CONSOLIDATED INTERIM REPORT OF THE COMPANY AND THE GROUP 1 January 2016 – 30 June 2016
1 2016 FIRST HALF-YEAR INTERIM REPORT | Message from the Chairman of the Board
Content Consolidated interim report of the Company and the Group Message from the Chairman of the Board
5
About the Group and the Company
6
Main events
10
Analysis of financial and operating results of the Group
11
Overview of Activity of the Company and the Group
21
Corporate responsibility
30
Corporate governance
34
Key information about the Company and the Group
42
2 2016 FIRST HALF-YEAR INTERIM REPORT | Message from the Chairman of the Board
Key indicators of the Lietuvos Energija Group 6 months of 2016
6 months of 2015
Change (+/-)
Revenue
million EUR
579,6
548,3
million EUR 31,3
% 5,7%
Costs of purchase of electricity, gas, fuel and related services
million EUR
-375,9
-390,3
-14,3
3,7%
Operating expenses (1)
million EUR
-67,4
-77,6
-10,2
13,1%
EBITDA (2)
million EUR
142,4
117,3
25,2
21,5%
%
24,4%
21,4%
Net profit
million EUR
67,1
38,8
28,2
72,7%
Net profit (normalised)
million EUR
72,3
61,8
10,6
17,1%
2016-06-30
2015-12-31
EBITDA margin (3)
Change (+/-)
Total assets
million EUR
2 330,5
2 339,2
million EUR -8,7
Equity
million EUR
1 315,6
1 304,5
11,1
0,8%
Financial debts
million EUR
459,6
420,7
38,9
9,2%
Net financial debts (4)
million EUR
283,2
251,8
31,4
12,5%
Return on equity (ROE) (5)
%
11,0%
9,4%
Equity capital level (6)
%
56,4%
55,8%
times
1,15
1,14
%
21,5%
19,3%
Asset turnover (7)
times
0,249
0,234
Current ratio (8)
times
1,136
1,049
Net financial debt / EBITDA of 12 months Net financial debt / Equity ratio
% -0,4%
1) Operating expenses, except for the cost of purchase of electricity and related services, depreciation and amortization as well as impairment of value and write-off expenses of long-term tangible assets; 2) Pre-tax profit (loss) + financial expenses - financial revenue – received dividends + costs of depreciation and amortisation + value impairment costs + write-offs of tangible fixed assets + impact of the discount of the price of natural gas; 3) EBITDA / revenue; 4) Financial debts – cash and cash equivalents – short-term investments and time deposits – share of other fixed financial assets comprising investments in debt securities; 5) Net profit (loss), restated annual expression / average equity capital during the period; 6) Equity capital at the end of period / total assets at the end of period; 7) Revenues / total assets at the end of the period 8) Current assets at the end of the period / current liabilities at the end of the period
3 2016 FIRST HALF-YEAR INTERIM REPORT | Message from the Chairman of the Board
Revenues of Lietuvos Energija Group increased by EUR 31.3 million due to growing income from energy transmission,power reservation and balancing.
Net comparative profit of Lietuvos Energija Group grew by 17.1% and exceeded the returnon-capital (ROC) requirements set for a state-controlled enterprise (SCE). The minimum ROC for a SCE was 5.7 percent, whereas the Group’s indicator during the 1st half-year was 11.0 percent.
EBITDA of Lietuvos Energija Group grew by 25 million EUR mostly due to better gas supply and trading activity result, as well as decreased operating costs of the Group
4 2016 FIRST HALF-YEAR INTERIM REPORT | Message from the Chairman of the Board
Net debt of Lietuvos Energija remains relatively low, as compared with an optimal borrowed-to-equity capital ratio. Debt grew during the 1st-half-year due to intensive investment into the development and maintenance of the electricity and gas distribution network.
Financial data is provided in million EUR duomenys pateikiami million EUR.
Message from the Chairman of the Board
Dear Customers, Partners, Employees and Shareholders, Successfully purified activity enabled the companies of Lietuvos Energija Group to operate more efficiently during the first half-year, to make full use of new costreduction possibilities, focus on the improvement of quality of the services provided, as well as the development of more convenient settlement methods for customers. A focused, consistent, and goal-oriented work of Lietuvos Energija Group’s employees enabled us to achieve better financial results, whereas our customers will feel this value in the second half of the year when making payments for electricity and gas at still lower prices. During the 1st half-year Lietuvos Energija earned a consolidated profit of EUR 142.4 million before interest, tax, depreciation, and amortisation (EBITDA) – this is more by one fifth as compared with the same time last year, when EBITDA was EUR 117.3 million. The first half year was full of significant events that will have a great effect for the future of strategic energy projects in Lithuania. At the beginning of the year, wind farms acquired in Lithuania and Estonia increased the capacities for generating renewable energy by Lietuvos Energija by 40 percent. Financing from the European Strategic Investment Fund was received for Vilnius co-generation plant, what
laid down solid foundations for implementing the project in due time and under the most favourable conditions. At the same time, permits received for the construction of Kaunas co-generation plant marked the final stage of preparation for construction. By further purifying activities we successfully sold a part of no-longer used real estate of the Group’s companies during the 1st half-year. We also plan to continue the sale process further, this way declining non-core activities of the Group. Seeking the strategic goals we have set, we diversified the Group’s activities during the 1st half-year by carrying out the development not only in the field of renewable energy, but also in innovations. We believe that the Innovation Fund set up by Lietuvos Energija will not only prompt the emergence of new ideas in the energy sector, but will also help attract talents. This year we will continue to take care of better customer-services by consistently improving convenient and time-saving settlement methods. Using our modern website manogile.lt our customers already have a possibility to pay not only for electricity or gas, but also for all utility services by a single payment. Transparency remains one of the top priorities in our activity management. Therefore, the corporate responsibility report of Lietuvos Energija Group published during the 1st half-year 2016 is deemed not only an important step in enhancing our accountability for the public, but also a new standard fostering the practice of implementing transparency and responsibility on the market. Dr. Dalius Misiūnas Chairman of the Board, Director General of Lietuvos Energija UAB
5 2016 FIRST HALF-YEAR INTERIM REPORT | Message from the Chairman of the Board
About the Group and the Company
6 2016 FIRST HALF-YEAR INTERIM REPORT | Content
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 5 000 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 570 thousand consumers, implements development projects of strategic value and pursues the objective set forth in the National Energy Strategy. During the 1st half-year of 2016 0,69 TWh of electricity were generated, 4,49 TWh of electricity were transmitted to consumers and 0,37 billion m3 of natural gas were transported via gas distribution pipelines.
7 2016 FIRST HALF-YEAR INTERIM REPORT | Content
During 6 months of 2016, the consolidated revenue of the Group amounted to EUR 579,6 million and EBITDA of the Group was EUR 142,4 million. Net normalised profit totalled to EUR 72,3 million. The parent company of the Group – Lietuvos Energija, UAB (hereinafter – Lietuvos Energija or the Company) is responsible for transparent management and coordination of activities of the whole Group, improvement of the efficiency in order to ensure competitive services for consumers, and for socially responsible creation of long-term value for its shareholders. The Company analyses the activities of the Group, represents the Group, implements rights and obligations of the shareholder, establishes operational guidelines and rules, and coordinates the activities in the areas of production, commerce, finance, law, strategy and development, human resources, risk management, audit, technology, communication and others.
Structure of the Group At the reporting date, the Lietuvos Energija group consisted of 21 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
8 2016 FIRST HALF-YEAR INTERIM REPORT | Structure of the Group
comprise ITT, real 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 42 of this document. The organisational chart of the Group effective from 30 June 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
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
investment 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.
components: 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 2016 FIRST HALF-YEAR INTERIM 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.
Main events during IIQ of 2016
April 4 April 2016
The support fund of Lietuvos Energija called potential beneficiaries to submit applications for getting a support. This year, three priority directions for the granting of support have been set: support for children suffering from oncological diseases, science, and sports. (Read more on page 30.)
June
May 10 May 2016 The deadline within which minority shareholders of Lietuvos Electricity Plant could use the possibility of share redemption expired. Funds for the redeemed shares will be paid out to shareholders in May. (Read more on page 44.) 30 May 2016 The National Commission for Energy Control and Prices (NCECP), by responding to changes in the market, set smaller by 5 percent upper limits for the public electrical energy price for the 2nd halfyear of 2016 (Read more on page 28.)
July
August
17 June 2016
12 July 2016
8 August 2016
The European strategic investment fund, set up on the initiative of the European Commission to boost EU economy, will allocate financing of EUR 190 million for the construction of Vilnius cogeneration plant. Financing according to the so-called Junker’s plan will ensure the most favourable loan terms and interest available on the market for the new cogeneration plant fpowered by bio-fuel and waste. (Read more on page 24.)
Vilnius co-generation plant drew up a ranking of public procurement participants contractors for constructing the plant. Based on the works contracts intended to be entered into in the near future, the new plant will be installed for EUR 327.9 million. (Read more on page 45.)
Essential changes were installed in the customer service space manogile.lt. enabling customers to pay for all utility services by a single payment. (Read more on page 22.)
10 2016 FIRST HALF-YEAR INTERIM REPORT | Main events during IIQ of 2016
22 July 2016 Lietuvos energija published a ranking of potential implementers of the integrated business management system that participated in the international tendering procedure. Lietuvos Energija will offer the consortium of companies that filed the best offer to sign a contract. (Read more on page 26.)
9 August 2016 During an auction held, nearly one third of the nonused real estate offered by Lietuvos Energija Group of energy enterprises was sold. (Read more on page 26.)
kkkk
Grupės finansinių ir veiklos rezultatų analizė LIETUVOS ENERGIJA, UAB GRUPĖS ESMINIAI VEIKLOS RODIKLIAI
Pokytis (+/-) +/%
2016 m. 6 mėn.
2015 m. 6 mėn.
TWh
0,69
0,92
-0,23
-24,7%
Paskirstyta el. energijos vartotojams vidutinės ir žemos įtampos tinklais
TWh
4,49
4,25
0,24
5,6%
Visuomeninis ir garantinis tiekimas Paskirstyta nepriklausomų tiekėjų vartotojams
TWh TWh
1,60 2,89
1,59 2,66
0,01 0,23
0,7% 8,5%
min. vnt.
30,37 0,42
27,21 0,38
3,16 0,04
11,6% 10,5%
TWh TWh
3,93 6,15
3,80 6,35
0,13 -0,20
3,5% -3,1%
min. vnt. %
0,36 0,0042 2,16%
0,33 0,0029 2,64%
0,03 0,0013
7,9% 43,3% -18,2%
Elektros energija Pagaminta elektros energijos
Elektros energijos tiekimo kokybės rodikliai SAIDI, min. (be „force majeure“) SAIFI, vnt. (be „force majeure“) Technologinės sąnaudos skirstomajame tinkle Dujos Paskirstytas dujų kiekis Parduotas dujų kiekis Dujų tiekimo kokybės rodikliai SAIDI, min. (be „force majeure“) SAIFI, vnt. (be „force majeure“) Technologinės sąnaudos skirstomajame tinkle
%
11 2016 FIRST HALF-YEAR INTERIM REPORT | Grupės finansinių ir veiklos rezultatų analizė
Analysis of the Group‘s Financial 5,82% 6,18% -5,9% and Operating Results
Analysis of the Group’s financial and operational results KEY OPERATIONAL INDICATORS OF THE LIETUVOS ENERGIJA, UAB GROUP
Change (+/-) +/%
6 months of 2016
6 months of 2016
TWh
0,69
0,92
-0,23
-24,7%
Distributed electricity via medium and low voltage networks
TWh
4,49
4,25
0,24
5,6%
Public and guaranteed supply Distributed to customers of independent suppliers
TWh TWh
1,60 2,89
1,59 2,66
0,01 0,23
0,7% 8,5%
min. units
30,37 0,42
27,21 0,38
3,16 0,04
11,6% 10,5%
%
5,82%
6,18%
TWh TWh
3,93 6,15
3,80 6,35
0,13 -0,20
3,5% -3,1%
min. units %
0,36 0,0042 2,16%
0,33 0,0029 2,64%
0,03 0,0013
7,9% 43,3% -18,2%
Electricity Generated electricity
Quality indicators of electricity supply SAIDI, min. (excl. force majeure) SAIFI, units (excl. force majeure) Technological costs in the distribution network
-5,9%
Gas Distributed volume of gas Distributed volume of gas Quality indicators of gas supply SAIDI, min. (excl. force majeure) SAIFI, units (excl. force majeure) Technological costs in the distribution network
During January-June, electric power quantity distributed by the Group to consumers by medium and low-voltage grids grew by +5.6 percent (0.24 TWh) and amounted to 4.49 TWh. The main reasons of big growth – lower (by -3.6°, as compared with the climate rate of change) air temperature than in January 2015, and positive growth of the national gross domestic product. During the 1st half-year 2016, the volumes of public and guaranteed electric power supply by Lietuvos Energija Group amounted to 1.60 TWh, which is +0.7 percent, or +0.01 TWh more than during the reporting period a year ago. Distribution of electric power to independent consumers grew and amounted to 2.89 TWh (+8.5 percent, +0.23 TWh, as compared with the 1st half-year of the preceding year). Consumption of electric power grew due to increased electricity consumption by commercial users the suppliers whereof are most often independent suppliers. During the 1st half-year 2016, Lietuvos Energija Group generated 0.69 of TWh electric power (-24.7 percent less, as compared with the result of the 1st half-year 2015),
during the comparative period, generation of electric power in Kaunas Algirdas Brazauskas’ Hydroelectric Power Plant increased by +15.8 percent (from 0.175 TWh during the 1st half-year 2015 to 0.203 TWh during the 1st half-year 2016). Production volumes of Kruonis HAE decreased during the 1st half-year 2016, 0.271 TWh electric power was generated, which is less than during the 1st half-year 2015 (0.300 TWh). After quotas for the electric power generation were cancelled, generation capacities of Elektrėnai combined cycle gas production complex were turned upon the establishment of a high electric power price due to disconnections of NordBalt and other reasons. Although the combined-cycle unit was turned on 30 times during the comparative period (twice more often than during the entire 2015 year), generation of electricity in the combined cycle unit decreased by -65.0% from 0.445 TWh to 0.156 TWh, because the production capacities were turned on and shut down during peak hours, i.e., when electricity price was the biggest and it was possible to place a competitive production offer in the neighbouring countries. Units of the Elektrėnai complex are used for generation of electric power, seeking to ensure reliable
12 2016 FIRST HALF-YEAR INTERIM REPORT | Analysis of the Group’s financial and operational results
operation of the electricity system, when due to repairs of other resources for electricity generation, limited power line capacity in the country or due to other reasons, there appears a shortage of electricity and its price rises in the market, during the first half-year 2016, in wind farms operating in Estonia and Lithuania, 0.056 TWh of electric power was generated.
TWh more, as compared with the 1st half-year 2015, when 3.80 TWh of gas was distributed. Due to successful operation of the liquefied gas terminal and upon the establishment of competition in the natural gas market, quantity of gas sold by the Group’s companies slightly reduced during the first half-year 2016 and totalled 6.15 TWh. This is -3.1 percent, or -0.20 TWh less than during the first-half-year 2015. Upon change of the regulatory environment, due to smaller sales to heat generators, sales of the Litgas UAB decreased that were compensated by better sales to commercial customers by the Lietuvos Dujų Tiekimas UAB.
During the 1st half-year 2016, technological costs in the electricity distribution grid reduced – they accounted for 5.82 percent (during the first-half-year 2015 – 6.18 percent). An average duration of unscheduled disconnections of electric power transmission, without regard to the impact of force majeure, or the SAIDI indicator, was poorer during the comparative period and amounted to 30.37 minutes (a year ago, during the comparative period, the SAIDI was 27.21 minutes), whereas the SAIFI indicator, showing the rate of unscheduled disconnections per user, was 0.42 times during the 1st half-year 2016, as compared to 0.38 time during the first half-year 2015. The first-half-year 2016 was characterised by great weather changes that caused bigger numbers of breakdowns, as compared with several preceding years.
An average duration of unscheduled disconnection of gas transportation per user, without regard to the impact of force majeure (SAIDI indicator) during 2016 increased per user and amounted to 0.36 min. (during the 1st half-year 2015 it was 0.33 min.), whereas the average number of disconnection of gas transportation per user (SAIFI indicator) was 0.0042 time (during the first half-year 2015, it was 0.0029 time). The decline in these indicators was determined by the fact that the beginning of 2016 was considerably colder than in 2015.
The quantity of gas distributed by the Group’s companies practically did not change during the 1st half-year 2016 and amounted to 3.93 TWh, i.e. +3.5 percent, or +0.13
Parduota ir paskirstyta dujų, TWh Elektros energijos gamyba, skirstymas ir pardavimas, TWh 5,97
2,56 2,52 2,66 2,89
Paskirstyta nepriklausomų tiekėjų vartotojams
5,05
Parduota dujų
6,35 6,14
1,58 1,64 1,59 1,60
Visuomeninis ir garantinis tiekimas
5,41 4,15 4,17 4,25 4,49
Paskirstyta el. energijos vartotojams vidutinės ir žemos įtampos tinklais
4,25
Paskirstyta dujų
3,80 3,93
0,74 0,60 0,92 0,69
Pagaminta elektros energijos
0 2013 m. I pusm.
1 2014 m. I pusm.
0 2 3 2015 m. I pusm.
4 2016 m. I pusm.
5
1
2013 m. I pusm.
13 2016 FIRST HALF-YEAR INTERIM REPORT | Analysis of the Group’s financial and operational results
2
3
2014 m. I pusm.
4
5
2015 m. I pusm.
6 2016 m. I pusm.
7
Key Financial Indicators Revenues Revenues of Lietuvos Energija Group, during the 1st half-year 2016, as compared with the same period a year, increased by +5.7 percent, or + EUR 31.3 million and totalled EUR 579.6 million. As compared with revenues during the 1st half-year 2015, during the 1st half-year 2016, due to bigger distributed quantity of electric power by medium and low voltage grids, the revenues from electricity transmission increased (+EUR 46.9 million, up to EUR 206.8 million), as compared with the revenues during the 1st half-year 2015. Due to smaller gas prices, the revenues from gas distribution and sales reduced (-EUR 17.5 million, down to EUR 142.2 million), during the 1st half-year 2016, as compared with the 1st half-year 2015. The revenues from balancing and power reservation increased by +EUR 18.6 million, due to bigger quantities of secondary and tertiary power ordered by the Group’s company Lietuvos Energijos Gamyba AB and bigger income of the synchronous compensator1 . As compared with the 1st first-half year 2015, due to smaller rates of the public and guaranteed electricity, the sale of produced electricity, electricity trade and supply volumes decreased by -EUR 6.5 million. The statement of the Group’s general revenues include the revenues of EUR 3.8 million from the wind farms acquired in Estonia and Lithuania in 2016. Upon increase of the revenues from the electric power transmission activity, they accounted for 36 percent of the Group’s total revenues (during the 1st half year 2016 – 29 percent). With the reduction of the revenues from gas distribution and sale, this part of the Group’s revenues in the total revenue structure decreased from 29 percent in the first half-year 2015 to 25 percent in the first half-year 2016.
1
The service for regulating the reactive power and frequency in the Lithuanian electricity system
14 2016 FIRST HALF-YEAR INTERIM REPORT | Analysis of the Group’s financial and operational results
Operating and Purchase Costs During the 1st half-year, the Group’s operating costs totalled EUR 67.4 million, and, as compared with the 1st half-year 2015, decreased by -13.1 percent (-EUR 10.2 million). The decrease in costs was determined by the merger of LESTO AB and AB Lietuvos Dujos AB, also enhancement of operational efficiency and purification of the value chain. During the 1st half-year 2016, EUR 0.9 million of operating costs were sustained as a result of new projects, of which 47 percent consisted of the operating costs associated with the acquisition of wind farms in Lithuania and Estonia during IQ 2016. Comparative costs of the typical activity dropped by -EUR 2.6 million due to smaller expenses related with repair and maintenance costs of the electric grid and electricity generation facilities; smaller by -EUR 2.0 million expenses for other repair and maintenance; also smaller by -EUR 0.7 million telecommunication and IT services costs, as compared with the 1st half-year 2015. Operating costs associated with gas distribution activity decreased by -EUR 4.7 million due to reduced remuneration costs, as compared with the 1st half-year 2015. During the reporting period, the Group’s costs for the purchase of electricity, gas, fuel, and associated services declined by -EUR 3.9 percent, or -EUR 15.1 million, as compared with the 1st half-year 2015. The purchase of electricity or associated services amounted to EUR 238.5 million, or +23 percent, as compared with the 1st half-year 2015, due to bigger by + EUR 24.0 million costs of public service obligations and due to bigger distributed quantities of electricity, bigger by EUR 17.6 million electricity purchase costs, as compared with the 1st half-year 2015. Purchases of gas and associated services decreased by 39 percent due to diversified supply and acquisition of gas under favourable conditions from the liquefied gas terminal (during the 1st half-year 2016, 7 vessels, and the 1st half-year 2015 2 vessels transporting liquefied natural gas were brought to Lithuania), reduced sale quantity of gas and reduced quota for the generation of supportable electric power in the Elektrėnai complex. Due to change in the regulatory environment, a part of costs for gas is reflected in accounts as purchases of gas and fuel oil ,the biggest part whereof consists of the additional constituent for the security of natural gas supply, added to the sale price of natural gas.
15 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
2016 m. I ketv. Grupės EBITDA%šaltiniai, % Grupės EBITDA šaltiniai,
The Group’s EBITDA during the 1st half-year 2016 amounted to EUR 142.4 million, which is more by +21.5 percent or +25.2 million, as compared to the reporting period in 2015, when EBITDA was equal to EUR 117.3 million (EBITDA of the 1st half-year 2016 does not include a negative effect of the discount of EUR 6.1 million on the gas price applied to household and non-household consumers during the 1st half-year 2016). The growth in the Group’s EBITDA was determined by a positive change in the result of the gas supply and trade activity in 2016 due to the collection of more regulated income of the LITGAS UAB daughter company, by which the operating results of the Group’s activity and sale volumes of the daughter company Lietuvos Dujų Tiekimas UAB to commercial users will be reduced. During the 1st half-year 2016, as compared to the 1st half-year 2015, EBITDA of electricity generation dropped by EUR 6.6 million due to the changed regulation and reduced quota for the generation of supportable electricity in Elektrėnai complex. During the 1st half-year 2016, the results of trade in electricity were better by EUR 4.7 million than during the 1 st half-year 2015. This was determined by bigger quantities of retail and wholesale of electricity.
AB "Energijos skirstymo operatorius" AB "Energijos skirstymo operatorius"
UAB "Lietuvos dujų tiekimas" ir UAB "Litgas"
78,1
UAB "Lietuvos dujų tiekimas" ir UAB "Litgas" AB "Lietuvos energijos gamyba"
mln. EUR
2016 m. I pusm.17% 142,4 mln. EUR
15%
Kitos veiklos AB "Lietuvos energijos gamyba"
12%
8%
Kitos veiklos
7%
15%
Grupės 2016 I pusm. EBITDA pokyčiai pagal veiklos sektorius 160
Grupės 2016 m. I ketv. EBITDA pokyčiai pagal veiklos sektorius 3,3 15,2 22,6
4,7 3,4
3,4 1,9
0,3
142,4
-2,2 -6,6
3,9
70,6
78,1
9,0
16 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
2016 m. I pusm. EBITDA
2016 m. I ketv. EBITDA
Elektros gamyba
Elektros gamyba
Elektros ir dujų skirstymas ir tiekimas Kita veikla
Kita veikla Vėjų parkai Lietuvoje ir Estijoje
Vėjų parkai Lietuvoje ir dujų skirstymas ir Elektros ir Estijoje tiekimas
117,3
Elektros prekyba Elektros prekyba
150 100 90 140 80 70 130 60 50 120 40 30 110 20 100 10 0
ir prekyba Dujų tiekimas Dujų prekyba
The Group’s EBITDA margin during the reporting period slightly increased and accounted for 24.6 percent (during the 1st half-year 2015, the EBITDA margin was 21.4 percent). This change was determined by the Group’s higher profitability activity in trading gas.
63% 62%
EBITDA 2015 EBITDA I pusm. 2015m.m.I ketv.
EBITDA and Net Profit
During the 1st half-year 2016, the Group earned EUR 67.1 million net profit, i.e., more by EUR 28.2 million, than during the 1st half-year 2015 (EUR 38.8 million). The biggest impact on the 1st half-year 2016 result, as compared to that of 2015, was made by the following effects:
Increase in the revaluation costs of the environmental pollution permits by EUR 7.9 million EUR (1st half-year 2015 0.3 million EUR).
Bigger net profit of the daughter company Litgas UAB by +6.8 million EUR (1 half-year 2015 -EUR 1.7 million, 1st half-year 2016 +EUR 8.5 million).
st
Bigger net profit of the daughter company Lietuvos Dujų Tiekimas UAB by +EUR 29.0 million (1st half-year 2015 -EUR 26.4 million, 1st half-year 2016 +EUR 2.6 million)
Net profit and comparable net profit for first half of 2016, in EUR million 80 70
Reduction in the Group’s operating costs by EUR 10.2 million.
Change in the regulatory environment as a result whereof net profit of Lietuvos Energijos Gamyba AB decreased by EUR 9.2 million.
61,8
72,3
60 50
67,1
40
+17,1% 38,8
30 20 10 0
Net profit in 2015 and 2016 was significantly affected by discounts on the gas price and the impact of the accumulation of loss-making contracts. During the first halfyears of 2015 and 2016, the impact was EUR 24.5 million and EUR 5.2 million, accordingly. After eliminating the impact of discount on the gas price for consumers, the attribution of costs of the preceding periods to the 1st half-year 2016, and single-time restoration of the negative goodwill profit tax of the daughter company Lietuvos Dujų Tiekimas UAB in the amount of EUR 8.5 million due to the acquisition of gas supply activity, the comparative net profit for the 1st half-year 2016 (EUR 72.3 million) was +17.1 percent or bigger by +EUR 10.6 million than the net comparative profit for the 1st half-year 2015 (EUR 61.8 million).
17 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
2015 m. I pusm. Gryn. pelnas
2016 m. I pusm. Gryn. pelnas palyginamasis
Investment
2016 m. I pusm. Grupės investicijų struktūra, %
The Group’s investment during the 1st half-year 2016 totalled EUR 133.6 million or more by +119.2 percent, as compared to the year before. Without assessing the acquisition of wind farms, investments grew by +16.4 percent or + EUR 10.0 million, as compared with the same period in 2015 (EUR 60.9 million). The biggest own and borrowed capital investment (46.9 percent) was allocated for the acquisition of wind farms in Lithuania and Estonia, followed by investment of the Group’s company Energijos Skirstymo Operatorius AB into the maintenance of the electricity distribution grid (19.3%) and development (12.9%).
Elektros skirstomojo tinklo palaikymas Elektros skirstomojo tinklo plėtra
19,3%
Transportas
46,9%
Nekilnojamas turtas
133,6 mln. Eur
ITT (IT, telekomunikacijų ir valdymo sistemos)
12,9%
Kitos investicijos Dujų sistemų statyba ir rekonstrukcija
7%
Elektros generacijos pajėgumai Investicijos į šilumos generavimo pajėgumus
3,6
0,8
0,7
133,6
Dujų sistemų statyba ir rekonstrukcija
2016 m. I pusm. Investicijos
6,7
4,5
Kitos investicijos
62,7
5,0
ITT (IT, telekomunikacijų ir valdymo sistemos)
130
Transportas
150
Elektros skirstomojo tinklo palaikymas
Grupės investicijų pokyčiai pagal sektorius, mln. Eur
Investicijos į vėjo parkus Lietuvoje ir Estijoje
During the 1st half-year2016, investment into transport due to regular renewal of the Lietuvos Energija Group’s transport fleet and acquisition of fire trucks that were rented to state fire rescue services by the Group’s company NT Valdos UAB grew by +EUR 6.7 million. Investment into real estate increased by +EUR 5.0 million due to the acquired ownership right to the land plot for EUR 3.9 million by the Group’s company Kauno Kogeneracinė Jėgainė UAB and a technical design, as well as ongoing reconstruction works in buildings owned by the Group’s companies. During the 1 st half-year 2016 , investment into ITT (IT telecommunication and management systems) increased by EUR 3.6 million due to investment by the Group’s company Technologijų ir Inovacijų Centras UAB in the amount of EUR 2 million into the data transmission network, also other minor investments of the Group’s companies. Investment into heat generation capacities decreased by EUR 8.0 million, as during the first half-year of the current year no investment into heat production capacities was made.
Investicijos į vėjo parkus Lietuvoje ir Estijoje
110 90
70
60,9
-2,9
-0,5
Elektros generacijos pajėgumai
18 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
Nekilnojamas turtas
-8,0
Skirstomojo tinklo plėtra
2015 m. I pusm. Investicijos
30
Investicijos į šilumos generavimo pajėgumus
50
Assets, Equity Capital and Relative Indicators
Grupės turto pokytis, mln. EUR
During the 1st half-year 2016, the Group’s assets reduced by -0.37 percent or EUR 8.7 million, and on 30 June 2016 they amounted to EUR 2,330.5 million. As compared to 31 December 2016, the Group’s assets totalled EUR 2,339.2 million. A change in the Group’s assets was mostly determined by the acquisition of wind farms in Lithuania and Estonia, as a result whereof its fixed tangible assets increased by EUR 69.9 million, whereas the total fixed assets increased by EUR 86.9 million or 5.3 percent. During the 1st half-year 2016, current assets reduced by -16.9 percent or -EUR 64.8 million. Such decrease of EUR 20.3 million in the current assets, from EUR 40.0 million to EUR 19.7 million, was mostly affected by the reduced stock, due to the reduction in gas raw materials held by Litgas UAB. Advance payments to suppliers reduced by EUR 19.6 million. This was mostly affected by the reduction of payment to suppliers by the Lietuvos Dujų Tiekimas UAB, from EUR 28.2 million to EUR 10.1 million, since no new long-term gas purchase contracts have been signed. Due to seasonality of the gas distribution activity, amounts receivable for gas within a short-term period, reduced by EUR 18.3 million, from EUR 30.4 million to EUR 12.1 million.
2.420
Equity capital of Lietuvos Energija Group during the 1st half-year 2016 increased by 0.9 percent or EUR 11.1 million, and on 30 June 2016 it amounted to EUR 1,315.5 million. On 31 December 2015, the Group’s equity capital was EUR 1,304.5 million. An increase in the Group’s equity capital was determined by profitable activity of the Company during the reporting period; therefore, accrued unallocated losses decreased by EUR 3.1 million, from EUR 49.3 million at the end of 2015 to EUR 46.3 million at the end of the 1st half-year 2016. During the reporting period, the Group paid EUR 56.2 million dividends to the shareholder. The indicator of the Group’s equity capital during the reporting period varied slightly and during the 1st half-year 2016 it was 56.4 percent (on 31 December 2015 it constituted 55.8 percent).
0,35
The indicator of Lietuvos Energija Group asset turnover ratio further increased due to further enhancement of efficiency of the assets used, and growing income from sale, whereas the total liquidity coefficient remains stable and varies insignificantly.
7,5
56,1
2.400 2.380 2.360 2.340
2.339
2.330 -72,3
2.320 2.300 2015 12 31 Turtas Ilgalaikis turtas
Pinigai ir pinigų Kitas trumpalaikis 2016 06 30 Turtas ekvivalentai turtas
Grupės apyvartumo ir likvidumo rodikliai 1,26 1,22 0,24
0,25 0,20 0,15
1,24
1,24
0,30
0,25
1,20
1,18 1,14
1,14
1,14
1,16 1,14
0,14
0,14
1,12 1,10
0,10
1,08 2013 m. I pusm.
2014 m. I pusm
Turto apyvartumo rodiklis
19 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
2015 I pusm.
2016 I pusm.
Bendrojo likvidumo koeficientas (II ašis)
Financial Debts On 30 June 2016, the Group’s net debt amounted to EUR 283.2 million, and, as compared to the net debt as of the end of 2015, it increased by EUR 31.4 million. The increase in these debts was determined by the increase in financial debts designated for financing investment by the Group’s companies. The level of the Group’s financial debts increased during the reporting period by 9.2 percent or EUR 38.9 million, and at the end of the 1st half-year 2016 it amounted to EUR 459.6 million (at the end of 2015 – EUR 420.7 million). The biggest effect on that was made by the new loan in the amount of EUR 66.9 million for the acquisition of the wind farms, and a loan of EUR 16.9 million taken by NT Valdos UAB with an aim to optimize the company’s capital structure. Meanwhile the Group’s company Lietuvos Energijos Gamyba AB reduced their financial commitments by EUR 16.7 million. Monetary funds of the Group’s companies and short-term investment amounted to EUR 176.3 million, i.e., more by EUR 7.4 million or 4.4 percent than at the end of 2015 (EUR 168.9 million). The Group’s net debt and the Group’s EBITDA for the last 12 years increased due to better by EUR 25.2 million results during the 1st half-year 2016, as compared with the 1st half-year 2015; therefore, even after the growth of the financial debt, the Group’s net debt to EBITDA ratio practically did not change (from 1.14 time at the end of 2015 to 1.15 time during the 1st half-year 2016). The Group’s net debt-to equity ratio increased from 19.3 percent at the end of 2015 to 21.5 percent during the 1st half-year 2016. The Group’s current debt level remains sufficiently low with respect to both, the income earned and the capital structure. The low level of the Group’s financial debts and the high level of ownership, profitability of the typical activity reflect a firm and stable financial position of the Group, the Group’s financial possibilities to implement investment necessary to ensure the provision of existing services, to implement and finance the acquisition and development of new wind farms, construction of co-generation plants and other projects, as well as to ensure a sustainable development of the Group in the future.
Grupės finansinės skolos grynąja verte, mln. Eur 283,2
290
38,9
280 251,8
270 260 250 240
-7,4
230 220 2015 12 31 grynoji skola
Pinigai ir trumpalaikės investicijos
Finansinės skolos
2016 06 30 grynoji skola
Grupės grynosios skolos santykiniai rodikliai 1,16
1,15
1,16
25,0%
1,15 1,15 1,14
20,0% 1,14 15,0%
1,14 1,13
20 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
30,0%
10,0% 2015 12 31
2016 06 30
Grynoji skola / EBITDA 12 mėnesių Grynoji skola / Nuosavybės santykis (II ašis)
Overview of Activity of the Company and the Group
Bendrovės ir grupės veiklos apžvalga 21 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
An overview of activities of the Lietuvos Energija Group covers the period from 1 April 2016 to the date of preparing the report.
Renewed operational concept Since the start of 2016 the structure of Lietuvos Energija group was updated after the most significant project of 2015 at the Lietuvos Energija group was completed, i.e. the programme focused on optimising central activities of the Group. The central activities of the Group were distributed among the companies 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 largest benefits of the changes are focused to the clients. The revised operational concept led to improvement of customer service, a simple and convenient 'single window' servicing arrangement has been offered, the servicing and the processes have been standardised, new services are provided, the procedures of connection to the engineering networks and other procedures are faster. Also the Group achieved higher operational efficiency and reduction of costs. The programme 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. 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.
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. In August 2016, essential changes were installed in manogile.lt, enabling to pay in the portal for all utility services by a single payment. Payments of approximately 1,500 new service providers are collected this way. Currently, www.manogile.lt has approximately 225 thousand registered users. 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. 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.
22 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
Concentration of electricity trading and improved generation activities Electricity generation 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. Lietuvos Energijos Gamyba sold commercial wholesale electricity trade to Energijos Teikimas on 12 October 2015, the ownership of the part of the business has changed since 1 January 2016.. 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.
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). EnePRO concentrated competences and experience of the two companies and creatied a single strong energy services and contracting company which provides 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, increase the company's competitiveness in the energy services market, reduce operating costs and contribute to enhancing the Group's value.
Diversification of Activity Diversification of activity by the Group’s companies is one of the main conditions seeking to enhance the Group’s value. Until 2020, the Group plans to invest nearly EUR 1 billion into different fields: heat sector, building of new or modernizing of existing co-generation plants, supply and trade of natural gas, using the potential of the LNG terminal, also investing into renewable energy sources.
Energy Innovations Will Be Attracted by the Venture Capital Fund
On 31 May 2016, Lietuvos Energija initiated the establishment of a venture capital fund. The new fund will finance starters in the energy field. Each year it is intended to invest up to EUR 1 million into the selected best projects. This is the first Energy Innovation Fund in the Baltic countries. It will contribute to the growth of investment into starting projects. During 2014, venture capital investments per resident amounted to EUR 2 In Lithuania, whereas in Europe such investments amount to EUR 11, in the USA – EUR 148, whereas in Israel – EUR 413 on average. The majority of major European energy companies already run or make investment into similar funds. Activities of the Innovation Fund will start from the idea screening stage, when it is expected to receive 300-500 ideas. For the incubation stage, 50-60 ideas will be selected whose authors will be provided with premises for operation and consulting by experts. Still later, in the acceleration stage, 10-15 best projects will be granted financing, e.g. up to EUR 30 thousand. Up to EUR 500 thousand (depending on the need) may be invested into the projects selected during the latest, investment stage. Decisions on the selection of ideas for financing will be made by the investment committee. Partial financing will be granted for selected starters. More important, however, is the fact that Lietuvos Energija Group, which is one of the largest energy enterprises in the Baltic Countries, will be able to offer technological knowledge and adequate testing base for the implementation of projects. The Innovation Fund of Lietuvos Energija will operate together with partners. Other investors will also be able to contribute to the financing of projects in the energy sector, whereas one of the experienced venture capital fund managers will be selected on a competition basis to be an adviser/partner.
Ongoing Projects of Co-generation Plants in Vilnius and Kaunas Lietuvos Energija Group implements projects on modern high efficiency co-generation plants powered by waste and biofuel in Vilnius and Kaunas. By generating heat and electricity, the plants will ensure smaller heat production prices for urban users, also additional generation of local electric power at a competitive price, will solve waste management issues. According to the resolution of the Government of the Republic of Lithuania of 28 May 2014, these projects were declared economic projects of state significance. Upon implementing economic projects important for the state, the price of heat generated in new plants would be less by approximately 20 percent as compared with the existing alternatives.
23 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
In Vilnius, the project is implemented by Lietuvos Energija independently; a possibility to attract partners in other project implementation stages has been provided for. The environmental protection agency has recognized the planned activity of Vilnius cogeneration plant as permissible. In 2016, the international tendering procedure for the construction of Vilnius cogeneration plant (VCP) “up to the keys” is continued. The object of procurement consists of all works, services, equipment, and materials using which a new Vilnius cogeneration plant will be designed and constructed. By 12 July, a ranking of tenderers, – potential contractors – best offers was drawn up. For the first part of the procurement covering waste incineration equipment, general technological facilities of the plant and external communications, the best offer was submitted by the consortium consisting of Steinmuller Babcock Environment GmbH, Budimex S.A. and Kauno Dujotiekio Statyba UAB. The total price of the offer is EUR 178.29 million. For the second part consisting of biofuel incineration equipment and biofuel supply infrastructure, the best offer was submitted by ln RAFAKO S.A., which was EUR 149.65 million. In total, nine tenderers participated in the tendering procedure. On 17 June 2016, VCP ensured the financing of the European Investment Bank. The European Strategic Investment Fund (ESIF), set up on the EC initiative to boost the EU economy, officially granted the financing amounting up to EUR 190 million for the construction of the plant. Financing according to the so-called Junker’s plan will ensure the most favourable loan terms and interest on the market. The estimated electric power of the waste incinerator at Vilnius co-generation plant will be approximately 18 megawatts (MW), whereas the thermal one – approximately 53 MW, and biofuel – 70 MW and 174 MW accordingly. The power plant will be able to produce approximately 40 percent of heat supplied to Vilnius in a centralized way, also approximately 0.4 TWh of electric power. So much energy will be sufficient for supplying 230 thousand new households with electricity. In Kaunas, Lietuvos Energija develops a co-generation plant project with the partner, Fortum Heat Lietuva UAB. According to the shareholding agreement, Lietuvos Energija owns 51 percent of the common company Kaunas Co-generation Plant – this way state control is ensured in the project. On 31 March 2016, the partners signed a transaction completion deed. The board of Kaunas co-generation plant formed consists of three members: one member was delegated by each of the two shareholders, and one member is independent. Nerijus Rasburskis, Director of the co-generation plant projects service of Lietuvos Energija, Vitalijus Žuta, (Director General of Fortum Heat Lietuva UAB, and an independent
member – Andrius Vilkauskas were appointed to serve on the board of Kaunas cogeneration plant. Ramūnas Paškauskas was appointed Director General. In 2016, Kaunas co-generation plant UAB has been implementing public procurement procedures for the main components of the future waste plant: incineration boiler, steam turbine and generator, flue gas cleaning equipment, and fuel bunker cranes. In parallel, public procurement of designing, acquisitions, and consultation services for the management of commissioning-tuning works, has been carried out. Procurement documents are announced publicly on the Lithuanian Central Public Procurement Information System and are also posted on the official publication TED intended for European public procurements. On 13 June 2016, Kaunas co-generation plant received a permit from Kaunas district administration for the construction of a plant on Veterinarų St. 19, Kaunas district municipality, Karmėlava sub-district, Biruliškės village. In Kaunas, plans have been made to install a new high efficiency co-generation plant using waste as fuel the electric capacity whereof will reach 24 MW, whereas the heat production capacity – 70 MW. Such capacities will enable to use approximately 200 thousand tons of waste generated in the region in a rational way and generate approximately 500 GWh heat, also approximately 170 GWh of electric power. The total investment into the project will amount to about EUR 147 million.
LNG Gas Becomes a Competitive Alternative During the first half-year, in the Lithuanian market of natural gas, liquefied natural gas (LNG) constituted 73 percent of all natural gas supplied in the country, whereas prices for their consumers were reduced by up to 16 percent. It is assessed that this year the share of the LNG will constitute about 60 percent in the Lithuanian market. At the beginning of 2016, the natural gas supply company Lietuvos dujų tiekimas diversified its natural gas portfolio, acquired liquefied natural gas (LNG) from Statoil under favourable conditions and this way reduced the forecasted general average import price for 2016 by 15 percent. Meanwhile, the natural gas trade company LITGAS renewed the supplied gas supply agreement with Statoil and this way reduced maintenance costs of the LNG terminal sustained through the LNG terminal constituent by one third. Achievements enabled to reduce prices for private customers of Lietuvos dujų tiekimas for the 2nd quarter 2016 by 8-15 percent. Also, from 1 March 2016, the company also reduced the price of natural gas for corporate customers by 16 percent on average. Changes in the supply of natural gas will enable to save this year approximately about 50 million euros for the whole market.
24 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
According to agreement for the supply of LNG concluded on 5 February 2016 between Lietuvos dujų tiekimas and Statoil, the company will satisfy more than half (about 300 million m3) of the gas demand under more favourable conditions, when Gazprom pricing changed in the unfavourable direction. On 16 February 2016 a gas tanker delivered to Klaipėda Port the first commercial LNG consignment – about 70 thousand cubic meters. From 18 February 2016 amendments to the agreement between LITGAS and Statoil enabled to reduce the LNG quantity necessary for terminal operation by one third – from approximately 5.5 TWh (about 540 million m3) to about 3.6 TWh (350 million m3). Duration of the agreement was extended until the end of 2024 and will coincide with the duration of the ship Independence lease agreement. Besides, the price formula was changed; it approximated the price of LNG supplied under this agreement to the prices of gas supplied by the gas pipeline. As a result of changes in the agreement, this year maintenance costs of Klaipėda LNG terminal, and at the same time – also energy prices for natural consumers – reduced by approximately 30 percent. In addition, LITGAS cut down operating costs this year by approximately 19 percent – this was the result of success in assuring favourable financing conditions of the assigned supply. This enables to reduce the costs of assigned supply included into the constituent of the liquefied natural gas (LNG) terminal by approximately 5 percent from 2017. LITGAS has reduced the possible surplus of the necessary natural gas quantity by as many as 8 times – by the end of May it reached 5 percent of the quantity planned to be degasified a year. Therefore, the burden falling on gas consumers reduces in addition. Since 1 July 2016, by decision of the NCECP, having regard to changes in the gas prices and quantities purchased, the forecasted market price of natural gas was reduced by 10 percent – up to EUR 15.26 /MWh, for which the regulated energy consumers purchased it from the appointed supplier LITGAS. The new price shall be valid until the end of 2016.
ESCO projects implemented by a new company In February 2016, Lietuvos Energija established a new company Energijos Sprendimų Centras UAB (ESC) 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. The operations of the new company will be based on the ESCO (Energy Service Company) model which defines the company providing energy efficiency improvement 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 27 April 2016, the street lighting project in the municipality of Širvintos, which was the first one based on the ESCO model principles, was finished by Energijos Tiekimas, 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. This was the first of its scale ESCO project in Lithuania. Contracting works were carried out by a Group company Energijos paslaugų ir rangos organizacija (EnePRO). On 7 April 2016, ESC arranged a conference for representatives of municipalities during which time it familiarised them with peculiarities of the procurements of street lighting modernization, state guarantees, course of the public - private sector partnership projects, as well as technical aspects. The conference was attended by over 140 participants.
Development in the Wind Power Field Lietuvos Energija, having acquired two companies running wind power farms in Lithuania and Estonia in January 2016, is looking for further possibilities to invest into the field of wind energy. On 15 June 2016, Lietuvos Energija announced a tendering procedure to acquire a project ensuring the installation of a wind power farm and operation of the necessary infrastructure. In the tendering procedure announced it is sought to acquire developed projects at such a stage when the necessary infrastructure for the installation of a wind power farm has already been developed or is being developed: land plots that would allow, in terms of the impact on environment, public health and territorial planning, to install and operate a wind power farm. This would enable to implement a project in shorter terms, as compared to those the implementation
25 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
whereof has to be started from the beginning, also a part of risks and procedures would be eliminated.
planning and monitoring of activities, finance, procurement, risk management and internal audit areas.
The tendering procedure is aimed to select a potential seller in a transparent way and by ensuring competition of tenderers who would offer shares of the company managing the necessary infrastructure under the most favourable and acceptable conditions. The tendering procedure terms have been published on the website at www.le.lt.
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.
Currently the group runs wind power plants with the installed capacity of 42.3 MW managed by the Group’s companies Eurakras UAB and Tuulueenergia OU. These farms may produce about 136 thousand megawatts (MWh) of electric power– such quantity is equal to the annual need of Klaipėda city residents.
Assessment of wind energy potential in Kruonis Pumped Storage Power Plan 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. 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.
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. IT provides to the Group companies the services of public procurement, accounting and administration of employment relationships, manages customer service network and self-service website, as well the centralization of law function and so on. The aim of centralisation of the processes 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. 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.
Enhancing the efficiency of operations
On 5 January 2016, Lietuvos Energija also announced the procurement for the overdraft with the two-year maturity. SEB bankas was selected, the credit agreement was concluded on 7 March 2016.
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,
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
26 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
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 22 July, a ranking of potential installers of the integrated business management system who participated in the tendering procedure was announced. For the consortium of companies who submitted the best offer, consisting of NESS Czech s.r.o and InnoForce UAB, operating on the basis of a joint-activity agreement, Lietuvos Energija will offer to sign an agreement. The price of the best offer is EUR 18.8 million, excluding VAT. It is estimated that the exclusive scope project will extend for up to three years. The Installer will also have to provide maintenance services for three more years after the system installation. Currently enterprises run by Lietuvos Energija use more than 70 separate information systems the average age whereof is more than 15 years. A third of these systems have not been maintained and not serviced for some time – this restricts activities and does not ensure sufficient safety and efficiency. The new information system will cover the field of accounting and finance, procurement, human resources and project management, bookkeeping, customer service, and technological asset management. The benefit of the new system will also be felt by customers of the Lietuvos Energija Group of companies – a possibility will emerge to create more flexible services plans, better serve customers in centres and on the internet. The new system will enable to submit and analyse information in real time. Reliability and speed, configuration possibilities will increase, quantities of manual work will reduce, as well as possible nonconformities between different systems will disappear.
Old units withdrawn from operation in Elektrėnai, arrangement of the fuel economy
After completing a project on the development of heat generation facilities in Elektrėnai in 2015 by Lietuvos energijos gamyba, the use of 1st and 2nd units of the plant for heat generation was no longer expedient; therefore, it was decided to disassembly these old and inefficient units of reserve power plant, built in 1962-1965, each with a capacity of 150 MW. Electricity generated by these units is not competitive on the market; therefore, their decommissioning will help to reduce the need for services implementing public interest (SIPI), and at the same time, also the final electricity tariff for consumers. Thermal insulation of the units, bricks of furnaces have already been dismantled and utilized, also equipment and devices of the units are removed, by selling a part of them as metal scrap, and the remaining equipment still suitable for use in the market. Before the end of March 2016, 60 percent of dismantling works was completed. On 8 December 2015, the board of Lietuvos energijos gamyba made a decision to terminate the operation of another two – 5and 6 units – of the reserve electricity plant operating in Elektrėnai from 2016. Dismantling works of these units will preliminary start at the beginning of 2017, upon completion dismantling of the 1st and 2nd units. Decommissioning of the 5th and 6th units of the electricity plant, the capacity of which is 300 MW each, was planned in the Company’s long-term strategy published in the middle of 2014. The units are decommissioned due to poor technical condition, low utilization potential in the future and great maintenance costs. The units that started generation of electricity in 1967-1968, did not operate for several years, and, therefore, have been conserved recently. Due to minimized use of fuel oil in activities of Lietuvos energijos gamyba, which resulted in the disappeared need to store the state reserve of fuel oil, scopes of the fuel economy in Elektrėnai no longer meet the Company’s actual demand. Therefore, at the end of 2015, the 1st stage of arrangement of the fuel economy was initiated. During it, tenders for sale or lease of the existing fuel oil reservoirs for fuel oil, works of preparation for liquidating a part of the reservoirs, optimization of the electricity grid of the fuel economy, dismantling of the cistern heater and 1st fuel oil ramp, also other programme implementation works were initiated.
Assurance of Quality Services Investment into Electricity and Natural Gas, Improvement of Services The Group’s company Energijos Skirstymo Operatorius, operational since 2016, serves approximately 1.65 million electricity consumers. It pays much attention to the development and modernization of the electricity grids, and, taking into consideration
27 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
the changing needs of customers, has consistently expanded and improved the services provided. Besides, the company runs a natural gas distribution grid by which gas is supplied to more than 570 thousand customers; the company has invested into the construction of new gas pipelines and connection of customers to the grid consistently. The Group supplies natural gas to approximately 560 thousand private customers and approximately 9.5 thousand corporate and public sector customers. During the nearest decade, ESO plans to modernize the distribution grid essentially. Seeking to ensure reliable, safe, and smartly managed services, the company intends to invest EUR 1.7 billion into the upgrading and renewal of the grid by 2025. Planned investments into the natural gas grid during the nearest decade will total EUR 141.1 million. The biggest investment will be made into the development of the distribution system, reconstruction of distributive gas pipelines, as well as modernization of remote data collection and management systems. During the 1st half-year 2016, 12,491 thousand of new users were connected to the electric distribution grid – 2.2 percent less than in 2015 at the same time, when 12,775 thousand consumers were connected. The permissible to use capacity of newly connected consumers during the first six months of 2016 amounted to of 139.911 thousand kW and was 18.3 percent smaller than in January – June 2015, when it amounted to 171,256 thousand kW. During the1st half-year 2016, ESO replaced 53,072 pcs. of meters with an expired metrological verification time, of which 44,605 pcs. of electric power, and 8,467 pcs. of natural gas meters. The company installed 10,564 pcs. of electric power and 1,599 pcs. of natural gas meters for new customers. By investing into the modernization and automation of electricity, and natural gas meters, during six months ESO connected 967 electricity meters and 132 gas meters to the automated data scanning system, thus increasing the number of electric metering devices which data is scanned in a remove way operated by the company up to 28,305 and 1,212 pcs. For connection to the distributive natural gas grid, ESO was contacted by and agreements during the 1st half-year 2016 were signed with 4,381 new customers. This is more than last year during all year round, and twice as more than during the 1st half-year 2015. This year, ESO, together with a consortium of foreign companies that won an international public procurement tendering procedure, started the installation of smart counters. The smart electric power counters were installed during the 1st half-
year for 2,926 thousand ESO customers. By implementing the pilot project, ESO seeks to investigate the efficiency of the smart counters and their benefit for residents. Customers will be able to monitor hourly consumption of energy on the special screen or Gilė self-service website www.manogile.lt, whereas ESO specialists will receive more detailed information on the quality of energy supplied and condition of the grid.
Service prices to customers continue to decline Since 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. Additional possibilities for reducing the tariffs appear from the beginning of the 2nd half year of 2016. On 18 May 2018, the NCECP suggested that Lietuvos dujų tiekimas should approve lower by 8-15 percent prices for private customers. It is possible to reduce prices due to a diversified natural gas portfolio after gas was acquired under favourable conditions from Statoil and it was successfully agreed regarding smaller by 30 percent LNG quantity for the terminal maintenance. From the beginning of 2014, the final gas price for private customers, irrespective of increased infrastructure costs, reduced by 30 percent on average. From 1 March Lietuvos dujų tiekimas also reduced prices by 16 percent for natural gas to corporate customers. On 23 May 2016, the NCECP changed the upper price limits for public electricity for the second half year of 2016. For those buying electricity from medium voltage grids, the upper limit will be 7.499 ct/kWh, from the low voltage grids – 9.530 ct/kWh (excluding VAT). As compared with the 1st half-year of 2016, these prices were 8.086
28 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
ct/kWh and 9.852 ct/kWh (excluding VAT) accordingly. From 1st July, ESO will apply lower by 5.4 percent on average electricity prices for private customers. After the NCECP announced the prices approved by ESO on 30 May, from 1 July 2016 the price of the “Standard” one-time zone tariff according to which payments are made by 70 percent of private ESO customers, will be 12 cents per kWh, which is less by 5.5 percent than during the first quarter of 2016. From 1 June, the rates for getting electricity and capacity increase will change. The rates per constructed meter of the grid for private and corporate customers, the allowable usage capacity used by whom does not exceed 100 kW will be reduced by more than one fifth (22 percent). Rates for customers using a capacity of 100-500 kW will be reduced by more than one tenth (13 percent). The rate for getting electricity will also be reduced for new customers who plan business development or housing construction in more remote locations, when the distance up to electricity grid points is longer. The new rates of connecting electricity equipment to ESO distribution grids were approved by the National Commission for Energy Control and Prices on 21 April (NCECP).
Return for shareholders Lietuvos energija allocated dividends in the amount of 56.2 million EUR for the 2nd half-year 2015 and they will be paid into the budget. Previously, for the 1st half-year 2015, an amount of 29,83 million EUR dividends was paid into the budget, thus, dividends of Lietuvos energija for 2015 totalled 86 million EUR. In comparison, Lietuvos energija Group allocated 52.6 million EUR dividends for 2014 and this was the biggest amount from all state-controlled companies. Energijos skirstymo operatorius company under the management of Lietuvos energija allocated 30.596 million EUR for dividends for the 2nd half-year 2015. For the first half-year 2015, LESTO allocated dividends for the shareholders in the amount of 21.742 million EUR, or 0.036 euro per share; Lietuvos energijos gamyba – 2.667 million EUR, or 0.0042 euro per share; and Lietuvos Dujos – 10.348 million EUR, or 0.0356 euro per share, dividends.
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Corporate responsibility
Relationships with employees and society
Environmental protection
Responsible and transparent market operation
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 anticorruption. 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.
Waste management and sorting, efficient use of resources The Lietuvos Energija Group are implementing waste sorting initiatives, and have installed special waste sorting containers for sorting plastic and paper. The Group’s company LESTO keeps encouraging its clients to give up paper bills and pay-books.
30 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
The Environmental Management System complying with requirements of LST EN ISO 14001:2005 has been implemented in objects of Lietuvos Energijos Gamyba.Also the requirements for the atmospheric, surface water, groundwater and soil pollution monitoring and protection measures specified in the Integrated Pollution Prevention and Control (IPPC) permits are implemented. 18 types of waste are sorted in the modern waste sorting site. Hazardous and nonhazardous waste generated in activities of the Company’s electrical plants are transferred for waste managers. Ferrous and non-ferrous metal scrap is sold for buyers-up for the market price. Household, paper and cardboard, plastic and glass waste is sorted and transferred for utility services companies.
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,
Safety
https://gamyba.le.lt/lt/socialine-atsakomybe.
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.
Sponsorship
Since the end of 2015, the internal initiative of “Safety Agents” has been carried out in ESO company; during off-hours employees observe and notify of disorderly and possibly hazardous electrical equipment. During the first quarter, 11 notifications with pictures were received that were conveyed to the units in charge of them, also described on the Company’s intranet. This way we also educate colleagues not directly involved in the network infrastructure.
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. 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
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. In 2016, the Policy on Granting Financial Assistance and Financial Assistance Management Rules were updated. Potential beneficiaries of financial assistance were invited on 21 March – 4 April to submit applications for the receipt of financial assistance. The priority areas at the national level were established in 2016: Sports (with an exception of extreme) by supporting professional sports clubs uniting the country and making its name known, also sports organizations training new sports talents; Support of children suffering from oncological diseases by fostering public organizations or movements which activities or projects are ongoing and create benefit on the whole-nation level, having experience in implementing international social projects and disseminating the good experience of implementing such projects, providing knowledge and cooperating with health care institutions, as well as families of children with oncological diseases, fostering maintenance of family and social relationships of such children; Fostering of science and innovation by supporting ideas, investigations, works of young researchers the implementation whereof would strengthen positions of Lithuania in the international innovation market, help to strengthen the Lithuanian education and science system, enhance public interest in science, reinforce longterm cooperation traditions among research institutions, academic society, business and public organizations, also help young talents in research and
31 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
innovations to become established in the Lithuanian and global research community. On 23 May 2016, a budget of Lietuvos energijos paramos fondas (Lietuvos Energija Support Fund) for financial assistance was approved by Lietuvos energija; in 2016 it is intended to allocate up to 661 thousand euros in total for financial assistance. At the national level, support was provided under the 14 applications: for the initiatives of Baltijos pažangiųjų technologijų institutas "Tyrėjų naktis", "Mokslo pieva“, Rugutė Charity and Support Fund (Genetic testing to target more efficient and every mini-patient treatment), Lithuanian sports federation of the disabled, N. Marčiulionis Basketball Academy, Kaunas basketball club Žalgiris, the twenty-first Pažaislis music festival, Kaunas University of Technology, the National Student Academy, the debate ballooning club "Audenis" organized by the women of the world hot air balloon championship, Lithuania handball federation Lithuanian rugby federation Lithuanian Young Scientists union. At the regional level, support stratified communities, which operates in the environment of the company, social, education, arts, culture, science and sports (except for extreme and high risk sport) projects, activities. Among the 11 beneficiaries: Association TEDxVilnius, Lithuanian Youth Center, Elektrenai hockey club LRK ENERGY, Rotula rural community of Lithuanian National Committee for UNICEF and other organizations. More information on beneficiaries can be found www.le.lt website.
Public initiatives Each year the Group actively contributes to the event of the traditional Days of Energy Professionals organised by the National Lithuanian Energy Association (NLEA). On 16-17 April 2016, free educational events were hosted in the Lithuanian Energy and Technology Museum – excursions for the public. During the excursions, visitors were able to get familiarised with the Lithuanian energy system and its topicalities, also, to learn more about the energy specialist’s occupation. In order to strengthen ties with Elektrėnai region community, where the main activities of Lietuvos Energijos Gamyba are focused, traditional events “Lietuvos Energijos Gamyba Presents” are held. In March 2016, the meeting with the famous Sedish publicist, film director and translator John Ohman was arranged. A total of 13 cycle meetings were held so far.
The Group ensures a possibility to charge electric cars in a rapid charging station free of charge. In July of 2014, LESTO opened up the first electric vehicle rapid charging station in Vilnius, J. Lelevelio Street, together with its partners Nissan and NT Valdos. The station seems to have a flow of regular users - each month about 1000 kWh of electricity is charged here. Currently, Energijos Tiekimas, the largest Lithuanian capital electricity supplier, ensures a free of charge supply of electricity to the station. In order to contribute to raising awareness about energy among society and young generation in particular, Lietuvos Energijos Gamyba welcomes free of charge excursions to the objects under its control: the combined cycle unit, Kruonis Pumped Storage Power Plant and Kaunas Algirdas Brazauskas’ HPP. In 2016, the power plants were visited by few hundreds visitors. Seeking to foster consciousness of school communities and contribute to the creation of sustainable, energy and environment saving Lithuanian society, the Lithuanian Children’s and Youth Centre and ESO together with partners invited the country’s education institutions to participate in a year-long educational programme “A Sustainable School”. This project earned a prize of the Swedish business awards for the best social responsibility project in 2014. On 11 February 2016, ESO and the daily Verslo Žinios organized the sixth, already traditional conference for business. More than 220 participants attending it shared their insights with specialists from different sectors. During its time practical energy efficiency measures, specific solutions for electricity and gas infrastructure implemented by companies, energy efficiency, financing, transposition of the European Union energy efficiency directive into the country’s national law, also other relevant issues were discussed.
Long-term projects The Group’s company ESO continues broad-scale long-term social responsibility projects intended for children, youth and general public that are united by active involvement of different society groups, ideas on safety and efficient energy use, as well as environmental friendliness. “As Much as Needed”. Fostering rational use of energy is one of ESO priority directions of social responsibility contributing to the preservation of environment and energy resources, as well as the country’s obligations in implementing the European Union Climate Change Programme. The project is intended for creating traditions of a rationally living society – here solutions for rational electricity consumption are searched by focusing on consumption in business, industry.
32 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
The Green Protocol. It is ESO initiated agreement (has been existing for six years) by which the companies and organizations that signed it confirm that they approve and undertake to apply environmentally friendly ideas. During the 1st quarter 2016, the initiative was joined by 24 new companies (in total, 212 companies have joined it).
Recognized activity Recognized governance. On 18 March 2016, the weekly Veidas elected as a CEO of the Year 2015 the Director General of Lietuvos energija Group of companies Dr. Dalius
Misiūnas. During prestigious elections held for the sixteenth year in a row, for the first time the winner was elected a CEO of a state-controlled company (SSC). Relations with investors. During the event Nasdaq Baltic Market Awards 2015 of the securities exchange, three awards were received – for progress of Lietuvos dujos and LESTO achieved in improving relations with investors in 2015. Legal functions. An award “The Lawyer of the Year” established by the Association of Corporate Lawyers (B.I.T.A.) was earned on 14 April 2016 by Ingrida Kudabienė, Director of the ESO Law Department.
33 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
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 Stateowned 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).
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. Management Coordination Centre recognised the Lietuvos Energija group as the best managed State capital entity in 2014 and in 2013. High scores were given for transparency and management. In 2014 the good management index of the Group reached 8.44 points out of 10 possible.
34 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
Supervisory bodies Stebėtojų taryba 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 30 June 2016 was as follows*:
Šarūnas Kliokys (born in 1959)
Antanas Danys (born ir 1975)
Dr. Virginijus Lepeška (born in 1955)
Chairman, independent member
Independent member Independent member
Educational Vytautas Magnus University; Vilnius University, Master’s Vilnius University, Doctoral degree in Social Sciences. background Baltic Management Institute, degree in Business Master's degree in Business Administration (MBA); Administration (EMBA); Boston College, Bachelor’s Vilnius University, Economist’s degree Diploma.
Workplace, Chairman of the Board of Director of Grinvest Ekonovus UAB, Chairman of PTE.LTD; position 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
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.
Tomas Garasimavičius Aloyzas Vitkauskas Rasa Noreikienė (born in 1978) (born in 1954) (born in 1959)
Rokas Baliukovas (born in 1977)
Agnė Bagočiutė (born in 1977)
Member
Member until 26/05/2016
Member
Member from 17/12/2014
Member from 26/05/2016
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.
Vilnius University, Bachelor's degree in Public (economic) geography; Vilnius University, Masters degree in General Geography and Landscape science.
Ministry of Energy of the Republic of Lithuania; Deputy Minister (until 29/05/216).
Ministry of Economy of the Ministry of Energy of the Ministry of Finance of the Republic of Lithuania; Deputy Republic of Lithuania; Deputy Republic of Lithuania; Deputy Minister.. Minister. Minister.
Consultant, Chairman of the Government of the Republic of Board of Organizacijų Vystymo Lithuania, Advisor to the Prime Centras UAB; Consultant at OVC Minister for Energy. Mokymai 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.
*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.
Audit Committee Member of the Committee
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.).
Workplace
Rasa Noreikienė Chair of the Committee
-
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
-
Main functions of the Committee are as follows:
The following committees have been established at Lietuvos:
Number of shares of the Company and the Group companies held
Member of Audit Development Committee of the European Commission
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;
36 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
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.
Director of Grinvest PTE.LTD
Number of shares of the Company and the Group companies held Aloyzas Vitkauskas Chairman of the Committee (until 26/05/2016) Virginijus Lepeška Independent member , Chairman of the Committee from 14/06/2016 Tomas Garasimavičius Member Agnė Bagočiutė Member from 14/06/2016
Risk Management Supervision Committee Member of the Committee
Number of shares of the Company and the Group companies held Antanas Danys Chairman of the Committee
Workplace
Raimundas Petrauskas Independent member
-
General Manager of Schmitz Cargobull Baltic UAB
Donatas Kaubrys Independent member
-
Director of Dovirma UAB
Tomas Garasimavičius Member
-
Advisor to the Prime Minister of Lithuania for Energy
Main functions of the Committee are as follows:
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.
Member of the Committee
-
Workplace Ministry of Finance of the Republic of Lithuania, Vice-Minister (unti 29/04/2016) Chairman of the Board of Organizacijų Vystymo Centras UAB Advisor to the Prime Minister of Lithuania for Energy Ministry of Finance of the Republic of Lithuania, Vice-Minister
Main functions of the Committee are as follows:
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.
37 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
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 30 June 2016 was as follows*:
Dr Dalius Misiūnas (born in 1978)
Ilona Daugėlaitė (born in 1970)
Darius Kašauskas (born in 1972)
Mindaugas Keizeris (born in 1980)
Dominykas Tučkus (born in 1981)
Chairman of the Board, CEO
Member of the Board, Organisational Development Director
Member of the Board, Finance and Treasury Director
Member of the Board, Strategy and Development Director
Member of the Board, Production and Services Director from 04/01/2016
Educational background
Lund University, Doctoral degree in Vilnius University, Master’s degree in Technological Sciences; Hydrogeology and Engineering Geology. Lund University, Master’s degree in Industrial 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 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 Board of NT Valdos UAB; Chairman of the Board of Verslo Aptarnavimo Centras UAB (until 6 Jan 2016); Chairman of the Board of Elektroninių Mokėjimų Agentūra UAB (from Dec 2015); Chairman of the Board of Duomenų Logistikos Centras UAB (from Jan 2016).
Chairman of the Supervisory Council of Lietuvos Energijos Gamyba AB (from 2 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); 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 (from Jan 2016).
Member of the Supervisory Council of Lietuvos Energijos Gamyba AB (from Jan 2016); Chairman of the Board of LITGAS UAB (from Jan 2016); Member of the Board of Lietuvos Dujų Tiekimas UAB (from Jan 2016); Member of the Board of Energijos Tiekimas UAB (from Jan 2016); Member of the Supervisory Council of Elektroninių Mokėjimų Agentūra UAB (from Jan 2016); Member of the Board of HOB OU; Member of the Board of Tuuleenergia OU; Member of the Board of EURAKRAS UAB.
Member of the Supervisory Council of Energijos Skirstymo Operatorius AB (from 3 Dec 2015); Chair of the Board of Technologijų ir Inovacijų Centras UAB (from Dec 2013); 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 (from Dec 2015).
* None of the members of the Board has any ownership interest in the capital of the Company or the Group of the companies.
38 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
Organizational Culture and Employees The basis for implementing the strategy of Lietuvos Energija Group is employees working in it. Efforts are put to establish and to maintain a value-based organizational culture fostering employees to assume responsibility, to cooperate and to seek the best results in a concerted way. By implementing the goals set by the shareholder and pursuing a socially responsible business, we seek to attract and to maintain qualified employees ensuring mutual benefit, to create with them long-term partnership relationships and a common successful future. On 30 June 2016, 5,0322 employees worked in the Group. Company Lietuvos Energija, UAB Energijos Skirstymo operatorius, AB Lietuvos Energijos Gamyba, AB Energetikos Paslaugų ir Rangos Organizacija, UAB Technologijų ir Inovacijų Centras, UAB Duomenų Logistikos Centras, UAB Energijos Tiekimas, UAB Elektroninių Mokėjimų Agentūra, UAB NT Valdos, UAB Energetikų Mokymo Centras, VšĮ LITGAS, UAB VAE SPB, UAB Verslo Aptarnavimo Centras, UAB Lietuvos Dujų Tiekimas, UAB Vilniaus Kogeneracinė Jėgainė, UAB Kauno Kogeneracinė Jėgainė, UAB Energijos Sprendimų Centras, UAB Total
2
On 30 June 2016, 84 employees worked in the Company. 97.5 percent of the employees working in the Company have a higher university education, of which – 6 are holders of PhD degrees. The Company employees: 2 certified professional project managers (PRINCE2 and PMP), 1 certified financial analyst (CFA), 1 certified internal auditor (CIA), 1 certified fraud examiner (CFE), 2 certified risk management experts (CRMA), a certified ISO 31000:2009 risk management specialist, and 5 employees holding the qualification of a Board member of the Baltic Institute of Corporate Governance. The employees are active members of associations and unions, participants of academic community (Research Council of the Lithuanian Institute of Energy; business council of the Kaunas University of Technology; Supervisory Council of the LIE; Technological Development Committee of the Research, Innovation and Technology Agency).
Total number of employees 84 2706 401 708 183 16 27 3 240 140 15 10 441 33 19 2 4 5 032
Structure of the Company's employees eccording to educational background, %
2,53 0
97,47
0%
10% 20% 30% 40% 50% 60% 70% Higher education Advanced vocational education
80% 90% 100% Secondary education
52.9 percent of the employees working in the Group have higher education, of which – 22 PhD degree holders, 37.8 percent have an advanced vocational education, 9.4 percent have a secondary education.
Structure of the Group's employees according to educational background, % 52,9
0%
10% 20% Higher education
Number of valid employment agreements.
39 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
37,8
9,4
30% 40% 50% 60% 70% 80% 90% 100% Advanced vocational education Secondary education
The major part of the Group’s employees consisted of men – 77.3 percent, women constituted 22.7 percent. Among the employees holding the management positions, the distribution by gender is very similar: 78.3 percent of managing staff consisted of men and women constituted 21.7 percent.
Breakdown of all employees by gender
Breakdown of managers by gender
76% 79%
77 % Men
Women
Men
Women
The total payroll budget of the Company for January-June 2016 was EUR 1,254 thousand. An Average Remuneration of the Company’s Employees before Taxes during January-June 2016
Category of employees
Average monthly wage, in EUR
Chief executive officer (CEO)
6 332
Top-level managers
4 729
Medium-level managers
3 519
Experts, specialists
1 808
As at 30 June 2016, the Group had 5032 employees. The total wage bill of the Group for January–June 2016 amounted to 32 mln. EUR An Average Remuneration of the Group’s Employees before Taxes during January-June 2016 Category of employees
Average monthly wage, in EUR
Chief executive officer (CEO)
3 987
Top-level managers
3 741
Medium-level managers
1 911
Experts, specialists, workers
After the rearrangement of governance at the Lietuvos Energija Group in 2016, focus was made on the coordinated development of the organizational culture, human resources management, formation of new organizational culture, enhancement of activity organization, training of new employees, and improvement and preservation of competences. During IIQ 2016, the Newcomer Day for new employees in the Group’s companies was held, involving the participation of approximately of approximately 130 employees. During the Newcomer Day, employees became familiar with the Group’s strategy, meaning of values, the most important goals and priorities. During the second part of the day, “a game of values” took place during which situations associated with values were solved.
21% 21 %
23%
Development of the Organization and its Culture
959
During IIQ, training of newcomers was started that was conducted by lecturers of the internal lecturers’ academy of the Lietuvos Energija Group. Topic on customer service, public procurement, business ethics and occupational safety, energy ABC, and career management were presented. The processes of career management, structuring of rotation systems were further continued successfully (during IIQ 2016, 32 employees rotated among the Group’s companies, whereas a career inside the Company was made by 86 employees).
Improvement of Competences Lietuvos Energija Group has consistently taken care of the improvement of employees’ qualification. It assures that employees have all mandatory certificates required by the laws, improved their competences necessary for work. At the organization’s level, different trainings of general, professional and management competences, e.g. leadership, team formation, change management, communication, project management, and business process management, etc., were held in separate companies.
Practice Opportunities The Group’s companies establish conditions for students of higher and professional schools to apply theoretical knowledge and acquire practical skills. During IIQ 2016, 32 trainees underwent practice in the Group.
40 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
Supervisory and management 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: Full name
Participation in the capital of the Company and Group companies, %
Term of office
Workplace
Dalius Misiūnas Chairman
-
3 Dec 2015 – Dec 2019
Lietuvos Energija, UAB, Chief Executive Officer
Ilona Daugėlaitė Member Petras Povilas Čėsna Independent member
-
3 Dec 2015 – Dec 2019 3 Dec 2015 – Dec 2019
Lietuvos Energija, UAB, Director of Organisational Development LITEXPO, Chairman of the Board
-
As at 30 June 2016, the Board of Energijos Skirstymo Operatorius AB comprised as follows: Full name
Participation in the capital of the Term of Company and Group office companies, %
Workplace
Liudas Liutkevičius Chairman
-
Eglė Čiužaitė Member Dalia Andrulionienė Member
-
Rytis Borkys Member
-
3 Dec 2015 – Energijos Skirstymo Operatorius AB, Dec 2019 Director of Network Maintenance Service
Dalius Svetulevičius Member
-
3 Dec 2015 – Energijos Skirstymo Operatorius AB, Dec 2019 Director of Network Development Service
-
31 Dec 2015 – Energijos Skirstymo Operatorius AB, Chief Dec 2019 Executive Officer 3 Dec 2015 – Feb 2019 3 Dec 2015 – Dec 2019
Energijos Skirstymo Operatorius AB, Director of Finance and Administration Service Skirstymo Operatorius AB, Services Energijos Director
The composition of the Supervisory Council functioning at Lietuvos Energijos Gamyba, AB as at 30 June 2016 was as follows: Participation in the capital of the Term of office Company and Group companies, % Mindaugas Keizeris 20 Nov 2014 – Chairman from August 2017 2 Dec 2015 Full name
Workplace
Lietuvos Energija, UAB, Strategy and Development Director
Pranas Vilkas Independent member
-
August 2013 – August 2017
-
Dominykas Tučkus Member
-
21 Dec 2015 – August 2017
Lietuvos Energija, UAB, Production and Services Director
As at 30 June 2016, the Board of Lietuvos Energijos Gamyba, AB comprised as follows: Full name
Participation in the capital of the Company and Group companies, %
Term of office
Workplace
Eglė Čiūžaitė Chairman
-
February 2016 – September 2017
Lietuvos Energijos Gamyba, AB, Chief Executive Officer
Adomas Birulis Member
-
September 2013 – September 2017
Lietuvos Energijos Gamyba, AB, Director of Business Development Department
Darius Kucinas Member
-
September 2013 – September 2017
Lietuvos Energijos Gamyba, AB, Director of Production Department
Vidmantas Salietis Member
-
September 2013 – September 2017
Lietuvos Energijos Gamyba, AB, Director of Wholesale Electricity Trade Department, Energijos Tiekimas, UAB, Chief Executive Officer
General Manager: Eglė Čiužaitė, Chief Executive Officer of Lietuvos Energijos Gamyba, AB.
General Manager: Liudas Liutkevičius, Chief Executive Officer of Energijos Skirstymo Operatorius AB.
41 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
Key Information about the Company and the Group An annual report of Lietuvos Energija and its daughter companies is prepared in accordance with the Resolution No. 1052 of the Government of the Republic of Lithuania of 14 July 2010 “On approval of the description of guidelines for the assurance of transparency of activities in state controlled enterprises and appointment of the coordinating institution” and is published on the company’s 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 str. 14, LT-09310, Vilnius, Lithuania
Telephone
(8 5) 278 2998
Fax
(8 5) 278 2115
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
As of 30 June 2016, the authorised capital was divided into ordinary registered shares with a par value of LTL 1 (EUR 0.29). All shares have been fully paid-up.
Share capital ‘000)
The Company’s shareholders The Republic of Lithuania represented by the Ministry of Finance of the Republic of Lithuania
(EUR
%
1,095. 7
1,212,156
The company does not have special policy for dividends and is guided by the valid version of the Resolution of the Government of the Republic of Lithuania of 14 January 1997 “On dividends for the company shares belonging to the state by the right of ownership and profit contributions by state enterprises” of 15/02/2014. DIVIDENDS PAID TO THE COMPANY'S SHAREHOLDERS, IN MLN. EUR 100 80 60 40
56,2 79,6
28,1
20 24,6
29,8
2014
2015
0
On 13 February 2013, the Company’s shares were transferred to the Ministry of Finance by the right of trust. From 30 August 2013, the name of Visagino Atominė Elektrinė UAB was changed into Lietuvos Energija UAB.
42 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
2012
2013
I half. 2016
II half. 2016
Information on subsidiaries, branches and representative offices Ataskaitinio laikotarpio pabaigoje (2016 m. birželio 30 d.) „Lietuvos energija“, UAB tiesiogiai ar netiesiogiai kontroliavo šias įmones: Įmonė
Įmonės buveinės adresas
Valdomų akcijų efektyvioji dalis, 2016-06-30 (%) 96,75
Įstatinis kapitalas Pagrindinė veikla (tūkst. Eur) 2016-06-30 184 174 Electricity generation, supply, import, export and trade
Lietuvos Energijos Gamyba, AB
Elektrinės str. 21, Elektrėnai
Energijos Skirstymo Operatorius, AB (until 1 Jan 2016 –LESTO AB and Lietuvos Dujos, AB) NT Valdos, UAB
Aguonų str. 24, Vilnius
94,98
259 443
Electricity supply and distribution to end users; natural gas distribution
Geologų str. 16, Vilnius
100
85 550
Disposal of real estate, other related activities and service provision
UA Duomenų Logistikos Centras UAB
A. Juozapavičiaus str. 13, Vilnius
79,64
4 033
Support services for information technology and telecommunications
Energetikos Paslaugų ir Rangos Organizacija, UAB (until 1 Jan 2016 –ELEKTROS TINKLO PASLAUGOS, UAB and Kauno Energetikos Remontas, UAB) LITGAS UAB
Motorų str. 2, Vilnius
100
7 003
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 str. 14, Vilnius
66,67
13 050
Supply of liquid natural gas via terminal and trade in natural gas
Elektroninių Mokėjimų Agentūra UAB
Žvejų str. 14, Vilnius
100
437
Energijos Tiekimas UAB
P. Lukšio str. 1, Vilnius
100
17 240
VšĮ Energetikų mokymo centras
Jeruzalės str. 21, Vilnius
100
85
Professional development and further training of energy specialists
Geton Energy OÜ
Narva mnt 5, 10117 Talinas
100
35
Electricity supply
Geton Energy SIA
Bezdelingu 12, LV-1048, Ryga
100
28
Electricity supply
Technologijų ir Inovacijų Centras UAB
A. Juozapavičiaus str. 13, Vilnius
97,80
6 440
IT and telecommunication, and other services
VAE SPB UAB
Smolensko str. 5, Vilnius
100
293
Business and other management consultations
Verslo Aptarnavimo Centras UAB
P. Lukšio str. 5 b, Vilnius
97,00
580
Public procurement organisation and implementation, accounting, personnel administration services
Lietuvos Dujų Tiekimas UAB
Žvejų str. 14, Vilnius
100
8 370
Lietuvos energijos paramos fondas
Žvejų str. 14, Vilnius
100
3
Vilniaus kogeneracinė jėgainė UAB
Žvejų str. 14, Vilnius
100
1 003
Modernisation of the district heating sector in the city of Vilnius
Kauno kogeneracinė jėgainė UAB
Žvejų str. 14, Vilnius
51
10 759
Modernisation of the district heating sector in the city of Kaunas
Tuuleenergia OU
Keskus, Helmküla, Varbla Rural Municipality, Pärnu County
100
499
HOB OU
Mustamäe tee 16, Tallinn
100
3 653
Shareholder of 57% shares of Tuuleenergia OU, that is a company, generating electricity power from renewable sources.
Eurakras UAB
Vytenio str. 46, Vilnius
75
8 096
Electricity generation from renewable resources
Energijos sprendimų centras UAB
Žvejų str. 14, Vilnius
100
10
Provision of payment collection services Electricity and natural gas supply, electricity export/import, balancing services
Gas supply Provision of support for projects, initiatives and activities of public interest
Electricity generation from renewable resources
Energy-saving (ESCO) services
43 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
Information on securities of the Group companies The shares of Energijos Skirstymo Operatoriu and, Lietuvos Energijos Gamyba have been listed on the Main List of NASDAQ Vilnius Stock Exchange. The trading of shares of the companies was started on 11 January 2016 and 1 September 2011, respectively. The shares of the companies are traded only at NASDAQ Vilnius Stock Exchangw.
Structure of the authorised share capital and shareholders owning more than 5 per cent of the issuer’s authorised share capital as at 30 June 2016 Company
Total nominal value of shares (in EUR)
ISIN code
Securities' abbreviation
Trading list
Full name of the shareholder (name of the company)
Percentage of voting rights conferred by shares owned
Lietuvos Energijos Gamyba, AB
184 174 248,35
LT0000128571
LNR1L
BALTIC MAIN LIST
Lietuvos Energija, UAB
96,75%
Energijos Skirstymo Operatorius. AB
259 442 796,57
LT0000130023
ESO1L
BALTIC MAIN LIST
Lietuvos Energija, UAB
94,98%
Information about agreements with securities intermediaries
agreement on the accounting of securities issued and management of personal securities accounts with SEB Bankas AB.
Lietuvos Energija has not concluded any agreements with intermediaries of public trading in securities, because its securities are not traded on the stock exchange.
Energijos Skirstymo Operatorius AB
Group companies: Lietuvos Energijos Gamyba, AB As at 30 June 2016, 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
As at 31 March 2016, the company had issued 894,630,333 ordinary registered shares with the nominal value of EUR 0.29. Shares of Energijos Skirstymo Operatorius AB have been listed on the main list of NASDAQ OMX Vilnius Stock Exchange. ISIN code of the issue is LT0000130023. Energijos Skirstymo Operatorius AB has concluded the agreement on the accounting of securities issued by the company and management of personal securities accounts with SEB Bankas AB.
44 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
Main events at the Group until the date of preparing the report
The National Audit Office started an audit of the agreement of NT Valdos; Lietuvos Energija received a request to provide access to the office’s representatives to receive necessary data (4 April 2016). LITGAS cut down their operating costs by 19 percent this year. This was achieved owing to assurance of favourable conditions for financing the supply (18 April 2016). Qualification requirements for tenderers of public procurement of the main technological equipment in the Kaunas co-generation plant were published in the central public procurement information portal, also in the TED system (20 April 2016). The NCECP did not approve the imposition of a sanction on ESO according to the deed of scheduled auditing of regulated activities by Lietuvos Dujos for 2009-2013 (21 April 2016). The NCECP published new prices for energy transmission services and public electricity that will be valid during the 2nd half-year 2016. From 1 July electricity prices for private clients will be reduced by 5.4 percent on average (30 May 2016). ESO started reconstruction projects of two transformer sub-station projects in Trakai and Birštonas (25 April 2016). Energijos Tiekimas finished a street lighting project of the ESCO model in Širvintos (27 April 2016). 2nd stage of the law function was implemented: the Centre of Legal Services was established in the Business Service centre (21 May 2016). The NCECP recalculated and fixed smaller by 10 percent forecasted market price for natural gas from 1 July – EUR 15.26 /MWh, excluding VAT (EUR 16.96/MWh, excluding VAT – valid until then) (5 May 2016). The NCECP recalculated the additional constituent for the security of natural gas supply, added to the sale price of natural gas – EUR 354.61/(MWh/day/year) from 1 July (16 May 2016). A decision to increase the authorized capital from EUR 10,759,200 to EUR 24,000,000 was adopted during the general meeting of shareholders of Kaunas co-generation plant (16 May 2016). Upon expiry of the redemption process of LITHUANIAN POWER PLANT shares, Lietuvos Energija, according to the effective agreements, transferred monetary funds to former company shareholders. In total, during the share redemption process, 1,144 share purchase-sale agreements were made, and on their basis
3,866,497 shares of Lietuvos Energijos Gamyba were assigned to Lietuvos Energija, which constitutes 0.61 percent of the total emission. Those who have not used the right to sell shares during this process or have not managed to submit necessary documents for the redemption of shares, further remain shareholders of Lietuvos Energijos Gamyba and may trade in their shares on the exchange (23 May 2016). The NCECP, by responding to changes in the market, set smaller by 5 percent upper limits for the public electrical energy price for domestic users for the 2nd half-year of 2016 after it started to import electric power from Poland and Sweden. For those who buy electric power from medium voltage grids – 7,499 ct/kWh, excluding VAT (until then it was 8.086 ct/kWh, excluding VAT), whereas those who buy electricity from low voltage grids – 9.530 ct/kWh (until then it was 9.852 ct/kWh, excluding VAT) (25 May 2016). Aloyzas Vitkauskas was withdrawn from the Supervisory Council of Lietuvos Energija by order the Minister of Finance; instead of him, the Vice-Minister of Finance Agnė Bagočiutė was appointed a member of the Supervisory Council (26 May 2016). The NCECP confirmed smaller by 8-15 percent prices for natural gas offered by Lietuvos Dujų Tiekimas for private clients (26 May 2016 ). The Support Fund of Lietuvos Energija distributed support for 25 selected applicants for 2016; in total, EUR 661 thousand (30 May 2016). The NCECP approved a four-time zone tariff plan “The Smart One Rate” that may be selected by customers participating in the pilot project (30 April 2016). Lietuvos Energija initiated an incorporation of the venture capital fund “The Innovation Fund” (31 May 2016). Algaudas Martinka was appointed a temporary manager of EnePRO. He substituted for Martynas Pargaliauskas (1 June 2016). Pursuant to Resolution of the Seimas of the RL of 22 March, the National Audit Office, having conducted a state audit regarding the preliminary agreement concluded between NT Valdos and Karalienės Mortos Mokykla UAB on 11 September 2015, did not establish any violations. It recognized the company’s activity as an appropriate practice and submitted recommendations (2 June 2016). Lietuvos Energija Group published a Corporate Responsibility Report by presenting the responsible business and corporate governance principles in daily activities in 2015 (2 June 2016).
45 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
Kaunas co-generation plant received the main permit of construction on Veterinarų St. 19, Kaunas district, Karmėlava sub-district, Biruliškės village (10 June 2016). An increased authorized capital of Lietuvos Dujų Tiekimas was registered (from 7.5 million euros to 8.37 million euros) (13 June 2016). Lietuvos Energija announced a tendering procedure for acquiring a project assuring the infrastructure necessary for installation and operation of a wind power farm (15 June 2016). The board of the European Investment Bank officially approved the granting of financing of EUR 190 million for Vilnius co-generation plant (16 June 2016). An amendment was made into the operational programme for EU support allowing, after the European Commission adopted a circular-economy strategy to appeal regarding the EU support for Kaunas project (16 June 2016). LITGAS has reduced the possible surplus of the necessary natural gas quantity by nearly 8 times (17 June 2016). Vilnius County Prosecutor’s Office adopted a resolution to decline an initiation of pre-trial investigation regarding the agreement conclude between NT Valdos and Karalienės Mortos Mokykla UAB (20 June 2016). Vilnius co-generation plant received the final offers in the procurement of construction works and associated services (EPC) (29 June 2016). ESO has started a pilot project of smart accounting. During it, 3 thousand customers are offered a four-time zone tariff plan (1 July 2016). By implementing the Government resolution, assurance of physical security at Kruonis Pumped Storage Power Plant (KPSPP) and Kaunas Algirdas Brazauskas’ Hydroelectric Power Plant (KHE) was taken over by the Public Security Service at the Ministry of the Interior of the RL (1 July 2016). Lietuvos Energija became a participant of the United Nations Global Compact initiative (8 July 2016). Vilnius co-generation plant drew up a ranking of public procurement tenderers contractors for constructing the plant – offers. According to the work contracts intended to be concluded in the near future, the new plant will be installed for EUR 327.9 million. For the waste incineration part, the best offer was submitted by the consortium consisting of Steinmuller Babcock Environment GmbH,
Budimex S.A., and Kauno Dujotiekio Statyba UAB. The total price of the offer is EUR 178.29 million. For the second part consisting of biofuel incineration equipment and biofuel supply infrastructure, the best offer was submitted by RAFAKO S.A. – EUR 149.65 million (12 July 2016). In the Old Town of Vilnius, ESO commenced reconstruction works of the gas distribution network, during which nearly 4 kilometres of gas pipeline will be renewed. Reconstruction works are planned to be performed in separate stages from 19 July to 2 October (19 July 2016). Lietuvos Energija announced a ranking of potential installers of the integrated business management system. Lietuvos Energija will offer to sign an agreement for the consortium of companies that submitted the best offer. The price of the best offer is EUR 18.8 million, excluding VAT. It was submitted by NESS Czech s.r.o and InnoForce UAB, acting on the basis of the joint activity agreement. During the installation period, NESS Czech s.r.o. will act as a responsible partner of joint activity, this way ensuring the direct use of the good practice, gained by the installer in installing analogous SAP solutions in the energy sector in the project of the Group (22 July 2016). An environmental impact report for the wind power farm in the territory of Kruonis Pump Storage Hydroelectric Plant was prepared (25 July 2016). Already now customer may pay for all utility services, as well as pay some personal bills on the self-service website manogile.lt run by Lietuvos Energija Group of companies. After installing new functionalities of the website manogile.lt, it is already possible to pay by a single payment also for other utility services: heating, water supply, waste disposal, cable TV, internet, and mobile communication services, as well as to make other payments (8 August 2016). During the auction held, nearly one third of the assets not used in activities of Lietuvos Energija group of companies was sold – 10 objects were sold for a total price of EUR 3.8 million (including VAT). In total, 34 objects were offered in the auction. The remaining objects will be repeatedly offered for sale in other auctions (9 August 2016).
46 2016 FIRST HALF-YEAR INTERIM REPORT | Overview of Activity of the Company and the Group
Dr. Dalius Misiūnas Lietuvos Energija UAB Director General 31 August 2016