636 thousand.

Company 2014

2015

2014

Cash and cash equivalents Bank overdrafts (Note 19)

164,341 (41,531)

211,019 (13,031)

13,179 -

31,347 -

Carrying amount

122,810

197,988

13,179

31,347

The fair value of cash and cash equivalents as at 31 December 2015 and 2014 approximated their carrying amount. According to the loan agreements signed with the banks, the Group has pledged current and future cash inflows to bank accounts (Note 19). As at 31 December 2015, the balance of cash pledged amounted to EUR 2,400 thousand (31 December 2014: EUR 1,695 thousand).

17 Equity

18 Reserves Legal reserve The legal reserve is a compulsory reserve under the Lithuanian legislation. Companies in Lithuania are required to transfer 5% of net profit from distributable profit until the total reserve reaches 10% of the share capital. The legal reserve cannot be used for the payment of dividends and it is formed to cover future losses only. As at 31 December 2014, the Group's legal reserve amounted to EUR 28,777 thousand (31 December 2014: EUR 24,362 thousand). In 2015, the Company transferred EUR 4,207 thousand to the legal reserve. Revaluation reserve

As at 31 December 2015, the Company‘s share capital amounted to EUR 1,212,156,294 and it was divided into 4,179,849,289 ordinary registered shares with the nominal value of EUR 0.29 each.

The revaluation reserve arises from revaluation of property, plant and equipment due to the value increase. The revaluation cannot be used to cover losses.

As at 31 December 2014, the Company‘s share capital amounted to LTL 4,179,849,289 and it was divided into 4,179,849,289 ordinary registered shares with the nominal value of LTL 1 each.

In 2005, part of the Group's legal reserve was used to increase the subsidiary's share capital. In order to reflect in profit or loss of the Group's consolidated financial statements the result of valuation of assets conducted in 2014 irrespective of any decreases in revaluation reserve in previous periods (valuation results are described in Note 7), amount of EUR 11 million of the reserve, which was used to increase the share capital, was reversed from retained earnings.

As at 31 December 2015 and 2014, all the shares were fully paid up. Pursuant to the Lithuanian Law on Adoption of the Euro and the provisions of the Procedure for Conversion of Share Capital to Euros of the Central Securities Depository of Lithuania (Lietuvos Centrinis Vertybinių Popierių Depozitoriumas AB), on 1 January 2015 the Company’s share capital was converted to euros. The difference on conversion of the nominal value of shares from litas to euros amounted to EUR 1,588 thousand, which was accounted for by the Company in profit or loss of the statement of comprehensive income. The difference on conversion was reported within finance costs in the statement of comprehensive income.

118 ANNUAL FINANCIAL STATEMENTS 2015 |

As at 31 December 2015, the Group’s revaluation reserve amounted to EUR 62,323 thousand (31 December 2014: EUR 67,630 thousand). This reserve was not formed at the Company.


Other reserves Other reserves are formed on the decision of shareholders and can be redistributed on appropriation of next year profits. As at 31 December 2015, the Group's other reserves amounted to EUR 48 thousand (31 December 2014: EUR 47 thousand). In 2014 movement in other reserves encompasses transfers by subsidiary Lietuvos Energijos Gamyba AB from the reserve related to assets and from the reserve for investments. Transfers of EUR 188.7 million to retained earnings were made following the decision of the General Meeting of Shareholders in 2014. The Company accounts for the changes in fair value of available-for-sale financial assets within other reserves. Amount of EUR 48 thousand was accumulated as at 31 December 2015 (31 December 2014: EUR 47 thousand).

Group Company 2015 2014 2015 2014 Current borrowings 1,490 Letters of credit 206 418 Bank overdrafts 41,531 13,031 Accrued interest 5 7 Total borrowings 420,060 391,547 All borrowings of the Group bear variable interest rates with repricing intervals of up to 6 months. Non-current borrowings grouped by maturity: Group

Group

Restricted-use Reserve for Reserve for reserves related reduction of investments to non-current share capital assets

Balance at 31 December 2013 Formation of reserves Utilisation /reversal of reserves Balance at 31 December 2014 Formation of reserves Balance at 31 December 2015

(17,757) (17,757) (17,757)

32,518 (14,786) 17,732 17,732

173,918 (173,918) -

2015 Other reserves

74 (2) 72 1 73

Total

188,679 74 (188,706) 47 1 48

The reserve for reduction of share capital on transfer of heavy fuel oil storage tanks was formed in 1999 as a result of transfer of heavy fuel oil storage tanks by Lietuvos Energijos Gamyba AB to a state enterprise Vilniaus Mazuto Saugykla (though expected, the share capital had not been reduced by this amount yet). The reserve for investments was formed by Lietuvos Energijos Gamyba AB for the purpose of accumulating funds necessary construction and development of non-current assets. Decisions regarding utilisation of these funds are made by the shareholders of a Group company. Restricted-use reserves related to non-current assets were formed when Lietuvos Energijos Gamyba AB first time adopted IFRS starting from 1 January 2004. On transition to IFRS, the company's equity increased and for the purpose of restricting the potential distribution of the increased amount, the reserves related to non-current assets were formed. Based on the decision of shareholders, these funds were transferred to retained earnings in 2014.

19 Borrowings Group

Non-current Bank borrowings Current Current portion of non-current borrowings

Company 2015 2014

2015

2014

277,805

250,015

-

-

99,023

128,076

-

-

119 ANNUAL FINANCIAL STATEMENTS 2015 | Borrowings

Between 1 and 2 years Between 2 and 5 years After 5 years Total

2014

57,138 161,052 59,615 277,805

Company 2015 2014

81,334 95,928 72,753 250,015

-

-

The carrying amounts of borrowings are denominated in the following currencies: Group

LTL EUR Total

2015

2014

420,060 420,060

16,218 375,329 391,547

Company 2015 2014 -

-

As at 31 December 2015 and 2014, the fair value of borrowings approximated their carrying amount, except for borrowings of Lietuvos Energijos Gamyba AB with the carrying amounts of EUR 145,674 thousand and EUR 162,886 thousand, respectively. The fair value of these borrowings was approx. EUR 137,590 thousand as at 31 December 2015 (31 December 2014: EUR 154,143 thousand). The fair value was determined at a discount rate of 2.46% (31 December 2014: 2.46%). The loan agreements contain financial and non-financial covenants that the individual Group companies are obliged to comply with. As at 31 December 2014, the Company's subsidiary LESTO AB failed to comply with one of the financial covenants stipulated in the loan agreement, and accordingly, the total outstanding balance of loan of EUR 6,316 thousand was reclassified to current portion of borrowings. Other Group companies complied with the covenants as at 31 December 2015 and 2014. To secure the repayment of certain borrowings, the Group pledged its property, plant and equipment (Note 7), inventories (Note 12) and cash balances (Note 16). As at 31 December 2015, the Group’s balance of credit and overdraft facilities not withdrawn amounted to EUR 135,955 thousand (31 December 2014: EUR 230 million).


20 Deferred income tax Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when deferred income tax relates to the same fiscal authority. Movements on the accounts of deferred income tax assets and liabilities during the reporting period were as follows:

Group

Deferred income tax assets Difference on recognition of revenue from new customer connection services Deferred income Accrued expenses Impairment of assets Tax losses not utilised Other expenses Deferred income tax assets before write-down to net realisable value Less: write-down to net realisable value Deferred income tax assets, net Deferred income tax liabilities Valuation of PP&E (increase/decrease in value) and differences in depreciation rates Tax relief on acquisition of PP&E Increase in value of assets Accrued expenses Difference on recognition of revenue from new customer connection services Other Deferred income tax liability, net Deferred income tax, net

At 31 December 2013 (restated)

Recognised in profit or loss

Recognised in other comprehensive income

Increase on acquisition of subsidiary

-

At 31 December 2014

Recognised in profit or loss

Recognised in other comprehensive income

At 31 December 2015

525

(176)

-

349

(183)

-

166

3,552 641 5,345 953 638

2,591 (7) (513) 3,127 (638)

-

628 -

6,143 634 5,460 4,080 -

(1,692) 1,349 (203) 1,130 -

-

4,451 1,983 5,257 5,210 -

11,654 (12) 11,642

4,384 12 4,396

-

628 628

16,666 16,666

401 (3,241) (2,840)

-

17,067 (3,241) 13,826

112,635

(66,119)

(29,275)

4,432 1 1,110

(700) (107)

13 -

3,110

(285)

-

3,446 124,734 (113,092)

2,642 (64,569) 68,965

(29,262) 29,262

120 ANNUAL FINANCIAL STATEMENTS 2015 | Deferred income tax

-

17,241

5,178

191

22,610

(1,004) -

3,732 14 (1)

(1,023) 1

(4) -

2,709 10 -

2,825

(37)

-

2,788

(1,004) 1,632

6,088 29,899 (13,233)

(219) 3,900 (6,740)

187 (187)

5,869 33,986 (20,160)


Company

At 31 December 2013

Deferred income tax assets Accrued expenses Deferred income tax assets, net Deferred income tax liabilities Valuation result of financial assets Deferred income tax liability, net Deferred income tax, net

Recognised in profit or loss

Recognised in other comprehensive income

At 31 December 2014

Recognised in profit or loss

Recognised in other comprehensive income

At 31 December 2015

21 21

24 24

-

45 45

14 14

-

59 59

21

24

13 13 (13)

13 13 32

14

(4) (4) 4

9 9 50

As at 31 December 2015, the Group did not recognise deferred income tax on accumulated tax loss from operations of EUR 2,080 thousand (31 December 2014: EUR 22,534 thousand).

21 Grants and subsidies The balance of grants comprises grants to finance acquisition of assets, funds received from the International Fund for Support of Decommissioning of Ignalina Nuclear Power Plant, from the EU structural funds, and property, plant and equipment and intangible assets received in return for no consideration from the Government of the Republic of Lithuania. Movements on the account of grants in 2015 and 2014 were as follows:

Group

Asset-related grants Projects for Other projects of the renovation, Group improvement of environmental and security standards

Balance at 31 December 2013 Depreciation of property, plant and equipment Grants received Emission allowances utilised Utilisation of EU funds Grants reversed Balance at 31 December 2014 Depreciation of property, plant and equipment Grants received Emission allowances utilised Grants reversed Balance at 31 December 2015

34,393 (1,249) 7,516 (36) (5,238) 35,386 (1,539) 10,656 (38) 44,465

Amortisation of grants is included in depreciation and amortisation expenses in the statement of comprehensive income and charged against the depreciation expenses of the related property, plant and equipment. Grants reversed are reported within revaluation/impairment of assets and these expenses are reduced by the amount of grants reversed.

121 ANNUAL FINANCIAL STATEMENTS 2015 | Grants and subsidies

281,730 (10,714) (1,953) 269,063 (10,663) (6,459) 251,941

Grants for emission allowances

2,328 (2,328) 2,139 (2,108) 31

Total

316,123 (11,963) 9,844 (2,328) (36) (7,191) 304,449 (12,202) 12,795 (2,108) (6,497) 296,437

As described in Note 4, the Group made a decision on dismantling of Units 5 and 6 of the Reserve Power Plant, therefore the Group recognised impairment loss of EUR 36.7 million and related grant reversal of EUR 6,459 thousand as at 31 December 2015.


After revaluation of non-current assets in 2014, the Group reversed asset-related grants of EUR 5,238 thousand, for which impairment was assessed on valuation. In addition, the Group recognised impairment loss related to dismantling of Units 1 and 2 of the Reserve Power Plant, and accordingly, accounted for reversal of grant of EUR 1,953 thousand.

Group

Provisions for litigations and claims

Emission allowance liabilities*

Reversals are made to reflect the result of valuation/impairment of assets, which does not depend on the way of presentation of grants in the financial statements.

22 Deferred revenue Group

At 1 January Received during the period Utilised during the period At 31 December

Company

2015

2014

53,973 2,136 (2,507) 53,602

54,890 1,552 (2,469) 53,973

2015

2014 -

-

-

-

Deferred revenue represents income from connection of new customers to natural gas system and from connection of new customers to the grid. Income from connection of new customers to natural gas system is recognised over the average useful life of related items of property, plant and equipment. As from 1 July 2009, all income from connection of new customers to the grid and from relocation of electricity network facilities is recognised in the period when the works are performed. Until 1 July 2009, deferred revenue was recognised over the average useful life of related items of property, plant and equipment (see Notes 2.21 and 4).

23 Provisions Group 2015

Company 2014

2015

2014

Non-current Current

5,084 23,333

8,543 5,884

-

-

Carrying amount

28,417

14,427

-

-

At 31 December 2013 Increase on acquisition of subsidiary Increase during the period Utilised during the period (Note 6) Decrease/increase on change of assumptions At 31 December 2014 Increase during the period Utilised during the period (Note 6) Decrease/increase on change of assumptions At 31 December 2015

112

Provisions for employee benefits

Other provisions

Total

2,822

1,997

-

4,931

-

-

2,306

6,930

9,236

-

2,839

540

1,178

4,557

(29)

(2,908)

(1,033)

-

(3,970)

-

86

(413)

-

(327)

83 -

2,839 3,888

3,397 807

8,108 13,301

14,427 17,996

-

(2,992)

(1,094)

30

(4,056)

(29)

-

79

-

50

54

3,735

3,189

21,439

28,417

*For the purpose of the statement of comprehensive income, expenses related to provisions for emission allowances utilised are accounted for net of government grants (Note 21). Under the collective employment agreement, some subsidiaries provide to employees larger than statutory retirement benefits. Actuarial calculations are being performed seeking to obtain a more precise amount of liabilities to employees. Liabilities are accounted for at the present value discounted using the market interest rate. Other provisions include provisions for onerous gas supply contracts, i.e. the contracts under which the gas sale price will be lower compared to gas acquisition cost. At the end of 2015, these provisions amounted to EUR 21.4 million (2014: EUR 8.1 million). Upon acquisition of natural gas supply operations, the Group company Lietuvos Dujų Tiekimas UAB assumed an obligation to transfer the discount, which was received retrospectively on natural gas import price during January 2013–April 2014, to the end users in future periods. On acquisition of supply operations, Lietuvos Dujų Tiekimas UAB took over the provision for onerous contracts in amount of EUR 6,930 thousand in respect of onerous amount transferred to the household users. As at 31 December 2015 and 2014, the Group adjusted the amount of provision in respect of onerous part of contracts for household and nonhousehold users, by taking into account the prerequisites for the execution of the contracts at the financial reporting date The provision for onerous contracts with household users was recognised with reference to forecast sales volume, prices agreed with the Commission for the 1st half of 2016, and forecast prices for the 2nd half of 2016 and for 2017.

122 ANNUAL FINANCIAL STATEMENTS 2015 | Deferred revenue


24 Other non-current amounts payable and liabilities Group 2015 PSO services fees received in advance Non-current trade payables Non-current amounts payable for the acquired shares of subsidiaries Other Carrying amount

2014

27 Sales revenue

Company 2015 2014

7,018 1,529

15,403 1,383

-

-

61 425 9,033

764 17,550

17,819 54 17,873

23 23

The current portion of PSO service fees received in advance was classified as advance amounts received (EUR 14,633 thousand as at 31 December 20145 and EUR 20,753 thousand as at 31 December 2014).

25 Trade payables Group 2015 Amounts payable for electricity and heavy fuel oil Amounts payable for construction works, services Amounts payable for gas Other amounts payable Carrying amount

2014

43,353 11,874 30,817 6,075 92,119

Company 2015 2014

47,441

-

-

10,397 77,436 7,131 142,405

443 443

188 188

26 Other current amounts payable and liabilities Group 2015 Employment-related liabilities Accrued expenses and deferred revenue for electricity and gas Amounts payable for property, plant and equipment Taxes (other than income tax) Accrued expenses and deferred revenue Current amounts payable for acquired shares of subsidiaries Other amounts payable and liabilities Carrying amount

7,615

2014 5,162

Revenue from sale of electricity Revenue from sale of gas Other sales revenue Total

719,523 314,685 13,813 1,048,021

2014

Company 2015 2014

740,480 169,983 15,602 926,065

1,992 1,992

-

28 Other income Group

Repair services IT and communication services Lease income Income from LNG shipment for testing Other Total

2015

2014

25,128 5,476 6,254 10,887 47,745

14,096 7,574 6,146 7,430 11,378 46,624

Company 2015 2014 2 2

2 2

The Group companies provide motor vehicle and real estate lease services under operating lease contracts concluded for definite period, which may be extended for additional period ranging from several hours to several years. Income from lease of motor vehicles and real estate is recognised as income in the statement of profit or loss and other comprehensive income on a proportionate basis over the lease period.

29 Purchases of electricity, gas for trade, and related services

Company 2015 2014 -

Group 2015

Group

-

470

1,692

-

-

31,994 14,066 9,405

27,640 13,840 9,536

-

-

126 3,425 67,101

4,507 62,377

45,552 361 45,913

307 307

Costs of purchases of gas for trade Purchases of electricity and related services Total

123 ANNUAL FINANCIAL STATEMENTS 2015 | Other non-current amounts payable and liabilities

2015

2014

345,504 415,986 761,490

144,915 391,612 536,527

Company 2015 2014 -

-


30 Other expenses

32 Finance costs 2015

Impairment of PP&E (Notes 7, 21) Taxes Telecommunication and IT services Write-offs of PP&E (Notes 6,7) Customer service Transport Rental expenses Business service expenses Utility services Consulting services Advertising Expenses of low-value inventory items Personnel development Business trips Goodwill impairment (Note 6) Investment impairment (Note 9) Expenses (income) on revaluation of other non-current assets (Note 11) Expenses on revaluation and provisions for emission allowances Write-down allowance for inventories (reversal) (Note 12) Impairment allowance for amounts receivable (reversal) (Notes 13,14) Other Carrying amount

Group 2014

Company 2015 2014

Group 2015

30,133 6,528 3,725 2,790 2,745 2,701 2,351 1,667 1,526 1,209 1,093 671 535 -

9,754 6,078 3,685 4,102 2,728 4,565 2,819 2,008 1,490 1,060 800 579 444 51,582 -

45 222 113 159 199 55 566 102 118 42 (16,216)

42 290 125 158 91 198 68 65 52 58,344

(329)

(2,404)

-

-

(382)

(3,056)

-

-

(1,077)

(538)

-

-

(1,807)

(2,409)

-

-

6,178 60,257

8,260 91,547

150 (14,445)

235 59,668

31 Finance income Group 2015

2014

Company 2015 2014

Interest income Dividends received (Note 35) Other finance income

4,957 675

4,693 729

6,060 93,825 -

4,870 141,720 127

Total

5,632

5,422

99,885

146,717

The Company's interest income mostly relates to a loan granted to EPSO-G UAB.

124 ANNUAL FINANCIAL STATEMENTS 2015 | Other expenses

Interest expenses Other finance costs Share capital conversion expenses Total

4,456 505 1,588 6,549

Company 2014 6,991 833 7,824

2015 419 314 1,588 2,321

2014 116 4 120

33 Business combinations In 2015, the Company and the Group did not acquire any new entities. Expansion to gas sector initiated by Lietuvos Energija UAB and further continued by the Group company LITGAS, which is engaged in liquefied natural gas (LNG) supply and trade activities and which was approved as a designated supplier in February 2014, was actively continued in the second quarter of 2014 as well. As the Ministries of Energy and Finance implemented the Government's Resolution No 120 of 12 February 2014 Regarding investment of state-owned assets and increase of share capital of the companies, Lietuvos Energija UAB managed 17.7% of shares of Lietuvos Dujos AB. The main activities of Lietuvos Dujos AB include purchase (import) and sale of natural gas to end users, provision of distribution services, and rational development of natural gas distribution infrastructure. In June 2014, the Company acquired control over Lietuvos Dujos AB. The acquisition was conducted in three states.


Acquisition of 17.7% ownership interest in February 2014 resulted in the Company's right of participation at the Board of Lietuvos Dujos AB, and accordingly, the investment in associate was recognised under the equity method. Additional ownership interest of 38.9% acquired in May 2014 did not result in right of control. The investment met the definition of a joint arrangement in a form of joint venture, because significant decisions about the relevant activities of Lietuvos Dujos AB could be made by unanimous consent of the other shareholder sharing control. The investment was further accounted for under the equity method as summarised below:

Investment cost (17.7%) Fair value of net assets acquired Identifiable goodwill Share of results of investments under the equity method for March-May 2014

32,636 29,006 3,630 13,395

Investment cost (38.9%) Fair value of net assets acquired Identifiable goodwill included in share of results of investments under the equity method Share of results of investments under the equity method for June 2014

63,429 93,198

Share of result of investment under the equity method Value of investment under the equity method before acquisition of control

46 43,210 139,275

Following the completion of the mandatory takeover bid, the Company's ownership interest in Lietuvos Dujos AB was 96.6%, and minority shareholder's ownership interest was 3.4%.

125 ANNUAL FINANCIAL STATEMENTS 2015 | Business combinations

Property, plant, and equipment Non-current intangible assets Other non-current assets Current assets Cash Grants Deferred income Other non-current liabilities Current liabilities Net assets acquired Non-controlling interest Goodwill arising on acquisition Total cost of acquisition of control

Fair value 130,167 627 1,790 101,604 36,664 (2,307) (28,967) 239,578 (8,040) (44,660) 186,878

29,769

With 56.6% ownership interest in Lietuvos Dujos AB, the Company announced about a mandatory uncompetitive takeover bid to buy out the remaining shares. On 16 June 2014, the mandatory takeover bid was completed. The Company acquired 107,734,925 (one hundred and seven million, seven hundred and thirty-four thousand, nine hundred and twenty-five) shares and 8,622,363 (eight million, six hundred and twenty-two thousand, three hundred and sixty-three) shares of Lietuvos Dujos AB from Gazprom OAO and minority shareholders, respectively.

Fair value of investment before acquisition of control Consideration paid on mandatory takeover bid Total cost of acquisition of control

On the acquisition, assets and liabilities of Lietuvos Dujos AB were identified with the following fair values at the date of acquisition:

110,896 75,981 186,877

The Group recognised loss of EUR 28,379 thousand on re-measurement of investment in Lietuvos Dujos AB before acquisition of control to the fair value, with expenses charged to profit or loss. The Company determined the fair value using the discounted cash flow method for supply and distribution operations. The fair value of property, plant and equipment was determined by calculating the value in use under the discounted cash flow method. Deferred revenue and grants were written off on acquisition. The fair value of current assets and current liabilities approximated their carrying amount. Non-controlling interest was estimated on a proportionate basis. Acquisition-related costs were insignificant and were, therefore, included in other expenses in the statement of profit or loss and other comprehensive income. With effect from 20 June 2014, revenue of Lietuvos Dujos AB is included in the consolidated statement of profit or loss and other comprehensive income.


34 Income tax expenses

35 Dividends

Income tax expenses for the period comprise current year income tax and deferred income tax.

Based on the Lithuanian Finance Ministry’s Order issued on 29 April 2015, the Company's set of consolidated financial statements for 2014 was approved, and dividends for the state-owned shares of the Company were declared in amount of EUR 28,093 thousand.

Profit for 2015 was subject to income tax at a rate of 15% (similarly as in 2014) in accordance with the Lithuanian regulatory legislation on taxation. Group 2015 Current year income tax expenses Deferred income tax expenses (benefit) Income tax expenses (benefit) recognised in profit or loss

2014

Based on the Lithuanian Finance Ministry’s Order issued on 22 October 2015, the Company's set of consolidated interim financial statements for a six-month period was approved, and dividends for the state-owned shares of the Company were declared in amount of EUR 29,750 thousand.

Company 2015 2014

2,140 6,740

15,394 (68,965)

262 (14)

158 (24)

8,880

(53,571)

248

134

Income tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate applicable to profit of the Company: Group Profit (loss) before tax Income tax expenses (benefit) at tax rate of 15% Expenses not deductible for tax purposes Income not subject to tax Restatement of income tax on disposal of part of business* Income tax relief for the investment project Adjustments in respect of prior years Tax losses utilised Change in realisable value of deferred income tax assets Deferred income tax not recognised on tax losses Income tax expense (benefit)

Company 2015 2014 111,265 84,275

On 27 April 2015, the General Meeting of Shareholders of LESTO AB approved payment of dividends in amount of EUR 12,079 thousand from profit for appropriation. Dividends allocated to the Company amounted to EUR 11,401 thousand. On 24 September 2015, the General Meeting of Shareholders of LESTO AB approved payment of interim dividends in amount of EUR 21,742 thousand. Dividends allocated to the Company amounted to EUR 20,522 thousand. On 27 April 2015, the General Meeting of Shareholders of Lietuvos Energijos Gamyba AB approved payment of dividends in amount of EUR 21,720 thousand from profit for appropriation. Dividends allocated to the Company amounted to EUR 20,880 thousand. On 24 September 2015, the General Meeting of Shareholders of Lietuvos Energijos Gamyba AB approved payment of interim dividends in amount of EUR 2,667 thousand. Dividends allocated to the Company amounted to EUR 2,564 thousand.

2015 64,176

2014 (333,531)

9,626

(50,030)

16,690

12,641

6,664 (1,846)

7,646 (8,410)

3,469 (19,911)

8,751 (21,258)

(8,539)

-

-

-

On 27 April 2015, the General Meeting of Shareholders of Lietuvos Dujos AB approved payment of dividends in amount of EUR 27,993 thousand from profit for appropriation. Dividends allocated to the Company amounted to EUR 27,054 thousand. On 24 September 2015, the General Meeting of Shareholders of Lietuvos Dujos AB approved payment of interim dividends in amount of EUR 10,348 thousand. Dividends allocated to the Company amounted to EUR 10,001 thousand.

(863) 21 19

(2,372) (417) (48)

-

-

On 8 April 2015, the General Meeting of Shareholders of Duomenų Logistikos Centras UAB approved payment of dividends in amount of EUR 311 thousand from profit for appropriation. Dividends allocated to the Company amounted to EUR 248 thousand.

3,241

-

-

557 8,880

60 (53,571)

248

134

On 27 April 2015, the General Meeting of Shareholders of Energijos Tiekimas UAB approved payment of dividends in amount of EUR 1,155 thousand from profit for appropriation. Dividends allocated to the Company amounted to EUR 1,155 thousand.

*Restatement of income tax is related to acquisition of natural gas supply operations by Lietuvos Dujų Tiekimas UAB from Lietuvos Dujos AB in 2014 (see Note 4 Change in tax treatment of goodwill).

Based on the Lithuanian Finance Ministry’s Order issued on 14 November 2014, the Company's set of interim financial statements for six-month period was approved, and dividends for the state-owned shares of the Company were declared in amount of 60% (EUR 24.6 million) of the Company's profit for the 1st half of 2014. On 4 April 2014, the General Meeting of Shareholders of LESTO AB approved payment of dividends in amount of EUR 33.2 million from profit for appropriation. Dividends allocated to the Company amounted to EUR 27.5 million.

126 ANNUAL FINANCIAL STATEMENTS 2015 | Income tax expenses


On 4 April 2014, the General Meeting of Shareholders of Lietuvos Energijos Gamyba AB approved payment of dividends in amount of EUR 43.4 million from profit for appropriation. Dividends allocated to the Company amounted to EUR 41.8 million. On 30 April 2014, the General Meeting of Shareholders of Duomenų Logistikos Centras UAB approved payment of dividends in amount of EUR 0.6 million from profit for appropriation. Dividends allocated to the Company amounted to EUR 0.4 million. On 22 July 2014, the General Meeting of Shareholders of Lietuvos Dujos AB approved payment of dividends in amount of EUR 15.4 million from profit for appropriation. Dividends allocated to the Company amounted to EUR 14.9 million.

Dividends declared by the Group companies in 2015: Dividends declared by

Lietuvos Energijos Gamyba AB LESTO AB Lietuvos Dujos AB Duomenų Logistikos Centras UAB Total

Dividends received by NonLietuvos controlling Energija UAB interest 61,212 45,622 34,440 446 141,720

2,463 6,853 1,196 114 10,626

On 30 September 2014, the Extraordinary General Meeting of Shareholders of LESTO AB approved payment of interim dividends in amount of EUR 19.2 million for a period shorter than the financial year. Dividends allocated to the Company amounted to EUR 18.2 million.

36 Contingent liabilities and off-balance sheet commitments

On 30 September 2014, the Extraordinary General Meeting of Shareholders of Lietuvos Energijos Gamyba AB approved payment of interim dividends in amount of EUR 20.2 million for a period shorter than the financial year. Dividends allocated to the Company amounted to EUR 19.5 million.

Buyout of electricity equipment

On 30 September 2014, the Extraordinary General Meeting of Shareholders of Lietuvos Dujos AB approved payment of interim dividends in amount of EUR 20.2 million for a period shorter than the financial year. Dividends allocated to the Company amounted to EUR 19.5 million.

Total

63,675 52,475 35,636 560 152,346

In 2015 LESTO AB conducted simplified procedure for buyout of common-use electricity networks that were erected from the funds of homestead cooperatives in accordance with the deadlines set forth in in the Lithuanian Government's Resolution No 1257 of 31 August 2010 Regarding the establishment of deadlines for buyout of electricity transmission and distribution lines, transformer substations, electricity cabinets and other electricity and distribution equipment erected on amateur basis inside the homestead territory from the funds of members of homestead cooperatives, i.e. by 1 July 2011.

Dividends declared by the Group companies in 2015:

Dividends declared by

Lietuvos Energijos Gamyba AB LESTO AB Lietuvos Dujos AB Energijos Tiekimas UAB Duomenų Logistikos Centras UAB Total

Dividends received by NonLietuvos controlling Energija UAB interest 23,444 31,924 37,054 1,155 248 93,825

943 1,898 1,287 63 4,191

Total

24,387 33,822 38,341 1,155 311 98,016

During 2015, 4 items of common-use electricity networks with the value of EUR 26 thousand (2014: 6 items of common-use electricity networks with the value of EUR 67 thousand) were bought out. Since the beginning of the buyout through to 31 December 2015, 944 items of common-use electricity networks of homestead cooperatives with the total value of EUR 3,459 thousand were bought out. As at 31 December 2015, 10 applications to buyout assets under a simplified procedure for the value of EUR 29 thousand remained open. Guarantees issued and received On 28 February 2013, Lietuvos Energijos Gamyba AB signed a guarantee agreement with Swedbank for the total amount of EUR 30 thousand to secure the fulfilment of Lietuvos Energijos Gamyba AB’s obligations in relation to payments to Nord Pool Spot AS. As of 31 December 2015, the guarantee amount was equal to EUR 30 thousand. On 10 June 2013, Lietuvos Energijos Gamyba AB signed a guarantee agreement with Swedbank for the total amount of EUR 400 thousand to secure the fulfilment of Lietuvos Energijos Gamyba AB’s obligations in relation to payments to Nord Pool Spot AS. As of 31 December 2015, the guarantee amount was equal to EUR 5,000 thousand. On 23 December 2013, Lietuvos Energijos Gamyba AB signed a guarantee agreement with Swedbank for the total amount of EUR 195 thousand to secure the fulfilment of Lietuvos Energijos Gamyba AB’s

127 ANNUAL FINANCIAL STATEMENTS 2015 | Contingent liabilities and off-balance sheet commitments


obligations in relation to payments to Fingrid Oyj and Elering AS tenders. As at 31 December 2015, the guarantee amount was equal to EUR 195 thousand. As at 31 December 2015 and 2014, there was a bank guarantee agreement between Lietuvos Energijos Gamyba AB and Nordea Bank AB Lithuania Branch regarding a EUR 1,013 thousand guarantee issued by the bank, the amount of which may be increased up to EUR 1,500 thousand upon Lietuvos Energijos Gamyba AB’s request. The beneficiary of the guarantee is General Electric International Inc. As at 31 December 2014, between Lietuvos Energijos Gamyba AB had guarantees from other entities for the total amount of EUR 4,440 thousand. These guarantees are related to projects of Lietuvos Energijos Gamyba AB implemented by various contractors. On 18 April 2011, Lietuvos Energijos Gamyba AB entered into guarantee agreement with Nordea Bank AB Lithuania Branch in relation to issue of guarantee for the amount of EUR 1,766 thousand under the guarantee agreement concluded by Kauno Energetikos Remontas UAB on 18 January 2007. Under this agreement, Lietuvos Energijos Gamyba AB guaranteed a proper fulfilment of obligations of Kauno Energetikos Remontas UAB, but not in excess of EUR 1,766 thousand. On 8 September 2014, the guarantee amount was EUR 1,665 thousand. Lietuvos Energijos Gamyba AB’s guarantee to the bank for proper fulfilment of obligations of Kauno Energetikos Remontas UAB (for maximum amount of EUR 1,665 thousand) was issued under Overdraft Agreement No OS 14/09/01 signed on 5 September 2014 between the Bank and Kauno Energetikos Remontas UAB. As at 31 December 2015, the guarantee was expired and it was not extended after the reporting date. As at 31 December 2014 and 2013, Lietuvos Energijos Gamyba AB issued a guarantee for Kauno Energetikos Remontas UAB to Nordea Bank AB Lithuania Branch to secure an irrevocable and unconditional payment of EUR 1,883 thousand upon first written demand. Based on credit agreement No KS 12/12/01 signed between the Bank and Kauno Energetikos Remontas UAB on 4 December 2012, Lietuvos Energijos Gamyba AB issued a guarantee to the Bank for proper fulfilment of obligations by Kauno Energetikos Remontas UAB (for maximum amount of EUR 1,882 thousand). On 3 December 2014, Lietuvos Energijos Gamyba AB signed a guarantee agreement with Swedbank under which Lietuvos Energijos Gamyba AB issued a guarantee to secure the fulfilment of obligations of Geoterma UAB under the credit agreement signed between the bank and Geoterma UAB. As at 31 December 2015, the guarantee amount was EUR 236 thousand. As at 31 December 2014, Energijos Tiekimas UAB received guarantees from Danske Bank A/S Lithuania Branch for the total amount of EUR 98 thousand. As at 31 December 2014, Kauno Energetikos Remontas UAB had guarantees from the banks for the total amount of EUR 6,509 thousand. These guarantees were related to participation at tenders. On 8 April 2011, a guarantee limit agreement was concluded between Energijos Tiekimas UAB and Danske Bank A/S Lithuania Branch for the issue of bank guarantees and sureties. The guarantee and surety limit amounts to EUR 6.15 million. The guarantee and surety limit is valid until 7 April 2017. As at 31 December 2015, the withdrawn balance of the guarantee and surety limit amounted to EUR 4.72 million. The guarantees expire during the period between 19 February 2016 and 5 June 2018.

As at 31 December 2015, Lietuvos Dujų Tiekimas UAB had the guarantee limit amounting to EUR 290 thousand granted by Nordea Bank AB Lithuania Branch. EUR 126 thousand of this amount was used by issuing guarantees on behalf of Lietuvos Dujų Tiekimas UAB for the fulfilment of contractual obligations. As at 31 December 2015, Kauno Energetikos Remontas UAB had guarantees from the bank in relation to its participation in tender procures for the total amount of EUR 6,391 thousand (31 December 2014: EUR 6,509 thousand). On 3 October 2014, an Agreement on Surety and Guarantee Limit was signed between the Company and LITGAS UAB for the amount of EUR 100 million, which may be increased (if necessary) to EUR 125 million, and which will serve as a security under the Company’s credit agreements with the credit institutions and long-term LNG purchase agreements with the LNG suppliers. As at 31 December 2015, the balance of surety and guarantee limit used by LITGAS UAB amounted to EUR 67.43 million (31 December 2014: EUR 73.65 million). SEB Bankas AB issued a guarantee on behalf of NT Valdos UAB for the total amount of EUR 987 thousand; cash balances on bank accounts of NT Valdos UAB were pledged as a security for the guarantees. Contractual commitments Under the provisions of the natural gas supply agreement with Gazprom OAO (the agreement was taken over on business acquisition), in 2014 Lietuvos Dujų Tiekimas UAB did not consume 128.3 million m³ of gas compared to the established minimum natural gas consumption volume of 1 billion m³. Under the provisions of the agreement, Lietuvos Dujų Tiekimas UAB can further consume it over the next 3 years, provided the contractual payment and natural gas consumption commitments have been fulfilled. The unused quantity of natural gas had no impact on the financial position of Lietuvos Dujų Tiekimas UAB in 2015, however, in 2015 Lietuvos Dujų Tiekimas UAB made a prepayment of EUR 26.9 million for natural gas not consumed in 2014 (Note 12). In May 2014, Lietuvos Dujos AB and Gazprom OAO signed an agreement regarding the reduction of the price for natural gas imported by Lietuvos Dujos AB for the period from 1 January 2013 to 31 December 2015. Natural gas import price reduction effects for the period from 1 January 2013 to 30 April 2014 relates to household and non-household natural gas users. Natural gas import price difference effect on non-household users is expected to be transferred to the users during 2015-2016 or beyond, the difference effect to household users is expected to be transferred during 2015-20162017. On 3 August 2015, Lietuvos Dujų Tiekimas UAB, Lietuvos Dujos AB and Gazprom OAO signed a trilateral agreement, under which all rights and obligations pertaining to the natural gas supply agreement (which was concluded on 16 December 1999 between Gazprom OAO and Lietuvos Dujos AB) were officially passed to Lietuvos Dujų Tiekimas UAB.

128 ANNUAL FINANCIAL STATEMENTS 2015 | Contingent liabilities and off-balance sheet commitments


Legal disputes Legal dispute between LESTO AB and the National Control Commission for Prices and Energy In November 2014 and January 2015 LESTO AB filed a complaint to Vilnius Regional Administrative Court with request to anull the respective resolutions of the National Control Commission for Prices and Energy (“the Commission“) and to oblige the Commission to eliminate the violations and include in the level of revenue (which is used in price cap calculation when determining the price caps for electricity distribution services provided by LESTO AB through medium and low voltage networks for the next period) the following: - the difference of EUR 7.78 million for 2015 resulting from inappropriate WACC amount applied by the Commission; - the difference of EUR 4.64 million for 2015 resulting from the Commission‘s inappropriate application of the requirements of legal acts in respect of the allowable return on investments for LESTO AB; - unjustified expenses of EUR 16.46 million identified during the audit conducted by the Commission, which are treated by LESTO AB as part of operating expenses of regulated activities; In addition, LESTO AB requested to oblige the Commission to eliminate the violations, whereby: - LESTO AB’s public electricity supply revenue for 2015 was reduced by EUR 862.78 thousand; - LESTO AB‘s costs of electricity purchases for 2015 were reduced by EUR 311.63 thousand. LESTO AB disagrees with the Commission’s interpretation and application of the effective laws and other legal acts in making the relevant resolutions. Accordingly, in the opinion of LESTO AB, the price caps for 2015 were calculated on the basis of unjustified reduction of revenue by EUR 30.04 million. In the event of favourable court ruling for LESTO AB, the aforementioned amounts would be included in the tariff for the next year, thereby resulting in higher revenue and profit for LESTO AB. The case was investigated on its merits by Vilnius Regional Administrative Court during the hearings held in December 2015 and January 2016, and the complaint filed by LESTO AB was rejected in its entirety. In disagreement with such court ruling, LESTO AB filed an appeal. In February 2015, LESTO AB filed a complaint to Vilnius Regional Administrative Court with request to anull the Commission‘s resolution regarding the establishment of price caps for distribution services rendered by LESTO AB via medium and low voltage networks for the period 2016-2020. In its complaint LESTO AB also stated that amount of EUR 11.93 million was not included in the level of revenue (which was used in price cap calculation for 2016) due to the Commission’s inaapropriate application of legal acts definining the allowable return on investments and the required operating expenses of regulated activities for LESTO AB. During the period from the date of filing the complaint, the Commission introduced substantial changes in the regulatory environment that affected directly the Claimant’s position in the case and the requirements set forth in the complaint. In view of the fact the aforementioned changes in the regulatory environment (including the disputed resolution) no longer exposed LESTO AB to the legal and financial consequences specified in LESTO AB‘s complaint, on 20 February 2016 LESTO AB applied to Vilnius Regional Administrative Court to confirm withdrawal of its complaint.

In July 2015, LESTO AB filed a complaint to Vilnius Regional Administrative Court with request to anull the Commission’s resolution regarding the breach of the terms of regulated activities by LESTO AB, whereby it was concluded that LESTO AB breached the terms of licenced activities, namely, that expenses allocated by LESTO AB to regulated distribution and public supply services were on no valid grounds higher than LESTO AB was actually allowed to allocate. In its complaint, LESTO AB also requested that the Court recognise the penalty of EUR 300 thousand as ungrounded. The hearing of the case is currently suspended until the ruling is passed in the administrative case, in which LESTO AB objects to the results of audit conducted by the Commission. In view of the ruling of Vilnius Regional Administrative Court, LESTO AB accounted for the above-mentioned penalty in its financial statements by recognises the expenses and the liability.

Legal dispute between LESTO AB and Vilniaus Energija UAB Vilniaus Energija UAB (the claimant) filed a claim to Vilnius Regional Administrative Court, whereby it requested to award damages of EUR 9.284 million from LESTO AB. According to the claimant, it incurred losses of EUR 9.284 million, because in 2014 LESTO AB purchased only that volume of supported electricity, which was produced under the technical minimum mode at the thermal power plants owned by the claimant, for the purpose of ensuring compliance with the Lithuanian Government Resolution No 1051 of 20 November 2013 and the provisions of the agreement on purchase-sale of electricity signed with the claimant. The claimant noted that according to the requirements of legal acts LESTO AB was obliged to purchase the maximum volume, and that LESTO AB failed to comply with such requirement. In its claim, the claimant requested as follows: to recognise the provisions of the agreement on purchase-sale of electricity (No 80000/232945/753, dated 30 December 2013) between the claimant and the respondent as void ab initio; to oblige the respondent to purchase the maximum volume of supported electricity in 2014 from the claimant, which was established for the claimant’s thermal power plants No 2 and No 3 by the Lithuanian Government Resolution No 1051 of 20 November 2013; and to award damages of EUR 9.284 million from the respondent, plus 6% annual interest on the awarded amount of damages from the respondent staring from the date of initiation of the case until a full fulfilment of the court’s ruling, plus litigation costs incurred. LESTO AB disagrees with the claimant‘s position that the respondent should be obliged to purchase full volume of supported electricity produced at thermal power plants No 2 and No 3, because the Description of PSO Services and other effective legal acts do not stipulate that the respondent is obliged to purchase full volume of electricity produced at thermal power plants No 2 and No 3. Considering that during the investigation of the case: (i) the claimant requested to apply to the Constitutional Court in order to investigate whether certain provisions of the above-mentioned resolution are not in conflict with the Lithuanian Constitution; (ii) such request of the claimant was rejected by the court; and (iii) LESTO AB drafted the disputed provisions of the agreements based on the provisions of the above-mentioned resolution – it is probable that the court will reject the claimant’s claim. In LESTO AB’s opinion, the claimant‘s claim has no grounds and should not be satisfied, and accordingly, this claim was not accounted for in the financial statements.

129 ANNUAL FINANCIAL STATEMENTS 2015 | Contingent liabilities and off-balance sheet commitments


The case is currently investigated at the court of the first instance. Legal dispute between Lietuvos Dujos AB and the Lithuanian Ministry of Energy On 25 March 2011, the Lithuanian Ministry of Energy (holding 17.7% of Lietuvos Dujos AB’s shares by the right of trust at that date) filed a claim to Vilnius Regional Court in relation to investigation of the legal entity's operations, wherein Lietuvos Dujos AB, the Board Members of Lietuvos Dujos AB delegated by Gazprom OAO, and the Managing Director were named as the respondents. In its claim, the Lithuanian Ministry of Energy demanded initiation of investigation of operations of Lietuvos Dujos AB and application of relevant requirements set forth in the claim in case the results of investigation showed that operations of Lietuvos Dujos AB and/or the aforementioned Board Members and/or the Managing Director were inappropriate. During the investigation of the requirement of the Lithuanian Ministry of Energy to commence the investigation of operations of Lietuvos Dujos AB, on 3 September 2012 Vilnius Regional Court ruled in favour of the claimant to initiate investigation of operations of Lietuvos Dujos AB. Lietuvos Dujos AB objected to the ruling of the court of the first instance and filed an appeal against it to the Court of Appeal of Lithuania. The Court of Appeal of Lithuania left the ruling of Vilnius Regional Court unchanged. On 29 April 2013, Lietuvos Dujos AB appealed by cassation to the Lithuanian Supreme Court with request to annul the decision passed by the Lithuanian Court of Appeal on 21 February 2013, and not to proceed with the case or reject it. On 20 November 2013, the Lithuanian Supreme Court suspended a judgement until the final resolution of the civil case by the Lithuanian Supreme Court pertaining to recognition and enforcement of the decision passed by the Arbitration Institute of the Stockholm Chamber of Commerce (Kingdom of Sweden) (hereinafter "the Arbitration"). On 23 October 2015, the Lithuanian Supreme Court passed a ruling whereby it recognised and enforced the decision passed by the Arbitration Tribunal in the Republic of Lithuania and under the ruling of 28 October 2015 renewed the investigation of the case pertaining to the initiation of investigation of operations of the legal entity. On 7 December 2015, the Lithuanian Supreme Court received the request of the Lithuanian Ministry of Energy and Lietuvos Energija UAB for the inclusion of Lietuvos Energija UAB as a co-claimant and suspension of the investigation of the case until the passing of the ruling in the case investigated by the Arbitration Court of the Stockholm Chamber of Commerce, which is investigated on the basis of the claim of the Lithuanian Ministry of Energy against Gazprom OAO. The final outcome of the case is unclear and cannot be reasonably assessed. A claim filed by the Prosecution Service of the Republic of Lithuania against Lietuvos Dujos AB On 14 July 2014, the Prosecution Service of the Republic of Lithuania filed an indictment to Vilnius City District Court whereby Lietuvos Dujos AB and its former employees were charged with allegedly causing damage in establishing the supply activity tariffs for domestic users. On 13 August 2014, Vilnius City District Court initiated examination of the criminal case. The Prosecutor General obliged the court to impose a fine on Lietuvos Dujos AB in amount of 25,000 times the minimum monthly wage or EUR 950 thousand. Lietuvos Dujos AB disagreed with the charges and requirements of the Prosecution Service. Lietuvos Dujos AB expected the court to pass an acquittal. On 27 February 2015, Vilnius City District Court passed an acquittal whereby it acquitted Lietuvos Dujos AB as it was not established that the acts attributed were made. On 18 March 2015, the Prosecutor General appealed against the acquittal. Currently, the case is investigated under the appeal procedure. The date of court decision announcement is not known yet. In the opinion of Lietuvos Dujos AB, the decision of the court of the first instance is valid and well grounded, and accordingly, it expects that will not be changed.

Legal dispute between Lietuvos Dujų Tiekimas UAB, Lietuvos Dujos AB and Vilniaus Energija UAB On 23 January 2015, Vilniaus Energija UAB filed a claim to respondent Lietuvos Dujų Tiekimas UAB regarding the amendment to the pricing rules (formulas for the calculation of the price for natural gas set in the agreements) established in natural gas supply agreements dated 28 December 2012 and 30 December 2013, and regarding the awarding of the overpaid amount for natural gas acquired. The initial claim amounted to EUR 19,132 thousand. On 14 July 2015, Vilniaus Energija UAB filed a revised claim, whereby Lietuvos Dujos AB was named as the second respondent and the court was requested to oblige Lietuvos Dujų Tiekimas UAB and Lietuvos Dujos AB to pay jointly and severally the overpaid amount for natural gas plus interest thereon. On 3 December 2015, Vilniaus Energija UAB requested to revise the subject matter of the claim by reducing the amount of the claim down to EUR 15,235 thousand (the overpaid amount of EUR 15,200 thousand plus interest of EUE 35 thousand). On 21 January 2016, the court passed the ruling whereby the claim of Vilniaus Energija UAB was dismissed. Legal dispute between Lietuvos Dujų Tiekimas UAB, Lietuvos Dujos AB and Amilina AB On 18 March 2015, Amilina AB filed a claim to respondent Lietuvos Dujų Tiekimas UAB regarding the amendment to the pricing rules (formulas for the calculation of the price of natural gas set in the agreements) established in natural gas supply agreements dated 19 December 2012 and 6 December 2013, and regarding the awarding of the overpaid amount for natural gas acquired. The claim amount was equal to EUR 1,266 thousand and it consisted of the following two elements: the overpaid amount for natural gas of EUR 1,254 thousand and interest of EUR 13 thousand. On 27 July 2015, Amilina AB filed a revised claim, whereby Lietuvos Dujos AB was named as the second respondent and the court was requested to oblige Lietuvos Dujų Tiekimas UAB and Lietuvos Dujos AB to pay jointly and severally the overpaid amount for natural gas plus interest thereon. In the opinion of Lietuvos Dujos AB, neither the legal acts nor the natural gas supply agreements obliged Lietuvos Dujos AB and Lietuvos Dujų Tiekimas UAB to pay to Amilina AB any amounts due to the change in import prices of natural gas or to recalculate the natural gas price in case such changes occur; Lietuvos Dujos AB had properly fulfilled its contractual obligations under the agreements. As a result, in the opinion of the Lietuvos Dujos AB‘s management, the claim was ungrounded. The case is under investigation by the court of the first instance. The court's hearing is scheduled on 26 February 2016. Based on its Resolution No O3-557 of 22 October 2015 On the scheduled audit of Lietuvos Dujos AB, the Commission approved the Scheduled Audit Report No D3-1, wherein (in paragraph 2) it was noted that Lietuvos Dujos AB‘s price cap for distribution services for the years 2016 and 2017 was adjusted by taking into account the allocated amount of unjustified expenses and the amount of eliminated revenue from regulated activities for the period 2009-2013. Based on its Resolution No O3-566 of 29 October 2015 On the adjustment of the cap for distribution services of Lietuvos Dujos AB for the year 2016, the Commission reduced Lietuvos Dujos AB’s revenue level by EUR 1,646 thousand (in view of the conclusions described in the Scheduled Audit Report) when determining the price cap for natural gas distribution services effective from 1 January 2016. Lietuvos Dujos AB noted that no complaints had been filed to court in respect of these Resolutions. Legal disputes between Lietuvos Energijos Gamyba AB and the Commission Lietuvos Energijos Gamyba AB filed a complaint to Vilnius Regional Administrative Court with request to annul Resolution No O3-757 of the Commission of 7 August 2014 On survey results of electricity generation market. On 30 April 2015, Vilnius Regional Administrative Court made a decision to reject Lietuvos Energijos Gamyba AB’s complaint. In disagreement with the Court’s decision, Lietuvos Energijos Gamyba AB appealed to the Supreme Administrative Court of Lithuania regarding the

130 ANNUAL FINANCIAL STATEMENTS 2015 | Contingent liabilities and off-balance sheet commitments


decision of 30 April 2015 of Vilnius Regional Administrative Court. By the aforementioned Resolution, the Commission declared the Company as an undertaking having significant power in the market of electricity generation services and inter alia, with effect from 1 January 2015 placed obligations on Lietuvos Energijos Gamyba AB in relation to the application of the prices and disclosure of information on the regulated activity expenses. During the public consultation procedure, Lietuvos Energijos Gamyba AB provided comments on the Draft Resolution and stated that the survey of electricity generation market was conducted using inappropriate assumptions. As a result, in Lietuvos Energijos Gamyba AB’s opinion, the Commission’s Resolution, whereby Lietuvos Energijos Gamyba AB was declared as an undertaking having significant power in the market of electricity generation services and related obligations were placed thereon, should not be applicable to Lietuvos Energijos Gamyba AB. Lietuvos Energijos Gamyba AB filed a complaint to Vilnius Regional Administrative Court with request to annul the Commission’s Resolution No O3-818 of 30 September 2014 On scheduled audit of Lietuvos Energijos Gamyba AB. On 21 September 2015, Vilnius Regional Administrative Court made a decision to reject Lietuvos Energijos Gamyba AB’s complaint. In disagreement with the Court’s decision, Lietuvos Energijos Gamyba AB appealed to the Supreme Administrative Court of Lithuania regarding the decision of 21 September 2015 of Vilnius Regional Administrative Court. By the aforementioned Resolution, the Commission approved the Scheduled Audit Report No E3-2 of 19 September 2014 and decided to reduce the claimant’s revenue from supported electricity produced at Lithuanian Power Plant (controlled by Lietuvos Energijos Gamyba AB) by EUR 6.14 million, and to reduce the claimant’s revenue from capacity reserve services by EUR 7.44 million. The Resolution states that these decisions of the Commission should be implemented during the accounting years 2015-2016. Based on the above-mentioned Resolution, Lietuvos Energijos Gamyba AB’s revenue from PSO service fees for the year 2015 was reduced by EUR 6.14 million, and its revenue from capacity reserve services was reduced by EUR 3.72 million. Management decided to account for the above-mentioned revenue reduction in Lietuvos Energijos Gamyba AB’s financial statements. In Lietuvos Energijos Gamyba AB’s opinion this Resolution of the Commission has no grounds and contradicts its previous decisions on the same issues. In addition, during the audit the Commission failed to support its decision by applicable legal acts. Taking this into consideration, the Resolution is to be considered as having no grounds and unlawful. Lietuvos Energijos Gamyba AB filed a complaint to Vilnius Regional Administrative Court in respect of the Commission‘s Resolution No O3-852 of 17 October 2014 On determining cap prices for capacity reserve services of Lietuvos Energijos Gamyba AB for the year 2015 and on the Commission‘s Resolution No O3-866 of 30 October 2014 On determining buy-up prices for the year 2015 for electricity produced at Lithuanian Power Plant of LIETUVOS ENERGIJOS GAMYBA UAB. By these Resolutions, the Commission implements its Resolution of 30 September 2014 On scheduled audit of Lietuvos Energijos Gamyba AB, in respect of which Lietuvos Energijos Gamyba AB filed a complaint to Vilnius Regional Administrative Court. As it was mentioned Lietuvos Energijos Gamyba AB‘s announcement on significant events on 31 October 2014, by the Resolution in respect of which Lietuvos Energijos Gamyba AB filed a complaint, the Commission approved Scheduled Audit Report No E3-2 of 19 September 2014 and decided to reduce Lietuvos Energijos Gamyba AB’s revenue from supported electricity produced at Lithuanian Power Plant, controlled by Lietuvos Energijos Gamyba AB, by EUR 6.14 million, and to reduce Lietuvos Energijos Gamyba AB’s revenue from capacity reserve services by EUR 7.44 million. The Resolution stated that the implementation period of the Commission’s resolutions would cover the accounting years 2015-2016. In Lietuvos Energijos Gamyba AB’s opinion, the estimates of return on investments given in the resolutions are inaccurate and incorrect. In view of this and considering the fact that by these resolutions the Commission

implements the Resolution in respect of which Lietuvos Energijos Gamyba AB filed a complaint, the resolutions should be considered as having no grounds and unlawful. Lietuvos Energijos Gamyba AB filed a complaint to Vilnius Regional Administrative Court in respect of the Commission’s Resolution No O3-939 of 19 December 2014 On Amendment to the Commission’s Resolution No O3-866 of 30 October 2014 On Determining Buy-up Prices for the Year 2015 for Electricity Produced at Lithuanian Power Plant of LIETUVOS ENERGIJOS GAMYBA UAB. Lietuvos Energijos Gamyba AB filed a complaint to Vilnius Regional Administrative Court in respect of the Commission’s Resolution No O3-941 of 30 October 2014 On Amendment to the Commission’s Resolution No O3-840 of 19 December 2014 On Determining Funds From PSO Service Fees and Prices for the Year 2015. Alongside the paragraphs of the resolution demanded to be annulled, the Commission, based on Resolution of 7 August 2014 On survey results of electricity generation market, reduced the budget of PSO services fees allocated to Lietuvos Energijos Gamyba AB for the year 2015. In Lietuvos Energijos Gamyba AB’s opinion, this Resolution has no grounds and is in conflict with the legal acts that have superior legal power. PSO service fees receivable by Lietuvos Energijos Gamyba AB in 2015 were reduced by EUR 5.44 million based on Resolution of 7 August 2014 On survey results of electricity generation market. The management decided to account for the abovementioned reduction of revenue in Lietuvos Energijos Gamyba AB’s financial statements. Lietuvos Energijos Gamyba AB filed a complaint to Vilnius Regional Administrative Court in respect of the Commission‘s Resolution No O3-875 of 30 October 2014 On recalculation of price components for heat production at the Lithuanian Power Plant of Lietuvos Energijos Gamyba AB. By this Resolution, the Commission declared Lietuvos Energijos Gamyba AB as being not in compliance with the requirements for estimation of return on investments set forth in the Methodology for Determining Prices for Thermal Power, and obliged Lietuvos Energijos Gamyba AB to eliminate the alleged violation. In Lietuvos Energijos Gamyba AB‘s opinion, the Resolution has no grounds. The Commission’s estimates of return on investments are inaccurate and in conflict with the legal acts. In addition, Lietuvos Energijos Gamyba AB filed a complaint to Vilnius Regional Administrative Court in respect of the Commission‘s Resolution No O3-934 of 11 December 2014 On unilateral establishment of price components for heat production at the Lithuanian Power Plant of Lietuvos Energijos Gamyba AB. By this Resolution, the Commission implemented the Commission’s Resolution No O3-875 of 30 October 2014 On recalculation of price components for heat production at the Lithuanian Power Plant of Lietuvos Energijos Gamyba AB, in respect of which Lietuvos Energijos Gamyba AB has filed a complaint to Vilnius Regional Administrative Court. Accordingly, these two disputes were combined into one case at Vilnius Regional Administrative Court, in respect of which on 17 November 2015 Vilnius Regional Administrative Court made a decision not favourable to Lietuvos Energijos Gamyba AB. In disagreement with such decision of the Court, Lietuvos Energijos Gamyba AB appealed to the Supreme Administrative Court of Lithuania regarding the decision of 17 November 2015 of Vilnius Regional Administrative Court. Lietuvos Energijos Gamyba AB filed a complaint to Vilnius Regional Administrative Court in respect of the Commission‘s Resolution No O3-562 of 22 October 2015 On determining the price caps for capacity reserve services of Lietuvos Energijos Gamyba AB for the year 2016 and on the Commission’s Resolution No O3-579 of 30 October 2015 On determining the PSO service fees and price for the year 2016. Lietuvos Energijos Gamyba AB finds the Resolutions of the Commission as having no grounds and unlawful, and accordingly, they have to be annulled. As at 31 December 2015, Kauno Energetikos Remontas UAB was involved as a respondent in a litigation procedure at Kaunas Regional Court. The subject matter of the case relates to the claimant‘s

131 ANNUAL FINANCIAL STATEMENTS 2015 | Contingent liabilities and off-balance sheet commitments


request to award the debt plus late payment interest and 6% interest from Kauno Energetikos remontas UAB. Preliminary, the amount claimed may reach EUR 342,699. The management believes the claim has no grounds, and accordingly, the related liabilities were not accounted for in the financial statements.

The Group’s transactions with related parties during 2014 and year-end balances arising on these transactions as at 31 December 2014 are presented below: Related parties

Tax audits The Tax Authorities may at any time during 5 successive years after the end of the reporting tax year inspect the books and accounting records and assess additional taxes or fines. The Group’s management is not aware of any circumstances that might result in a potential material liability in this respect.

37 Related-party transactions As at 31 December 2015 and 2014, the parent company was the Republic of Lithuania represented by the Lithuanian Ministry of Finance. For the purposes of disclosure of related parties, the Republic of Lithuania excludes central and local government authorities. The disclosures comprise transactions and balances of these transactions with the shareholder, subsidiaries (the Company's transactions), associates and all entities controlled by or under significant influence of the state (transactions with these entities are disclosed only if they are material), and management. Transactions with related parties are presented below: The Group’s transactions with related parties during 2015 and year-end balances arising on these transactions as at 31 December 2015 are presented below: Related parties

EPSO-G UAB Litgrid AB BALTPOOL UAB TETAS UAB Amber Grid AB Associates and other related parties of the Group Total

Finance income (costs)

Amounts payable

Amounts receivable

Sales

Purchases

3,919 (2) 110 -

6,997 15,253 4,042 77

239,959 2,370 10,700 183 34

6 21,638 82,939 1,693 316

64,395 92,458 15,382 8,594

-

232

138

304

1,483

4,027

26,601

253,384

106,896

182,312

132 ANNUAL FINANCIAL STATEMENTS 2015 | Related-party transactions

EPSO-G UAB Litgrid AB BALTPOOL UAB TETAS UAB Amber Grid AB (since 1 July 2014) Associates of the Group Total

Finance income (costs)

Amounts payable

Amounts receivable

Sales

Purchases

4,062 23

8,976 19,487 3,275

240,372 3,198 9,983 359

31,173 104,359 1,745

78,402 133,404 13,076

-

349

297

2,059

5,054

5,779

494

73

272

28

9,864

32,581

254,282

139,608

229,964

The major sale and purchase transactions with related parties within the Group in 2015 and 2014 comprised transactions with the entities controlled by the Group and the Lithuanian Ministry of Finance: Litgrid AB, BALTPOOL UAB, and Amber Grid AB (since 1 July 2014). The Group’s purchases from these entities mainly included purchases of electricity, capacity, transmission, PSO services and gas. Sales transactions included sales of electricity, capacity and PSO services. Amount receivable from EPSO-G UAB represents unpaid amount on disposal of Litgrid AB, the outstanding balance of the loan granted and interest accrued thereon. Finance costs include interest charged during the year. Purchase and sale transactions with GET Baltic UAB exclude purchases and sales of natural gas, since GET Baltic UAB acts solely as an intermediary who provides intermediation services in return for a certain commission fee. Transactions with other state-owned entities included regular business transactions and therefore they were not disclosed.


The Company’s transactions with related parties during 2015 and year-end balances arising on these transactions as at 31 December 2015 are presented below: Related parties Subsidiaries LESTO AB Lietuvos energijos gamyba AB Lietuvos dujos AB Lietuvos dujų tiekimas UAB NT Valdos UAB Kauno energetikos remontas UAB Verslo aptarnavimo centras UAB Energijos tiekimas UAB LITGAS UAB ELEKTROS TINKLO PASLAUGOS UAB Technologijų ir inovacijų centras UAB VAE SPB UAB Energetikų mokymų centras VšĮ Duomenų logistikos centras UAB Other related parties EPSO-G UAB Litgrid AB Total

Finance income

Finance costs

-

402

Amounts payable

34,682

Amounts receivable

144 -

Sales

645

Purchases

58,906

-

324 -

28,253 -

119

350 369

48,520 -

-

-

-

47

160

-

-

-

35

39

109

294

-

-

-

102

85

61

-

-

-

3

199

35

-

-

-

20

48

-

2,003

-

-

170

30

-

-

-

-

2,939

78

-

-

-

8

26

215

44

-

-

-

4

22

-

-

-

-

13

26

11

-

2

321

-

29

529

3,919 5,922

2 730

188 63,487

239,957 243,583

6 2,371

312 108,712

The Company’s transactions with related parties during 2014 and year-end balances arising on these transactions as at 31 December 2014 are presented below: Related parties Subsidiaries LESTO AB Lietuvos energijos gamyba AB NT Valdos UAB Verslo aptarnavimo centras UAB LITGAS UAB Technologijų ir inovacijų centras UAB Energetikų mokymų centras VšĮ Other related parties EPSO-G UAB Total

Finance income Finance costs

Amounts payable

Amounts receivable

Sales

-

34

-

-

12

5,527

-

74

-

-

7

11,975

-

2

27

-

-

315

-

-

22

-

-

24

369

-

-

204

-

3

-

81

-

-

290

-

-

1

-

-

4

4,063 4,435

110

131

240,372 240,576

19

18,135

In 2015 and 2015, purchases included the purchases of services and acquisitions of entities. In 2015, sales included sales of management services that the Company started rendering to the Group entities. The dividends declared in 2015 and 2014 are disclosed in Note 35. Compensation to management: Group 2015 Salaries and other short-term employee benefits Whereof: Termination benefits and benefits to Board Members Number of management staff

2014*

Company 2015 2014

4,517

3,434

700

628

733

415

92

94

71

77

10

8

Management in the table above includes heads of administration and their deputies. * Salaries and other benefits of Lietuvos Dujos AB since 1 July 2014.

133 ANNUAL FINANCIAL STATEMENTS 2015 | Related-party transactions

Purchases


38 Events after the reporting period Reorganisation of subsidiaries On 1 January 2016, LESTO AB and Lietuvos Dujos AB were reorganised by way of merger under Art. 2.97(4) of the Lithuanian Civil Code, as a result of which a new entity Energijos Skirstymo Operatorius AB (ESO) was established with company code 304151376 and office address at Aguonų g. 24, Vilnius. As from 11 January 2016, the shares of ESO have been quoted on the Main List NASDAQ OMX Vilnius stock exchange. Following the reorganisation, ESO took over from Lietuvos Dujos AB all its non-current and current assets, non-current and current financial and other liabilities, amounts receivable and payable under the agreements signed between LESTO AB and Lietuvos Dujos AB, including any other otherwise arising obligations. On 1 January 2016, ELEKTROS TINKLO PASLAUGOS UAB and Kauno Energetikos Remontas UAB were reorganised by way of merger under Art. 2.97(4) of the Lithuanian Civil Code, as a result of which ELEKTROS TINKLO PASLAUGOS UAB and Kauno Energetikos Remontas UAB ceased to exist as legal entities and a new entity was established under the name of Energetikos Paslaugų ir Rangos Organizacija UAB, company code 304132956, office address: Motorų g. 2, Vilnius. The merger of Lietuvos Dujų Tiekimas UAB and LITGAS UAB planned on 1 January 2016 was postponed until the finalisation of the regulatory framework pertaining to the liquefied natural gas (LNG) terminal and the designated supplier, and the completion of negotiations of amendments to the agreement with Statoil. The merger is expected to be completed in the middle 2016.

Transfer of commercial part of business On 12 October 2015, Lietuvos Energijos Gamyba AB and Energijos Tiekimas UAB (hereinafter “Energijos Tiekimas“) signed an agreement on sale-purchase of the commercial part of wholesale electricity trade activities. The part of business sold to Energijos Tiekimas covered trade in derivative financial instruments not related to physical trading in electricity, and provision of balancing services. The title of ownership to the part of business (representing the commercial part of wholesale electricity trade activities) was passed to Energijos Tiekimas on 1 January 2016. Until 31 December 2015, these activities were carried out by Lietuvos Energijos Gamyba AB.

Buyout of shares to ensure compliance with the ruling of the Supreme Court of Lithuania Under the Finance Minister’s Order, the Company is obliged to implement the Lithuanian Government Resolution No 1126 of 26 October 2015 On Buyout of Shares (the Resolution), and to buyout (acquire ownership of) the shares of the former AB LIETUVOS ELEKTRINĖ from minority shareholders, which were obtained under the title of ownership in return for the shares of Lietuvos Energija AB (currently known as Lietuvos Energijos Gamyba AB) following the reorganisation of AB LIETUVOS ENERGIJA and AB LIETUVOS ELEKTRINĖ, and which were not disposed to any third parties. On 9 February 2016, the date for commencement of buyout of shares was published. The shares to be bought out from minority shareholders of AB LIETUVOS ELEKTRINĖ in return for the shares of Lietuvos Energijos Gamyba AB based on the proportion approved under the Resolution – 1.37 shares of Lietuvos Energijos Gamyba AB in return for one share of AB LIETUVOS ELEKTRINĖ. The price of

134 ANNUAL FINANCIAL STATEMENTS 2015 | Events after the reporting period

one ordinary registered share of Lietuvos Energijos Gamyba AB to be bought out was equal to EUR 1.2959. During the period of 90 (ninety) calendar days after the date of placement of notice on buyout of shares of Lietuvos Energijos Gamyba AB in an electronic publication of the state enterprise Centre of Registers (administrator of the Register of Legal Entities) on 9 February 2016, all minority shareholders can exercise an option to request that the Company buy out the shares from minority shareholders, which meet the above-mentioned criteria. The shareholders who fail to exercise such option upon expiry of the above-mentioned period of 90 (ninety) calendar days, will no longer be entitled to request the buyout of the shares specified in the Resolution for the price indicated in the Court’s ruling and the Resolution. As at 31 December 2015, the Company did not account for any liability in relation to the buyout of shares from minority shareholders, since the existence of such liability became virtually certain in January 2016, i.e. after the relevant decision was made by the shareholder Lithuanian Ministry of Finance. Moreover, in the opinion of the Company‘s management, the amount of liability could not be measured reliably because it was impossible to assess the quantity of shares eligible for buyout before the commencement of buyout.

Acquisition and disposal of investments On 18 January 2016, the Company acquired 209,662 ordinary registered shares of EURAKRAS UAB, representing 75% of share capital of EURAKRAS UAB and 75% of voting rights during the General Shareholders Meeting. The cost of acquisition of shares amounted to EUR 17,058 thousand. The acquired entity is based in Lithuania and it operates a park of 8 wind turbines with overall capacity of 24 MW, located in Geišiai and Rotuliai II villages, Jurbarkas district. On 20 January 2016, the Company acquired 100% of ordinary registered shares of Estonian company HOB OU and 43.28% of ordinary registered shares of Estonian company Tuuleenergija Osauhing for the total amount of EUR 11,350 thousand. HOB OU owns 56.72% of shares of Tuuleenergija Osauhing, therefore, following this transaction the Company holds 100% of shares of Tuuleenergija Osauhing. Tuulueenergia Osauhing operates a part of 6 wind turbines with overall capacity of 18.3 MW, located in Mali and Tamba, Estonia.


On business combination, assets and liabilities of EURAKRAS UAB, HOB OU and Tuuleenergija Osauhing were identified with the following fair values at the date of acquisition:

EURAKRAS UAB Property, plant and equipment Other non-current amounts receivable Inventories and prepayments Amounts receivable within one year Cash and cash equivalents Non-current liabilities Current liabilities Net assets Non-controlling interest Goodwill arising on business combination Purchase consideration paid

HOB OU and Tuuleenergia Ousauhing

32,036 124 13 319 580

30,636 605 499 154

(24,001) (1,219)

(21,538) (3,993)

7,852

6,363

1,963 11,169 17,058

4,987 11,350

The Group has 12 months after the date of business combination to review and determine the fair values of the assets and liabilities. On 9 February 2016, the Company established a new entity Energijos Sprendimų Centras UAB with the authorised share capital of EUR 10 thousand, which is divided to 10,000 ordinary shares with the nominal value of EUR 1 each. The total issue price of shares was equal to EUR 150 thousand. Energijos Sprendimų Centras UAB is engaged in the provision of energy saving (efficiency) services and development of renewable energy sources. The Articles of Association of Energijos Sprendimų Centras UAB were registered with the Register of Legal Entities on 17 February 2016. On 15 March 2016, the Group‘s subsidiary Kauno Kogeneracinė Jėgainė UAB issued 10,756,300 ordinary registered shares with the nominal value of EUR 1 each. The total issue price of shares was equal to EUR 10,756,300. The Company acquired 5,484,292 newly issued shares with the nominal value of EUR 1 each, which were settled in cash contribution of EUR 5,484 thousand. As a result of this transaction, the Company holds 51% of shares of Kauno Kogeneracinė Jėgainė UAB. Accordingly, 49% of shares of Kauno Kogeneracinė Jėgainė UAB are held by FORTUM HEAT LIETUVA UAB.

Borrowings In January 2016, the Group company NT Valdos UAB signed with the bank a long-term agreement for the loan of EUR 16.9 million intended to finance the acquisition of immovable property and refinance the investments. The loan was withdrawn and the payments were made in full for immovable property acquired. Immovable property of NT Valdos UAB was pledged to secure the fulfilment of obligation under the loan agreement. The loan agreement is valid until January 2021. In January 2016, the Company signed with the bank a long-term agreement for the loan of EUR 25.6 million intended to finance the acquisition of wind-power park. The deadline for repayment of the loan is 18 January 2026, and variable interest is payable on the loan.

135 ANNUAL FINANCIAL STATEMENTS 2015 | Events after the reporting period

In March 2016, the Company signed with the bank an overdraft agreement for the amount of EUR 40.0 million to refinance the Company’s day-to-day operations. The amount of overdraft facility can be increased to EUR 52 million. The deadline for its repayment is 7 March 2018, and variable interest is payable thereon. As at the date of signing these financial statements, no amount of the overdraft facility was withdrawn.

Sale of assets On 25 January 2016, part of immovable property belonging to the Group company NT Valdos UAB with the value of EUR 15.4 million was approved for sale by auction.

*****

Annual report 2015  
Annual report 2015  
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