MANAGEMENT BOARD’S REPORT ON THE ACTIVITIES … · In May 2011, the remaining 49% ... the...

KOGENERACJA S.A. – Management Board’s Report on the Group Activities

for the period from 1 January to 30 June 2013

MANAGEMENT BOARD’S REPORT ON THE ACTIVITIES

OF KOGENERACJA GROUP

First Half of 2013



2

List of contents

I. Group profile ........................................................................................................................................ 3

1. Legal basis ........................................................................................................................................................................ 3

2. Group characteristics........................................................................................................................................................ 3

3. Shareholders of the Parent Company ............................................................................................................................... 4

4. Composition of the Management Board and the Supervisory Board of the Parent Company .......................................... 4

5. KOGENERACJA Group .................................................................................................................................................... 7

6. Employment ..................................................................................................................................................................... 10

II. Key production and financial figures ............................................................................................. 11

1. Key products ................................................................................................................................................................... 11

2. Key economic and financial figures of the Group ........................................................................................................... 13

3. Extraordinary circumstances which materially affected the Group’s trading performance ........................................... 21

4. Structure of assets and liabilities in the consolidated statement of comprehensive income ........................................... 22

5. Related party transactions .............................................................................................................................................. 24

6. Guarantees given and received ....................................................................................................................................... 25

7. Financial results presented in the report vs. the published performance forecast .......................................................... 26

8. Assessment of financial resources management.............................................................................................................. 26

9. Loan agreements ............................................................................................................................................................. 30

10. Loans granted ............................................................................................................................................................... 31

11. Events with significant impact on the Group’s activities .............................................................................................. 32

12. Factors that will affect the Group’s performance in the subsequent periods ............................................................... 33

13. Description of key risks and threats .............................................................................................................................. 33

14. Litigations ..................................................................................................................................................................... 35

15. Shares of KOGENERACJA S.A. or its subsidiaries held by directors .......................................................................... 35

16. Dividend declared or paid ............................................................................................................................................ 35

III. Share price ....................................................................................................................................... 36

1. Quotation of the KOGENERACJA shares on Warsaw Stock Exchange ......................................................................... 36

2. Respect Index .................................................................................................................................................................. 37

3. Ratio calculation methodology........................................................................................................................................ 37



3

I. Group profile

1. Legal basis

The Management Board’s Report on the Company’s Activities was prepared pursuant to § 90 section 1 point 3 of the

Finance Minister’s Ordinance of 19 February 2009, Journal of Laws No. 33, item 259 (“Ordinance”) as amended

2. Group characteristics

The parent company of the KOGENERACJA Group (“Group”) is Zespół Elektrociepłowni Wrocławskich

KOGENERACJA S.A. (KOGENERACJA S.A., “Parent”, “Company”), joint stock company registered in Poland. having

its registered office in Wrocław at ul. Łowiecka 24. The Company operates from three production plans with a joint electric

capacity of 363 MW and heat capacity of 1 089 MWt,, as per the licences held. The plants are located in Wrocław (EC

Wrocław and EC Zawidawie) and in Siechnice near Wrocław (EC Czechnica).

These heat and power plants are the central heat sources for Wrocław, providing the city with heating, domestic hot water

and industrial steam as well as with electricity as part of the national energy infrastructure. Heat and electricity are mainly

produced in co-generation, which ensures that the average yearly production capacity is high and the chemical energy of the

primary fuels is the most effective in the sector.

KOGENERACJA Group was established through the privatisation and restructure of the former ZEC Wrocław S.A., a

process initiated in 1992. In subsequent years, connected companies were hived off the Group, including: ZEC Service Sp. z

o.o., Diagpom Sp. z o.o., ZEC Hurt Sp. z o.o. and ESV S.A. The companies provide services to KOGENERACJA S.A. and

to other Group companies, and acquire customers from the market. The Company also gradually increased its stake in

VKN Polska Sp. z o.o. (now Renevis Sp. z o.o.) and Ekotrakt Sp. z o.o. The companies are located in Wrocław and Siechnice.

In 2009, the Group structure changed: ZEC Hurt Sp. z o.o. and Ekotrakt Sp. z o.o. became consolidated entities. The shares

in ZEC Service Sp. z o.o. were sold, so the company and its subsidiary ZEC Diagpom Sp. z o.o. were de-consolidated. In

2009, the Company acquired 100% stake in Z.C. "Term-Hydral” Sp. z o.o. of Wrocław. Since 1 July 2010, after the merger with

the Parent, the company has been a separate production facility of KOGENERACJA S.A. - EC Zawidawie. In 2010,

Ekotrakt Sp. z o.o. was merged with the Company’s subsidiary Renevis Sp. z o.o. and in 2011, liquidation process of ZEC

Hurt Sp. z o.o. (started on 29 July 2010) was completed.

Przedsiębiorstwo Produkcji Ogrodniczej Siechnice Sp. z o.o. is a company located in Siechnice, whose shares were acquired in

1996 in return for the receivables for the sale of heat. In May 2011, the remaining 49% shares were purchased from the State

Treasury, and KOGENERACJA S.A. became 100% owner of the company. On 30 April 2012, an agreement was signed with

Citronex I Sp. z o.o. to sell 100% of the shares. PPO Siechnice Sp. z o.o. remains the key buyer of heat as a result of the heat

contract signed with Citronex I Sp. z o.o., a deal combined with the share disposal transaction.

Another Group member is the heat and power plant EC Zielona Góra S.A., whose shares started to be acquired in 2001. The

company produces electricity and heat, and after the merger with Zielonogórska Energetyka Cieplna Sp. z o.o. in 2009 it

also began to distribute.

Since July 2010, co-operation has been strengthened with z EDF Polska CUW Sp. z o.o. (from January the branch included

in EDF Polska S.A.), which took over the technical and non-technical support functions from KOGENERACJA S.A. and,

since 1 January 2011, also from EC Zielona Góra S.A. This allowed the companies to focus on its core activities that are the

key sources of their revenue and profits.

Other companies of KOGENERACJA Group include: EDF Paliwa Sp. z o.o. (supply of coal and biomass) and

EDF Energia Sp. z o.o. (trading in electricity and property rights).



4

3. Shareholders of the Parent Company

(in accordance with § 87 section 7, point 5 of the Ordinance)

Below is a list of the shareholders holding directly or indirectly through subsidiaries at least 5% of the total voting power at

the General Meeting of KOGENERACJA S.A.

As at the day of publication of the report for H1 2013

EDF Polska S.A. 2 642 869 17,74 - 2 642 869 17,74

EDF International S.A.S. 2 483 830 16,67 - 2 483 830 16,67

EDF Investment III B.V. 2 323 302 15,59 - 2 323 302 15,59

OFE PZU "Złota Jesień" 1 300 000 8,72 (0,67) 1 200 000 8,05

OFE ING 1 300 000 8,72 (0,67) 1 200 000 8,05

Aviva OFE 1 076 000 7,22 - 1 076 226 7,22

change of %

in the period

15.05.2013-

30.08.2013

number of votes at the

GSM presented in the

1th quarter report

% of votes at the GSM

presented in the 1th

quarter report

% of votes at the GSM at

the report filing date

number of votes at the

GSM at the report filing

date

On 8 May 2013, under Article 492 § 1 (1) of the Commercial Companies Act, a merger took place between the EDF Group

companies in Poland: EDF Rybnik S.A. (Acquiring Entity) and EDF Kraków S.A., EDF Polska CUW Sp. z o.o., EDF

Polska Centrala Sp. z o.o. (Acquired Entities). The new entity was named as EDF Polska S.A. The number of shares and the

share in the registered capital and the total number of votes remain unchanged at 17.74% (Current Report 11/2013).

The share held by OFE PZU „ Złota Jesień”, OFE ING and Aviva OFE was updated as at registration date of the General

Meeting of the Company held on 13 June 2013 (Current Report 16/2013).

4. Composition of the Management Board and the Supervisory Board of the Parent Company


a. Composition of the Management Board

Since the last change on 1 October 2012, the membership of the Management Board of the 8th

tenure has been follows:

(Current Report 29/2012):

1. Wojciech Heydel – President of the Management Board

2. Roman Traczyk – Management Board Member

3. Krzysztof Wrzesiński – Management Board Member

4. Henryk Zajas – Management Board Member

b. Changes in the Supervisory Board

Since 1 January 2013, the membership of the Supervisory Board of the 8th

tenure was as follows:

1. Marian Augustyn – Supervisory Board Member

2. Roman Cecota – Secretary of the Supervisory Board

3. Philippe Castanet – Supervisory Board Chairman

4. François Driesen – Supervisory Board Member



5

On 18 December 2012, Marian Augustyn filed his resignation from the Supervisory Board effective from 21 January 2013

(Current Report 34/2012).

On account of this resignation, on 22 January 2013, the EGM appointed to the Supervisory Board of KOGENERACJA S.A.

Mr Ryadh Boudjemadi (Current Report no. 2/2013).

Since 22 January 2013, the membership of the Supervisory Board of the 8

th tenure was as follows:

On 13 June 2013, due to the expiry of the Supervisory Board of the 8th tenure, as of the date of the AGM of

KOGENERACJA S.A., the mandates of the Supervisory Board members likewise expired.

The Annual General Meeting:

granted discharge to all the Supervisory Board members of the 8th

tenure;

established the number of the Supervisory Board members of the 9th

tenure;

acknowledged the selection by employees of 4 Supervisory Board members, under 14 section 4 of the Company's

Articles:

The persons were appointed to the Supervisory Board of the 9th tenure, and

appointed 8 other members of the Supervisory Board - representatives of the Company's shareholders:

5. Raimondo Eggink – Supervisory Board Member

6. Birgit Fratzke-Weiss

7. Mariusz Grodzki

– Supervisory Board Member


8. Laurent Guillermin – Supervisory Board Member

9. Nicolas Mitjavile – Supervisory Board Member

10. Roman Nowak – Supervisory Board Member

11. Zbigniew Szymanek – Supervisory Board Member

12. Danuta Żeleźna – Vice-Chairman of the Supervisory Board

1. Ryadh Boudjemadi – Supervisory Board Member

2. Roman Cecota – Secretary of the Supervisory Board


4. François Driesen – Supervisory Board Member



7. Mariusz Grodzki



8. Laurent Guillermin

9. Nicolas Mitjavile



10. Roman Nowak – Supervisory Board Member


12. Danuta Żeleźna – Vice-Chairman of the Supervisory Board

1. Wojciech Asterski

2. Jerzy Michalik

3. Roman Nowak

4. Zbigniew Szymanek

5. Ryadh Boudjemadi

6. Philippe Castanet

7. François Driesen

8. Raimondo Eggink


10. Mariusz Grodzki





6

Since 13 June 2013, the membership of the Supervisory Board of the 9th

tenure has been as follows:

In 2013, no changes were made to the rules of appointing and removing the executives and the rights vested in them,

particularly the rights to issue or redeem shares.

Supervisory Board Committees

On 14 June 2013, the Supervisory Board of the 9th

tenure, appointed, through a secret ballot, Audit Committee from

amongst its members. The appointees were as follows (Resolution no. 14/530/2013):

- Laurent Guillermin – Audit Committee Chairman

- Ryadh Boudjemadi

- Raimondo Eggink

- Mariusz Grodzki

(EBI System – Current Report no. 1 /2013).

At the same time, the Supervisory Board of the 9th tenure, appointed, through a secret ballot, Remuneration Committee from

amongst its members. The appointees were as follows (Resolution no. 13/529/2013):

- Birgit Fratzke-Weiss – Remuneration Committee Chairman,

- Philippe Castanet.

c. Emoluments of the Management Board and the Supervisory Board

The remuneration of the Management Board and the Supervisory Board members for the first half of 2013 and 2012 was

presented in the Condensed Interim Financial Statements of KOGENERACJA Group for the 6 months ended 30 June 2013,

Chapter B point V 16 Transactions with related parties; b. Transactions with directors.

d. The Extraordinary General Meeting of KOGENERACJA S.A.

On 22 January 2013, the Company’s EGM made changes to the composition of the Supervisory Board.

e. Annual General Meeting of KOGENERACJA S.A.

On 13 June 2013, an AGM of the Company was held, solely to transact the business stipulated in Article 395 para. 2 of the

Commercial Companies Code (Current Report no. 15/2013) and to determine the number and composition of the

Supervisory Board of the 9th

tenure.

1. Wojciech Asterski

2. Ryadh Boudjemadi




4. François Driesen – Vice-Chairman of the Supervisory Board



7. Mariusz Grodzki




9. Jerzy Michalik





11. Roman Nowak – Secretary of the Supervisory Board




7

5. KOGENERACJA Group

(in accordance with § 87 section 7, point 2 and 3 of the Ordinance)

a. Ultimate parent

The ultimate parent for KOGENERACJA S.A. is EdF S.A., France.

b. Group structure

Graphical structure of the Group and KOGENERACJA’s share in the net worth of its individual subsidiaries are presented

in the chart below.

As at 30 June 2013

The key financials of the subsidiaries are presented in section II 2b Impact of the performance of the Group companies on

the consolidated net profit in H1 2013 and 2012 in this report.

Even though KOGENERACJA S.A. does not have any direct capital ties with EDF Energia Sp. z o.o. the company is

reported as a connected company because the two entities carry out material transactions with each other.

c. Companies covered by the consolidated financial statements

KOGENERACJA S.A. – Parent of the Group, as at 30 June 2013 included the following 2 subsidiaries in the consolidated

financial statements:

EC Zielona Góra S.A. – subsidiary (full consolidation)

Renevis Sp. z o.o. – subsidiary (full consolidation)

At the same time, in the report for the first half of 2013, the Company provided comparative data for the first half of 2012,

specifically for:

Przedsiębiorstwo Produkcji Ogrodniczej Siechnice Sp. z o.o. – subsidiary (full consolidation for the period of

control, i.e. from 1 January to 30 April 2012). On 30 April 2012, KOGENERACJA S.A. sold its 100% stake in

PPO Siechnice Sp. z o.o. to Citronex I Sp. z o.o.

Subsi

dia

ries

- conso

lidate

d

Connecte

d e

ntitie

s -n

ot c

onso

lidate

d

KOGENERACJA S.A.

EC Zielona Góra S.A. 98,40%

Renevis Sp. z o.o. 100% EDF Energia Sp. z o.o.

EDF Paliwa Sp. z o.o. 12,40%



8

d. Subsidiaries

The tables below show the percentage share in the share capital of the Group subsidiaries and the nominal value of the

shares held by KOGENERACJA S.A. as at 30 June 2013 and 31 December 2012.

As at 30 June 2013

Number of shares

Nominal

value of

shares (PLN)

% of

capital

EC Zielona Góra S.A. 13 853 150 554 126 25 545 277 13 631 925 98,4

Renevis Sp. z o.o. 29 100 000 58 200 500 58 200 29 100 000 100,0

Share capitalNumber of

shares

Nominal value

of a share

No of shares held by KOGENERACJA S.A.

(directly)

As at 31 December 2012

Number of shares

Nominal

value of

shares (PLN)

% of

capital

EC Zielona Góra S.A. 13 853 150 554 126 25 545 277 13 631 925 98,4

Renevis Sp. z o.o. 29 100 000 58 200 500 58 200 29 100 000 100,0

Share capitalNumber of

shares

Nominal value

of a share

No of shares held by KOGENERACJA S.A.

(directly)

e. Activities of the subsidiaries

EC ZIELONA GÓRA S.A.

The core business of EC Zielona Góra S.A. is:

Production of electricity;

Production of heat;

Distribution of heat and supply of network heat.

Until the end of July 2004, electricity and heat were co-generated in EC Zielona Góra using coal as production fuel. When

in August 2004 the CC Gas Unit was commissioned, with the capacity of 190 MW and 95 MWt, the proportions of

electricity and heat reversed and currently predominantly electricity is produced in the CC Gas Unit in the process of partial

co-generation using gas fuel (natural gas from local sources).

The company is the key provider of heat and heated domestic water for the city of Zielona Góra.

In June 2008, a decision was made to merge Zielonogórska Energetyka Cieplna Sp. z o.o. with EC Zielona Góra S.A. The

merger was effected on 1 April 2009 under section 492 §1 point 1 of the Commercial Companies Code by transferring the

whole assets of ZEC Sp. z o.o. to EC Zielona Góra S.A. in return for the shares in the increased share capital of the

acquiring company. After the merger, the share capital of EC Zielona Góra S.A. increased by PLN 653 thousand to

PLN 13,853 thousand. In connection with the share capital increase, the company issued 26,130 series D ordinary registered

shares, which were acquired by KOGENERACJA S.A. (17,978 shares) and by the Munipality of Zielona Góra (8,152

shares). The former ZEC Sp. z o.o. is a part of the structure of EC Zielona Góra S.A. as a heat distribution plant.

Renevis Sp. z o.o.

The company was established in 1995 for the economic use of the combustion waste from KOGENERACJA S.A.

The core business of Renevis Sp. z o. o. is:

Sale of coal combustion waste (UPS) complying with the relevant standard for the construction, road building and

ceramics sector in Poland and abroad;



9

Managing the area of ash and slag removal for KOGENRACJA S.A. in Wrocław, waste dump in Kamień (gmina of

Długołęka); Communal Waste Processing and Recycling in Sulęcin (gmina of Święta Katarzyna);

Transport services, including transport of products and waste, also for third parties;

Supply of biomass for power companies as part of production of energy from renewable sources (OZE);

Sale of road bases and stabilisers;

Provision of professional services in waste management and environmental protection.

Company consolidated in the comparative period

PPO Siechnice Sp. z o.o.

KOGENERACJA S.A. acquired stake in Przedsiębiorstwo Produkcji Ogrodniczej Siechnice Sp. z o.o. on 29 June 1996. The

shares were acquired from State Treasury Agricultural Property Agency in return for the receivables for the heat supplied by

KOGENERACJA S.A. to PPO Siechnice in 1992-1995. On 11 May 2011, KOGENERACJA S.A. purchased the remaining

49% stake from the State Treasury and became a full owner of the company. On 2 May 2012, the ownership of the shares in

PPO Siechnice Sp. z o.o. was transferred to Citronex I Sp. z o.o. under the sales agreement of 30 April 2012.

PPO Siechnice is one of the biggest gardening firms in Poland. The company’s core business is gardening production,

currently mainly cultivation of tomatoes and cucumbers.

f. Other connected entities

The tables below show the structure of the share capitals of other connected entities, and the nominal value of the shares

held by KOGENERACJA S.A. as at 30 June 2013 and 31 December 2012.

Number of sharesNominal value

of shares

%

of capital

EDF Paliwa Sp. z o.o. 415 000 830 500 103 51 500 12,40

Share capital Number of sharesNominal value

of a share

No. of shares held by KOGENERACJA S.A.

(directly)

As at 30 June 2013 and as at 31 December 2012

Until 10 September 2012, EDF Paliwa Sp. z o.o. traded as Energokrak Sp. z o.o.

On 22 July 2013, the Company’s Management Board decided to enter into a conditional agreement for the sale of shares of

EDF Paliwa Sp. z o.o. (Resolution no. 83/2013) hence in the Condensed interim financial statements for the period ended 30

June 2013, these shares were classified as available-for-sale assets.

g. Activities of the other connected entities

EDF Paliwa Sp. z o.o.

The core business of the company is:

supply of power coal and biomass for EDF Group companies in Poland;

disposal of combustion waste.

EDF Energia Sp. z o.o.

EDF Energia is an electricity trading company owned by the EdF Group. It was established through the merger of the

Trading Division of Rybnik S.A. power plant and the energy trading company EDF-EnBW Polska Sp. z o.o. The core

business of the company is:

trading in electricity;

trading in energy certificates.

KOGENERACJA S.A. does not have any stake in EDF Energia Sp. z o.o. but due to the material transactions with Group

companies, the company was classified as a connected entity.



10

h. Changes in the Group structure

In H1 2013, no transactions or events took place that would affect the Group structure.

i. Equity investments within the Group

In H1 2013, the Parent Company did not make any equity investments.

j. Other equity investments

As at 30 June 2013, the Company did not have other equity deposits.

6. Employment


As at 30 June 2013 and 31 December in the years 2008-2012, the employment levels in Parent Company were as shown in

the diagram below.

As at 30 June 2013 and 31 December in the years 2008-2012, the employment levels in the KOGENERACJA Group were

as shown in the diagram below.

The decrease in employment in the Group is a result of the restructure in the Parent Company and in EC Zielona Góra S.A.

(establishment of the Shares Services Centre for EDF Group in Kraków, Poland, and transfer of employees under

Article .231) and results from changes in the Group structure (including the sale of PPO Siechnice Sp. z o.o. in May 2012).

500

540

580

620

660

700

2008 2009 2010 2011 2012 June2013

687

650

598

559

536

518

Nb

of

em

plo

yes

Year

600

800

1000

1200

1400

1600

1800

2000

2008 2009 2010 2011 2012 June2013

1867

1406

1245 1151

877 843

Nb

of

em

plo

yes

Year



11

II. Key production and financial figures

1. Key products


a. Key products - KOGENERACJA S.A.

The Company’s key products are: heat and electricity as well as energy origin certificates: green and red certificates.

The sales of both products (in production units) in the first half of 2013 and 2012 are presented in the table below.

For 6 months ended

30 June 2013

For 6 months ended

30 June 2012

Sales of heat TJ 5 508 5 275 233

Sales of electricity MWh 616 030 603 828 12 202

Totale sales of products in units TJ 7 725 7 448 277

J.m.Change

(number)

Sale of heat in the first half of 2013 was 5,508 TJ and increased by 4% year-on-year. The increase was caused by the lower

temperatures noted in the heating period compared with the previous year.

Sale of electricity in the first half of 2013 was at 616,030 MWh and was higher by 12,202 MWh, i.e. 2 % year-on-year. The

increase is a result of lower air temperatures compared with the previous year.

Total sale of finished goods in the reporting period was 7,725 TJ (including 5,508 TJ for heat), up 4% on the corresponding

period of the previous year.

Revenues from the sale of finished goods in H1 2013 and in H1 2012 were as presented in the table below.

Value

( in PLN thousand)

Structure

(%)

Value

( in PLN thousand)

Structure

(%)

Change

(value)

Sales of heat 180 980 57 159 312 47 21 668

Sales of electricity 121 816 39 124 866 37 (3 050)

Ancillary services-

sales of electricity5 643 1 236 0 5 407

Certificates 3 499 - 47 562 14 (44 063)

CO2 sales - 1 1 446 - (1 446)

Other revenues 3 681 1 5 126 2 (1 445)

Revenues from the sale of

finished goods315 619 100 338 548 100 (22 929)

For 6 months ended

30 June 2013

For 6 months ended

30 June 2012



12

b. Key products of EC Zielona Góra S.A.

The Company’s key products are: heat and electricity as well as energy origin certificates: so called yellow certificates. Like

KOGENERACJA S.A., EC Zielona Góra S.A. produces electricity and heat, but in different proportions, i.e. with the

predominance of electricity. EC Zielona Góra S.A. produces energy based on natural gas in the CC Gas Unit.

The sales of both products in EC Zielona Góra in the first half of 2013 and 2012 are presented in the table below.

J.m.For 6 months ended

30 June 2013

For 6 months ended

30 June 2012

Sales of heat TJ 848 790 58

Sales of electricity MWh 706 736 727 462 (20 726)

-coal unit MWh - 3 056 (3 056)

-cc gas unit MWh 706 736 724 406 (17 670)

Totale sales of products

in unitsTJ 3 394 3 408 (14)

Change

(number)

Sale of heat in the first half of 2013 was at 848 TJ and increased by 58 TJ (7%) year-on-year. The higher sales of heat

primarily resulted from the increased demand for network heat (lower air temperatures in March and April).

Sale of electricity in the first half of 2013 was at 706,736 MWh and was lower by 20,726 MWh, i.e. by 3%, year-on-year.

The decrease in the sale of electricity concerned both the coal unit (its decommissioning) and the CC Gas Unit. Electricity

production in the CC Gas Unit was lower by 17,670 MWh. The lower production of the electricity sold was primarily due to

the use of the gas & oil units in the winter seasons as they use gas fuel for heat production and thus affected a decrease in

electricity production in the CC Gas Unit. Effectively, the sale of such energy on the Energy Exchange was lower (limited

by the gas intake capacity). Another key reason for this was the early (2 days ahead of schedule) shut-down of the CC Gas

Unit for the planned maintenance.

Total sale of finished goods in the reporting period was 3,394 TJ, down 0.4% (14 TJ) on the first half of 2012.

Value

( in PLN thousand)

Structure

(%)

Value

( in PLN thousand)

Structure

(%)

Change

(value)

Sales of heat 46 210 27 40 606 18 5 604

Sales of electricity 127 125 73 145 557 65 (18 432)

Certificates - - 38 887 17 (38 887)

Other revenues 247 0 287 0 (40)

Revenues from the sale of

finished goods173 583 100 225 337 100 (51 754)

For 6 months ended

30 June 2013

For 6 months ended

30 June 2012



13

2. Key economic and financial figures of the Group

(in accordance with §87 section 6, point 10 of the Ordinance)

a. Elements of the consolidated income statement

In the first half of 2013, the Group’s consolidated net income increased by PLN 42,005 thousand (PLN 116,687 thousand in

the first half of 2013 and PLN 74,682 thousand in the first half of 2012), i.e. up 56%, with the change being mainly driven

by the increase in the net income of the Parent Company (+PLN 21,803 thousand) and the subsidiary EC Zielona Góra S.A.

(+PLN 18,460 thousand).

In the analysed period, the net income of the Group was mainly impacted by the gross profit on sales, which increased by

19% on H1 2012 and was mainly driven by the higher income from the compensations for termination of the PPAs

(+PLN 71,638 thousand) earned by EC Zielona Góra S.A. (see point 3. Extraordinary circumstances which materially

affected the Group’s trading performance).

in PLN thousand

Revenue from sales 503 500 569 402 (65 902)

Revenue from compensation for PPAs 81 301 9 663 71 638

Cost of sales (434 301) (453 114) 18 813

Gross profit on sales 150 500 125 951 24 549

Distribution expenses (3 299) (3 231) (68)

General and administrative expenses (10 959) (14 424) 3 465

Other operating revenues/costs 13 767 (4 045) 17 812

Operating profit (EBIT) 150 009 104 251 45 758

Net finance costs (6 123) (7 194) 1 071

Income tax (27 199) (21 208) (5 991)

Net profit from continuing operations 116 687 75 849 40 838

Net loss from discontinued operations - (1 167) 1 167

Net profit 116 687 74 682 42 005

For 6 months ended

30 June 2013

For 6 months ended

30 June 2012

Change

(value)

b. Impact of the performance of the Group companies on the consolidated net income in H1 2013 and 2012

01.01.2013-30.06.2013

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cti

on

s

Unconsolidated net profit/(loss) 175 700 98 808 77 549 (657) -

Revaluation to fair values (672) - (672) - -

Adjustments to Group accounting policy 409 - 564 (155) -

Reclassification 584 - 575 9 -

Other adjustments 43 243 (200) - -

Net profit after adjustments 176 064 99 051 77 816 (803) -

Elimination of intercompany transactions (59 377) - - - (59 377)

Capital adjustments - - - - -

Consolidated net profit/(loss) 116 687 99 051 77 816 (803) (59 377)



14

01.01.2012-30.06.2012

Co

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d d

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KO

GE

NE

RA

CJ

A

EC

Zie

lon

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óra

PP

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dzia

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vit

y

Ren

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rco

mp

an

y

tra

nsa

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on

s

Unconsolidated net profit/(loss) 134 617 77 005 59 089 (1 167) (310) -

Revaluation to fair values (672) - (672) - - -

Adjustments to Group accounting policy 443 - 569 - (126) -

Reclassification 576 - 576 - - -

Other adjustments 47 247 (200) - - -

Net profit after adjustments 135 011 77 252 59 362 (1 167) (436) -

Elimination of intercompany transactions (53 525) - - - - (53 525)

Capital adjustments (6 804) (6 804) - - - -

Consolidated net profit/(loss) 74 682 70 448 59 362 (1 167) (436) (53 525)

*) On 2 May 2012, the ownership of the shares in PPO Siechnice Sp. z o.o. was transferred to Citronex I Sp. z o.o. under the sales agreement of 30 April

2012. The data in the report relate to the control period, i.e. until 30 April 2012, and were presented in the consolidated financial statements as discontinued

operations.

In the first half of 2013, the Group’s performance was affected by the results of the two companies: KOGENERACJA S.A.

and EC Zielona Góra S.A. Other Group companies have negligible impact on the consolidated result.

In the first half of 2013, the consolidated net income was also significantly affected by the related-party transactions, mainly

the dividend of PLN 59,435 thousand paid to the Parent Company by EC Zielona Góra S.A. (in H1 2012 the pay-out

amounted to PLN 53,982 thousand).

c. Impact of the net income of KOGENERACJA S.A. on the Group’s net income

In the first half of 2013, the Company generated a net income of PLN 98,808 thousand, up by PLN 21,803 thousand

compared with the corresponding period of the previous year. The key financials of the Company are presented and

discussed below.

Selected items of the profit and loss account of KOGENERACJA S.A.

in PLN thousand


Cost of sales (267 468) (302 777) 35 309


Distribution expenses (775) (690) (85)

General and administrative expenses (2 407) (3 358) 951

Other operating revenues/costs 5 617 (4 630) 10 247


Net finance revenues 57 540 57 698 (158)

Income tax (9 585) (7 904) (1 681)

Net profit 98 808 77 005 21 803

For 6 months ended

30 June 2013

For 6 months ended

30 June 2012

Change

(value)



15

Revenues – KOGENERACJA S.A.

in PLN thousand

Revenues from sales 315 886 338 666 (22 780)

Revenues from the sale of finished goods 315 619 338 548 (22 929)

including certificates 3 499 47 562 (44 063)

including ancillary services 5 643 236 5 407

Revenues from the sale of merchandise and raw

materials267 118 149

Change

(value)

For 6 months ended

30 June 2013

For 6 months ended

30 June 2012

In the first half of 2013, the Company generated revenues from sales of PLN 315,886 thousand, including the revenues

from the sale of finished goods of PLN 315,619 thousand and the revenues from the sale of merchandise and raw materials

of PLN 267 thousand. In the first half of 2012, the revenues from sales were PLN 338,666 thousand, including the revenues

from the sale of finished goods of PLN 338,548 thousand and the revenues from the sale of merchandise and raw materials

of PLN 118 thousand.

The lower revenues from the sale of finished goods achieved in the first half of 2013 (down by PLN 22,929 thousand)

resulted from:

▪ lower revenues from the sale of certificates (down by PLN 44,063 thousand);

▪ lower revenues from the sale of electricity (down by PLN 3,050 thousand)

▪ higher revenues from the sale of heat (up by PLN 21,668 thousand)

▪ higher revenues from the sale of additional system services (up by PLN 5,407 thousand).

The total value of electricity sold incresed by PLN 2,357 thousand vs. H1 2012, because of higher sales volume,

compensated by 1.7% decrease in electricity price. The increase in the price of heat was 8.5% and the price of heat power

increased by 10.2%; this is an effect of the heat prices and heat tariffs for KOGENERACJA, which became effective on 1

August 2012 following approval of the President of the Energy Regulatory Office. At the same time, the volume of heat sales

increased by 4% in the analysed period compared with the first half of 2012.

In the first half of 2013, KOGENERACJA S.A. obtained revenues from the certificates for co-generated energy (red

certificates) and energy from renewable sources, from co-firing of biomass (green certificates) for an amount of PLN 3,499

thousand. Production of electricity through co-firing of wooden biomass fell by 86% in the analysed period of 2013 vs.

2012: “green” energy production in H1 2013 was 23,106 MWh compared with 159,331 MWh in H1 2012. The prices of

green certificates fell by 39%, while the prices of red certificates fell by 63% year-on-year. The volume of red certificates

fell by 31%.

In the first half of 2012, the Company sold its surplus CO2 emission allowances, generating an income of PLN

1,446 thousand while no such income was posted in the first half of 2013.

Revenues from the sale of merchandise and raw materials in the first half of 2013 were PLN 267 thousand.

d. Fixed costs and variable costs – KOGENERACJA S.A.

In the first half of 2013, variable costs relating to the generation of the sold products were 19% lower

(PLN 38,817 thousand) year-on-year amounting to PLN 162,859 thousand. In the first half of 2012, these costs stood at

PLN 201,676 thousand. The lower level of variable costs year-on-year results from the lower cost of fuel (down by PLN

40,742 thousand) caused by a change in the production profile and lower production from biomass in 2013, as well as an

increase in the price of the core production fuel (coal) by 8% (PLN 33,439 thousand).

The increase in other variable costs (PLN 1,977 thousand) vs. H1 2012 resulted from:

- raising a provision of PLN 3,227 thousand for the shortage of CO2 emission allowances as a result of changes in the

production profile and consequently higher emissions of CO2 and decreasing limits of CO2 emission allowances;

- higher environmental protection fees (PLN 873 thousand) as a result of changes in the production profile;

- lower costs of biomass storage and feeding (PLN 2,279 thousand) as a result of changes in the production profile.



16

in PLN thousand

Variable costs (162 859) (201 676) - - - - (162 859) (201 676)

fuel costs (143 943) (184 685) - - - - (143 943) (184 685)

excise tax (212) (264) - - - - (212) (264)

other variable costs (18 704) (16 727) - - - - (18 704) (16 727)

Fixed costs (104 380) (101 008) (2 407) (3 358) (775) (690) (107 562) (105 056)

staff costs (32 556) (31 603) (2 177) (2 916) (427) (466) (35 160) (34 985)

overhauls (6 357) (10 968) - - - - (6 357) (10 968)

depreciation (35 333) (31 337) (25) (3) - - (35 358) (31 340)

services (21 637) (17 960) (32) (295) - - (21 669) (18 255)

other fixed costs (8 497) (9 140) (173) (144) (348) (224) (9 018) (9 508)

Value of goods and

materials sold(229) (93) - - - - (229) (93)

Total costs (267 468) (302 777) (2 407) (3 358) (775) (690) (270 650) (306 825)

from 1.01.2013

to 30.06.2013

from 1.01.2012

to 30.06.2012

Cost of salesAdministrative

expensesSelling expenses Total

from 1.01.2013

to 30.06.2013

from 1.01.2012

to 30.06.2012

from 1.01.2013

to 30.06.2013

from 1.01.2012

to 30.06.2012

from 1.01.2013

to 30.06.2013

from 1.01.2012

to 30.06.2012

Fixed costs were at PLN 107,562 thousand in H1 2012, with comparable staff costs (up PLN 175 thousand), lower cost of

overhauls of production equipment (down PLN 4,611 thousand), higher depreciation (up PLN 4,018 thousand), and higher

cost of services (up PLN 3,414 thousand). Fixed costs in the corresponding period of the previous year amounted to PLN

105,056 thousand.

Staff costs increased by PLN 175 thousand in H1 2013 as a result of:

- raising of restructuring provisions of PLN 1,150 thousand;

- the lower level of salaries and social insurance costs (down PLN 1,316 thousand), coupled with a decrease in

employment by 36 persons (effect of outsourcing of services in the area of Telecommunications, Communications and

Administration), reduced by the inflationary increase in salaries;

- increase of provisions for annual awards for employees (PLN 341 thousand).

The increase in external service costs (by PLN 3,414 thousand) was caused by emergence of new cost items associated with

the services rendered by the Shares Services Centre (agreements for the provision of services in the area of

Telecommunication, Communication and Administration). The total cost of consideration paid to EDF Polska CUW Sp. z

o.o. was PLN 9,279 thousand for H1 2013 vs. PLN 7,903 thousand in H1 2012. In H1 2013, the cost of services under the

biomass feeding agreement decreased by PLN 1,541 thousand as a result of changes in the production profile. Also, the cost

of advertising and market development fell by PLN 1,541 thousand.

The increase in the depreciation (+ PLN 4,044 thousand) is an effect of new fixed assets being put in use in H1 2012.

The decrease in the cost of overhauls (-PLN 4,611 thousand) is an effect of changes in the scope of overhaul works in 2013

compared with H1 2012.

e. Other operating profit of KOGENERACJA S.A.

In the first half of 2013, other operating profit was higher by PLN 10,247 thousand year-on-year. Other operating income

increased by PLN 12,500 thousand and other operating expenses by PLN 2,253 thousand.

In the first half of 2013, additional income of PLN 8,624 thousand was generated under the forward contract for the swap of

CO2 emission allowances (EUA/CER) for the settlement period 2010-2012, and PLN 3,977 thousand representing a reversal

of the valuation for this financial instrument. In H1 2013, also a gain of PLN 969 thousand was reported from the disposal

of properties. In H1 2012 no similar items were posted in the operating income, but a tax risk provision of

PLN 1,168 thousand was raised.



17

In H1 2013, other operating expenses were PLN 9,037 thousand, compared with PLN 6,784 thousand reported in H1 2012

(+PLN 2,253 thousand).

In the first half of 2013, the Company recognized in other operating expenses negative valuation of forward contracts the

purchase of CO2 (EUA / CER) in the amount of PLN 4,034 thousand (in the first half of 2012, PLN 3 467 thousand) and

incurred additional costs in connection with the termination of the purchase of biomass of PLN 2,600 thousand.

f. Net finance income - KOGENERACJA S.A.

The net finance income in the first half of 2013 was similar to the figure posted in the first half of 2012

(PLN 57,540 thousand and PLN 57,698 thousand). It is mainly a consequence of lower finance revenues (down by

PLN 1,003 thousand) and lower finance expenses (down by PLN 845 thousand). The decrease in revenues was also affected

by the lower interest on the loan given to the subsidiary EC Zielona Góra S.A. (down by PLN 875 thousand) as the loan was

repaid. In H1 2013, the Company also posted higher finance revenues from dividend (by PLN 5,365 thousand), while in H1 2012

an additional income of PLN 7,097 thousand was reported from the sale of financial assets (PPO Siechnice Sp. z o.o. and

TGE S.A.). Financial expenses fell mainly due to the lower interest on the incurred financial obligations after the Company had

joined the cash-pool system.

g. Net income of KOGENERACJA S.A.

In the first half of 2013, the Company earned a net income of PLN 98,808 thousand compared with PLN 77,005 thousand

earned in the corresponding period of the previous year (a decrease by PLN 21,803 thousand).

The increase in the net income of the Parent Company results from:

the higher EBIT as a result of:

a decrease in costs of PLN 35,309 thousand, i.e. by 12%, compared with the fall in revenues (down 7%), due

to the changes in the production profile (an increase in the coal-based production and a decrease of biomass

consumption);

a decrease in sales revenues of PLN 22,780 thousand (down 7%), mainly due to the lower volume of granted

green certificates (no relevant regulations in place), while at the same time the prices of red certificates and

green certificates fell by 63% and 39%, respectively);

a higher other operating profit by PLN 10,247 thousand, mainly on the back of the profit of PLN

8,624 thousand under the CO2 EUA/CER contract.

h. Key ratios: ROA, ROE, ROCE

(%)

Return on assets (ROA) 7,54 5,90 28

Return on equity (ROE) 9,57 8,17 17

Return on capital employed (ROCE) 5,64 3,33 69

For 6 months ended

30 June 2013

For 6 months ended

30 June 2012

Change

(%)

The profitability ratios achieved by the Company in H1 2013 were higher compared with H1 2012: ROA increased by 28%

while ROE by 17%, which is mainly the result of a stronger growth in the net profit earned by the Company in the reporting

period (an increase of 28%), which exceeded the assets growth and equity growth (which increased by 0.5% and 9%,

respectively). The increase in ROCE led to an increase in the operating profit by 87% with a simultaneous increase in the

employed capital (by 9%).

The ratio calculation methodology is presented in point III 3 of this report.



18

i. Impact of the net income of EC Zielona Góra S.A. on the Group’s net income

In the first half of 2013, the Company generated a net profit of PLN 77,549 thousand, up by PLN 18,460 thousand

compared with the corresponding period of the previous year. The key financials of the subsidiary are presented in the tables

below.

Elements of the profit and loss account – EC Zielona Góra S.A.

in PLN thousand



Cost of sales (160 324) (151 321) (9 003)


Distribution expenses (1 253) (466) (787)

General and administrative expenses (4 654) (7 463) 2 809

Other operating revenues/costs 8 482 223 8 259


Net finance costs (4 027) (3 764) (263)

Income tax (17 644) (13 123) (4 521)

Net profit 77 549 59 089 18 460

For 6 months ended

30 June 2013

For 6 months ended

30 June 2012

Change

(value)

Revenues - EC Zielona Góra S.A.

in PLN thousand

Revenuse from sales 175 668 225 340 (49 672)

Revenues from the sale of finished goods 173 583 225 337 (51 754)

including certificates - 38 887 (38 887)

Revenues from the sale of merchandise and raw

materials2 085 3 2 082


For 6 months ended

30 June 2013

For 6 months ended

30 June 2012

Change

(value)

In the first half of 2013, EC Zielona Góra S.A. generated revenues from the sale of finished goods of PLN 173,583

thousand. In the corresponding period of 2012, the total revenues were higher by PLN 51,754 thousand, coming in at PLN

225,337 thousand. Revenues from the sale of merchandise and raw materials were higher as a result of the sale of the

electricity previously purchased from TGE and EDF Energia. The value of electricity (merchandise) sold was PLN 2,048

thousand. In the first half of 2013, a growth trend was also observed with regard to the revenues from the compensations for

stranded costs. The revenues from the PPA compensations in H1 2013 were higher by PLN 71,638 thousand compared

with H1 2012.

The revenues from the sale of finished goods were primarily affected by the revenues from the sale of heat, electricity and

energy origin certificates. In the first half of 2013, the revenue from the sale of heat was 14% higher year-on-year. The

increase resulted both from the higher sales price and the higher volume of heat sold in effect of favourable weather

conditions. In H1 2013, the revenue from the sale of electricity decreased year-on-year. The decrease was caused both by

the lower prices and the lower volume of electricity sales. Due to the lack of legislation that would permit the sale of yellow

certificates, in H1 2013 energy certificates were not sold.

The increase in the revenues from PPA compensations is a result of recognition in H1 2013 of the impact of the correction

to the stranded costs for 2012 (PLN 72,088 thousand) after receipt of the decision from the President of the Energy

Regulatory Office issued in July 2013 (see point 3. Extraordinary circumstances which materially affected the Group’s

trading performance).



19

Fixed costs and variable costs of EC Zielona Góra S.A.

in PLN thousand

Variable costs (113 081) (112 890) - - - - (113 081) (112 890)

fuel costs (105 479) (108 142) - - - - (105 479) (108 142)

excise tax - - - - - - - -

other variable costs (7 602) (4 748) - - - - (7 602) (4 748)

Fixed costs (45 753) (38 430) (4 654) (7 463) (1 253) (466) (51 660) (46 359)

staff costs (10 578) (8 797) (3 186) (4 377) (96) (301) (13 860) (13 475)

overhauls (4 147) (4 200) (38) (7) (3) - (4 188) (4 207)

depreciation (21 366) (16 911) (358) (407) (11) - (21 735) (17 318)

services (7 274) (5 588) (199) (1 330) (70) (8) (7 543) (6 926)

other fixed costs (2 388) (2 934) (873) (1 342) (1 073) (157) (4 334) (4 433)

Value of goods and

materials sold(1 490) (1) - - - - (1 490) (1)

Total costs (160 324) (151 321) (4 654) (7 463) (1 253) (466) (166 231) (159 250)

from 1.01.2013

to 30.06. 2013

from 1.01.2012

to 30.06. 2012

Cost of salesAdministrative

expensesSelling expenses Total

from 1.01.2013

to 30.06. 2013

from 1.01.2012

to 30.06. 2012

from 1.01.2013

to 30.06. 2013

from 1.01.2012

to 30.06. 2012

from 1.01.2013

to 30.06. 2013

from 1.01.2012

to 30.06. 2012

In the first half of 2013, variable costs relating to the generation of the finished goods sold amounted to

PLN 113,081 thousand, up by PLN 192 thousand on H1 2012 (when the level of PLN 112,890 thousand was recorded). The

increase in variable costs was also noted in the area of other variable costs (up by PLN 2,854 thousand). The biggest items

in the structure of other variable costs were the cost of water used for the core activities, the cost of energy consumption and

the cost of purchase of electricity in the balancing market and the fees connected with the electricity sale transactions. The

increase in other variable costs was mainly driven by the higher costs of fees on electricity sales through the Energy

Exchange. An increase was also noted in the fees related to the operations in the electricity market (purchase of electricity in

the balancing market). The company also raised a provision for the estimated shortage of CO2 emission allowances of PLN

992 thousand, which was charged into other variable costs.

The increase in variable costs was compensated for by the lower cost of production fuel. The decrease in the cost of gas

consumption resulted from the lower volume of gas consumed (down by 2%) due to the lower sale of electricity. In turn, the

higher price of purchase of the commodity affected a decrease in the cost of gas consumption.

In the first two quarters of 2013, fixed costs stood at PLN 51,660 thousand and were higher by 11% compared with

H1 2012. In the first half of 2012, these costs stood at PLN 46,359 thousand. Staff costs, overhaul costs and other fixed

costs were similar year-on-year. A major increase was noted in the area of depreciation costs (up by PLN 4,417 thousand).

Staff costs were similar to H1 2012 despite a strong decrease in the remuneration costs as a result of the diminution of

workforce. This was mainly affected by the payouts to staff under the Voluntary Terminations Programme. The cost of

overhauls was also similar year-on-year, as in H1 2012 no more costs were spent on the overhaul of the coal part.

Depreciation costs were much higher due to the shorter period of economic usefulness of material fixed assets and the once-

off impairment charge on account of decommissioning of the production equipment of the Coal Unit. The increase in the

third party services mainly resulted from the higher cost of services rendered under SLAs.

In the first half of 2013, actions were taken to review the structure of the cost of sales. Based on these analysis, the sales

structure was revised to include the costs associated with the electricity trade on the Energy Exchange, which previously

were classified as the general and administrative expenses.

The value of materials and merchandise sold (excluding the electricity acquired for repurchase) was insignificant in the

analysed periods. In the first half of 2013, the company purchased electricity for PLN 1,469 thousand from EDF Energia

and TGE.



20

Other operating profit (loss) of EC Zielona Góra S.A.

In the first half of 2013, other operating profit was at PLN 8,482 thousand compared with PLN 223 thousand achieved in

the first half of 2012. Thus, the other operating profit in the current period was by PLN 8,259 thousand higher. The higher

other operating profit was also an effect of recognition of the impact of the valuation of the forward contract for the

purchase of CO2 emission allowances and the SWAP contract. The combined impact of the two instruments for the first half

of 2013 period in relation to the first half of 2012, and the execution of the EUA/CER swap transaction for 2010-2012 was

PLN 5,756 thousand.

Such result was also an effect of recovery by the company of its tax claims originated in August 2001. The value of the

cancelled tax liabilities and was PLN 2,929 thousand. The positive effect of the these events was compensated by creation

of impairment losses on doubtful receivables in H1 2013 (PLN 1,793 thousand).

Net finance income of EC Zielona Góra S.A.

In the first half of 2013, EC Zielona Góra S.A. generated finance revenue of PLN 1,854 thousand compared with

PLN 4,076 thousand achieved in the the first half of 2012. Finance expenses in H1 2013 were at PLN 5,881 thousand while

in the corresponding period of H1 2012 they amounted to PLN 7,840 thousand. Thus, the net finance income in the first half

of 2013 was PLN 4,027 thousand compared with PLN 3,764 thousand in the first half of 2012.

The financial activity in the first half of 2012 was, on the income side, only driven by interest on bank deposits, and, on the

cost side, by bank debt interest. After repayment of the investment loans and following changes in the method of financing,

the net finance income in the reporting period was driven by the finance revenue in respect on interest on late payments of

receivables and interest from the cash-pool system. The finance expenses in the analysed period mainly represented

a discount of liabilities in respect of stranded costs.

Net income of EC Zielona Góra S.A.

In the first half of 2013, the company generated a net profit of PLN 77,549 thousand. In H1 2012, the company’s net income

was PLN 59,089 thousand, down by PLN 18,460 thousand year-on-year. The net income in H1 2013, was mainly driven by

the revenue from the settlement of the stranded costs correction for 2012. The correction caused the revenues to increase by

PLN 72,088 thousand. The total increase of the discounted compensations for stranded costs in relation to H1 2012 was

PLN 71,638 thousand. The positive effect achieved on stranded costs was reduced by the lower sales of electricity and the

lack of revenues from the sale of energy certificates (yellow certificates). In H1 2012, the revenues from the sale of yellow

certificates were PLN 38,887 thousand.

The other key drivers of the net income for the reporting period included the executed SWAP contract of

PLN 5,742 thousand and the higher fixed costs, mainly due to the commenced depreciation of the gas and oil boilers. .

Key ratios: ROA, ROE, ROCE – EC Zielona Góra S.A.

(%)

Return on assets (ROA) 10,82 9,13 19

Return on equity (ROE) 25,91 22,48 15

Return on capital employed (ROCE) 32,95 23,12 42

For 6 months ended

30 June 2013

For 6 months ended

30 June 2012

Change

(%)

ROA achieved by the company in H1 2013 was higher year-on-year. The increase in ROA was an effect of the higher net

income. ROE was higher year-on-year as a result of the higher value of equity. ROCE increased on account of the higher

operating profit.

Ratio calculation methodology is shown in point III 3 of this report.



21

3. Extraordinary circumstances which materially affected the Group’s trading performance

(in accordance with § 87 section 4 point 2 of the Ordinance)

a. Annual correction to the stranded costs for 2012 for EC Zielona Góra S.A.

On 31 July 2013, the President of the Energy Regulatory Office issued a decision establishing the annual correction to

stranded costs for 2012 at PLN 134,089 thousand. Taking into account the correction for 2012, the value of liabilities on

account of stranded costs as at 30 June 2013 was PLN 164,347 thousand. The revenues from the PPA compensations were

the sum of: value of discount on the advance payment in the year it was received (PLN 5,258 thousand); a part of the annual

correction for 2013 falling due for the first half of the year (PLN 720 thousand); annual correction for 2012 (PLN 72,088

thousand) and the correction for 2012 of PLN 3,235 thousand, which is an effect of the revision of the model assumptions in

the process of determining revenues and expenses from the PPA compensations. The total revenues from PPA

compensations were PLN 81,301 thousand as at 30 June 2013.

b. Valuation of the CO2 forward contracts

In 2012, the Parent Company entered into forward transactions for the purchase of CO2 emission allowances. The transactions for

the purchase of 382 thousand tons will be finalised in December 2013. For the purpose of the financial statements, as at 30 June

2013, they were recognised under Other short-term financial liabilities. The value of the negative valuation was increased from

PLN 2,097 thousand as at 31 December 2012 to the amount of PLN 6,131 thousand as at 30 June 2013 (the increase was

reported under Other operating costs of PLN 4,034 thousand).

As part of the forward agreements concluded in 2012, EC Zielona Góra S.A. made a valuation of the transaction of purchase

of CO2 emission allowances. The purchase of 136 thousand tons will be completed in December 2013, and for the purpose

of the financial statements as at 30 June 2013 the transaction was presented in Other short-term financial liabilities. The

value of the valuation was increased from PLN 656 thousand as at 31 December 2012 to PLN 2,058 thousand as at 30 June

2013 (the increase was reported under Other operating costs of PLN 1,402 thousand).

The total impact of the forward agreements on the consolidated net profit in H1 2013 was PLN 4,403 thousand (including:

PLN 5,436 thousand as Other operating costs and PLN 1,033 thousand as a deferred tax).

Due to the change of the method of management of the forward contracts, the forwards for the sale / purchase of CO2

emission allowances concluded in 2013 were not subject to valuation. Currently, the Parent Company qualifies forward

contracts concluded in 2013 as a standard purchase/sale transactions for their own which will be reflected in the financial

statements on dates of deliveries.

c. Execution of the EUA/CER SWAPS for 2010-2012

As part of the EUA/CER SWAP contracts concluded for 2010-2012, in April 2013, the Parent Company and the subsidiary

EC Zielona Góra S.A. entered into swap transactions whereby the Group achieved a positive result on other operations of

PLN 14,369 thousand (PLN 8,627 thousand attributable to the Parent Company and PLN 5,742 thousand attributable to

EC Zielona Góra S.A.).



22

4. Structure of assets and liabilities in the consolidated statement of comprehensive income


a. Structure of the Group assets

In the first half of 2013, the total assets fell by PLN 54,782 thousand. Non-current assets accounted for 78.4% of total

assets. Tangible assets accounted for the major part (73.5%) of non-current assets. As at 31 December 2012, non-current

assets accounted for 77.8% of total assets, while tangible assets accounted for 73.0% of total assets.

The structure of current assets saw a decrease in the share of inventory by 3.9 p.p., (5.3% in H1 2013 and 9.2% in 2012),

mainly due to the lower volume of coal purchased in summer caused by the seasonality of production as well as an increase

in the trade and other receivables in total assets, in particular other receivables in the subsidiary Zielona Góra for adjustment

of stranded costs for 2012 considered by the Energy Regulatory Office (see point 3a).

in PLN thousand As at

30 June 2013

% of balance sheet

total

As at

31 December 2012

% of balance sheet

total

current period current period copmarative period copmarative period

ASSETS

I. Non-current assets

1. Property, plant and equipment 1 319 492 73,5 1 349 762 73,0

2. Intangible fixed assets, including: 48 948 2,7 48 984 2,6

- goodwill on related parties 41 601 2,3 41 601 2,2

3. Perpetual usufruct of land 12 382 0,7 12 430 0,7

4. Investment properties 18 194 1,0 19 193 1,0

5. Long-term receivables 9 253 0,5 6 978 0,4

6. Shares in other related entities - - 378 0,0

7. Other long-term investments 4 0,0 4 0,0

8. Deferred tax assets 917 0,1 807 0,1

Total non-current assets 1 409 190 78,4 1 438 536 77,8

II. Current assets

1. Inventory 94 747 5,3 169 698 9,2

2. Short-term investments 602 0,0 670 0,0

3. Income tax receivables 2 979 0,2 8 418 0,5

4. Trade and other receivables 224 783 12,5 220 887 11,9

5. Cash and cash equivalents 61 817 3,5 11 069 0,6

Total current assets 384 928 21,6 410 742 22,2

III. Assets held for sale 378 0,0 - -

Total Assets 1 794 496 100 1 849 278 100



23

b. Structure of the Group equity and liabilities

In the structure of equity and liabilities, equity increased by PLN 115,722 thousand, and liabilities fell by

PLN 162,814 thousand.

In current liabilities, a decrease was noted in trade and other payables, and their share in the balance sheet total decreased

from 9.1% in 2012 to 5.5% in H1 2013, which is mainly connected with the seasonality of production.

in PLN thousand

As at

30 June 2013

% of balance sheet

total

As at

31 December 2012

% of balance sheet

total

current period current period copmarative period copmarative period

EQ UITY AND LIABILITIES

I. Equity

1. Share capital 252 503 14,0 252 503 13,7

2. Share premium 251 258 14,0 251 258 13,6

3. Other reserve capital 406 546 22,7 313 143 16,9

4. Retained earnings 319 082 17,8 297 043 16,1

Equity attributable to ordinary shareholders 1 229 389 68,5 1 113 947 60,2

Non- controlling interests 5 417 0,3 5 137 0,3

Total equity 1 234 806 68,8 1 119 084 60,5

II. Liabilities

Non-current liabilities

1. Loans, borrowings and other debt securities 1 220 0,1 1 089 0,1

2. Other long-term financial liabilities - - - -

3. Employee benefits 37 321 2,1 37 499 2,0

4. Deferred income 57 317 3,2 59 755 3,2

5. Deferred tax liability 73 109 4,1 64 651 3,5

6. Other non-current liabilities 166 387 9,2 95 963 5,2

Total non-current liabilities 335 354 18,7 258 957 14,0

Current liabilities

1. Loans, borrowings and other debt securities 79 691 4,4 257 332 13,9

2. Other short-term financial liabilities 9 637 0,5 9 390 0,5

3. Income tax liabilities 10 158 0,6 9 313 0,5

4. Trade and other payables 98 016 5,5 168 858 9,1

5. Employee benefits 17 577 1,0 21 668 1,2

6. Short-term provisions 9 257 0,5 4 676 0,3

Total current liabilities 224 336 12,5 471 237 25,5

Total liabilities 559 690 31,2 730 194 39,5

Total equity and liabilities 1 794 496 100,0 1 849 278 100,0



24

c. Liquidity ratios of the Group

Current liquidity 1,72 1,00 72

Quick liquidity 1,29 0,71 82

As at

30 June 2013

Change

(%)

As at

30 June 2012

In the first half of 2013, current liquidity ratio increased by 72%, while the quick liquidity ratio increased by 82% year-on-

year as a result of a 48% decrease in the current liabilities.

Ratio calculation methodology is shown in point III 3 of this report.

5. Related party transactions


a. Transactions made by the Parent Company

The key transactions between the Parent Company and its related parties in H1 2013 are presented in the table below. Also,

EDF Energia Sp. z o.o. was classified as a related party. The company has no direct capital ties with KOGENERACJA S.A.,

but is a member of the EDF Group in Poland, and there are significant transactions being made between the companies.

For 6 months ended 30 June 2013

in PLN thousand

Revenues earned

from related party

transactions

in the current period

Costs incurred

in related party

transactions


EDF Paliwa Sp. z o.o.* 153 105 261

EDF Energia Sp. z o.o.* 146 009 7 919

EDF Polska S.A. ** 259 12 363

EC Zielona Góra S.A. 59 611 -

Renevis Sp. z o.o. 502 4 963

EDF Assurances - 1 158

206 534 131 664

*) Transactions within EDF Group relate to: EDF Polska S.A., EDF International S.A.S., EDF S.A., EDF Assurance.

**) On 8 May 2013, after the merger of: EDF Polska Centrala Sp. z o.o., EDF Polska CUW Sp. z o.o. and EDF Kraków S.A., the entity

was renamed as EDF Polska S.A.



25

b. Group transactions

The key transactions with related parties in H1 2013, taking into account intercompany eliminations, are presented in the

table below.

For 6 months ended 30 June 2013

in PLN thousand

Revenues earned

from related party

transactions


Costs incurred

in related party

transactions


Non-consolidated entities

EDF Paliwa Sp. z o.o.* 162 105 273

EDF Energia Sp. z o.o.* 209 202 11 088

EDF Polska S.A. ** 419 18 029

EDF Assurances - 1 767

209 783 136 157

6. Guarantees given and received

(in accordance with § 87 section 7, point 9)

a. Guarantees given

The Parent Company provided loan guarantees under the cash-pooling system for a total value of more than 10% of

KOGENERACJA’S equity on 25 July 2012. In the first half of 2013, annexes 3 and 4 to the agreements were included and

they have changed the structure of the companies involved in the cash-pool and extended the term of the contract, without

changing the value of granted guarantees for KOGENERACJA S.A.:

a. Guarantee up to the maximum amount of PLN 77,000 thousand to ING Bank Śląski S.A. securing against default on the

existing obligations, including in respect of the Daily Limits under the Daily Limits Liquidity Management Agreement,

by the debtors - the EDF Group companies in Poland, namely:

- EDF Wybrzeże S.A.,

- EDF PolskaS.A.,

- EDF Energia Sp. z o.o.,

- EDF Rybnik New Coal Sp. z o.o.,

- EDF Paliwa Sp. z o.o.,

- EDF Toruń S.A.,

- FENICE Poland Sp. z o.o.

- Elektrociepłownia „Zielona Góra” S.A.;

The guarantee expires on 31 August 2015.

The total amount of the obligations that are partly guaranteed by the Company is PLN 989,000 thousand.

b. Guarantee up to PLN 33,000 thousand in favour of ING Bank Śląski S.A. as security against default of the Group

companies in Poland specified above, under the Framework Agreement, for repayment of all the obligation, including

those in respect of the guarantee line, interest, fees and other costs, including the cost of debt enforcement, should any

EDF Group company in Poland listed above fail to meet its obligations by the deadline specified in the Framework

Agreement.


The total amount of the obligations that are partly guaranteed by the Company is PLN 150,000 thousand.



26

c. Guarantee for the obligations of EDF Polska CUW Sp. z o.o. under the Loan Agreement between EDF Polska

CUW Sp. z o.o. and ING Bank Śląski S.A., whereby ING Bank Śląski S.A. gave EDF Polska CUW Sp. z o.o. a credit line

of PLN 150,000 thousand, up to the maximum amount of PLN 33,000 thousand, securing the obligations of EDF Polska

CUW Sp. z o.o. under the Loan Agreement, and in particular the obligations in respect of the credit line, interest, fees and

other costs, including debt enforcement costs, if EDF Polska CUW Sp. z o.o. fails to meet its obligations towards ING Bank

Śląski S.A. by the deadline specified in the Loan Agreement.


The guarantees were provided for a fee, which corresponds to the fees normally payable for such services provided in the

financial services sector, and was calculated pro-rata to the participation in the risk attached to the guarantee. For issuing the

guarantee under the Loan Agreement, the Parent Company will receive a fee of PLN 18 thousand, and in respect of the

Daily Limits Liquidity Management Agreement and the Framework Agreement the Issuer will receive a fee of PLN 18

thousand (Current Report no. 15/2012).

According to the operating model of the cash-pool service, EDF Group companies in Poland will provide cross-guarantees

to each other, whereby cash transfers will be made. All the agreements with ING Bank Śląski S.A., i.e. the daily limits

liquidity management agreement, loan agreement and the framework agreement, concluded under the cash-pool system, are

secured through cross-guarantees.

A detailed list of all guarantees given by the Group companies is presented in the Interim Consolidated Financial Statements

of KOGENERACJA S.A. for H1 2013, B V Selected notes to the interim condensed financial statements, point 15 Claims

and contingent liabilities, and C V Selected notes to the interim condensed financial statements, point 8 Claims and

contingent liabilities.

b. Guarantees received

In H1 2013, the Parent Company did not receive any guarantees (for loans or other), whose total value would exceed 10%

of its equity.

7. Financial results presented in the report vs. the published performance forecast


The Company did not publish its forecast for the first half of 2013.

8. Assessment of financial resources management


a. Elements of the consolidated cash flow statement

In the first half of 2013 and 2012, the Group's cash flows were as follows (selected data):

in PLN thousand

Net cash from operating activities 269 106 273 392 (4 286)

Net cash used in investing activities (50 321) (40 252) (10 069)

Net cash from financing activities (168 037) (128 871) (39 166)

Total net cash flows 50 748 104 269 (53 521)

Cash and cash equivalents at the beginning

of the financial year11 069 96 551 (85 482)

Cash and cash equivalents at the end


As at

30 June 2013

Change

(value)

As at

30 June 2012



27

1) Operating activities

In the first half of 2013, the operating cash flows of the Group were PLN 269,106 thousand, down by PLN 4,286 thousand

year-on-year (PLN 273,392 thousand in the first half of 2012), e.g. due to the higher tax paid (up PLN 9,279 thousand) and

an increase of PLN 42,005 thousand in the Group's net income compared with the previous year.

2) Investing activities

The negative cash flows from investing activities increased by PLN 10,069 thousand (PLN 50,321 thousand in the first half

of 2013 and PLN 40,252 thousand in the first half of 2012), due to the lower investment inflows (down by PLN 10,579

thousand) in 2013. The inflows from the sale of financial assets were lower by PLN 6,811 thousand. In 2013, inflows were

posted in respect of the sale of the shares in PPO Siechnice Sp. z o.o. in 2012. In the first half of 2013, the Company

received the second tranche of PLN 3,000 thousand representing payment for the shares in PPO Siechnice Sp. z o.o.

Investment outflows were comparable year-on-year (PLN 55,545 thousand in H1 2013 and PLN 56,055 thousand in

H1 2012).

3) Financing activities

The negative net cash flows from financing activities increased by PLN 39,166 thousand (PLN 168,037 thousand in H1

2013 vs. PLN 128,871 thousand in H1 2012), driven by:

an increase in financial outflows by PLN 8,328 thousand (main changes included a material decrease of

PLN 111,220 thousand in the cost of redemption of debt securities – reported by the Parent Company) and a

simultaneous increase in the repayment of loans (down by PLN 106,077 thousand);

a decrease in financial inflows by PLN 47,494 thousand, due to the lower inflow of funds under the cash-pool system in

the Parent Company (PLN 55,015 thousand), reduced by the inflow of a subsidy of PLN 7,521 thousand in EC Zielona

Góra S.A.

Below are the cash flow statements of KOGENERACJA S.A. and EC Zielona Góra S.A, as they are key to the Group’s cash

flows.

b. Cash flows of KOGENERACJA S.A.

In the first half of 2013 and 2012, the Company’s cash flows were as follows (selected data):

in PLN thousand

Net cash from operating activities 221 064 146 274 74 790

Net cash used in investing activities (38 482) (27 646) (10 836)

Net cash from financing activities (182 333) (116 932) (65 401)

Total net cash flows 249 1 696 (1 447)


of the financial year151 3 381 (3 230)


of the financial year400 5 077 (4 677)

As at

30 June 2013

As at

30 June 2012

Change

(value)

The effective financial management in the first half of 2013 allowed the Company (like in the first half of 2012) to balance

its cash flow position, i.e. to fund its investment and financial expenses from operating cash flows.



28


In the first half of 2013, the operating cash flows increased by 51% year-on-year. In the first half of 2013, net cash flows

from operating activities were at PLN 221,064 thousand vs. PLN 146,274 thousand in the first half of 2012.

The key drivers of the operating cash flows included:

- An increase of PLN 21,803 thousand in the net income (PLN 98,808 thousand in H1 2013 vs. PLN 77,005 thousand in H1

2012);

- An increase in working capital (change in receivables, inventory and liabilities) of PLN 50,055 thousand (change in

working capital in H1 2013: PLN 127,494 thousand; change in H12012: PLN 77,439 thousand), caused by the increase in

trade debtors by PLN 18,559 thousand, the increase in inventory by PLN 32,124 thousand, and a change in the balance of

short-term liabilities, excluding bank and non-bank loans by PLN 1,376 thousand.


The negative balance of cash flows from investing activities in the first half of 2013 is mainly the result of the lower

investment inflows and higher outflows. In the first half of 2013, cash flows from investing activities were negative at

PLN (- 38,482) thousand compared with PLN (-27,646) thousand in the first half of 2012.

In the analysed periods the cash flows from investing activities were as follows:

- spend on purchase of tangible and intangible fixed assets increased by PLN 8,738 thousand (PLN 47,761 thousand in

H1 2012 vs. PLN 39,023 thousand in H1 2012);

- the outflows in respect of the purchase of financial assets decreased by PLN 5,461 thousand; In H1 2012, the Company

purchased shares in its subsidiary PPO Siechnice Sp. z o.o., and short-term financial assets; In H1 2013 no short-term

financial assets were purchased;

- The investment inflows in H1 2013 decreased by PLN 7,559 thousand as a result of lower revenues from financial assets;

in H1 2012, financial assets of PLN 15,811 thousand were sold (PPO Siechnice Sp. z o.o. and TGE S.A.), in the

corresponding period an inflow of PLN 3,000 thousand was reported (2nd

tranche of the payment for the shares in PPO

Siechnice SP. z o.o. sold in 2012).


The cash flows from financing activities in the first half of 2013 were negative at PLN (-182,333) thousand while in the first

half of 2012 the balance was also negative at PLN (-116,932) thousand. The change of PLN 65,401 thousand was caused by

the following factors:

- an increase of PLN 9,142 thousand in the finance expenses, mainly caused by repayment of an overdraft and

discontinuation of the bonds financing system (PLN 0 in H1 2013 vs. PLN 111,220 thousand in H1 2012);

- a decrease of PLN 56,259 thousand in financial inflows, resulting from the debt position (cash-pool) and the need to repay

an overdraft in June 2012 due to the change of financing structure of the Parent Company.

4) Net cash flows

In the first half of 2013, total net cash flows were positive and amounted to PLN 249 thousand. In the comparative period,

the value was negative at PLN 1,696 thousand. At the end of H1 2013, the balance of cash was PLN 400 thousand (PLN

5,077 thousand at the end of H1 2012).



29

c. Financial liquidity – KOGENERACJA S.A.



As at

30 June 2013

As at

30 June 2012

Change

(%)

Liquidity ratios of KOGENERACJA S.A. in the first half of 2013 were as follows: current liquidity of 1.12, quick liquidity

of 0.65. The increase in current liquidity vs. H1 2012 was mainly caused by a decrease of 24% in current liabilities, with a

concurrent decrease of 14% in current assets.

As at 30 June 2013, the Company’s non-current liabilities in respect of bank loans were PLN 156 thousand (PLN 170

thousand in 2012).

d. Cash flows of EC Zielona Góra S.A.

in PLN thousand

Net cash from operating activities 47 444 124 471 (77 027)

Net cash used in investing activities (5 445) (12 592) 7 147

Net cash from financing activities 9 588 (9 826) 19 414

Total net cash flows 51 587 102 053 (50 466)





As at

30 June 2013

As at

30 June 2012

Change

(value)


In H1 2013, operating cash flows decreased vs. H1 2012 by PLN 77,027 thousand, mainly as a result of a significant

increase (by PLN 102 170 thousand) of changes in accounts receivable at June 30, 2013, compared with December, 31

2012, mainly due to stranded costs. The positive result on the operating activities was limited by the decrease in the value of

inventories, mainly energy origin certificates, and the lower liabilities, mainly trade debtors and taxes.


Cash flows from investing activities in H1 2013 were negative at PLN (-5,445) thousand. Investment outflows of

PLN 6,209 thousand were slightly offset by investment inflows from bank deposits (PLN 764 thousand). The key

investments included modernisation and construction of heating networks.



30


In the first half of 2013, the cash flows from financing activities were mainly affected by:

interest on investment and other loans (PLN 816 thousand);

repayment of investment and other loans (PLN 2,910 thousand);

a part of the subsidy received for the construction of gas & oil boilers (PLN 13,314 thousand).

In the first half of 2013, the company achieved positive cash flows from financing activities. This was an effect of the part

of the subsidy received, and lower principal instalments on financial debt.

4) Net cash flows

In the first half of 2013, total net cash flows were positive and amounted to PLN 51,587 thousand. In the comparative

period, the value was much higher and amounted to PLN 102,053 thousand. At the end of June 2013, the balance of cash

was PLN 61,198 thousand vs. PLN 193,009 thousand at the end of H1 2012.

e. Financial liquidity - EC Zielona Góra S.A.



As at

30 June 2013

As at

30 June 2012

Change

(%)

Liquidity ratios of EC Zielona Góra S.A. in the first half of 2013 were as follows: 2.28 – current liquidity and 2.24 – quick

liquidity. In H1 2012, these ratios were 0.98 and 0.93, respectively. The increase in the ratios was mainly caused by the

lower short-term liabilities, especially bank and non-bank loans.

At the end of 30 June 2013, EC Zielona Góra S.A. did not have any overdue liabilities. Short-term debts are repaid on an

on-going basis – there is no risk of liquidity loss.

9. Loan agreements


a. Loans incurred

In the period from 1 January 2013 to 30 June 2013, the Parent Company continued using the cash-pool system after

conclusion, on 25 June 2012, of the agreement on comprehensive financial liquidity management by ING Bank Śląski S.A.

for EDF Group companies in Poland. Following the signing of annexes on 14 June 2013, the following limits were changed:

PLN 360,000 thousand (previous limit: PLN 296,000 thousand); maximum value of bank guarantees: PLN 60,000 thousand

(previous limit: PLN 40,000 thousand). As at 30 June 2013, the debt on this account was PLN 78,224 thousand.

b. Repayment of loans

In the period from 1 January 2013 to 30 June 2013, the Group repaid borrowings in the total amount of

PLN 178,021 thousand (consolidated data), including:

a) PLN 178,021 thousand – KOGENERACJA S.A.

Debt repayment by the Parent Company included payment of the debt of PLN 149,482 thousand under the cash-pool

system; full prepayment of the investment loan of PLN 26,715 thousand and repayment of the last instalment

(PLN 1,824 thousand) of the loan from WFOŚiGW (Provincial Environmental Protection and Water Management Fund).



31

c. Issue of bonds

In the first half of 2013, KOGENERACJA S.A. did not issue or redeem any debt securities.

10. Loans granted (in accordance with § 87 section 7 point 10 of the Ordinance)

a. Loans given in the first half of 2013

The Company did not grant any loans in H1 2013.

b. Loans given in the previous years

KOGENERACJA S.A. received quarterly financial income from the loans given to EC Zielona Góra S.A. The loan

agreements were signed on 3 June 2002 for a total amount of PLN 69,700 thousand. The loans were to be repaid by 2016

and financed construction of the CC Gas Unit in EC Zielona Góra, which was commercially commissioned in 2004.

According to the new loan schedule included in amendment 3 to the loan agreement of PLN 60,000 thousand of

2 November 2011, the subsidiary EC Zielona Góra S.A. repaid the loan principal of PLN 26,592 thousand in 2011. The

balance of PLN 3,712 thousand was repaid in January 2013, in accordance with Annex 2 of 18 January 2013. As at June 30,

2013, the loan of subsidiary Zielona Góra S.A. was fully repaid.

As at 30 June 2013

Loans

EC Zielona Góra S.A. 69 700 WIBOR + 1,3% PLN 03-06-2002 - 30-06-2016

in PLN thousand Date grantedBalance with

interestsDue dateAmount Interest rate CCY

c. Loans granted to members of the Supervisory Board

As part of the Company Social Fund, in the first half of 2013 loans were given to the following members of the Supervisory

Board:

As at 30 June 2013

Michalik Jerzy 6 000 1% PLN 01-07-2011 2 216 31-07-2014

Roman Nowak 6 000 1% PLN 01-05-2012 3 936 31-07-2015

Zbigniew Szymanek 8 000 1% PLN 01-05-2013 8 000 31-05-2016

Henryk Zajas 30 000 1% PLN 04-09-2009 13 500 30-09-2015

Henryk Zajas 8 000 1% PLN 01-09-2011 3 630 31-12-2014

Due datein PLN Amount Interest rate CCY Date grantedBalance with

interests



32

11. Events with significant impact on the Group’s activities (in accordance with § 87 section 7 point 10 of the Ordinance)

1) Events significantly affecting the Group’s activities in the reporting period

In the first half of 2013, the following events significantly affected the Group’s business:

In H1 2013, the Group’s net income increased by PLN 42,005 thousand, amounting to PLN 116,687 thousand vs.

PLN 74,682 thousand in H1 2012;

- On 22 January 2013, the Company’s Extraordinary General Meeting appointed Mr. Ryadh Boudjemadi to the

Supervisory Board (Current Report no. 1,2,3/2013).

- On 27 February 2013, an annex was signed to the significant agreement for the supply of biomass of

27 September 2012 concluded with EDF Paliwa Sp. z o.o. The amendments relate to liquidated damages and the

volume of biomass supplies (Current Report no. 5/2013).

- On 29 March 2013, KOGENERACJA S.A. made a voluntary prepayment of the investment loan of

PLN 26,715 thousand to Bank Ochrony Środowiska S.A. (Current Report no. 6/2013).

- On 15 April 2013, The Management Board of the Parent Company adopted a resolution on the proposed distribution of

profit for 2012, postulating allocation of the entire earnings to the reserve capital, which may be used in the future to

finance the Company's investments, including construction of the desulphurisation and denitrification installation in

EC Wrocław, and construction of new equipment in EC Czechnica. The reserves might also be used for the possible

payment of a future dividend (Current Report 7/2013). The Management Board’s report on the distribution of profit for 2012

was positively reviewed by the Supervisory Board at the meeting on 25 April 2013 (Current Report no. 10/2013) and

adopted by the General Meeting (Current Report 17/2013).

- The employees of KOGENERACJA S.A. elected Supervisory Board members acting on their behalf. The persons

elected by the employees became part of the Supervisory Board following adoption of the relevant resolutions by the

General Meeting of KOGENERACJA S.A. (Current Report no. 9/2013).

- On 8 May 2013, under Article 492 § 1 (1) of the Commercial Companies Act, a merger took place between the EDF

Group companies in Poland: EDF Rybnik S.A. (Acquiring Entity) and EDF Kraków S.A., EDF Polska CUW Sp. z o.o.,

EDF Polska Centrala Sp. z o.o. (Acquired Entities). The new entity was named as EDF Polska S.A. The number of shares

in the registered capital and the total number of votes at the General Meeting of KOGENERACJA S.A., acquired through

the universal succession by EDF Polska S.A. did not change and stands at 17.74% (Current Report no. 11/2013).

- Due to the merger of the EDF Group companies in Poland, the Parent Company entered into Annex 3 to the Agreement

of the Participants in the Daily Limits Liquidity Management Agreement and to the Agreement of the EDF Group

Companies in Poland, members of the former agreement, as part of the cash-pool service agreement package. The list

of entities participating in the cash-pool system changed. Other terms of the cash-pool agreement package remained

unchanged (Current Report no. 12/2013).

- On 14 June 2013, the Parent Company entered into Annex 4 to the Agreement of the Participants in the Daily Limits

Liquidity Management Agreement and to the Agreement of the EDF Group Companies in Poland. The annex changed

the debt limits (Current Report no. 19/2013).

- Due to the lack of relevant legislation, neither the Parent Company nor EC Zielona Góra posted any income from the

sale of certificates in H1 2013 produced in 2013.

2) Events significantly affecting the Group’s activities after the end of the reporting period until approval of the

financial statements

On 5 July 2013 the Parent Company concluded an agreement with the National Environmental Protection Fund and Water

Management in Warsaw for co-financing the project “Combustion fumes’ denitrification installation for the boiler No. 3 of

the heat and power plant in Wrocław”, realized within the Operation Program Infrastructure and Environment 2007-2013,

Priority IV, activity 4.5. The expected cost of the project amounts to PLN 44 286 thousand of which PLN 36 000 thousand

will be co-financed. First motion for payment will be filed by the Company in October 2013.

On 31 July 2013, EC Zielona Góra received a decision of the President of the Energy Regulatory Office on the annual

stranded costs correction for 2012 – the value of the correction was established at PLN 134,089 thousand. After the

discount, the correction had an impact of PLN 72,088 thousand on the net income - it was posted in June 2013.

On 24 July 2013, the Parent Company called an EGM, which was held on 20 August 2013 (Current Report no.

20/2013) and adopted resolutions amending the articles of the Statutes of the Company concerning the remuneration

rules for the Members of the Supervisory Board (Current Report 22/2013).

On 22 August 2013, the Parent Company received a dividend of PLN 59,435 thousand from EC Zielona Góra S.A.

(PLN 53,982 thousand in 2012).



33

12. Factors that will affect the Group’s performance in the subsequent periods


According to the Group, the key drivers of the Group’s performance in the subsequent periods will include:

a) The planned legislation changes in relation to the revision of the Energy Law and associated acts (a system of support

for red, green and yellow certificates);

b) Volume of production and the related volume of CO2 emissions;

c) Profitability of production of renewable energy in the context of legislative changes;

d) The value of the subsidies towards the stranded costs connected with termination of the PPA of EC Zielona Góra on

1 April 2008;

e) Weather conditions (external temperature);

f) Investment decision regarding development of the plant in EC Czechnica.

13. Description of key risks and threats


Key risks and threats relating to the operations of KOGENERACJA S.A.:

1) Dependence on buyers

The Company’s operations are to a large extent dependent on Fortum Power and Heat Polska, the operator of the heat

distribution network. A key risk source for the Company is the project of Fortum Power and Heat Polska to construct a heat

and power plant with CC Gas Unit with a capacity of 400 MWe, located in Wrocław at ul. Obornicka 195.

In response to this threat, the Company took a number of steps to make the city and province authorities, and the public

alike, about the impact of the construction of such heat source and its connection to the heating system in Wrocław, namely

the expected higher cost of heat delivered from the system.

To determine the demand for network heat for the next years in Wrocław, the Company ordered and received two

projections regarding development of the heat market in Wrocław until 2025. The Company also co-operates with an

advisor selected by the city authorities, who is working on a update to the document Assumptions for the heat, gas and

electricity supply plan for Wrocław”, adopted by the City Office in 2004.

The update developed by the contractor was passed on for social consultations. In July 2013, the Company sent its

comments to the updated "Assumptions (...)”.

2) Change of Energy Law

The Energy Law and its subordinate acts give shape to Poland's power sector as they lay down the terms and conditions for

sourcing and using fuels and energy and define the authorities regulating the management of fuels and energy.

In accordance with the Ordinance of the Economy Minister of 18 October 2012, new definitions were introduced – auxiliary

fuel and round timber. Due to these new provisions, the Energy Regulatory Office requires that any requests for the issue of

green certificates filed from December 2012 should be supported by a detailed documentation confirming the origin of the

timber and the volume of the combusted auxiliary fuel (ignition oil).

3) Other legal developments

On 1 January 2013, a revised act on trading in the allowances for emission of greenhouse gases came into force. The act

regulates in more details the aspects related to the trading in emission allowances post 2013 (e.g. the system of emission

auctions). Nonetheless, no implementing regulations have yet been adopted for the act.

Furthermore, work is underway on an act on renewable energy sources (bill dated 26 July 2012), which is going to affect the

Company's business in the following years.



34

4) Amendment of the IPPC Directive – proposal for a Directive of the European Parliament and of the Council on

industrial emissions (integrated pollution prevention and control) (Recast) (COM(2007)/844/Final)

6 January 2011 saw implementation of the Directive on industrial emissions, replacing the IPPC and LCP directives. The

directive should be implemented in the Polish law by 6 January 2013. The direction of the legislative changes clearly

indicates a major tightening of the requirements to reduce the emissions of SO2, NOx and dust starting from 1 January 2016.

This means the need to incur high costs of construction of installations to reduce emissions or early replacement of the

existing equipment. Another solution might be a derogation whereby an acceptable number of operating hours would be

allocated to such sources without complying with the new requirements. Potentially the most favourable solution seems to

be adoption of the Interim National Plan that for 2013-2020 would establish emission limits permitting operation of the

installation with the existing emission standards, but at a limited emission load. Currently, preparatory work is underway to

determine possible adoption of such regulations for the individually specified installations.

The active steps taken by KOGENERACJA S.A. include the acquisition of new buyers. In this context, particularly

important is the co-operation with the Wrocław Municipality with regard to connection of new and existing municipal

buildings to the network, which helps compensate for the reduced demand and stabilise the sale of heat.

5) Factors connected with changes in the demand for heat by buyers

In the recent year, the demand for heat decreased, which is due to, among other things, restructure of the industry, upgraded

insulation of houses and apartments, reduced heat losses during transmission, installation of weather sensors in the central

heat stations and the effects of global warming. KOGENERACJA S.A. is actively looking for new buyers, particularly in

co-ordination with the City of Wrocław with respect to connecting new buildings and existing communal buildings. These

actions help partly counterbalance the reduced demand and stabilise heat sales.

6) Factors connected with fluctuating levels of heat and electricity sales

The trading business of KOGENERACJA S.A. is subject to significant seasonality. In the period from October to April the

demand for heat is much higher than in other months.

This means that the possibility to generate electricity in the combined system is also seasonal. The Company does have the

technological capacity to generate electricity also in the period of a lower demand for heat (through the so called “pseudo-

condensation”), but this has been limited since 1 July 2007 due to the requirement to keep the minimum gross efficiency of

transformation of chemical energy into electricity and heat in the cogenerated system at 75%.

The observed reduction in electricity prices in the wholesale market reduced the capacity of production in pseudo-

condensation due to the high variable costs.

7) Long-Term Power Purchase Agreement (PPAs)

On 1 April 2008, the PPAs of EC Zielona Góra S.A. were terminated.

The company uses public aid in the form of compensations for covering stranded costs that are a consequence of the PPAs

termination, and the gas allowances resulting from the higher cost of gas vs. the cost of coal incurred in the production of

electricity. The revenues and expenses of EC ZG S.A. are by law closely controlled by the Energy Regulatory Office, and

are the basis for payment of the provisional compensations and their subsequent settlement.

The presented analyses clearly show that PPAs termination based on the ratified Act did not impair the company's

performance compared with the situation that would exist if the PPAs were still in place.



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8) CO2 emission

Until the date of publication of the report, no new National Plan had been ratified that would set CO2 emission limits for

2013-2020. Work is under way to determine the possible adoption of new regulations for individually named installations.

In its planning process, the Company uses the projected volumes adopted by the Management Board.

The legislative uncertainty connected with the lack of the expected act on renewable energy sources and the low valuation

of the green certificates, combined with the low electricity prices, resulted in reduction of energy production in the process

co-firing of biomass.

14. Litigations

(in accordance with § 87 section 7 of the Ordinance)

In 2013, there were no litigations pending before any court, arbitration or administration bodies involving KOGNERACJA S.A. or

its Group companies involving any liabilities or receivables exceeding 10% of the Parent's equity.

15. Shares of KOGENERACJA S.A. or its subsidiaries held by directors


Mr. Raimondo Eggink, Supervisory Board Member, holds 25,000 shares with a nominal value of PLN 125,000, including:

24,000 shares of the Company held directly, and 1,000 shares held through a subsidiary. In 2013, no changes occurred in the

shareholdings of executive and non-executive directors.

16. Dividend declared or paid


In accordance with Resolution no. 6/2013 of the Annual General Meeting of KOGENERACJA S.A. of 13 June 2013, the

Parent Company allocated its net income for 2012 to reserves, to be potentially used for a future dividend payment.



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III. Share price

1. Quotation of the KOGENERACJA shares on Warsaw Stock Exchange

At the first session in 2013, on closing, the share price was PLN 86 per share and the trading volume was 1,140 shares. The

highest price in the analysed period of 2013, i.e. PLN 86.50 was achieved on 22 January 2013, while the lowest price,

PLN 45.52, was recorded on 29 April 2013. The first half of 2013 ended with the price of PLN 55.91 per share, with the

volume of trading of 417 shares.

Quotations of KOGENERACJA Shares on Warsaw Stock Exchange in the first half of 2013

40

50

60

70

80

90

100

2013-01-02 2013-01-27 2013-02-21 2013-03-18 2013-04-12 2013-05-07 2013-06-01 2013-06-26

From 16 March 2013 to 21 June 2013, KOGENERACJA S.A. was quoted in the mWIG40 index. After the quarterly review

of the index members, the Company was re-introduced to the sWIG80 index (announcement of the Management Board of

the Warsaw Stock Exchange of 13 May 2013).

Quotations of sWIG80 in the first half of 2013

10200

10600

11000

11400

11800

12200

2013-01-02 2013-01-27 2013-02-21 2013-03-18 2013-04-12 2013-05-07 2013-06-01 2013-06-26



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2. Respect Index After the session on 31 January 2012, the list of participants of the Respect Index (4

th edition) was revised.

KOGENERACJA S.A. met the high requirements and criteria for the Respect Index, and found itself among the 23

members of the new portfolio of the stock exchange index of socially responsible companies. In the 6th

edition of the

Respect Index, whose results were announced on 24 January 2013, KOGENERACJA S.A. maintained its position in the RI

index.

3. Ratio calculation methodology

ROA = Net income /Total assets

ROE = Net income / Equity

ROCE =EBIT/capital employed defined as equity + (long term and short term borrowings less short term investments less long term investments).

Current liquidity = Current assets / C urrent liabilities

Quick liquidity = (Current assets – Inventories ) / Current liabilities



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Wrocław, 29 August 2013

...................................................

Wojciech Heydel

President of the Management Board

...................................................

Roman Traczyk

Management Board Member

...................................................

Krzysztof Wrzesiński


...................................................

Henryk Zajas


MANAGEMENT BOARD’S REPORT ON THE ACTIVITIES … · In May 2011, the remaining 49% ... the...

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