MANAGEMENT BOARD'S REPORT ON THE ACTIVITIES OF KOGENERACJA ... · KOGENERACJA S.A. – Management...

KOGENERACJA S.A. – Management Board’s Report on the Activities of Kogeneracja Group for the period from 1 January to 30 June 2011

___________________________________________________________________________________________

MANAGEMENT BOARD'S REPORT ON THE ACTIVITIES OF KOGENERACJA GROUP

1st half of 2011

KOGENERACJA S.A. – Management Board’s Report on the Activities of KOGENERACJA Group for the period from 1 January to 30 June 2011

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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..................................................................................................................................................................... 12

II. Key production and financial figures .............................................................................................13 1. Key products ................................................................................................................................................................... 13 2. Key economic and financial figures of the Group........................................................................................................... 15 3. Structure of assets and liabilities in the consolidated statement of comprehensive income ........................................... 23 4. Related party transactions .............................................................................................................................................. 26 5. Guarantees given and received ....................................................................................................................................... 27 6. Financial results presented in the report vs. the published performance forecast.......................................................... 27 7. Assessment of finance management ................................................................................................................................ 27 8. Loans incurred and terminated....................................................................................................................................... 31 9. Loans granted ................................................................................................................................................................. 32 10. Events with significant impact on the Group’s activities .............................................................................................. 33 11. Factors that will affect KOGENERACJA’s performance in the subsequent periods .................................................... 33 12. Description of key risks and threats .............................................................................................................................. 34 13. Litigations ..................................................................................................................................................................... 36 14. Shares of KOGENERACJA S.A. or its subsidiaries held by directors .......................................................................... 36 15. Dividend declared or paid ............................................................................................................................................ 36 16. Ratio calculation methodology...................................................................................................................................... 36

III. Share price .......................................................................................................................................37 1. Quotation of the KOGENERACJA shares on Warsaw Stock Exchange ......................................................................... 37


___________________________________________________________________________________________ I. Group profile 1. Legal Basis The Management Board’ Report was prepared in accordance with § 90 section 1 point 3 of the Finance Minister’s Ordinance of 19 February 2009 - Journal of Laws, No. 33, item 259 (“Ordinance”). 2. Group characteristics The parent company of the KOGENERACJA Group (“Group”) is Zespół Elektrociepłowni Wrocławskich KOGENERACJA S.A. (KOGENERACJA S.A., “Parent Company”, “Company”), joint stock company registered in Poland.

The Parent Company has 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). On 1 July 2010, Term-Hydral, now EC Zawidawie, became part of production system.

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 as well as 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, 100% stake was acquired in Z.C. “Term-Hydral” Sp. z o.o. of Wrocław. Starting from 1 July 2010, as a result of the merger with the Parent Company, the company has been a separate plant of KOGENERACJA S.A. 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. Siechnice is the location of another subsidiary - Przedsiębiorstwo Produkcji Ogrodniczej Siechnice Sp. z o.o., acquired in 1996 in a debt-to-equity transaction. In May 2011, the remaining 49% shares were purchased from the State Treasury, and KOGENERACJA S.A. became 100% owner of the company, which helps it optimise the management of the entity. Another Group member is the heat and power plant Elektrociepłownia 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 has also distributed heat. Since July 2010, co-operation has been strengthened with z EDF Polska Sp. z o.o., 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 Company to focus on its core business that is its key source of revenue and profits. Other companies of the KOGENERACJA Group include: Energokrak Sp. z o.o. (supplier of coal and biomass) and Everen Sp. z o.o. (trading in electricity and property rights).


___________________________________________________________________________________________ 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. Status as at the date of presentation of the report for H1 2011

EC Kraków 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 EnBW A.G. 2 323 302 15,59 - 2 323 302 15,59 OFE PZU "Złota Jesień" 1 477 715 9,92 (0,52) 1 400 000 9,40 OFE ING 1 093 491 7,34 (1,97) 800 000 5,37 Legg Mason FIO 767 837 5,15 (1,48) 546 837 3,67

change of % in the period 13.05.2011-31.08.2011

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 22 February 2011, the Parent Company advised that the threshold of 15% of the total votes at the General Meeting was exceeded as a result of an indirect acquisition of the Company's shares by Neckarpri GmbH. The transaction was completed on 17 February 2011. Neckarpri GmbH acquired from EDF International S.A. 45.01% shares in EnBW A.G., which holds 15.59% stake in the Parent Company. As a result of the transaction as well as to maintain in force the prior shareholders' voting agreement, the shareholding of EDF International S.A. in KOGENERACJA S.A. remained unchanged, while the legal basis for the shareholder’s rights did change (Current Report 2/2011). In the period since publication of the last quarterly report, OFE PZU ‘Złota Jesień’ reduced its share in the Company from 9.92% to 9.40%, while the share of OFE ING decreased from 7.34% to 5.37 %, according to the data updated after the Company's General Meeting of 30 June 2011 as at the registration date, i.e. 14 June 2011. (Current Report 21/2011). Due to the sale of KOGENERACJA shares, on 1 June 2011, the Open-Ended Mutual Fund Legg Mason reduced its share in the Company’s share capital and voting power from 5.15% to 3.67 % (Current Report 15/2011). On 1 June 2011, the Company was advised that EDF International S.A., which held 16.67% stake in the Company’s share capital, changed its legal form from “joint stock company” (S.A.) to “simplified joint stock company” (S.A.S.) (Current Report 13/2011). 4. Composition of the Management Board and the Supervisory Board of the Parent Company (in accordance with § 87 section 7 point 10 of the Ordinance) a. Composition of the Management Board 30 June 2011, i.e. the date of the Annual General Meeting of KOGENERACJA S.A. was the last day of the term of office of the Management Board of the 7th tenure. On that date, the membership of the Management Board was as follows:

1. Philippe Gagneux – Management Board President 2. Andrzej Siennicki – Management Board Member 3. Roman Traczyk – Management Board Member 4. Krzysztof Wrzesiński – Management Board Member


___________________________________________________________________________________________ Due to the end of the 7th tenure of the Management Board, on 25 May 2011 the Supervisory Board appointed the following persons to the Management Board, effective from 30 June 2011 (after the Annual General Meeting for 2010): Philippe Gagneux as President of the Management Board of KOGENERACJA S.A. and Roman Traczyk, Krzysztof Wrzesiński and Henryk Zajas as Members of the Management Board (Current Report 12/2011). Since 30 June 2011, the membership of the Management Board of the 8th tenure has been as follows:

1. Philippe Gagneux – Management Board President 2. Roman Traczyk – Management Board Member 3. Krzysztof Wrzesiński – Management Board Member 4. Henryk Zajas – Management Board Member

b. Changes in the Supervisory Board Following appointment of Henryk Zajas as member of the Management Board of KOGENERACJA S.A representing the employees, on 5 May 2011, Henryk Zajas resigned as member of the Supervisory Board, effective from 25 May 2011. Before that date, the Supervisory Board consisted of the following persons: On 30 June 2011, the Annual General Meeting of KOGENERACJA S.A. was held. The AGM:

▪ granted a word of approval to the Supervisory Board members, and; appointed Zbigniew Szymanek as representative of employees on the Supervisory Board of the 8th tenure, in accordance with §14 section 4 of the Company’s Statutes. Since 30 June 2011, the membership of the Supervisory Board of the 8th tenure has been 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. Raimondo Eggink – Supervisory Board Member 6. Birgit Fratzke-Weiss 7. Jens Linhart

– Supervisory Board Member – Supervisory Board Member

8. Harald Minkner – Supervisory Board Member 9. Roman Nowak – Supervisory Board Member 10. Dominique Silvain – Supervisory Board Member 11. Henryk Zajas – Supervisory Board Member 12. Danuta Żeleźna – Vice-Chairman of the Supervisory Board

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. Raimondo Eggink – Supervisory Board Member 6. Birgit Fratzke-Weiss 7. Jens Linhart

– Supervisory Board Member – Supervisory Board Member

8. Harald Minkner – Supervisory Board Member 9. Roman Nowak – Supervisory Board Member 10. Dominique Silvain – Supervisory Board Member 11. Zbigniew Szymanek – Supervisory Board Member 12. Danuta Żeleźna –Vice-Chairman of the Supervisory Board


___________________________________________________________________________________________ In 2011, 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 The membership of the Remuneration Committee and the Audit Committee appointed by the Supervisory Board on 24 June 2010 did not change, and was as follows:

1) Remuneration Committee: • Philippe Castanet • Birgit Fratzke-Weiss – Chairman • Harald Minkner • Danuta Żeleźna

2) Audit Committee: • Philippe Castanet • Raimondo Eggink • Harald Minkner – Chairman

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 2011 and 2010 was presented in the Consolidated Interim Financial Statements of KOGENERACJA Group for the 6 months ended 30 June 2011, chapter B point V 15 Transactions with related parties; b. Transactions with directors. d. Annual General Meeting of KOGENERACJA S.A. On 30 June 2011, the Annual General Meeting of KOGENERACJA S.A. was held. The AGM changed the Company's Statutes by complementing the provisions on the required Management Board resolutions (§ 11 points 3, 4 of the Statutes). Consolidated text of the Statutes became effective upon its publication in the National Court Register (Current Report 23/2011).


___________________________________________________________________________________________ 5. KOGENERACJA Group ((in accordance with § 87 section 7, point 2 and 3 of the Ordinance) a. Ultimate parent KOGENERACJA S.A. and its subsidiary EC Zielona Góra S.A. are consolidated by EDF S.A. using the proportional method. 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 2011

LEGEND:

KOGENERACJA’s shares

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 2011 and 2010 in this report. Even though KOGENERACJA S.A. does not have any capital ties with Everen Sp. z o.o., the company is reported as an associate 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 2011 included the following 4 subsidiaries in the consolidated financial statements:

EC Zielona Góra S.A. – subsidiary (full consoldiation) Renevis Sp. z o.o. –subsidiary (full consolidation) Przedsiębiorstwo Produkcji Ogrodniczej Siechnice Sp. z o.o. –subsidiary (full consolidation) ZEC Hurt Sp. z o.o. in liquidation - subsidiary (full consolidation for the period from 1 January to 31 March 2011)

Jednostki stowarzyszone

- nie wyceniane m

etodą praw własności Je

dnos

tki z

ależ

ne

-kon

solid

owan

e

KOGENERACJA S.A.

EC Zielona Góra S.A. 98,40%

Renevis Sp. z o.o. 100%

PPO Siechnice Sp. z o.o.100%

Everen Sp. z o.o.

Energokrak Sp. z o.o. 12,40%


___________________________________________________________________________________________ At the same time, in the report for the first half of 2011, the Company provided comparative data for the first half of 2010, specifically for:

Ekotrakt Sp. z o.o. - subsidiary (full consolidation for the period from 1 January to 31 March 2010); on 1 April 2010 Ekotrakt merged with Renevis Sp. z o.o.

Z.C. “Term-Hydral” Sp. z o.o. - subsidiary (full consolidation for the period from 1 January to 31 June 2010); on 1 July 2010 the company merged with KOGENERACJA S.A.

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 2011 and 2010. As at 30 June 2011

Number of shares Nominal value of shares

% 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 PPO Siechnice Sp. z o.o. 18 680 500 37 361 500 37 361 18 680 500 100,0

Share capital Number of shares Nominal valueof a share

No of shares held by KOGENERACJA S.A.(directly)

As at 30 June 2010


% 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. 19 100 000 38 200 500 38 200 19 100 000 100,0 ZEC Hurt Sp. z o.o.*) 625 500 1 251 500 1 251 625 500 100,0 Z.C. "Term-Hydral" Sp. z o.o.**) 10 212 000 10 212 1 000 10 212 10 212 000 100,0 PPO Siechnice Sp. z o.o. 18 680 500 37 361 500 19 054 9 527 000 51,0

Share capital Number of shares Nominal valueof a share

No of shares held by KOGENERACJA S.A.(directly)

*) On 29 July 2010, the Extraordinary General Meeting of ZEC Hurt Sp. z o.o. adopted a resolution on winding up the company and starting the liquidation process. **) On 1 July 2010, an entry was made for the merger of: KOGENERACJA S.A. (the acquiring company) with Z.C. “Term-Hydral” Sp. z o.o. (the acquired company) in the Business Register of the National Court Register (decision of the District Court for Wrocław-Fabryczna, VI Economic Division, of 2 July 2010). e. Activities of the subsidiaries EC Zielona Góra S.A. The core business of EC Zielona Góra S.A. is: Production of electricity; Production of heat; Distribution of heat and supply of network heat.


___________________________________________________________________________________________ Until the end of July 2004, electricity and heat were co-generated in EC Zielona Góra using coal as production fuel. When in August 2004 the CC Gas Unit was commissioned, with the capacity of 190 MW and 95 MWt, the proportions of electricity and heat reversed and currently predominantly electricity is produced in the CC Gas Unit in the process of partial co-generation using gas fuel (natural gas from local sources). The company is the key provider of heat and heated domestic water for the city of Zielona Góra. In June 2008, a decision was made to merge Zielonogórska Energetyka Cieplna Sp. z o.o. (heat distributor) with EC Zielona Góra S.A. The merger took place on 1 April 2009 under Article 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. As the share capital was increased, there were 26,130 ordinary registered shares issues (series D), which were acquired by KOGENERACJA S.A. (17,978 shares) and the Municipality 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; 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 as well as, 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.

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 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 currently is a full owner of the company. 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. Companies consolidated in the comparative period. ZEC Hurt Sp. z o.o. The core business of the company was provision of logistic services to KOGENERACJA S.A. and its associated companies, including: Purchase of and picking of orders for production equipment, spare parts and materials, work clothes, Health and Safety

equipment, cleaning agents and stationery; Overhaul services; Materials management, storage services and trading in waste.

The company started to be consolidated in 2009. On 29 July 2010, the Extraordinary General Meeting of ZEC Hurt Sp. z o.o. adopted a resolution on winding up the company and starting the liquidation process. On 18 April 2011, an Extraordinary General Meeting of ZEC Hurt Sp. z o.o. in liquidation was held. The EGM adopted the following resolutions: resolution of approval of the liquidation report; resolution on grating a word of approval to the Liquidators of the company; resolution on distribution of the post-liquidation assets. On 10 May 2011, the District Court for Wrocław-Fabryczna in Wrocław made a decision to strike off ZEC Hurt Sp. z o.o. in liquidation from the National Court Register.


___________________________________________________________________________________________ Zakład Ciepłowniczy „Term-Hydral” Sp. z o.o. The company started its operations on 1 June 1998. Until 30 November 2009, the company was a subsidiary of PZL Hydral, producing heat for PZL Hydral and Fortum Power and Heat O/Wrocław Sp. z o.o. The core business of the company was: Production and sale of heat; Distribution of electricity.

Since 1 July 2010, after the merger with KOGENERACJA S.A., the company has been operating as part of the structure of KOGENERACJA S.A. Ekotrakt Sp. z o.o. The core business of the company was: Production of construction mixes based on cement, aggregates and side products of hard coal combustion; Preparation of construction mixes for road concrete, road bases and stabilisers.

The company started to be consolidated in 2009. Ultimately, Ekotrakt Sp. z o.o. was taken over by Renevis Sp. z o.o. The merger was registered on 1 April 2010. f. Associates The tables below show the structure of the share capitals of associates and the nominal value of the shares held by KOGENERACJA S.A. as at 30 June 2011 and 2010. As at 30 June 2011


%of capital

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

No. of shares held by KOGENERACJA S.A.(directly)

Share capital Number of shares Nominal value of a share

As at 30 June 2010

Number of shares Nominal value of shares % of capital

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

Share capital Number of shares Nominal value of a share

No. of shares held by KOGENERACJA S.A.(directly)

g. Activities of the associates Energokrak 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.


___________________________________________________________________________________________ Everen Sp. z o.o. Everen 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 property rights.

KOGENERACJA S.A. does not have any stake in Everen, but due to the material transactions with Group companies, the company was classified as an associate. h. Changes in the Group structure Below is a description of the transactions and events that affected the Group structure in the first half of 2011: Subsidiaries 1) End of liquidation process of ZEC Hurt Sp. z o.o.

On 18 April 2011, an Extraordinary General Meeting of ZEC Hurt Sp. z o.o. in liquidation was held. The EGM adopted a resolution of approval of the liquidation report; resolution on grating a word of approval to the Liquidators of the company; and a resolution on distribution of the post-liquidation assets. On 10 May 2011, the District Court for Wrocław-Fabryczna in Wrocław made a decision to strike off ZEC Hurt Sp. z o.o. in liquidation from the National Court Register.

2) Purchase of shares in PPO Siechnice Sp. z o.o.

On 11 May 2011, a share purchase agreement was signed whereby KOGENERACJA S.A. purchased from the State Treasury 18,307 shares in PPO Siechnice Sp. z o.o., representing 49% of the subsidiary’s share capital. As result of the transaction, KOGENERACJA S.A. became the sole owner of the company.

i. Equity investments within the Group In the first half of 2011, equity investments were made only by the Parent Company as part of the following transactions:

purchase of 18,307 shares in PPO Siechnice Sp. z o.o. for PLN 7,028 thousand. The effect of these transactions on KOGENERACJA's percentage share in the share capitals of the Group companies was described in point 5d of this report. j. Other equity investments KOGENERACJA S.A. also has shares in Towarowa Giełda Energii S.A. (4.66% stake).


___________________________________________________________________________________________ 6. Employment (in accordance with § 87 section 7 point 10 of the Ordinance) As at 30 June 2011 and 31 December in the years 2007-2010, the employment levels in the Parent Company were as shown in the diagram below.

716

687

650

598580

550

590

630

670

710

750

Nb

of e

mpl

oyes

2007 2008 2009 2010 June 2011

Year

As at 30 June 2011 and 31 December in the years 2007-2010, the employment levels in the KOGENERACJA Group were as shown in the diagram below.

1956 1891

1326 1383

1182

1 200

1 350

1 500

1 650

1 800

1 950

2 100

2 250

Nb

of e

mpl

oyes

2007 2008 2009 2010 June 2011

Year

The decrease in employment in the Group is a result of the restructure of the Parent Company (establishment of the Shared Services Centre for the EDF Group in Poland, Kraków, and transfer of employees under Article 231) and PPO Siechnice Sp. z o.o., and changes in the Group structure.


___________________________________________________________________________________________ II. Key production and financial figures 1. Key products (in accordance with § 87 section 7 point 10 of the Ordinance) 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 2011 and 2010 are presented in the table below.

Sales of heat TJ 5 055 5 580 (525)

Sales of electricity MWh 598 707 608 392 (9 685)Totale sales of products in units TJ 7 210 7 770 (560)

J.m. from 1 Januaryto 30 June 2011

from 1 Januaryto 30 June 2010

Change (number)

Sale of heat in the first half of 2011 was 5,055 TJ and decreased by 9% year-on-year. The decrease was caused by the higher temperatures noted in the heating period compared with the previous year. Marketing efforts are continued to acquire new heat buyers. Sale of electricity in the first half of 2011 was at 598,707 MWh and was lower by 9,685 MWh, i.e. 2 % year-on-year. The decrease is a result of higher air temperatures compared with the previous year. Total sale of finished goods in the reporting period was 7,210 TJ (including 5,552 TJ for heat), down 5% on the corresponding period of the previous year. The value and structure of product sales in the first half of 2011 and in 2010 were as presented in the table below.

Value(in PLN thousand)

Structure(%)


Structure (%)

Change(value)

Sales of heat 145 965 44 151 430 48 (5 465)

Sales of electricity 117 291 35 115 890 37 1 401

Certificates 59 969 18 42 563 14 17 406

Ancillary services 4 975 1 - - 4 975 Other revenues 5 292 2 2 977 1 2 315 Revenues from the sale of finished goods 333 492 100 312 860 100 20 632

30 June 2011 30 June 2010


___________________________________________________________________________________________ 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. also uses different production fuel as it operates the gas-fired CC Gas Unit. The sales of both products in EC Zielona Góra in the first half of 2011 and 2010 are presented in the table below.

J.m. from 1 Januaryto 30 June 2011


Sales of heat TJ 795 920 (125)Sales of electricity MWh 678 944 678 137 807

-coal unit MWh 4 273 5 605 (1 332)-cc gas unit MWh 674 671 672 532 2 139

Totale sales of products in units TJ 3 239 3 361 (122)

Change (number)

Sale of heat in the first half of 2011 was at 795 TJ and decreased by 125 TJ (14%) year-on-year. The lower sale of heat resulted from the significantly higher external temperatures in January and March compared with the first half of 2010, and from lower consumption of heat by end-buyers (efficiencies). In the first half of 2010, sale of electricity was at 678,944 MWh, slightly higher (by 807 MWh) year-on-year. The increase in electricity sale was achieved despite the lower sale of electricity from the coal-fired unit. The reduced production of electricity in the gas-fired unit was connected with the significantly higher external temperatures in January and March. Electricity production in the CC Gas Unit was only slightly higher that a year before. Total sale of finished goods in the reporting period was 3,239 TJ, down 4% (122 TJ) on the first half of 2010. The value and structure of product sales in EC Zielona Góra S.A in H1 2011 and in 2010 were as presented in the table below.


Structure(%)


Structure (%)

Change(value)

Sales of heat 39 024 19 40 848 19 (1 824)

Sales of electricity 130 749 63 128 725 61 2 025

Certificates 36 205 18 40 820 19 (4 615)

Other revenues 425 0 1 298 1 (873)Revenues from the sale of finished goods 206 403 100 211 691 100 (5 287)

30 June 2011 30 June 2010


___________________________________________________________________________________________

2. Key economic and financial figures of the Group (in accordance with § 87 section 7 point 10 of the Ordinance) a. Elements of the consolidated income statement In the first half of 2011, the Group’s consolidated net income fell by PLN 16,822 thousand (PLN 83,627 thousand in H1 2011 and PLN 100,449 thousand in H1 2010), i.e. by 17%, mainly driven by a decrease in the net income of Zielona Góra S.A. (which fell by PLN 7,857 thousand) and PPO Siechnice Sp. z o.o. (down by PLN 6,022 thousand), as well as the value of the related-party transactions between KOGENERACJA S.A. and EC Zielona Góra S.A. (increase by PLN 10,498 thousand, mainly in respect of the dividend paid by the latter). The net income of KOGENERACJA S.A. increased by PLN 8,826 thousand. In the reporting period, the Group’s net income was mainly affected by the gross profit, which fell by 16% vs. H1 2010, mainly due to an increase of PLN 31,740 thousand (8%) in the cost of sales, with higher sales (up by PLN 4,453 thousand and higher revenue from compensations for termination of the PPAs (up by PLN 2,422 thousand) recorded by EC Zielona Góra S.A.

in PLN thousand

Revenues 561 741 557 288 4 453 Revenue from compensation for PPAs 5 834 3 412 2 422 Cost of sales (435 465) (403 725) (31 740)Gross profit on sales 132 110 156 975 (24 865)Administrative expenses (6 027) (4 934) (1 093)Selling expenses (16 007) (17 803) 1 796 Other operating revenues/costs 6 829 (4 030) 10 859 Operating profit (EBIT) 116 905 130 208 (13 303)Net finance costs (7 690) (4 027) (3 663)Income tax (25 588) (25 732) 144 Net profit 83 627 100 449 (16 822)

from 1 January to 30 June 2011

from 1 January to 30 June 2010

Change(value)

b. Impact of the performance of the Group companies on the consolidated net income in H1 2011 and 2010 in PLN thousand

01.01.2010-30.06.2010

Con

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KO

GE

NE

RA

CJA

EC

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Unconsolidated net profit/(loss) 137 464 92 264 48 748 (4 181) 454 179 - Revaluation to fair values (271) - (271) - - - - Adjustments to Group accounting policy 676 - 628 - 48 - - Reclassification 557 - 557 - - - - Other adjustments (2 991) (2 791) (200) - - - - Net profit after adjustments 135 435 89 473 49 462 (4 181) 502 179 - Elimination of intercompany transactions (52 130) - - - - - (52 130)Capital adjustments - - - - - - - Other adjustments 322 - - - - 322 - Consolidated net profit/(loss) 83 627 89 473 49 462 (4 181) 502 501 (52 130)


___________________________________________________________________________________________

01.01.2010-30.06.2010

Con

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ated

dat

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KO

GE

NE

RA

CJA

EC

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Unconsolidated net profit/(loss) 143 614 83 438 56 605 1 841 (131) (27) 1 888 - Revaluation to fair values (467) - (426) - - - (41) - Adjustments to Group accounting policy 940 - 628 - 312 - - - Reclassification 365 - 365 - - - - - Other adjustments (142) (118) (24) - - - - - Net profit after adjustments 144 310 83 320 57 148 1 841 181 (27) 1 847 - Elimination of intercompany transactions (41 632) - - - - - - (41 632)Capital adjustments - - - - - - - - Other adjustments (2 229) - - - (661) - (1 568) - Consolidated net profit/(loss) 100 449 83 320 57 148 1 841 (480) (27) 279 (41 632) The Group’s net income is mainly affected by the performance of the two companies: KOGENERACJA S.A. and EC Zielona Góra S.A. , as well as by PPO Siechnice Sp. z o.o. Other Group companies have negligible impact on the consolidated result. In H1 2011, the consolidated net income was also significantly affected by the related-party transactions, mainly the dividend of PLN 51,256 thousand paid to the Parent Company by EC Zielona Góra S.A. (in H1 2010 the pay-out amounted to PLN 41,714 thousand). c. Impact of the net income of KOGENERACJA S.A. on the Group’s net income In the first half of 2011, the Company generated a net income of PLN 92,264 thousand, up by PLN 8,826 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

Revenues 333 592 312 966 20 626 Cost of sales (280 394) (250 994) (29 400)Gross profit on sales 53 198 61 972 (8 774)Selling expenses (543) (491) (52)Administrative expenses (3 562) (3 780) 218 Other operating revenues/costs 4 801 (3 634) 8 435 Operating profit (EBIT) 53 894 54 067 (173)Net finance revenues 49 193 41 154 8 039 Income tax (10 823) (11 783) 960 Net profit 92 264 83 438 8 826

Change(value)

from 1 January 2011to 30 June 2011



___________________________________________________________________________________________ Revenues of KOGENERACJA S.A.

in PLN thousand

Revenues 333 592 312 966 20 626 Revenues from the sale of finished goods 333 492 312 860 20 632

including certificates 59 969 42 563 17 406 including ancillary services 4 975 - 4 975

Revenues from the sale of merchandise and raw materials 100 106 (6)

Change(value)



In the first half of 2011, the Company generated revenues of PLN 333,592 thousand, including the revenues from the sale of finished goods of PLN 333,492 thousand and the revenues from the sale of merchandise and raw materials of PLN 100 thousand. In H1 2010, the revenues were PLN 312,966 thousand, including the revenues from the sale of finished goods of PLN 312,860 thousand, and the revenues from the sale of merchandise and raw materials of PLN 106 thousand. The revenues from the sale of finished goods achieved in H1 2011 (by PLN 20,632 thousand): higher revenues from the sale of certificates (increase by PLN 17,406 thousand), higher revenues from the sale of electricity (increase by PLN 1,401 thousand), higher revenues from the sale of ancillary services (PLN 4,975 thousand), and lower revenues from the sale of heat (PLN 5,465 thousand). Electricity sales increased vs. H1 2010 by PLN 1,401 thousand, mainly due to the lower volume of sales counterbalanced by the higher electricity price (which increased by 6%). The price of heat increased by 4%, while the price of heat power increased by 12%, driven by prices and tariff fees for KOGENERACJA S.A. implemented on 1 October 2010, and approved by the President of the Energy Regulatory Office. At the same time, the volume of heat sales decreased in the analysed period compared with H1 2010. In the first half of 2011, KOGENERACJA S.A. obtained rights under energy certificates for co-generated energy (red certificates), and energy from renewable sources – co-firing of biomass (green certificates) for the value of PLN 59,969 thousand. Electricity produced through co-firing of biomass increased by 71% in the analysed period of 2011 compared with 2010: “green" energy production in H1 2011 was 156,191 MWh compared with 91,445 MWh produced in H1 2010. H1 2011 also saw the impact of production of the upgraded unit adapted for co-firing of biomass in EC Czechnica, launched in 2010. “Green” and “red” certificate prices increased by 4% and 23% respectively. Revenues from the sale of merchandise and raw materials in the first half of 2011 were PLN 100 thousand, similarly as a year before. d. Fixed costs and variable costs – KOGENERACJA S.A. In the first half of 2011, variable costs relating to the generation of the sold products were 14% higher year-on-year, amounting to PLN 181,092 thousand. In the first half of 2010, these costs stood at PLN 158,707 thousand. The increase of PLN 22,385 thousand in variable costs results from the higher fuel costs mainly caused by the higher biomass-based production in 2011, after the biomass installation had been launched in EC Czechnica in December 2010, as well as an increase in the prices of the core production fuel: coal and biomass (increase of 0.4% and 7.07%, respectively).


___________________________________________________________________________________________ The increase of PLN 6,371 thousand in other variable costs was mainly driven by: - Higher cost of biomass storage and feeding (increase of PLN 2,573 thousand) following the launch of biomass-based

production in EC Czechnica, and the higher biomass-based production in EC Wrocław; - Higher cost of purchase of energy in the balancing market - an increase of PLN 597 thousand in H1 2011; - Merger with Z.C. Term Hydral Sp. z o.o. – cost of PLN 2,138 thousand; - Purchase of carbon credits of PLN 1,188 thousand offset by the release of the carbon credits provision of PLN 1,095

thousand in H1 2011; In H1 2010, a carbon credits provision of PLN 816 thousand was released, and no credits had to be bought in the market.

in PLN thousand

Variable costs (181 092) (158 707) - - - - (181 092) (158 707)fuel costs (166 995) (151 017) - - - - (166 995) (151 017)excise tax (143) (107) - - - - (143) (107)other variable costs (13 954) (7 583) - - - - (13 954) (7 583)Fixed costs (99 254) (92 260) (3 562) (3 780) (543) (491) (103 359) (96 531)staff costs (34 106) (35 380) (3 303) (3 021) (297) (351) (37 706) (38 752)overhauls (13 085) (10 577) - - - - (13 085) (10 577)depreciation (27 291) (24 137) (5) (9) - - (27 296) (24 146)services (15 678) (14 030) (142) (747) (2) (20) (15 822) (14 797)other fixed costs (9 094) (8 136) (112) (3) (244) (120) (9 450) (8 259)Value of goods and materials sold

(48) (27) - - - - (48) (27)

Total costs (280 394) (250 994) (3 562) (3 780) (543) (491) (284 499) (255 265)

from 1.01.2011to 30.06.2011

from 1.01.2010to 30.06. 2010

from 1.01.2011to 30.06.2011

from 1.01.2010to 30.06. 2010

from 1.01.2011to 30.06.2011

from 1.01.2010to 30.06. 2010

from 1.01.2011to 30.06.2011

from 1.01.2010to 30.06. 2010

* Due to the change in the nature of the agreements, starting from 2011 some cost items that were recognised in the figures for H1 2010 (presented in the Management Board's Report on Activities in the period ended 30 June 2010) as fixed costs, were presented as variable costs in the figures for H1 2011. For this reason, to ensure comparability of data, the figures for H1 2010 were changed vs. the figures presented in the Management Board’s Report on Activities for the period ended 30 June 2010. Fixed costs were at PLN 103,357 thousand in H1 2011, with lower staff costs (decrease of PLN 1,046 thousand), higher cost of external services (increase of PLN 1,025 thousand), higher cost of overhauls of production equipment (increase of PLN 2,508 thousand) and depreciation (increase of PLN 3,150 thousand). In the corresponding period, fixed costs were PLN 96,531 thousand. The staff costs in the first half of 2011 were affected by: - a decrease of PLN 5,495 thousand in the salary and social insurance costs (caused by the reduced employment level as of 1 July 2010, a result of outsourcing of services in the IT, finance, logistics & purchasing and engineering to EDF Poland Shares Services Centre, and inflationary increase in salaries); -the higher value of provisions for staff costs compared with H1 2010 (up by PLN 4,449 thousand) mainly resulting from the allowances for the competition ban, and the Voluntary Terminations Programme. The increase in external service costs was caused by emergence of new cost items associated with the services rendered by the Shares Services Centre. In H1 2011, the costs of these services amounted to PLN 7,584 thousand. The Company operates a budget & controlling policy that helps keep fixed costs down.


___________________________________________________________________________________________ e. Other operating profit of KOGENERACJA S.A. In H1 2011, other operating profit was higher by PLN 8,435 thousand year-on-year. In H1 2010, additional income appeared, associated with valuation of the financial instrument - forwards contract for the sale of carbon credits with a value of PLN 3,347 thousand, and the result of liquidation of ZEC Hurt Sp. z o.o. and take-over the assets of the liquidated entity (PLN 2,517 thousand). At the same time, H1 2010 saw additional costs associated with flood recovery (PLN 672 thousand), and a decrease in the valuation of the financial instrument connected with the swap of carbon credits (EUA/CER) (a decrease by PLN 3,222 thousand). f. Net finance revenues - KOGENERACJA S.A. The increase of PLN 8,039 thousand in the result on financial activities in H1 2011 mainly results from the higher finance revenues, which grew by PLN 10,015 thousand. The increase was primarily driven by the dividends, mainly from EC Zielona Góra S.A., which increased by PLN 9,542 thousand. Finance revenues increased by PLN 1,976 thousand, mainly on account of interest on financial obligations. g. Net income of KOGENERACJA S.A. In the first half of 2011, the Company earned a net income of PLN 92,264 thousand compared with PLN 83,438 thousand earned in the corresponding period of the previous year (an increase by PLN 8,826 thousand). The improvement is a result of: Lower EBIT due to:

Cost increase of PLN 29,400 thousand, i.e. by 12%, including an increase in variable costs, mainly the cost of production fuel, and an increase in fixed costs; the growth in cost of sales was 9% higher than the growth in revenues;

Sales increase of PLN 20,626 thousand (up by 7%), mainly because of the lower volume, but higher price of electricity sold; the price of "black" energy increased to PLN 202.72 /MWh in June 2011 from PLN 190.49 /MWh in June 2010, i.e. by 6%; a decrease in the volume and an increase in the price of heat sold. At the same time, the “green" energy produced from biomass increased by 71%; also the price and number of certificates awarded increased.

Increase of PLN 8,038 thousand in the net finance revenues, mainly due to higher dividend received from EC Zielona Góra (up by PLN 9,542 thousand).

h. Key ratios: ROA, ROE, ROCE

(%)

Return on assets (ROA) 7,37 7,22 2 Return on equity (ROE) 9,97 9,53 5 Return on capital employed (ROCE) 7,57 8,15 (7)



Change (%)


___________________________________________________________________________________________ The profitability ratios achieved by the Company in H1 2011 were higher compared with H1 2010: ROA increased by 2% while ROE by 5%, which is mainly the result of a higher growth in the net profit earned by the Company in the reporting period (an increase of 9.6%), which exceeded the asset growth and equity growth (which increased by 7.7% and 5.4% respectively). The decrease in ROCE led to a 0.3% fall in the operating profit, while the total capital employed increased by 7%, mainly due to the higher debt level of the Company. The ratio calculation methodology is presented in point II 16 of this report. i. Impact of the net income of EC Zielona Góra S.A. on the Group’s net income In the first half of 2011, the company generated a net income of PLN 48,748 thousand, down by PLN 7,857 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

Revenues 206 404 211 746 (5 342)Revenue from compensation for PPAs 5 834 3 412 2 422 Cost of sales (140 232) (134 583) (5 649)Gross profit on sales 72 006 80 575 (8 569)Administrative expenses (439) (558) 119 Selling expenses (7 762) (8 836) 1 074 Other operating revenues/costs 5 121 966 4 155 Operating profit (EBIT) 68 926 72 147 (3 221)Net finance costs (4 914) (2 241) (2 673)Income tax (15 265) (13 301) (1 964)Net profit 48 748 56 605 (7 857)

Change(value)



Revenues - EC Zielona Góra S.A.

in PLN thousand

Revenues 206 404 211 746 (5 342)Revenues from the sale of finished goods 206 403 211 691 (5 288)

including certificates 36 205 40 820 (4 615)Revenues from the sale of merchandise and raw materials 1 55 (54)

Revenue from compensation for PPAs 5 834 3 412 2 422

Change(value)




___________________________________________________________________________________________ In the first half of 2011, the company generated revenues of PLN 206,404 thousand, including the revenues from the sale of finished goods of PLN 206,403 thousand and the revenues from the sale of merchandise and raw materials of PLN 1 thousand, as well as the revenues from the termination of PPAs of PLN 5,834 thousand. In the corresponding period of 2010, the revenues were PLN 211,746 thousand, including the revenues from the sale of finished goods of PLN 211,691 thousand and the revenues from the sale of merchandise and materials of PLN 55 thousand. Revenues from the termination of PPAs were PLN 3,412 thousand. 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 H1 2010, the revenues from the sale of heat were PLN 39,024 thousand, down by PLN 1,824 thousand on the corresponding period of the previous year. The lower revenues from the sale of heat were caused by the lower volume of sales. However, the company earned a higher income from the sale of electricity. Electricity sales increased on the back of higher prices and the higher volume of electricity sold. The revenues from the sale of certificates decreased as a result of lower heat production. Revenues from the sale of merchandise and materials in H1 2011, were slightly lower year-on-year. In H1 2011, the company achieved higher revenues from compensations (for the PPA termination), which increased by PLN 2,422 thousand, which is connected with the model of settlement of the compensations received during the whole year. Fixed costs and variable costs of EC Zielona Góra S.A. In H1 2011, variable costs relating to the generation of the finished goods sold amounted to PLN 102,562 thousand, up by PLN 4,205 thousand year-on-year (PLN 98,357 thousand was earned in H1 2010). The increase in variable costs was primarily due to the higher cost of production fuel. The cost of production fuel was affected both by the volume of fuel used, and the higher price of the fuel, particularly natural gas. The increase in variable costs was counterbalanced by a decrease in other variable costs (down by PLN 823 thousand. The biggest item in the structure of other variable costs was 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. The other variable costs were mainly affected by the lower fees related to the operations in the electricity market (purchase of electricity in the balancing market). Fixed costs in the reporting period amounted to PLN 45,867 km and were comparable tot he costs incurred in H1 2010. In the corresponding period of 2010, fixed costs were at PLN 45,573 thousand. The company noted a decrease in fixed costs in H1 2011 mainly in the area of staff costs, chiefly due to the employment reduction as some business processes were moved to the Shared Services Centre of EDF Polska Sp. z o.o. as part of the TREFL project. Business processes that were separated included: Finance, IT, Procurement, Engineering. As part of an internal selection for these areas, 34 people were transferred to EDF Polska effective from 1 January 2011. A decrease was also noted in other fixed costs, e.g. due to the lower consumption of materials. Overhaul costs were as in 2010. In 2010, the costs of maintenance were presented under Services, while now they are a part of Overhauls. In the corresponding period, the value of maintenance was PLN 3,946 thousand. The cost of external services amounted to PLN 5,995 thousand in H1 2011, up PLN 3,846 thousand on H1 2010. The increase in the cost of external services was caused by the transfer of business processes in the area of Finance, Engineering, Procurement and IT to the Shares Services Centre of EDF Polska.


___________________________________________________________________________________________

in PLN thousand

Variable costs (102 562) (98 357) - - - - (102 562) (98 357)fuel costs (97 998) (92 970) - - - - (97 998) (92 970)excise tax - - - - - - - - other variable costs (4 564) (5 387) - - - - (4 564) (5 387)Fixed costs (37 666) (36 179) (7 762) (8 836) (439) (558) (45 867) (45 573)staff costs (8 165) (10 252) (5 220) (5 975) (273) (258) (13 658) (16 485)overhauls (5 432) (5 355) (6) (31) - - (5 438) (5 386)depreciation (16 683) (16 383) (370) (223) - - (17 053) (16 606)services (5 140) (564) (850) (1 581) (5) (4) (5 995) (2 149)other fixed costs (2 246) (3 625) (1 316) (1 026) (161) (296) (3 723) (4 947)Value of goods and materials sold

(4) (47) - - - - (4) (47)

Total costs (140 232) (134 583) (7 762) (8 836) (439) (558) (148 433) (143 977)

Cost of sales Administrative expenses Selling expenses Total

from 1.01.2011to 30.06. 2011

from 1.01.2010to 30.06. 2010

from 1.01.2011to 30.06. 2011

from 1.01.2010to 30.06. 2010

from 1.01.2011to 30.06. 2011

from 1.01.2010to 30.06. 2010

from 1.01.2011to 30.06. 2011

from 1.01.2010to 30.06. 2010

Other operating profit - EC Zielona Góra S.A. In the first half of 2011, other operating profit was PLN 5,121 thousand, while in H1 2010 it amounted to PLN 966 thousand (i.e. in H1 2011 it increased by PLN 4,155 thousand). The result was mainly affected by an increase of PLN 4,023 thousand in other operating revenues, and a decrease of PLN 132 thousand in other operating costs. The increase in other operating revenues was driven by the revenues from valuation of the SWAP contract, i.e. swap of carbon credits (EUA into CER), and valuation of the carbon credit transactions. The sum of the two valuations was reflected in other operating revenues of PLN 3,646 thousand and in the profit on sale of IT assets to the Shared Services Centre of EDF Polska. The decrease in other operating costs was caused by e.g. reclassification of the voluntary membership fees to operating costs. Net finance revenues – EC Zielona Góra S.A. In the reporting period, EC Zielona Góra achieved finance revenues of PLN 3,927 thousand vs. PLN 5,301 thousand recorded in H1 2010. In H1 2011, finance costs amounted to PLN 8,841 thousand, compared with PLN 7,542 thousand in H1 2010. The net finance income in H1 2011 was negative, amounting to PLN 4,914 thousand, while in H1 2010 it was also negative at PLN 2,241 thousand. In the reporting period, the net finance income was affected by the interest paid on the term loans for construction of the CC gas unit, and the finance expenses in respect of discount of the stranded costs liabilities. Net income - EC Zielona Góra S.A. In H1 2011, the company earned a net income of PLN 48,748 thousand compared with PLN 56,605 thousand earned in the corresponding period of the previous year. The net income achieved in the comparable periods was primarily affected by lower revenues from the sale of certificates, and the higher variable costs caused by the higher price of natural gas used by production fuel.


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

(%)

Return on assets (ROA) 7,53 8,26 (9)Return on equity (ROE) 18,55 23,94 (23)Return on capital employed (ROCE) 20,98 23,28 (10)



Change (%)

The company’s profitability ratios achieved by the company in the first half of 2011 were lower year-on-year. ROA fell in H1 2011 as a result of the lower net income; while ROE decreased due to the higher value of equity. ROCE decreased on account of the lower operating profit. The ratio calculation methodology is presented in point II 16 of this report. 3. Structure of assets and liabilities in the consolidated statement of comprehensive income (in accordance with § 87 section 7, point 10 of the Ordinance) a. Structure of the Group assets In H1 2011, the total assets fell by PLN 134,526 thousand. Non-current assets accounted for 77.8% of total assets. Tangible assets accounted for the major part (72.3%) of non-current assets. As at 31 December 2010, non-current assets accounted for 72.6% of total assets, while tangible assets accounted for 67.6% of non-current assets. In the Group’s assets structure there was a change in the proportion of non-current assets to the current assets. Non-current assets to total assets increased by 5.2% (77.8% in H1 2011 and 72.6% at the end of 2010). In the current assets, the share of inventories fell by 0.7%, (7.2% in 2011 and 7.9% in 2010), mainly as a result of the volume of coal purchased in the summer period and the higher coal prices in 2011. Also, the share of trade debtors in total assets decreased (by 4.9% in H1 2011 and 9.8% in 2010) due to seasonality of production.


___________________________________________________________________________________________

in PLN thousand 30 June 2011 % of balance sheettotal

31 December 2010 % of balance sheettotal

current period current period previous period previous periodASSETSI. Non-current assets1. Property, plant and equipment 1 242 430 72,3 1 252 126 67,6 2. Intangible fixed assets, including: 42 585 2,5 42 709 2,3 - goodwill on related parties 41 601 2,4 41 601 2,2 3. Perpetual usufruct of land 9 974 0,6 10 041 0,5 4. Investment properties 21 340 1,2 22 174 1,2 5. Long-term receivables 6 611 0,3 6 360 0,3 6. Shares and other financial assets 14 163 0,8 11 251 0,6 7. Deferred tax assets 1 069 0,1 780 0,0 Total non-current assets 1 338 172 77,8 1 345 441 72,6

II. Current assets1. Inventory 123 822 7,2 146 621 7,9 2. Biological assets 3 383 0,2 1 456 0,1 3. Short-term investments 5 115 0,3 1 227 0,1 4. Income tax receivables 2 659 0,2 526 0,0 5. Trade and other receivables 84 540 4,9 181 787 9,8 6. Cash and cash equivalents 161 036 9,4 176 194 9,5 Total current assets 380 555 22,2 507 811 27,4

Total Assets 1 718 727 100 1 853 252 100 b. Structure of the Group equity and liabilities In the structure of equity and liabilities, equity increased by PLN 23,617 thousand, and liabilities fell by PLN 158,143 thousand. In short-term liabilities, a decrease was noted in loans and advances and their share in the balance sheet total decreased from 12.1% in 2010 to 4.2% in H1 2011. Other short-term financial liabilities increased mainly as a result of the dividend of PLN 52,150 thousand approved by the General Meeting in June 2011.


___________________________________________________________________________________________

in PLN thousand30 June 2011 % of balance sheet

total31 December 2010 % of balance sheet

total

current period current period previous period previous periodEQUITY AND LIABILITIES I. Equity 1. Share capital 252 503 14,7 252 503 13,6 2. Share premium 251 258 14,6 251 258 13,6 3. Other capital reserves 258 191 15,0 189 212 10,2 4. Retained earnings 293 281 17,1 326 234 17,6 Equity attributable to ordinary shareholders 1 055 233 61,3 1 019 207 55,1 Non- controlling interests 3 919 0,3 16 328 0,9Total equity 1 059 152 61,6 1 035 535 55,9

II. Liabilities I) Non-current liabilities1. Loans, borrowings and debt securities 179 619 10,5 221 326 11,9 2. Employee benefit liabilities 35 872 2,1 33 856 1,7 3. Deferred income 44 469 2,6 46 102 2,5 4. Deferred tax liability 58 016 3,4 48 254 2,6 5. Other long-term liabilities 69 740 4,2 71 795 3,9 Total non-current liabilities 387 716 22,6 421 333 22,7

II) Current liabilities1. Loans, borrowings and debt securities 72 539 4,2 224 259 12,1 2. Other short-term financial liabilities 53 034 3,1 1 427 0,1 3. Income tax liabilities 7 766 0,4 9 977 0,5 4. Trade and other liabilities 114 744 6,7 131 321 7,1 5. Employee benefit liabilities 19 443 1,1 24 391 1,3 6. Short-term provisions 4 332 0,3 5 009 0,3 Total short-term liabilities 271 858 15,8 396 384 21,4

Total current liabilities 659 574 38,4 817 717 44,1

Total equity and liabilities 1 718 726 100,0 1 853 252 100,0 c. Liquidity ratios of the Group

Current liquidity 1,40 1,28 9 Quick liquidity 0,94 0,91 4

Change (%)

for the period from 1 January 2011

to 30 June 2011

for the periodfrom 1 January 2010to 31 December 2010

The current liquidity ratio increased by 9%. The increase was driven by the reduced short-term liabilities (down by 31%), offset by a 25% decrease in current assets, mainly inventories and receivables. The quick liquidity ratio was also maintained at the level recorded in December 2010. The ratio calculation methodology is presented in point II 16 of this report.


___________________________________________________________________________________________ 4. Related party transactions (in accordance with § 87 section 7 point 8 of the Ordinance) a. Transactions made by the Parent Company The key transactions between the Parent Company and its related parties in H1 2011 are presented in the table below. Also, Everen 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 the period from 1 January to 30 June 2011

in PLN thousand

Revenues earned from related party

transactionsin the current period

Costs incurredin related party


EC Zielona Góra S.A. 52 286 - Everen Sp. z o.o. 160 907 3 250 PPO Siechnice Sp. z o.o. 6 478 4 Energokrak Sp. z o.o. 132 138 804 Renevis Sp. z o.o. 859 8 114 ZEC Hurt Sp. z o.o. 28 24 EDF Group* 484 7 705 TOTAL 221 174 157 901 b. Group transactions The key transactions with related parties in H1 2011, taking into account intercompany eliminations, are presented in the table below. For the period from 1 January to 30 June 2011

in PLN thousand

Revenues earned from related party


Costs incurredin related party


Non-consolidated entitiesEnergokrak Sp. z o.o. 158 140 755 Everen Sp. z o.o. 326 635 3 310 EDF Group* 924 11 451

TOTAL 327 717 155 516 * Transactions within EDF Group relate to: EDF Polska CUW Sp. z o.o., EDF Polska Centrala Sp. z o.o., EDF Internationale S.A.S., EDF S.A.


___________________________________________________________________________________________ 5. Guarantees given and received (in accordance with § 87 section 7, point 9) a. Guarantees given In the first half of 2011, no Group companies gave any guarantees (for loans or other) whose total value would amount to at least 10% of the Parent’s equity. A detailed list of all guarantees give by the Group companies is presented in the Interim Consolidated Financial Statements of KOGENERACJA S.A. for H1 2011, B V Selected notes to the interim condensed financial statements, point 14 Contingent receivables and liabilities, and C V Selected notes to the interim condensed financial statements, point 7 Contingent receivables and liabilities. b. Guarantees received In H1 2011, the Parent Company did not receive any loan or other guarantees. 6. Financial results presented in the report vs. the published performance forecast (in accordance with § 87 section 7 point 4 of the Ordinance) The Company did not publish its forecast for the first half of 2011. 7. Assessment of finance management (in accordance with § 87 section 7 point 10 of the Ordinance) a. Elements of the consolidated cash flow statement In the first half of 2011 and 2010, the Group's cash flows were as follows (selected data):

in PLN thousand

Net cash from operating activities 252 259 316 891 (64 632)Net cash used in investing activities (61 580) (94 811) 33 231 Net cash from financing activities (205 837) (169 979) (35 858)Total net cash flows (15 158) 52 101 (67 259)

Cash and cash equivalents at the beginningof the financial year

176 194 183 753 (7 559)

Cash and cash equivalents at the endof the financial year

161 036 235 854 (74 818)

for the period from 1 January

to 30 June 2011

for the periodfrom 1 January

to 30 June 2010

Change(value)


___________________________________________________________________________________________ 1) Operating activities In the first half of 2011, the operating cash flows of the Group were PLN 252,259 thousand, down by PLN 64,632 thousand year-on-year (PLN 316,891 thousand in the first half of 2010), e.g. due to the decrease of PLN 16,822 thousand in the Group's net income compared with the previous year. The key corrections that additionally affected the change included a change in the working capital of PLN 41,798 thousand. 2) Investing activities The negative balance of net cash flows from investing activities fell by PLN 33,231 thousand (PLN 61,580 thousand in H1 2011 and PLN 94,811 thousand in H1 2010), which was attributable to a decrease of PLN 36,223 thousand in investment expenses, mainly connected with the lower value of tangible fixed assets purchased (by PLN 42,806 thousand) and higher value of financial assets purchased (by PLN 7,028 thousand), and a decrease of PLN 2,992 thousand in the investment inflows in H1 2011. 3) Financing activities The negative balance of net cash flows from financing activities increased by PLN 35,858 thousand (PLN 205,837 thousand in H1 2011 and PLN 169,979 thousand in H1 2010) driven by: Increase in financial outflows by 16,042 thousand (main changes included a material increase of PLN 37,320 thousand

in the cost of redemption of debt securities); a growth in this item was shown by the Parent Company, while at the same time the outflows associated with repayment of loans decreased by PLN 27,217 thousand; also an increase of PLN 7,650 was noted in the value of lease payments;

A decrease of PLN 19,816 thousand in financial inflows, as in 2010 the Parent Company received the last tranche of its long-term investment loan.

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 2011 and 2010, the Company’s cash flows were as follows (selected data):

in PLN thousand

Net cash from operating activities 151 155 198 521 (47 366)Net cash used in investing activities 1 689 (52 087) 53 776 Net cash from financing activities (163 903) (133 228) (30 675)Total net cash flows (11 059) 13 206 (24 265)

Cash and cash equivalents at the beginning of the financial year

12 770 6 980 5 790 Cash and cash equivalents at the end of the financial year

1 711 20 186 (18 475)


to 30 June 2011

for the periodfrom 1 January 2010

to 30 June 2010

Change(value)

Financial management in the first half of 2011 did not allow the Company, as in H1 2010, to balance its cash flows, i.e. to fund its investment and financial expenses from operating cash flows.


___________________________________________________________________________________________ 1) Operating activities In the first half of 2011, the operating cash flows decreased by 24% year-on-year. In H1 2011, net cash flows from operating activities were at PLN 151,155 thousand versus PLN 198,521 thousand in the first half of 2010. The key drivers of the operating cash flows included: - Higher net income achieved in H1 2011, improving the Company’s cash position by PLN 8,826 thousand

(PLN 92,264 thousand in H1 2011 and PLN 83,438 thousand in H1 2010); - Decrease in working capital (change in receivables, inventory and liabilities) by PLN 40,157 thousand (PLN

83,825 thousand – change in working capital in the first half of 2011 compared with the increase of PLN 123,983 thousand in the first half of 2010); the difference was mainly caused by the increase of PLN 19,705 thousand in trade debtor changes, decrease of PLN 81,592 thousand in inventory changes, and a decrease of PLN 22,202 thousand in trade creditor changes;

2) Investing activities The positive balance of cash flows from investing activities in H1 2011 primarily results from the lower investment outflows and higher inflows in respect of the divided received from EC Zielona Góra S.A. In H1 2011, cash flows from investing activities were at PLN 12,689 thousand, while in H1 2010 the figure was PLN 52,087 thousand. In the analysed periods the cash flows from investing activities were as follows: - Spend on purchase of tangible and intangible fixed assets was by PLN 46,238 thousand lower (PLN 42,047 thousand in

H1 2011 vs. PLN 88,285 thousand in H1 2010); : - the spend on financial assets was by PLN 2,582 thousand higher; in H1 2011, there was PLN 12,582 thousand spent,

compared with PLN 10,000 thousand spent in H1 2010; In H1 2011, the Company purchased shares in its subsidiary PPO Siechnice Sp. z o.o., and short-term financial assets; In H1 2010, the Company increased the share capital in its subsidiary Renevis Sp. z o.o. by PLN 10,000 thousand;

- Investment inflows in H1 2011 were higher by PLN 10,120 thousand, mainly due to the higher inflows (by PLN 9,579 thousand) in respect of the dividend received (PLN 51,385 thousand received in H1 2011, including a dividend from EC Zielona Góra of PLN 51,256 thousand and PLN 41,806 thousand in H1 2010, including a dividend from EC Zielona Góra of PLN 41,714 thousand).

3) Financing activities The negative balance of net cash flows from financing activities in H1 2011 was at PLN 163,903 thousand; in the comparable period the balance was also negative at PLN 133,228 thousand. The change of PLN 30,675 thousand was caused by the following factors: - The increase of PLN 12,675 thousand in financial expenses were mainly caused by the higher repayment of bonds by

PLN 37,320 thousand (PLN 152,727 thousand in H1 2011 and PLN 115,407 thousand in H1 2010), and lower spend on repayment of loans – a decrease by PLN 24,731 thousand; in H1 2011, the total loan repayments were PLN 6,653 thousand (PLN 31,384 thousand in H1 2010).

- The decrease of PLN 18,000 thousand in financial inflows was due to receipt of the last tranche of the investment loan in 2010.

4) Net cash flows In the first half of 2011, total net cash flows were negative and amounted to PLN 11,059 thousand. In H1 2010, the value was positive at PLN 13,206 thousand. At the end of H1 2011, the balance of cash was PLN 1,711 thousand (vs. PLN 20,186 thousand at the end of H1 2010).


___________________________________________________________________________________________ c. Financial liquidity – KOGENERACJA S.A.

Current liquidity 0,96 0,89 8 Quick liquidity 0,36 0,51 (29)


to 30 June 2011

for the periodfrom 1 January 2010

to 30 June 2010

Change (%)

Liquidity ratios of KOGENERACJA S.A. in the first half of 2011 were as follows: current liquidity of 0.96, quick liquidity of 0.36. The increase in current liquidity vs. H1 2010 was mainly caused by a decrease of 38% in short-term liabilities, with a concurrent decrease of 33% in net current assets, mainly because the fall in receivables was deeper than the fall in inventories. As at 30 June 2011, the Company’s long-term liabilities in respect of bank loans amounted to PLN 31,572 thousand, while the total liabilities in respect of other loans were PLN 7,167 thousand. Short-term liabilities are paid timely. d. Cash flows of EC Zielona Góra S.A.

in PLN thousand Net cash from operating activities 99 070 111 126 (12 056)Net cash used in investing activities (17 780) (4 644) (13 136)Net cash from financing activities (85 215) (77 692) (7 523)Total net cash flows (3 925) 28 790 (32 715)

Cash and cash equivalents at the beginningof the financial year

154 173 170 746 (16 573)

Cash and cash equivalents at the endof the financial year

150 248 199 536 (49 288)

Change(value)


to 30 June 2011


to 30 June 2010

1) Operating activities In the reporting period, cash flows from operating activities fell by PLN 12,056 thousand compared with the previous year, which was mainly caused by the much higher decrease in inventories (especially certificates) and the lower net income. The decrease was somewhat counterbalanced by the lower decrease in receivables in H1 2011 compared with the underlying period. 2) Investing activities Cash flows from investing activities were at PLN 17,780 thousand. Investment outflows of PLN 21,725 thousand were partly offset by investment inflows from bank deposits (PLN 3,544 thousand). Investment outflows were mainly related to the upgrade of the CC gas unit. 3) Financing activities The cash flows from financing activities in H1 2011 were driven by: Interest on investment and other loans (PLN 6,580 thousand); Repayment of investment and other loans (PLN 26,542 thousand); Dividend paid of PLN 52,088 thousand.

The higher dividend paid negatively affected the value of cash flows from financing activities compared with the first half of 2010.


___________________________________________________________________________________________ 4) Net cash flows

In H1 2011, total net cash flows were negative and amounted to PLN 3,925 thousand. In the comparative period, the value was much higher, amounting to PLN 28,790 thousand. At the end of June 2011, the balance of cash was PLN 150,248 thousand, a decrease of PLN 49,288 thousand year-on-year. e. Financial liquidity - EC Zielona Góra S.A.

Current liquidity 1,93 2,01 (4)Quick liquidity 1,89 1,96 (3)


to 30 June 2011


to 30 June 2010

Change (%)

Liquidity ratios of EC Zielona Góra S.A. in the first half of 2011 were as follows: 1.93 – current liquidity and 1.89 – quick liquidity. In the previous period the ratios were at 2.01 and 1.96, respectively. The decrease in current and quick liquidity was mainly caused by the lower level of current assets (inventories and cash). The decrease in both ratios points to the fact that debt funds the company’s activities to a smaller extent.

As at 30 June 2011, EC Zielona Góra S.A. had virtually no overdue liabilities. Short-term debts are repaid on an on-going basis – there is no risk of liquidity loss. Considering the above, there is no threat to the continued operations of EC Zielona Góra S.A. 8. Loans incurred and terminated (in accordance with § 91 section 6 point 6 of the Ordinance) a. Loans incurred In the period from 1 January 2011 to 30 June 2011, the Group did not take out any loans. b. Repayment of loans In the period from 1 January 2011 to 30 June 2011, the Group repaid borrowings in the total amount of PLN 34,134 thousand (consolidated data), including:

a) PLN 23,428 thousand – EC Zielona Góra S.A.; b) PLN 6,653 thousand – KOGENERACJA S.A.; c) PLN 3,501 thousand – Renevis sp. z o.o.; d) PLN 552 thousand – PPO Siechnice Sp. z o.o.

The debt amount mainly relates to e.g. loans associated with construction of the CC gas unit in EC Zielona Góra S.A., loans towards construction of a greenhouse and upgrade of the water-treatment plant in PPO Siechnice Sp. z o.o., and a term loan incurred by Renevis sp. z o.o. In H1 2011, KOGENERACJA S.A was paying its investment loan towards redevelopment of boiler OP130/K-2 in EC Czechnica. The original loan value was PLN 51,000 thousand. Loan repayment started in September 2010 with quarterly repayments of PLN 2,429 thousand until September 2015.


___________________________________________________________________________________________ c. Issue of bonds In H1 2011, KOGENERACJA S.A. repurchased debt securities with a net value of PLN 152,727 thousand. The bond issue was to finance the Company’s current assets. 9. Loans granted (in accordance with § 91 section 6 point 7 of the Ordinance) a. Loans given in the first half of 2011 The Company did not grant any loans in H1 2011. b. Loans given in the previous years KOGENERACJA S.A. receives quarterly financial income from the loans given to EC Zielona Góra S.A. The loan agreements were signed on 3 June 2003 for a total amount of PLN 69,700 thousand. The loans are to be repaid by 2016 and financed construction of the CC Gas Unit in EC Zielona Góra, which was commercially commissioned in 2004. As at 30 June 2011

LoansEC Zielona Góra S.A. 69 700 WIBOR + 1,3% PLN 03-06-2002 39 784 30-06-2016

in PLN thousand Date granted Balance with interestsAmount Interest rate CCY Due date

c. Loans given to the Company's Management Board and Supervisory Board members The loans given to connected entities as part of the Social Fund in H1 2011 were as follows: As at 30 June 2011

Roman Nowak 6 000 1% PLN 16-03-2009 1 502 31-03-2012Roman Nowak 10 000 1% PLN 07-12-2006 1 248 31-12-2011Zbigniew Szymanek 6 000 1% PLN 16-03-2010 4 780 31-03-2013Henryk Zajas 8 000 1% PLN 02-10-2008 250 31-07-2011Henryk Zajas 30 000 1% PLN 04-09-2009 25 500 30-09-2015Danuta Żeleźna 30 000 1% PLN 06-05-2008 17 500 31-05-2014

Due datein PLN Amount Interest rate CCY Date granted Balance with interests


___________________________________________________________________________________________ 10. 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 2011, the following events significantly affected the Group’s business: − The Group’s net income achieved in H1 2011 was by PLN 16,822 thousand lower year-on-year: PLN 83,627 thousand

vs. PLN 100,449 thousand in H1 2010; − Increase in the prices of electricity and “red" and green" certificates; − On 10 August, the Parent Company paid a dividend of PLN 52,150 thousand (PLN 3.5 /share; in 2010 also PLN

3.5/share) (Current Report 19/2011); − Receipt of dividend of PLN 51,256 thousand by the Parent Company from EC Zielona Góra S.A. (compared with

PLN 41,714 thousand in 2010); − Starting from 1 January 2011, EC Zielona Góra S.A. started to operate within the Shared Services Centre, using the so-

called non-technical support functions, i.e. finance and IT, as well as technical support functions - procurement, logistics and engineering (Current Report 34/2010);

− On 30 June 2011, the General Meeting of Shareholders took place, which appointed new members to the Supervisory Board of the 7th tenure and amended the Company’s Statutes (Current Report 18-21/2011).

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

financial statements − On 12 August 2011, the total value of the bonds issued by the Company was PLN 115,000 thousand and exceeded 10%

of the Company’s equity (Current Report 22/2011); − On 25 August 2011, an annex was signed to the loan agreement with ING Bank Śląski, increasing the overdraft level

from PLN 40,750 thousand to PLN 103,000 thousand, and extending the term of the agreement to 31 October 2012 (Current Report 24/2011);

− On 31 March 2011, the President of the Energy Regulatory Office started proceedings against EC Zielona Góra S.A. to determine the annual correction to the stranded costs for 2010, which was advised by the Company in its interim report for Q1 2011; Next, on 18 April 2011, the President of the Energy Regulatory Office started proceedings to impose a fine on EC Zielona Góra due to the alleged provision of incorrect information to the Office. The proceedings was closed with a positive decision for the company, with no impact on the Group's performance.

11. Factors that will affect KOGENERACJA’s performance in the subsequent periods (in accordance with § 87 section 7, point 11 of the Ordinance) According to the Group, the key drivers of the Group’s performance in the subsequent periods will include: a) Volume of production and the related volume of CO2 emissions; b) Prices of electricity sold; c) Number of red, green and yellow certificates received and sold.


___________________________________________________________________________________________ 12. Description of key risks and threats ((in accordance with § 90 section 1, point 3 of the Ordinance) 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, for which an Environmental Decision no. WSR.E.AF.7681/9706/4-13/11 was received on 13 April 2013. To mitigate this risk, the Company intends to increase its heat and electricity production based on full biomass incineration, given the provisions of Article 9a section 7 of the Energy Law: An energy producer that distributes and sells heat shall, to the extent set out in the regulations issued under section 9, purchase the offered heat generated in the network-connected renewable energy sources in the territory of the Republic of Poland in a volume not higher than the demand of the buyers of such energy producer, connected to the same network as the renewable energy sources. 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 2011, in accordance with the Ordinance of the Minister of Economy of 14 August 2008, the share of AGRO biomass in the process of co-incineration by the power plants with a capacity exceeding 5 MW was increased to 40%. 3) Other legal developments

The Minister of Economy issued an ordinance, which became effective on 23 February 2010, changing the ordinance on the detailed scope of responsibilities with regard to receipt and redemption of energy origin certificates, payment of the substitution fee, purchase of electricity and heat generated in renewable energy sources and the obligation to confirm the data on the volume of electricity generated in the renewable energy source, i.e. with regard to § 2 point 1, with biomass definition including the cereals that do not meet the quality requirements for intervention, as specified in Article 4 of the Commission Regulation (EC) no. 687/2008 of 18 July 2008, which lays down the procedures for take-over of cereals by the intervention agencies, and the methods of analysis of cereals quality (EU Official Journal L 192 of 19.07.2008, page 20) and the cereals that are not subject to intervention.

Also, on 28 April 2011, the Polish Parliament ratified a revised act on trading in the allowances for emission of greenhouse gases. The act provides more details on the trading in emissions, particularly after 2013 (e.g. with regard to the auctions for emission allowances) and points to future enactment of implementing regulations (ordinances).

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) The amendment covers the area regulated by several other directives, including IPPC, LCP or the waste incineration directive. The changes clearly gravitate towards tightening of the regulations on emission reduction. A major impact will be seen as a result of introduction of a chimney, rather than a furnace, as the emission source. The risk of changes in legislation is the tightening of the emission standards for SO2, NOx and dust, effective from 2016. In practice this means that massive costs will need to be incurred for early replacement of the existing equipment. Discussions are going on to defer implementation of the directive for existing sources, until 2020 or 2025. Another solution might be a derogation whereby such sources would be allowed to work for a specific number of hours without having to comply with the requirements. Perhaps an acceptable solution will be preparation of dedicated derogation lists for particular facilities. From the point of view of the Polish energy sector, the most reasonable and economical solution would be to implement the directive for legacy installations effective from 2025, when the useful life of most of such installations will come to an end.


___________________________________________________________________________________________ 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%. 7) Fuel deliveries In 2011, major risk factors with regard to fuel deliveries included disruptions in the regularity of raw material supplies (coal, biomass) as a consequence of the situation in the transport sector and the biomass market, in particular:

reduced capability of coal transport by rail due to the lack of carriages; difficulties with obtainment of sufficient volumes of good quality biomass, especially the AGRO biomass.

8) 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 LTCs termination based on the ratified Act did not impair the company's performance compared with the situation that would exist if the LTCs were still in place. For this reason, there is no risk that KOGENERACJA S.A. might not receive dividends or payments under the loan made to the company. 9) CO2 emission A new risk is the insufficient volume of allowances received under the National Plan of Allowances Allocation for the years 2008-2012 (KPRU II) (Journal of Laws No. 202, item 1248). The plan is less favourable for the power sector than the plan binding in the previous settlement period (National Allocation Plan, Ordinance of the Council of Ministers of 27 December 2005). KPRU II implemented in November 2008, is less favourable for KOGENERACJA S.A., as the allocated volumes of emissions are lower than in the previous settlement period. The possible unfavourable allocation of allowances may result in a decrease in the income from sale of the rights compared to the previous periods and may cause an increase in costs if the value of allowances is lower than the actual emission. It may also lead to the need to reduce production. The effect was mitigated by the increased production from renewable energy sources and the launch, in December 2010, of the retrofitted fluidised bed boiler OP130/K-2 in the Czechnica CHP to reduce the annual carbon emissions.


___________________________________________________________________________________________ On 24 June 2011, the Head of the Lower Silesian Province gave KOGENERACJI S.A. a consent to emit greenhouse gases from the fuel incineration facility in the CHP BIOKO unit with a capacity of 120 MWe/MWt – the facility will generate electricity to be sold to third parties. The facility will be located at 22 Fabryczna Street in Siechnice. 13. Litigations (in accordance with § 87 section 7 point 7 of the Ordinance) In 2011, 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. 14. Shares of KOGENERACJA S.A. or its subsidiaries held by directors (in accordance with § 87 section 7, point 6 of the Ordinance) 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 2011, no changes occurred in the shareholdings of executive and non-executive directors. 15. Dividend declared or paid (in accordance with § 87 section 4, point 57 of the Ordinance) Pursuant to Resolution no. 6/2011 of the AGM of KOGENERACJA S.A. of 30 June 2011, on 10 August 2011, the Company paid a dividend for 2011 of PLN 52,150 thousand, i.e. PLN 3.50 per share. The ex-dividend date was 22 July 2011. 16. 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 / current liabilities

Quick liquidity = (Current assets – Inventories ) / Short-term liabilities


___________________________________________________________________________________________ III. Share price

1. Quotation of the KOGENERACJA shares on Warsaw Stock Exchange At the first session in 2011, on closing, the share price of KOGENERACJA S.A. was PLN 109.5 per share and the trading volume was 5,644 shares. In H1 2011, the highest price was recorded on 21 January when the closing quotation of KOGENERACJA shares was PLN 82.70 per share at the volume of trading of 1,585 shares. At the end of June 2011, the shares were quoted at PLN 94.50 with the volume of trading of 45 shares.

Quotations of KOGENERACJA Shares on Warsaw Stock Exchange in the first half of 2011

60

70

80

90

100

110

120

2011-01-03 2011-02-03 2011-03-08 2011-04-08 2011-05-16 2011-06-16

From 20 March 2009 to 17 June 2011, KOGENERACJA S.A. was quoted in the mWIG40 index. After the quarterly review of the index members, the Company was added to the sWIG80 index (announcement of the Management Board of the Warsaw Stock Exchange of 12 May 2011).

Quotations of sWIG80 in the first half of 2011

11500

11900

12300

12700

13100

2011-01-03 2011-02-01 2011-03-01 2011-03-29 2011-04-28 2011-05-30 2011-06-28


___________________________________________________________________________________________ Wrocław, 30 August 2011

................................................... Philippe Gagneux

Management Board President

................................................... Roman Traczyk

Management Board Member

................................................... Krzysztof Wrzesiński


................................................... Henryk Zajas


MANAGEMENT BOARD'S REPORT ON THE ACTIVITIES OF KOGENERACJA ... · KOGENERACJA S.A. – Management...

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Transcript of MANAGEMENT BOARD'S REPORT ON THE ACTIVITIES OF KOGENERACJA ... · KOGENERACJA S.A. – Management...