Kauno Energija

Annual Report • Apr 2, 2020

AB KAUNO ENERGIJA

SET OF CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR, ENDED 31 DECEMBER 2019, PREPARED ACCORDING TO INTERNATIONAL FINANCIAL REPORTING STANDARDS, AS ADOPTED BY THE EUROPEAN UNION, PRESENTED TOGETHER WITH CONSOLIDATED ANNUAL REPORT AND INDEPENDENT AUDITOR'S REPORT

Translation note

This set of Consolidated and Parent Company's Financial Statements presented together with Consolidated Annual Report and Independent Auditor's Report has been prepared in Lithuanian language and in English language. In all matters of interpretations of information, views or opinions, the Lithuanian language version of these documents takes precedence over the English version.

	Page
INDEPENDENT AUDITOR'S REPORT……………………………………………	3 – 10
Management's approval of the financial statements…………………………	11
SET OF CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR 2019	12 – 61
Statements of Financial Position	12 – 13
Statements of Profit (loss) and Other Comprehensive Income	14 – 15
Statements of Changes in Equity	16
Statements of Cash flows	17 – 18
Notes to the Financial Statements	19 – 61
CONSOLIDATED ANNUAL REPORT……………………………………………….	62 – 153

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Statements of Financial Position

	Group			Company
	Notes	31.12.2019	31.12.2018	31.12.2019	31.12.2018
ASSETS
Non-current assets
Intangible assets	3	72	22	71	22
Property, plant and equipment	4
Land and buildings		7,569	8,087	6,300	6,677
Structures		100,344	88,762	99,826	88,181
Machinery and equipment		19,992	21,053	17,675	18,214
Vehicles		399	460	387	448
Devices and tools		2,350	2,888	2,347	2,885
Construction in progress and prepayments		7,360	3,588	7,360	3,588
Investment property		419	439	166	172
Total property, plant and equipment		138,433	125,277	134,061	120,165
Right-of-use assets		1,283	-	1,073	-
Non-current financial assets
Investments into subsidiaries	1;5	-	-	2,064	2,064
Loans to the group companies	5	-	-	-	-
Other financial assets		1	1	1	1
Total non-current financial assets		1	1	2,065	2,065
Total non-current assets		139,789	125,300	137,270	122,252
Current assets
Inventories and prepayments
Inventories	6	1,582	1,584	1,523	1,516
Prepayments		1,155	1,259	1,097	1,187
Total inventories and prepayments		2,737	2,843	2,620	2,703
Amounts receivable within one	7
year Trade receivables	7	8,516	10,188	8,516	10,188
Loans to the group companies	5	-	-	443	443
Other receivables	7	778	969	749	938
Total accounts receivable		9,294	11,157	9,708	11,569
Cash and cash equivalents	8;22	2,219	8,761	1,940	8,673
Assets held for sale	4	57	205	57	205
Total current assets		14,307	22,966	14,325	23,150
Total assets		154,096	148,266	151,595	145,402

(cont'd on the next page)

Statements of Financial Position (cont'd)

		Group		Company
	Notes	31.12.2019	31.12.2018	31.12.2019	31.12.2018
EQUITY AND LIABILITIES
Equity
Share capital	1	74,476	74,476	74,476	74,476
Legal reserve	9	7,447	6,435	7,447	6,435
Other reserve	9	2,900	100	2,900	100
Retained earnings (deficit)
Profit for the current year	1	933	3,963	747	4,414
Profit (loss) for the prior year	1	4,069	4,993	4,206	4,674
Total retained earnings (deficit)		5,002	8,956	4,953	9,088
Total equity		89,825	89,967	89,776	90,099
Payable amounts and liabilities
Amounts payable after one year and oter long-term liabilities
Non-current financial liabilities	10;22	17,651	19,257	16,517	17,556
Financial lease obligations	11;22	1,262	81	1,049	81
Deferred tax liability	20	5,368	5,458	5,561	5,693
Grants and subsidies	12	25,519	18,235	24,710	17,265
Employee benefit liability	13;24	570	704	562	698
Non-current trade liabilities	22	4	2	4	2
Total non-current liabilities		50,374	43,737	48,403	41,295
Current liabilities
Current portion of non-current borrowings and financial lease	10;11	4,777	4,483	4,208	3,916
Current borrowings	10;22	-	-	-	-
Trade payables	22	6,989	7,650	7,198	7,751
Employment-related liabilities		694	790	672	771
Advances received		551	877	551	877
Taxes payable		467	392	402	357
Derivative financial instruments	14.22	12	16	-	-
Current portion of employee benefit liability	13	149	155	148	154
Interest liabilities		-	-	-	-
Accruals and deferred income		152	137	131	120
Other current liabilities		106	62	106	62
Total current liabilities		13,897	14,562	13,416	14,008
Total liabilities		64,271	58,299	61,819	55,303
Total equity and liabilities		154,096	148,266	151,595	145,402

(the end)

Statements of Profit (loss) and Other Comprehensive Income

Group

	Notes	2019	2018
Revenue
Sales income	15	54,649	61,316
Other operating income	17	819	1,299
Total operating income		55,468	62,615
Expenses
Fuel and heat acquired		(32,906)	(36,267)
Salaries and social security		(6,958)	(7,281)
Depreciation and amortization	3;4	(7,117)	(6,972)
Repairs and maintenance		(1,007)	(1,084)
Change in impairment of accounts receivable	7	1,017	785
Taxes other than income tax		(1,687)	(1,563)
Electricity		(1,274)	(1,145)
Raw materials and consumables		(545)	(568)
Water		(1,080)	(1,081)
Change in net realisable value and impairment of		42	113
non-current assets	6
Other operating expenses	16	(2,288)	(2,289)
Other activities expenses	17	(351)	(380)
Total expenses		(54,154)	(57,732)
Operating profit (losses)		1,314	4,883
Other interest and similar income	18	213	237
Impairment financial assets and short-term
investments	19	-	-
Interest and other similar expenses	19	(484)	(553)
Finance cost, net		(271)	(316)
Profit before income tax		1,043	4,567
Corporate income tax	20	(19)	19
Deferred tax income (losses)	20	117	(584)
Net profit (loss) of the reporting period		1,141	4,002
Employee benefit liability (accumulation), which
will be reclassified subsequently to profit or loss	13;20	(208)	(39)
when specific conditions are met
Comprehensive income		933	3,963
Net profit (loss) of the reporting period attributable to net owners of the Company		1,141	4,002
Total comprehensive income attributable to owners of the Company		933	3,963
Basic and diluted earnings per share (EUR)	21	0.03	0.09

Statements of Profit (loss) and Other Comprehensive Income (cont'd)

Company

	Notes	2019	2018
Revenue
Sales income	15	54,659	61,328
Other operating income	17	709	1,181
Total operating income		55,368	62,509
Expenses
Fuel and heat acquired		(34,189)	(36,999)
Salaries and social security		(6,799)	(7,141)
Depreciation and amortization	3;4	(6,552)	(6,390)
Repairs and maintenance		(974)	(1,067)
Change in impairment of accounts receivable	7	1,021	807
Taxes other than income tax		(1,661)	(1,536)
Electricity		(1,115)	(1,017)
Raw materials and consumables		(533)	(559)
Water		(1,078)	(1,080)
Change in net realisable value and impairment of non current assets	6	42	113
Other operating expenses	16	(2,235)	(2,243)
Other activities expenses	17	(270)	(265)
Total expenses		(54,343)	(57,377)
Operating profit (losses)		1,025	5,132
Other interest and similar income	18	214	239
Impairment financial assets and short-term investments	19	-	156
Interest and other similar expenses	19	(445)	(511)
Finance cost, net		(231)	(116)
Profit before income tax		794	5,016
Corporate income tax	20	-	19
Deferred tax income (losses)	20	159	(584)
Net profit (loss) of the reporting period		953	4,451
Employee benefit liability (accumulation), which will be reclassified subsequently to profit or loss when specific conditions are met	13;20	(206)	(37)
Comprehensive income		747	4,414
Basic and diluted earnings per share (EUR)	21	0.02	0.10

Statements of Changes in Equity

Group	Notes	Share capital	Legal reserve	Other reserve	Retained earnings (accumulated deficit)	Total
Balance as of 31 December 2017		74,476	3,267	100	11,500	89,343
Allocated to reserves	9	-	3,168	100	(3,268)	-
Transferred from reserves	9	-	-	(100)	100	-
Dividends	1	-	-	-	(3,339)	(3,339)
Profit for the reporting period		-	-	-	4,002	4,002
Other comprehensive income		-	-	-	(39)	(39)
Balance as of 31 December 2018		74,476	6,435	100	8,956	89,967
Profit/loss not recognised in the income statement		-	-	-	(5)	(5)
Allocated to reserves	9	-	1,012	2,900	(3,912)	-
Transferred from reserves	9	-	-	(100)	100	-
Dividends	1	-	-	-	(1,070)	(1,070)
Profit for the reporting period		-	-	-	1,141	1,141
Other comprehensive income		-	-	-	(208)	(208)
Balance as of 31 December 2019		74,476	7,447	2,900	5,002	89,825

Company	Notes	Share capital	Legal reserve	Other reserve	Retained earnings (accumulated deficit)	Total
Balance as of 31 December 2017		74,476	3,267	100	11,181	89,024
Allocated to reserves	9	-	3,168	100	(3,268)	-
Transferred from reserves	9	-	-	(100)	100	-
Dividends	1	-	-	-	(3,339)	(3,339)
Profit for the reporting period		-	-	-	4,451	4,451
Other comprehensive income		-	-	-	(37)	(37)
Balance as of 31 December 2018		74,476	6,435	100	9,088	90,099
Allocated to reserves	9	-	1,012	2,900	(3,912)	-
Transferred from reserves	9	-	-	(100)	100	-
Dividends	1	-	-	-	(1,070)	(1,070)
Profit for the reporting period		-	-	-	953	953
Other comprehensive income		-	-	-	(206)	(206)
Balance as of 31 December 2019		74,476	7,447	2,900	4,953	89,776

Statements of Cash Flows

		Group		Company
	Notes	2019	2018	2019	2018
Cash flows from (to) operating
activities
Comprehensive income		933	3,963	747	4,414
Adjustments for non-cash items:
Depreciation and amortization	3.4	8,821	8,665	8,076	7,905
Change in impairment of accounts receivable		(1,017)	(780)	(1,021)	(807)
Interest ехpenses	19	484	541	446	499
Change in fair value of derivatives	19	(4)	-	-	-
Loss (profit) from sale and write-off of
property, plant and equipment and value of the shares		(266)	2	(266)	2
(Amortization) of grants	12	(1,340)	(1,327)	(1,179)	(1,165)
Change in net realisable value and	3,4,6	(42)	(113)	(42)	(113)
impairment of non-current assets
Change employee benefit liability	13	181	34	179	32
Corporate income tax expense	20	(90)	589	(132)	589
Change in accruals		(56)	(8)	(49)	(16)
Impairment of investment in subsidiary		-	-	-	(156)
Elimination of other financial and		(210)	(225)	(214)	(227)
investing activity results
Total adjustments for non-cash items:		6,461	7,378	5,798	6,543
Changes in working capital:
(Increase) decrease in inventories	6	18	(129)	9	(148)
(Increase) decrease in prepayments		104	(809)	90	(781)
(Increase) decrease in trade receivables	7	2,696	575	2,696	597
(Increase) decrease in other receivables	7	188	(530)	190	(516)
(Decrease) increase in non-current trade
payables		2	(8)	2	(8)
(Decrease) increase in trade payables
and advances received	22	(591)	467	(483)	597
(Decrease) increase in employment related liabilities		(389)	(428)	(392)	(432)
Increase (decrease) in tax payable		75	17	45	4
Increase (decrease) in received		(396)	402	(396)	402
prepayments
Increase (decrease) in other current liabilities		44	(5)	44	3
Total changes in working capital:		1,751	(448)	1,805	(282)
Net cash flows from operating activities		9,145	10,893	8,350	10,675

(cont'd on the next page)

Statements of Cash Flows (cont'd)

	Group		Company
	Notes	2019	2018	2019	2018
Cash flows from (to) the investing activities
Acquisition of property, plant, equipment and intangible assets	4	(22,031)	(4,052)	(22,029)	(4,052)
Proceeds from sale of property, plant and equipment		508	3	508	3
Interest received for overdue accounts	18	210	237	214	239
receivable Loans granted		-	-	-	(383)
Net cash flows from investing activities		(21,313)	(3,812)	(21,307)	(4,193)
Cash flows from (to) financing activities
Proceeds from loans		3,306	2,943	3,306	2,943
(Repayment) of loans		(4,567)	(4,116)	(4,000)	(3,549)
Interest (paid)		(551)	(586)	(520)	(543)
Lease payments		(112)	(116)	(112)	(116)
Penalties and fines (paid)		-	(12)	-	(12)
Dividends paid	1	(1,070)	(3,338)	(1,070)	(3,338)
Received grants		8,620	295	8,620	295
Net cash flows from (used in) financing activities		5,626	(4,930)	6,224	(4,320)
Net (decrease) increase in cash and cash equivalents		(6,542)	2,151	(6,733)	2,162
Cash and cash equivalents at the beginning of the period	8	- 8,761	- 6,610	- 8,673	- 6,511
Cash and cash equivalents at the end of the period	8	2,219	8,761	1,940	8,673

The accompanying notes are an integral part of these financial statements.

(the end)

Notes to the Financial Statements

1. General information

AB Kauno Energija (hereinafter – the Company) is a public limited liability company registered in the Republic of Lithuania. The address of its registered office is as follows: Raudondvario Rd. 84, Kaunas, Lithuania. Data on the Company are collected and stored in the Register of Legal Entities.

The Company is involved in heat and hot water supplies, electricity generation and distribution and also involved maintenance of manifolds. The Company are also involved in maintenance of heating systems. The Company was registered on 1 July 1997 after the reorganization of AB Lietuvos Energija. The Company's shares are traded on the Baltic Secondary List of the AB Nasdaq Vilnius Stock Exchange.

As of 31 December 2019 and as of 31 December 2018 the shareholders of the Company were as follows:

	As of 31 December 2019		As of 31 December 2018
	Number of shares owned (unit)	Percentage of ownership (percent)	Number of shares owned (unit)	Percentage of ownership (percent)
Kaunas city municipality	39,736,058	92.84	39,736,058	92.84
Kaunas district municipality	1,606,168	3.75	1,606,168	3.75
Jurbarkas district municipality	746,405	1.74	746,405	1.74
council Other minor shareholders	713,512	1.67	713,512	1.67
	42,802,143	100.00	42,802,143	100.00

The authorised share capital of AB Kauno Energija is in the amount of EUR 74.475.728,82 and it is divided into 42,802,143 ordinary nominal shares with the par value of 1.74 euros. As of 31 December 2019 and 31 December 2018, the Company did not hold any own shares. The Company owns no shares as at the end of the reporting periods. All shares were fully paid as of 31 December 2019 and as of 31 December 2018.

As of 31 December 2019 the Company and the subsidiarys UAB Kauno Energija NT and UAB Petrašiūnų Katilinė represent the Group (hereinafter – the Group):

Company	Principal place of business	Share held by the Group	Cost of investment	Profit (loss) for the year	Total equity	Main activities
UAB Kauno energija NT	Savanorių Ave. 347, Kaunas	100 percent	1,330	3	1,063	Rent
UAB Petrašiūnų Katilinė	R. Kalantos st. 49, Kaunas	100 percent	1,894	346	588	Heat production

As of 31 December 2019, the average number of employees in the Group was 418 (468 employees as of 31 December 2018). As of 31 December 2019, the average number of employees at the Company was 403 (456 employees as of 31 December 2018).

1. General information (cont'd)

Legal Regulations

According to the Law on Heat Industry of the Republic of Lithuania, the Company's activities are licensed and regulated by the National Energy Regulatory Council (hereinafter the Council). On 26 February 2004 the Council granted the Company the heat distribution license. The license has indefinite maturity, but is subject to meeting certain requirements and may be revoked based on the respective decision of the Council. The Council also sets price cap for the heat supply. On the 13 September 2018 the Council determined by its decision No. 03E-283 a new basic heat rates force components for the period till 30 September 2021. According to the heat pricing methodology, base heat costs and prices (price constituents) are applied during the second and subsequent years by recalculating and adjusting the heat price constituents.

On the 2 September 2019 the Council determined by its decision No. 03E-351 a new basic heat rates force components to UAB "Petrašiūnų katilinė" for the period till 30 September 2024.

Operational Activity

Group's generation capacities consist of Company's generation capacities and 1 subsidiary boiler-house in Kaunas. Company's generation capacities include Petrašiūnai power plant, 4 boiler-houses in Kaunas integrated network, 7 district boiler-houses in Kaunas district, 1 regional boiler-house in Jurbarkas city, 13 boiler-houses in isolated networks and 26 local boiler-house in Kaunas city and 8 water heating boilerhouses in Sargėnai catchment.

Total installed heat generation capacities of the Group consist of approx 672 MW (including 47 MW of condensational economizers) and total power generation capacities of the whole Group consist of approx 681 MW (including 47 MW of condensational economizers). Total installed heat generation capacities of Company amount to 653 MW (including 47 MW of condensing economizers). Electricity generation capacities amount up to 8.75 MW, 314.6 MW of heat generation capacities (including 17.8 MW condensing economizer) and 8 MW of electricity generation capacities are located in Petrašiūnai power plant. 34.8 MW of heat generation capacities (including 2.8 MW condensing economizer) are located in Jurbarkas city. Total Company's power generation capacities consist of approx 662 MW (including 47 MW of condensing economizers).

The Company makes investments estimating economic situation, competition and financing possibilities. Investment plans are approved by shareholders, and regulated and controlled by Council.

The Company's management has signed these financial statements on March 27 2020. The Company's shareholders have a statutory right to approve these financial statements or not to approve them and to requir management to prepare new financial statements.

2.1. Statement of Compliance

The financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and interpretations of them. The standards are issued by the International Accounting Standards Board (IASB) and the interpretations by the International Financial Reporting Interpretations Committee (IFRIC).

2.2. Basis of the preparation of financial statements

The financial statements have been prepared on a cost basis, except for certain financial instruments, which are stated at fair value, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

The financial year of the Company and other Group companies coincides with the calendar year.

The amounts shown in these financial statements are measured and presented in euro (EUR) (rounded to the nearest thousands, except when otherwise indicated), which is a functional and presentation currency of the Group.

2.3. Adoption of new and/or amended IFRS

Except as set out below, the accounting policies used to prepare these interim condensed financial statements are the same as those described in the last separate and consolidated financial statements. The Group and the Company has adopted IFRS 16 Leases as of 1 January 2019. Other new standards that came into force as of 1 January 2019 do not have material effect of the financial statements of the Group and the Company.

IFRS 16, Leases (effective for annual periods beginning on or after 1 January 2019). The comparative information for 2018 were not adjusted.

The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessees will be required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value; and (b) depreciation of lease assets separately from interest on lease liabilities in the income statement. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

On initial recognition of IFRS 16, the Group elected to use a modified retrospective approach. Accordingly, the comparative information has not been recalculated and in these financial statements is presented in accordance with IAS 17 and related interpretations of standards.

There are no other new or amended standards and interpretations that are not yet effective and that may have a material impact for the Group/Company.

2. Accounting principles (cont'd) 2.4. Principles of consolidation

Principles of consolidation

The consolidated financial statements of the Group include AB Kauno Energija and its subsidiaries. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. Consolidated financial statements are prepared on the basis of the same accounting principles applied to similar transactions and other events under similar circumstances.

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of Profit (loss) and Other Comprehensive Income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Subsidiary is the company which is directly or indirectly controlled by the parent company. The control is normally evidenced when the Group owns, either directly or indirectly, more than 50 percent of the voting rights of a company's share capital or otherwise has power to govern the financial and operating policies of an enterprise so as to benefit from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

Changes in the Group's ownership interests in existing subsidiaries

Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the amounts previously recognized in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable IFRS). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 9 Financial Instruments or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

2.5.Investments in subsidiaries

Investments in subsidiaries in the Company's Statements of Financial Position are recognized at cost. The dividend income from the investment is recognized in the Statement of profit (loss) and Other Comprehensive Income.

The indicators of impairment in IAS 36 Impairment of Assets are applied to determine whether it is necessary to recognize any impairment loss with respect to the Company's investment in a subsidiary. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

2.6.Intangible assets

Intangible assets acquired separately

Intangible assets acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Calculation of amortization is discontinued as of the first day of the next month after the disposal of asset or when the whole acquisition cost is expensed or reclassified as a part of other asset. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

Derecognition of intangible assets

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

Licenses

Amounts paid for licenses are capitalized and then amortized over useful life (3 – 4 years).

Software

The costs of acquisition of new software are capitalized and treated as an intangible asset if these costs are not an integral part of the related hardware. Software is amortized over a period not exceeding 3 years.

Costs incurred in order to restore or maintain the future economic benefits of performance of the existing software systems are recognized as an expense for the period when the restoration or maintenance work is carried out.

2.7. Accounting for emission rights

The Group and the Company apply a 'net liability' approach in accounting for the emission rights received. It records the emission allowances granted to it at nominal amount, as permitted by IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

Liabilities for emissions are recognized only as emissions are made (i.e. provisions are never made on the basis of expected future emissions) and only when the reporting entity has made emissions in excess of the rights held.

When applying the net liability approach, the Group and the Company have chosen a system that measures deficits on the basis of an annual allocation of emission rights.

The outright sale of an emission right is recorded as a sale at the value of consideration received. Any difference between the fair value of the consideration received and its carrying amount is recorded as a gain or loss, irrespective of whether this creates an actual or an expected deficit of the allowances held. When a sale creates an actual deficit an additional liability is recognized with a charge to the profit or loss.

2.8. Property, plant and equipment

Property, plant and equipment are stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of such property, plant and equipment when that cost is incurred if the asset recognition criteria are met.

Properties in the course of construction for production, supply or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group's and the Company's accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation is recognized so as to write off the cost of assets (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. The useful lives are reviewed annually to ensure that the period of depreciation is consistent with the expected pattern of economic benefits from the items in property, plant and equipment.

Depreciation is computed on a straight basis over the following estimated useful lives:

	Years
Buildings	15 – 50
Investment property	50
Structures	15 – 70
Machinery and equipment	5 – 20
Vehicles	4 – 10
Equipment and tools	3 – 16

Freehold land is not depreciated.

The Group and the Company capitalizes property, plant and equipment purchases with useful life over one year and an acquisition cost above EUR 144.81.

Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of Profit (loss) and Other Comprehensive Income in the year the asset is derecognized.

Subsequent repair costs are included in the asset's carrying amount, only when it is probable that future economic benefits associated with the item will flow to the Group and the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are recognized in profit or loss in the period in which they are incurred.

Construction-in-progress is stated at cost. This includes the cost of construction, plant and equipment and other directly attributable costs. Construction-in-progress is not depreciated until the relevant assets are completed and put into operation.

2.8.Property, plant and equipment (cont'd)

Assets held for sale

Property, plant and equipment, or disposal groups comprising assets and liabilities that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are measured in accordance with applicable IFRSs. Thereafter generally the assets, or disposal group, are measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss.

Once classified as held-for-sale, items of property, plant and equipment are no longer depreciated.

2.9. Impairment of property, plant and equipment and intangible assets excluding goodwill

At each Statements of Financial Position date, the Group and the Company reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group and the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, Group's and Company's assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss. The Group and the Company has one cashgenerating unit for heating business.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

2.10. Financial assets

From 1 January 2018, the Group and the Company classifies its financial assets in the following measurement categories:

those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss); and

those to be measured at amortised cost.

The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.

Recognition and initial measurement

Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group and the Company becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

Classification and subsequent measurement

On initial recognition, a financial asset is classified as measured at:

• amortised cost;
• FVOCI debt investment;
• FVOCI equity investment; or
• FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Group and the Company changes its business model for managing financial assets in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Write-off

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group and the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group's and the Company's procedures for recovery of amounts due.

Measurement of significant increase in credit risk

The Group and the Company measures the probability of default upon initial recognition of a financial asset and at each balance sheet date considers whether there has been a significant increase in credit risk since the initial recognition. To assess whether there is a significant increase in credit risk the Group and the Company compare the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. The following indicators are assessed when analysing whether significant increase in credit risk has occurred:

2.10. Financial assets (cont'd)

significant changes in internal credit rating (described below in paragraph "Other financial assets measured at amortised cost");

• significant change in external credit rating (if available);
• actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the client's ability to meet its obligations;
• actual or expected significant changes in the operating results of a client.

According to the overdue debt recovery statistical data of the Group and the Company the Management believes that the credit risk has not increased significantly since initial recognition even if the contractual payments are more than 30 days past due.

Write-off policy

Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan and the Group does not possess any collateral or other means of recovery. After write-off the Group continues to engage in enforcement activity with attempt to recover the receivable due. Any recoveries are recognised as a gain in profit/loss.

Measurement of ECL- trade receivables and other receivables

The Group and the Company apply the simplified approach for calculation of lifetime expected credit losses using the provision matrix for all trade receivables and other receivables. To measure the expected credit losses using provision matrix, trade receivables are split into separate pools, based on shared credit risk characteristics.

Receivables in each pool are grouped according to payment delay days and loss rates are applied to each delay group. The loss rates are calculated using statistical recovery information from the last 2 years (when available) and adjusted if considered necessary taking into account forward looking information. The table below shows expected credit loss information calculated for the Group and the Company according to each delay group.

2. Accounting principles (cont'd) 2.10. Financial assets (cont'd)

As trade receivables usually do not include any collateral or other credit enhancements, expected loss rate equals probability of default.

Trade receivables:	Past due Not
Group	past due	1-60 days	61-150 days	151-240 days	241-330 days	331-690 days	More than 691 days	Total
Expected credit loss rate %	0	20	50	60	80	90	100
Gross carrying amount	7,316	578	93	116	365	5,726	1,208	15,402
Expected credit loss provision for losses	0	117	46	70	292	5,153	1,208	6,886
Total 31/12/2019:								8,516

Trade receivables:		Past due
Company	Not past due	1-60 days	61-150 days	151-240 days	241-330 days	331-690 days	More than 691 days	Total
Expected credit loss rate %	0	20	50	60	80	90	100
Gross carrying amount	7,316	578	93	116	365	5,726	1,209	15,403
Expected credit loss provision for losses	0	117	46	70	292	5,153	1,209	6,887
Total 31/12/2019:								8,516

Lifetime expected credit loss is calculated for trade receivables applying the simplified approach and they are classified in Stage 2 in line with requirements of IFRS9.

Measurement of ECL - other financial assets measured at amortised cost

Other financial assets at amortised cost include loans to related.

2.11. Derivative financial instruments

The Group and the Company uses derivative financial instruments such as interest rate swaps to hedge its interest rate risks. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives during the year are taken directly to the profit (loss) for the period.

The fair value of interest rate swap contracts is determined by the reference to market values for similar instruments.

2.12. Inventories

Inventories are stated at the lower of cost or net realizable value. Net realizable value represents the estimated selling price for inventories less all estimated costs necessary to make the sale. Costs of inventories are determined on a first-in, first-out (FIFO) basis.

The cost of inventories is net of volume discounts and rebates received from suppliers during the reporting period but applicable to the inventories still held in stock.

2.13. Provisions

Provisions are recognized when the Group and the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group and the Company will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

2.14. Cash and cash equivalents

Cash includes cash on hand, cash at banks and cash in transit. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value.

For the purposes of the cash flow statement, cash and cash equivalents comprise cash with banks, cash in transit, deposits held at call with banks, and other short-term highly liquid investments.

2.15. Employee benefits

Contributions to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.

The retirement benefit obligation recognized in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognized actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan. Actuarial gains and losses are included in Other Comprehensive Income.

2.16. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

2.17. Financial liabilities and equity instruments

The Group and the Company classify financial liabilities into one of the following categories:

• valued at amortized cost;
• measured at fair value through profit or loss;
• hedging financial instruments.

Derecognition of financial liabilities

The Group and the Company derecognizes financial liabilities when, and only when, the Group's and the Company's obligations are discharged, cancelled or they expire.

The Group and the Company assigns trade payables, financial liabilities, finance lease liabilities, interest liabilities and other payables at amortized cost.

2.18. Lease

The Group and the Company is a lessee

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;
• variable lease payment that are based on an index or a rate;
• amounts expected to be payable by the lessee under residual value guarantees;
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the group's incremental borrowing rate.

Interest rate implicit in the lease is the rate of interest that causes the present value of the lease payments and the unguaranteed residual value to equal the sum of the fair value of the underlying asset and any initial direct costs of the lessor.

The carrying amount of the lease liability is measured on an amortised cost basis using effective interest rate method being the discount rate used to discount the lease payments. Interest expense related to lease liability is allocated over the lease term and recognised in profit or loss.

At initial recognition right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs;
• and restoration costs estimate.

Subsequently a lessee measures the right-of-use asset at cost less any accumulated depreciation and any accumulated impairment losses. If the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or if the cost of the right-of-use asset reflects that the lessee will exercise a purchase option, the lessee shall depreciate the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the lessee shall depreciate the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Lowvalue assets comprise tools and small items of office furniture.

2.19. Grants and subsidies

Government grants are not recognized until there is reasonable assurance that the Group and the Company will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group and the Company recognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group and the Company should purchase, construct or otherwise acquire non-current assets are recognized as deferred revenue in the Statements of Financial Position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Grants received in the form of non-current assets or intended for the purchase, construction or other acquisition of non-current assets are considered as asset-related grants. Assets received free of charge are also allocated to this group of grants. The amount of the grants related to assets is recognized as deferred income and is credited to profit or loss in equal annual amounts over the expected useful life of related asset. In the statement of Profit (loss) and Other Comprehensive Income, a relevant expense account is reduced by the amount of grant amortization.

Assets received free of charge are initially recognized at fair value.

Grants received as a compensation for the expenses or unearned income of the current or previous reporting period, also, all the grants, which are not grants related to assets, are considered as grants related to income.

The income-related grants are recognized as used in parts to the extent of the expenses incurred during the reporting period or unearned income to be compensated by that grant. The balance of unutilized grants is shown in the caption Grants (subsidies) in the balance sheet.

2.20. Corporate income tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Income tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. In 2019 the income tax applied to the Group and the Company was 15 percent (2018 - 15 percent).

Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such deferred assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

2.20. Corporate income tax (cont'd)

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred income tax assets is reviewed at each Statements of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected for Group and Company to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group and the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax for the period

Current and deferred tax are recognized as an expense or income in profit or loss, except when they relate to items that are recognized outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognized outside profit or loss, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is included in the accounting for the business combination.

2.21. Basic and diluted earnings per share

Basic earnings per share are calculated by dividing the net profit attributable to the shareholders by the weighted average of ordinary registered shares issued. There is no difference between the basic and diluted earnings per share.

2.22. Revenue recognition

The Group and the Company recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, excluding value added tax, discounts and rebates. The Group and the Company recognize revenue in accordance with that core principle by applying the following steps:

Step 1: Identify the contract(s) with a customer—a contract is an agreement between two or more parties that creates enforceable rights and obligations.

Step 2: Identify the performance obligations in the contract—a contract includes promises to transfer goods or services to a customer. If those goods or services are distinct, the promises are performance obligations and are accounted for separately.

2.22. Revenue recognition (cont'd)

Step 3: Determine the transaction price—the transaction price is the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The transaction price can be a fixed amount of customer consideration, but it may sometimes include variable consideration or consideration in a form other than cash. The transaction price is also adjusted for the effects of the time value of money if the contract includes a significant financing component and for any consideration payable to the customer.

Step 4: Allocate the transaction price to the performance obligations in the contract—an entity typically allocates the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract. If a stand-alone selling price is not observable, an entity estimates it.

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation—an entity recognises revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). The amount of revenue recognised is the amount allocated to the satisfied performance obligation. A performance obligation may be satisfied at a point in time or over time.

The Group and the Company recognize revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the group's activities as described below. The Group and the Company base their estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is recognised using the methods outlined below:

Revenue from sales of heat energy

Revenue from sales of heat energy is recognized when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably. Sales are recognized net of VAT and discounts.Revenue is recognized based on the bills issued to residential and other customers for heating and heating-up of cold water. The customers are billed monthly according to the readings of heat meters.

Revenue from the sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

the Group and the Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

• the Group and the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
• the amount of revenue can be measured reliably;
• it is probable that the economic benefits associated with the transaction will flow to the Group and the Company; and
• the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Financing component

The Group and the Company do not have and do not expect to have contracts in which the period between the provision of goods or services and the payment of the customer would exceed one year. For this reason, the Group and the Company do not separately account the financing component.

2.22. Revenue recognition (cont'd)

Other revenue

Late payment interest income from overdue receivables is recognized upon receipt.

Dividend revenue from investments is recognized when the shareholder's right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the Company and the amount of revenue can be measured reliably).

Interest revenue is recognized when it is probable that the economic benefits will flow to the Group and the Company and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

The Group's and the Company's policy for recognition of revenue from leases is described in Note 2.18. above.

2.23. Expense recognition

Expenses are recognized on the basis of accrual and revenue and expense matching principles in the reporting period when the income related to these expenses was earned, irrespective of the time the money was spent. In those cases when the costs incurred cannot be directly attributed to the specific income and they will not bring income during the future periods, they are expensed as incurred.

The amount of expenses is usually accounted for as the amount paid or due, excluding VAT. In those cases when a long period of payment is established and the interest is not distinguished, the amount of expenses is estimated by discounting the amount of payment using the market interest rate.

2.24. Foreign currencies

In preparing the financial statements of the individual entities of the Group, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

The presentation currency is euro (EUR). All transactions made in foreign currency are converted into Euros at the official exchange rate determined daily by the European Central Bank. Financial assets and liabilities are converted into Euros at currency rate of creation day of statements of financial state.

Gains and losses arising on exchange are included in profit or loss for the period at the moment of its appearance. Income or expenditures arising on exchange when converting financial assets or liabilities into euros are included in profit or loss.

Exchange differences are recognized in profit or loss in the period in which they arise.

2.25. Use of estimates in the preparation of financial statements

The preparation of financial statements requires the management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and disclosure of contingencies, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the Statements of Financial Position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

Property, plant and equipment – useful life

The key assumptions concerning determination the useful life of property, plant and equipment are as follows: expected usage of the asset, expected physical wear and tear, technical or commercial obsolescence arising from changes or improvements in the services, legal or similar limits on the use of the asset, such as the expiry dates of related leases.

Property, plant and equipment - fair value measurements and valuation processes

Some of the Group's assets are measured at fair value for financial reporting purposes. In estimating the fair value of an asset, the Group uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Group engages third party qualified valuers to perform the valuation, if necessary (Notes 3, 4).

Investments to subsidiaries – impairment losses

For assessment of recoverability of investment into subsidiaries the Company management estimates the recoverable amount of the investment by discounting the future cash flows of the subsidiaries to their present value using weighted average capital cost rate (WACC) that reflects current market assessment of the time value of money (Note 5).

Realizable value of inventory

Starting from 2011, the management of the Company forms a 100 percent adjustment to the net realizable value for inventory, (from 2017 except for technological fuels) bought more than one year ago (Note 6).

Allowances for accounts receivable

The Group and the Company recognises loss allowances for expected credit losses (ECL) on financial assets measured at amortised cost: trade receivable, loans, other receivable and accrued revenue.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group and the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's and Company's historical experience and informed credit assessment and including forward-looking information.

2.25. Use of estimates in the preparation of financial statements (cont'd)

Deferred Tax Asset

Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies (Note 20).

Fair value of financial instruments

Fair value is defined as the price at which the financial assets or liabilities could be exchanged between knowledgeable willing parties in an arm's length transaction at the measurement date. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate.

Fair value hierarchy

The base for determination of fair values of financial assets and liabilities, traded in the active markets, are the market prices and prices determined by brokers. Fair value of all other financial instruments is determined using other valuation methods.

When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorized within different levels of the fair value hierarchy, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Company recognized transfers between the fair value hierarchy from the end of the reporting period in which the change occurred.

2.26. Contingencies

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

2.27. Subsequent events

Post-balance sheet events that provide additional information about the Group's and the Company's position at the balance sheet date (adjusting events) are reflected in the financial statements. Post-balance sheet events that are not adjusting events are disclosed in the notes when material.

2.28. Offsetting and comparative figures

When preparing the financial statements, assets and liabilities, as well as revenue and expenses are not set off, except the cases when certain IFRS specifically require such set-off.

2.29. Segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chiefoperating decision-maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions. The activities of the Group and the Company are organized in one operating segment in Kaunas city, Kaunas district and Jurbarkas city, therefore further information on segments has not been disclosed in these financial statements.

3. Intangible and right-of-use assets

Movements of intangible assets for the current and prior reporting periods are as follows:

	Group			Company
	Right of use asset	Acquired rights and software	Right of use asset	Acquired rights and software
Acquisition cost:
Balance as of 31 December 2017	-	1,423	-	1,423
Additions	-	5	-	5
Disposals and write-offs	-	(23)	-	(23)
Transfers from property, plant and equipment	-	2	-	2
Balance as of 31 December 2018	-	1,407	-	1,407
Additions	-	78	-	77
Recognition of the right of use asset	1,070	-	856	-
Disposals and write-offs	249	(34)	249	(34)
Transfers from property, plant and equipment	-	-	-	-
Balance as of 31 December 2019	1,319	1,451	1,105	1,450
Amortization:
Balance as of 31 December 2017	-	1,367	-	1,367
Charge for the year	-	41	-	41
Disposals and write-offs	-	(23)	-	(23)
Balance as of 31 December 2018	-	1,385	-	1,385
Charge for the year	36	29	32	29
Disposals and write-offs	-	(35)	-	(35)
Balance as of 31 December 2019	36	1,379	32	1,379
Net book value as of 31 December 2017	-	56	-	56
Net book value as of 31 December 2018	-	22	-	22
Net book value as of 31 December 2019	1,283	72	1,073	71

Amortisation expenses of intangible assets are included in the operating expenses in the statement of Profit (loss) and other comprehensive income.

As of 31 December 2019 the book value of the intangible assets of the Group increased by EUR 1,283 thousand, the Company – respectively EUR 1,073 thousand.

As of 31 December 2019 part of the non-current intangible assets of the Group and the Company with the acquisition cost of EUR 1,359 thousand (as of 31 December 2018 – EUR 1,340 thousand) were fully amortised but were still in active use.

4. Property, plant and equipment

Detailed information on the Group's and the Company's property, plant and equipment:

Group	Land and buildings	Structures	Machinery and equipment	Vehicles	Devices and tools	Construction in progress and prepayments	Investment property	Total
Acquisition cost:
Balance as of 31 December 2017	18,873	162,616	57,785	2,165	12,488	2,487	382	256,796
Additions	-	-	36	1	393	3,648	-	4,078
Disposals and write-offs	-	(10)	(49)	(15)	(86)	-	-	(160)
Reclassifications	(297)	2,213	189	-	143	(2,545)	297	-
Transfers to intangible assets	-	-	-	-	-	(2)	-	(2)
Transfers to current assets	(338)	-	-	-	-	-	-	(338)
Impairment loss(-)	87	1	(1)	-	-	-	-	87
Balance as of 31 December 2018	18,325	164,820	57,960	2,151	12,938	3,588	679	260,461
Additions	26	-	131	94	18	21,655	-	21,924
Disposals and write-offs	(118)	(332)	(247)	(283)	(191)	-	-	(1,171)
Reclassifications	2	15,218	2,431	-	232	(17,883)	-	-
Transfers to intangible assets	-	-	-	-	-	-	-	-
Transfers to current assets	(103)	-	-	-	-	-	-	(103)
Impairment loss(-)	-	4	-	-	-	-	-	4
Balance as of 31 December 2019	18,132	179,710	60,275	1,962	12,997	7,360	679	281,115
Accumulated depreciation:
Balance as of 31 December 2017	10,016	72,759	33,191	1,517	9,265	-	100	126,848
Charge for the year	480	3,308	3,761	189	871	-	15	8,624
Transfers to current assets	(133)	-	-	-	-	-	-	-
Disposals and write-offs	-	(9)	(45)	(15)	(86)	-	-	(155)
Reclassifications	(125)	-	-	-	-	-	125	-
Balance as of 31 December 2018	10,238	76,058	36,907	1,691	10,050	-	240	135,184
Charge for the year	481	3,640	3,617	155	788	-	20	8,701
Transfers to current assets	(45)	-	-	-	-	-	-	(45)
Disposals and write-offs	(111)	(332)	(241)	(283)	(191)	-	-	(1,158)
Reclassifications	-	-	-	-	-	-	-	-
Balance as of 31 December 2019	10,563	79,366	40,283	1,563	10,647	-	260	142,682
Net book value as of 31 December 2017	8,857	89,857	24,594	648	3,223	2,487	282	129,948
Net book value as of 31 December 2018	8,087	88,762	21,053	460	2,888	3,588	439	125,277
Net book value as of 31 December 2019	7,569	100,344	19,992	399	2,350	7,360	419	138,433

4. Property, plant and equipment (cont'd)

Company	Land and buildings	Structures	Machinery and equipment	Vehicles	Device s and tools	Construction in progress and prepayments	Invest ment property	Total
Acquisition cost: Balance as of 31 December 2017	16,580	161,784	52,602	1,827	12,423	2,487	-	247,703
Additions	-	-	36	1	393	3,648	-	4,078
Transfers to current assets	(338)	-	-	-	-	-	-	(338)
Disposals and write-offs Transfers to intangible	-	(10)	(49)	(15)	(86)	-	-	(160)
assets	(297)	2,213	189	-	143	(2,545)	297	-
Transfers to intangible	-	-	-	-	-	(2)	-	(2)
assets
Impairment loss(-) Balance as of 31 December	87	1	(1)	-	-	-	-	87
2018	16,032	163,988	52,777	1,813	12,873	3,588	297	251,368
Additions	26	-	131	94	16	21,655	-	21,922
Transfers to current assets	(103)	-	-	-	-	-	-	(103)
Disposals and write-offs	(118)	(332)	(247)	(283)	(191)	-	-	(1,171)
Reclassifications	2	15,218	2,431	-	232	(17,883)	-	-
Transfers to intangible	-	-	-	-	-	-	-	-
assets Impairment loss(-)	-	4	-	-	-	-	-	4
Balance as of 31
December 2019	15,839	178,878	55,092	1,624	12,930	7,360	297	272,020
Accumulated depreciation:
Balance as of 31 December 2017	9,273	72,571	31,369	1,207	9,207	-	-	123,627
Charge for the year	340	3,245	3,239	173	867	-	-	7,86 4
Transfers to intangible assets	(133)	-	-	-	-	-	-	(133)
Disposals and write-offs	-	(9)	(45)	(15)	(86)	-	-	(155)
Reclassifications	(125)	-	-	-	-	-	125	-
Balance as of 31 December 2018	9,355	75,807	34,563	1,365	9,988	-	125	131,203
Charge for the year	340	3,577	3,095	155	787	-	6	7,960
Transfers to current assets	(45)	-	-	-	-	-	-	(45)
Disposals and write-offs	(111)	(332)	(241)	(283)	(192)	-	-	(1,159)
Reclassifications	-	-	-	-	-	-	-	-
Balance as of 31 December 2019	9,539	79,052	37,417	1,237	10,583	-	131	137,959
Net book value as of 31 December 2017	7,307	89,213	21,233	620	3,216	2,487	-	124,076
Net book value as of 31 December 2018	6,677	88,181	18,214	448	2,885	3,588	172	120,165
Net book value as of 31 December 2019	6,300	99,826	17,675	387	2,347	7,360	166	134,061

4. Property, plant and equipment (cont'd)

The depreciation charge of the Group's and Company's property, plant and equipment in the 2019 amounts to EUR 7,430 thousand and EUR 6,847 thousand respectively (as of 31 December 2018 – EUR 7,302 thousand and EUR 6,704 thousand respectively). The amounts of EUR 7,367 thousand and EUR 6,803 thousand (as of 31 December 2018 – EUR 7,244 thousand and EUR 6,662 thousand respectively) the depreciation expenses were included into the expenses in statements of Profit (loss) and other comprehensive income, the remaining amounts EUR 63 thousand and EUR 44 thousand (as of 31 December 2018 – EUR 58 thousand and EUR 42 thousand) were included into other activity expenses in statements of Profit (loss) and other comprehensive income.

The management of the Group and the Company, having assessed the internal and external features, has'nt estimated impairment decrease for the property, plant and equipment and restored EUR 26 thousand durig 2019 year (EUR 129 thousand – during 2018 year).

As of 31 December 2019 part of the property, plant and equipment of the Group with acquisition cost of EUR 56,556 thousand (EUR 55,102 thousand as of 31 December 2018) and the Company – EUR 56,443 thousand were fully depreciated (EUR 54,945 thousand as of 31 December 2018), but were still in active use.

As of 31 December 2019 and as of 31 December 2018 the major part of the Group's and Company's construction in progress consisted of reconstruction and overhaul works of boiler-houses equipment and heat supply networks.

As of 31 December 2019 property, plant and equipment of the Group with the net book value of EUR 54,723 thousand (EUR 49,624 thousand as of 31 December 2018) and the Company of EUR 51,655 thousand (EUR 46,005 thousand as of 31 December 2018) was pledged to banks as a collateral for loans (Note 10).

As of 31 December 2019 the Group and the Company accounted for assets, not yet ready for use, amounting to EUR 115 thousand in the category Equipment and tools (EUR 182 thousand as of 31 December 2018).

The Group and The Company use assets in their operations, acquired by leasing. The acquisition cost of this asset was EUR 222 thousand as of 31 December 2019 (EUR 280 thousand in 2018 respectively), and the net book value respectively EUR 143 thousand and EUR 216 thousand. Unpaid part of it is disclosed in Note 11. The management of the Group and the Company did not determine impairment decrease after evaluating the internal and external features.

5. Investments in subsidiaries and loans to the subsidiaries

The management of the Company used valuation reports prepared by an independent appraiser UAB korporacija "Matininkai" to determine recoverable amount of the investmets in UAB Kauno Energija NT. Valuation date was 31 August 2017. The independent appraiser used asset-based approach (adjusted balance sheet method) to determined recouvarable amount of investments.

Impairment test for investments in UAB Petrašiūnų Katilinė was performed according IAS 36. The value of shares is determined on a basis of the cash flows generated according to projections made for 5 years with terminal value component.

		31.12.2019		31.12.2018
Investment to subsidiaries	Acquisition costs	Impairment	Net book value	Acquisition costs	Impairment	Net book value
UAB Kauno Energija NT	1,330	(258)	1,072	1,330	(258)	1,072
UAB Petrašiūnų Katilinė Total	1,894 3,224	(902) (1,160)	992 2,064	1,894 3,224	(902) (1,160)	992 2,064

5. Investments in subsidiaries and loans to the subsidiaries (cont'd)

As a result of impairment tests performed as at 31 December 2018, the impairment allowance EUR 902 thousand was recognized to UAB Petrašiūnų Katilinė, EUR 258 thousand was recognized to UAB Kauno Energija NT .

The cash flow projections used in the calculations were based on the results of UAB Petrašiūnų Katilinė of the year 2018, long-term business plans, signed contracts and management's expectations regarding changes in the regulatory environment in the short and medium term. Continuous value (cash flows for a period of more than five years) was calculated by applying 1.50 percent constant growth factor.

In forecasting cash flows, the Company also used the following key assumptions:

• upon enforcement of changes in the legal base and the new Schedule of the Procedure and Conditions of Heat Purchase from Independent Heat Producers become valid, UAB Petrašiūnų Katilinė got an opportunity to plan more efficiently the fuel purchases at best prices and to increase the revenue. Heat sales auctions held during the 1 st quarter of 2019 showed that the sales price was by 15-20 percent higher than last year;
• after the start of operation of Kaunas Cogeneration Power Plant in 2020, the competition between heat producers increases during the warm period, so the Company's heat sales are planned to reduce by approximately 10 %;
• the projected increase in biofuel prices by 2020 is 5 percent for each year;
• predicted costs are projected to increase annually by the planned annual inflation rate (2 percent);
• it is forecasted that UAB Petrašiūnų Katilinė will operate 7 months in 2020 .

In this context, the assets will not be fully depreciated over the specified 15-year period, so investments in the tangible fixed asset will only take place in 2023 by performing yearly maintenance.

Loans to the subsidiaries

As of 31 December 2019, the Company granted a loan for working capital needs in an amount of EUR 443 thousand (as of 31 December 2018 – EUR 443 thousand) to the subsidiary UAB Petrašiūnų Katilinė. The loan bears 6-month EURIBOR plus 1.2 % margin. The maturity date of the loan is 31 December 2020. The outstanding balance of the loan was accounted for as the loans to entities of the entities group in the Company's Statements of Financial Position.

6. Inventories

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Technological fuel	1,156	1,358	1,097	1,291
Spare parts	623	415	623	415
Materials	413	437	413	436
	2,192	2,210	2,133	2,142
Less: write-down to the net realisable value of inventory at the end of the period	(610)	(626)	(610)	(626)
Carrying amount of inventories	1,582	1,584	1,523	1,516

As of 31 December 2019 Group's and Company's amounted to EUR 610 thousand (as of 31 December 2018 – EUR 626 thousand) write-down to net realizable value of inventories. Changes in the Write-down to net realizable value of inventories for the 2019 and for the year 2018 were included into change in write-down to net realizable value of inventories caption in the Group's and the Company's statements of Profit (loss) and Other Comprehensive Income.

7. Current accounts receivable

Change in impairment of doubtful receivables in 2019 and 2018 is included into the caption of write-offs and change in allowance for accounts receivables in the Group's and the Company's statements of Profit (loss) and Other Comprehensive Income.

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Trade receivables, gross	15,402	18,734	15,403	18,736
Less: expected credit losses	(6,886)	(8,546)	(6,887)	(8,548)
	8,516	10,188	8,516	10,188

Movements in the allowance for impairment of the Group's and the Company's receivables were as follows:

	Group	Company
Balance as of 31 December 2017	10,012	10,031
Expected credit losses recognised	(770)	(787)
Write-off	(696)	(696)
Balance as of 31 December 2018	8,546	8,548
Expected credit losses recognised	(1,024)	(1,025)
Write-off	(636)	(636)
Balance as of 31 December 2019	6,886	6,887

7. Current accounts receivable (cont'd)

In 2019 the Group and the Company wrote off EUR 636 thousand and EUR 636 thousand of bad debts respectively (in 2018 – EUR 696 thousand and EUR 696 thousand).

The ageing analysis of the Group's net value of trade receivables As of 31 December 2019 and 31 December 2018 is as follows:

	Trade	Trade receivables past due
	receivables not past due	Less than 60 days	60 - 150 days	151 - 240 days	241 - 360 days	More than 360 days	Total
2019	7,316	461	47	46	73	573	8,516
2018	8,670	611	74	65	115	653	10,188

The ageing analysis of the Company's net value of trade receivables as of 31 December 2019 and as of 31 December 2018 is as follows:

	Trade	Trade receivables past due
	receivables not past due	Less than 60 days	60 - 150 days	151 - 240 days	241 - 360 days	More than 360 days	Total
2019	7,316	461	47	46	73	573	8,516
2018	8,670	611	74	65	115	653	10,188

Trade receivables are non-interest bearing and the payment terms are usually 30 days or agreed individually.

As of 31 December 2019 and 31 December 2018 the Group's and the Company's other receivables amounted receivable from state taxes, compensations from municipalities for low income families, receivables from sold inventories (metals, heating equipment) and services supplied (maintenance of manifolds and similar services).

Other Group's and the Company's receivables consisted of:

	Group			Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Taxes	439	490	439	490
Other receivables	639	772	660	795
Less: expected credit losses	(300)	(293)	(350)	(347)
	778	969	749	938

7. Current accounts receivable (cont'd)

Movements in the allowance for impairment of the Group's and the Company's other receivables were as follows:

	Group	Company
Balance as of 31 December 2017	303	362
Expected credit losses recognised	(10)	(15)
Write-off	-	-
Balance as of 31 December 2018	293	347
Expected credit losses recognised	7	3
Write-off	-	-
Balance as of 31 December 2019	300	350

The ageing analysis of the Group's net value of other receivables (excluding taxes) as of 31 December 2019 and as of 31 December 2018 is as follows:

	Other			Other receivables past due
	receivables not past due	Less than 60 days	60 - 150 days	151 - 240 days	241 - 360 days	More than 360 days	Total
2019	240	54	19	10	8	8	339
2018	380	65	15	8	5	6	479

The ageing analysis of the Company's net value of other receivables (excluding taxes) as of 31 December 2019 and 31 December 2018 is as follows:

	Other			Other receivables past due
	receivables not past due	Less than 60 days	60 - 150 days	151 - 240 days	241 - 360 days	More than 360 days	Total
2019	211	54	19	10	8	8	310
2018	349	65	15	8	5	6	448

The Group's and the Company's other receivables are non-interest bearing and the payment terms are usually 30 – 45 days.

According to the management opinion, there are no indications as of the reporting date that the debtors will not meet their payment obligations regarding trade receivables and other receivables that are neither impaired nor past due.

8. Cash and cash equivalents

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Cash in transit	148	154	148	154
Cash at bank	2,071	8,607	1,792	8,519
Cash on hand	-	-	-	-
	2,219	8,761	1,940	8,673

The Group's accounts in banks amounting to EUR 1,039 thousand as of 31 December 2019 (as of 31 December 2018 – EUR 2,332 thousand) and the Company's to EUR 804 thousand as of 31 December 2019 (as of 31 December 2018 – EUR 2,255 thousand) are pledged as collateral for the loans (Note 10).

9. Changes in equity

Legal and other reserves

A legal reserve is a compulsory reserve under Lithuanian legislation. Annual transfers of not less than 5 percent of net profit calculated in accordance with IFRS are compulsory until the reserve reaches 10 percent of the share capital. The legal reserve cannot be distributed as dividends but can be used to cover any future losses.

On 26 April, 2019 the Company annulled other reserves (EUR 100 thousand) by the decision of shareholders, EUR 1,012 thousand transferred from retained earnings to legal reserve and EUR 2,900 thousand to other reserves. Other reserves was formed: for support – EUR 50 thousand, for implementation of investments – EUR 2,850 thousand.

On 26 April, 2018 the Company annulled other reserves (EUR 100 thousand) by the decision of shareholders, EUR 3,168 thousand transferred from retained earnings to legal reserve and EUR 100 thousand to other reserves. Reserve was formed for support – EUR 100 thousand.

Annual payments

The Company allocated EUR 470 thousand on April 26, 2019 from the distributable profit of the year 2018 to the members of the Board and the Supervisory Council, employee bonuses and other purposes in accordance with the decision of the shareholders, and EUR 500 thousand on April 26, 2018 from the profit of the year 2017 respectively.

Dividends

On 26 April 2019 the Annual General Meeting of Shareholders has made a decision to pay EUR 1,070 thousand, i.e. at 2,5 cents a share in dividends from the profit of the year 2018.

On 26 April 2018 the Annual General Meeting of Shareholders has made a decision to pay EUR 3,339 thousand, i.e. at 7,8 cents a share in dividends from the profit of the year 2017.

10. Borrowings

All loans of the Group and the Company are accounted for and repaid in euros. The weighted average of the interest rate (%) on the outstanding loans as at the year-end was as follows:

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Current borrowings	-	-	-	-
Non-current borrowings	1.71	2.22	1.76	2.32

Management of the Company has negotiated interest rate cuts with the Ministry of Finance for the financial loan borrowed on March 31, 2014 and maturing on December 1, 2034. The interest rate will be revised on December 31, 2020 at the moment of partial repayment of the loan. Earlier interest rate revisions or loan refinancing are economically unhelpful as the penalties under the loan agreement would be significantly greater than the economic benefits that could be gained. Terms of repayment of non-current borrowings are as follows:

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Non-current borrowings:	17,651	19,257	16,517	17,556
Payable in 2 to 5 years	10,910	11,780	9,776	10,079
Payable in more than 5 years Current portion of non current borrowings	6,741	7,477	6,741	7,477
	4,618	4,272	4,051	3,705
	22,269	23,529	20,568	21,261

10. Borrowings (cont'd)

The Group detailed information on loans as of 31 December 2019 :

	Credit institution	Date of contract	Sum EUR thousand	Term of maturity	Balance as of 31/12/2019 EUR thousand	A Qart of 2020, EUR thousand
1	MF Lithuania*	09/04/2010	2,410	15/03/2034	1,404	93
2	MF Lithuania*	26/10/2010	807	15/03/2034	577	38
3	MF Lithuania*	02/09/2011	1,672	01/09/2034	1,304	87
4	Luminor**	22/08/2012	3,403	29/04/2022	1,701	567
5	AB SEB Bank	03/06/2013	799	30/06/2020	67	67
6	AB SEB Bank	03/06/2013	1,228	30/06/2020	98	98
7	AB SEB Bank	10/09/2013	1,506	30/09/2020	188	188
8	Luminor**	27/09/2013	377	30/09/2020	5	5
9	MF Lithuania*	15/01/2014	793	01/12/2034	624	41
10	AB SEB Bank	31/03/2014	1,564	15/01/2021	268	261
11	MF Lithuania*	31/03/2014	7,881	01/12/2034	6,203	414
12	AB SEB Bank	09/03/2015	579	28/02/2022	222	97
13	AB SEB Bank	09/03/2015	579	28/02/2022	74	74
14	OP Corporate***	02/12/2015	4,842	02/12/2022	2,075	692
15	AB SEB Bank	09/05/2016	459	30/04/2023	255	77
16	AB SEB Bank	09/05/2016	1,000	30/04/2021	267	200
17	AB SEB Bank	09/05/2016	579	30/04/2023	322	97
18	Luminor**	25/10/2016	1,894	29/09/2023	1,066	284
19	AB SEB Bank	22/12/2016	4,127	30/11/2024	3,026	720
20	AB SEB Bank	26/07/2017	697	30/07/2024	546	122
21	Danske Bank A/S	18/12/2017	2,340	18/12/2024	1,977	396
					22,269	4,618

* Ministry of Finance of the Republic of Lithuania, **Luminor bank AB, *** OP Corporate Bank Plc Lithuanian branch.

According to loan agreement signed between Luminor Bank AB and the Group's subsidiary UAB Petrašiūnų Katilinė on 22 August 2012 m., the subsidiary has to comply with following covenants: equity capital ratio (including support granted by the Lithuanian Business Support Agency) at least 40 %, DSCR not less than 1.3, and total financial debt to EBITDA ratio should be not more than 3.0.

UAB Petrašiūnų Katilinė does not comply with financial rations determined by the Luminor Bank AB. As a result, the carrying amount of loan as at 31 December 2019 (EUR 1,701 thousand) is accounted under the current portion of non-current borrowings and financial lease caption of the Group's Statements of Financial Position. The Company has provided a guarantee to the bank for this loan, as it is described in Note 23.

10. Borrowings (cont'd)

The Company detailed information on loans as of 31 December 2019 :

	Credit institution	Date of contract	Sum EUR thousand	Term of maturity	Balance as of 31/12/2019 EUR thousand	A Qart of 2020, EUR thousand
1	MF Lithuania*	09/04/2010	2,410	15/03/2034	1,404	93
2	MF Lithuania*	26/10/2010	807	15/03/2034	577	38
3	MF Lithuania*	02/09/2011	1,672	01/09/2034	1,304	87
4	AB SEB Bank	03/06/2013	799	30/06/2020	67	67
5	AB SEB Bank	03/06/2013	1,228	30/06/2020	98	98
6	AB SEB Bank	10/09/2013	1,506	30/09/2020	188	188
7	Luminor**	27/09/2013	377	30/09/2020	5	5
8	MF Lithuania*	15/01/2014	793	01/12/2034	624	41
9	AB SEB Bank	31/03/2014	1,564	15/01/2021	268	261
10	MF Lithuania*	31/03/2014	7,881	01/12/2034	6,203	414
11	AB SEB Bank	09/03/2015	579	28/02/2022	222	97
12	AB SEB Bank	09/03/2015	579	28/02/2022	74	74
13	OP Corporate***	02/12/2015	4,842	02/12/2022	2,075	692
14	AB SEB Bank	09/05/2016	459	30/04/2023	255	77
15	AB SEB Bank	09/05/2016	1,000	30/04/2021	267	200
16	AB SEB Bank	09/05/2016	579	30/04/2023	322	97
17	Luminor**	25/10/2016	1,894	29/09/2023	1,066	284
18	AB SEB Bank	22/12/2016	4,127	30/11/2024	3,026	720
19	AB SEB Bank	26/07/2017	697	30/07/2024	546	122
20	Danske Bank A/S	18/12/2017	2,340	18/12/2024	1,977	396
					20,568	4,051

* Ministry of Finance of the Republic of Lithuania, **Luminor bank AB, *** OP Corporate Bank Plc Lithuanian branch.

AB SEB Bankas has determined to the Company to be in compliance with the quarterly net financial debt / EBITDA ratio, which must not exceed 4.5. According to loan agreement between the Company and OP Corporate Bank Plc Lithuanian branch, the Company's own capital ratio (equity/total assets), shall not be lower than 35 %. The Company complied with financial covenants as at 31 December 2019 and 31 December 2018.

There are certain restrictions prescribed in the loan agreements. The Company cannot distribute dividends, issue or/and obtain new loans, provide charity, sell or rent pledged assets without banks written consent. The written consents were received from banks.

The immovable property (Note 4), bank accounts (Note 8) and land lease right of the Group and the Company were pledged as collateral for the borrowings.

11. Lease obligations

Change in accounting policies

The Company and the Group has adopted IFRS 16 Leases prospectively from 1 January 2019, as permitted under the specific transition provisions in the standard. The comparative information for 2018 were not adjusted.

11. Lease obligations (cont'd)

On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the group's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January was 3.58 %.

As a result of initially applying IFRS 16 in relation to the leases that were previously classified as operating leases, the Group and the Company recognised 1,070 thousand EUR and 856 thousand EUR of right-of-use assets (including investment property), 1,070 thousand EUR and 856 thousand EUR of lease liabilities, respectively.

Also in relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs, instead of operating lease expense. During the 12 months ended 31 December 2019, the Group recognised 36 thousand EUR of depreciation charges and 33 thousand EUR of interest costs from these leases. The Company recognised 32 thousand EUR of depreciation charges and 26 thousand EUR of interest costs from these leases.

On 31 December 2019 the Group intangible assets increased by EUR 1,283 thousand, the Company – respectively EUR 1,073 thousand.

In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard:

• the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;

• the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application.

The Company and the Group financial and lease obligations:

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Within one year	83	105	83	105
After one year	-	81	-	81
Total financial lease obligations:	83	186	83	186
Lease obligations:
- current	35	-	33	-
- non-current	1,262	-	1,049	-
Present value of lease
obligations:	1,297	-	1,082	-

The assets leased by the Group and the Company under lease contracts mainly consist of vehicles and land. The terms of vehicles lease are 3 – 4 years, land – 26 – 84 years. The finance lease agreement is in EUR.

12. Grants and subsidies

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Balance at the beginning of the reporting period	18,235	19,509	17,265	18,377
Received during the period	8,624	53	8,624	53
Amortization	(1,340)	(1,327)	(1,179)	(1,165)
Balance at the end of the reporting period	25,519	18,235	24,710	17,265

The Group accounted EUR 1,329 thousand grants amortization related to property, plant and equipment, EUR 11 thousand – related to costs in 2019 (EUR 1,322 thousand and EUR 5 thousand – in 2018), and the Company – EUR 1,168 thousand and EUR 11 thousand (EUR 1,322 thousand and EUR 5 thousand – in 2018, respectively).

The balance of the Group's grants as at December 31, 2019 consist of funds received from the European Union Structural Funds for the modernization of heat supply networks - 25,399 thousand and EUR 120 thousand for the research and innovation programs. Company's grants consist of EUR 24,590 thousand and EUR 120 thousand euros respectively.

13. Employee benefit liability

According to Lithuanian legislation and the conditions of the collective employment agreement, each employee of the Group and the Company is entitled to 0.5-4 months' salary payment when leaving the job at or after the start of the pension period and at the age of 40, 50 or 60 years, and having not less than 15 years of work experience in the Company – jubilee gift of the value fixed in the collective employment agreement.

The Group's and the Company's total employee benefit liability is stated below:

	Group		Company
	2019	2018	2019	2018
Employee benefit liability at the beginning of the year	859	1,270	852	1,265
Paid	(321)	(445)	(321)	(445)
Formed	181	34	179	32
Employee benefit liability at the end of the year	719	859	710	852
Non-current employee benefit liability	570	704	562	698
Current employee benefit liability	149	155	148	154

For calculation of the non-current employee benefits, the Group and the Company evaluated an impact of the mortality level in Lithuania, the discount rate, the retirement age, age and turnover of employees, growth of remuneration and inflation and other factors. Actuarial gain or loss related to the mentioned liabilities are presented under Employee benefit liability (accumulation) line in Statements of other comprehensive income as well as under Non-current employee benefit liability and current portion of employee benefit liability in the Statements of Financial Position.

14. Derivative financial instruments

On 16 December 2016, the Group has entered into interest rate SWAP agreement. According to the agreement, the Group pays to the bank a fixed interest rate (0.21 %), while the bank pays to the Group a variable interest rate of 6 months EURIBOR. The nominal amount of the transaction was EUR 1,701 thousand as at 31 December 2019. This derivative instrument is recognized at fair value calculated by the bank as at 31 December 2019 – EUR 12 thousand (31 December 2018 – EUR 15 thousand). The accrued interest and change in the fair value at 2019 and 2018 are recognized in the Statement of Profit (loss) and Other Comprehensive Income under the financial activity account, as according to management's decision, financial instrument is not held for hedging.

15. Sales income

The Group's and the Company's activities are heat supplies, maintenance of manifolds, electricity production and other activities. Starting from the year 2010 a part of inhabitants chose the Company as the hot water supplier. Those activities are inter-related, so consequently for management purposes the Group's and the Company's activities are organised as one main segment – heat energy supply.

The Group's and the Company's sales income according to the activities are stated below.

	Group			Company
	2019	2018	2019	2018
Heat supplies	49,711	57,387	49,721	57,399
Hot water supplies	3,228	3,260	3,228	3,260
Maintenance of hot water meters	422	408	422	408
Maintenance of manifolds	251	250	251	250
Maintenance of heat and hot water systems	12	11	12	11
Sale of emission allowances	1,025	-	1,025	-
	54,649	61,316	54,659	61,328

The Group's and the Company's sales income by user group:

	Group		Company
	2019	2018	2019	2018
Residents	41,195	46,511	41,195	46,511
Other users	6,207	5,949	6,217	5,961
Budgetary organizations financed from the state budget	3,963	4,774	3,963	4,774
Budgetary organizations financed from municipal budgets	2,734	3,343	2,734	3,343
Institutions funded by Territorial Health Insurance funds	286	371	286	371
Industrial users	264	368	264	368
	54,649	61,316	54,659	61,328

16. Other expenses

	Group		Company
	2019	2018	2019	2018
Equipment verification and inspection	212	406	211	404
Maintenance of manifolds	383	381	383	381
Cash collection expenses	176	195	176	195
Expenses of ash utilization	160	145	144	127
Information technology expenses	114	132	114	132
Consulting expenses	88	124	87	124
Employees related expenses	136	102	136	102
Customer bills issue and delivery expenses	93	98	93	98
Membership fee	89	84	89	84
Maintenance of long term assets and related services	65	76	64	76
Transport expenses	64	70	64	69
Debts collection expenses	96	60	96	60
Insurance	64	56	56	48
Communication expenses	40	51	40	50
Advertising expenses	57	44	57	44
Audit expenses	38	44	34	44
Rent of equipment and machinery	14	16	14	16
Sponsorship	1	5	1	5
Other expenses	398	200	376	184
	2,288	2,289	2,235	2,243

17. Other activities income and expenses

	Group		Company
	2019	2018	2019	2018
Income from other operating activities
Sold inventories	42	394	42	394
Various services rendered	386	382	276	264
Damage compensation received	-	241	-	241
Income from previous periods	-	180	-	180
Gain from sale of non-current assets	286	1	286	1
Other	105	101	105	101
	819	1,299	709	1,181

	Group		Company
Expenses from other operating activities	2019	2018	2019	2018
Cost of rendered services	(269)	(273)	(188)	(158)
Cost of inventories sold	(42)	(65)	(42)	(65)
Expenses from previous periods	(10)	(7)	(10)	(7)
Write off of non-current assets	(3)	(3)	(3)	(3)
Other	(27)	(32)	(27)	(32)
	(351)	(380)	(270)	(265)

The Group and the Company rents real estate, supplies, technical water, provide services of maintenance of heating equipment, transportation services.

18. Other interest and similar income

	Group		Company
	2019	2018	2019	2018
Interest from late payment of accounts receivable	210	237	210	237
Change in market value of derivative financial instruments	3	-	-	-
Interest	-	-	4	2
	213	237	214	239

19. Financial assets and short-term investments impairment, interest and other similar expenses

	Group		Company
	2019	2018	2019	2018
Interest	(484)	(541)	(445)	(499)
Impairment of non-current financial assets	-	-	-	156
Penalties and fines	-	(12)	-	(12)
	(484)	(553)	(445)	(355)

20. Corporate income tax

In 2019 and 2018 deferred income tax asset and liability were accounted for by applying 15 percent rate. All changes in deferred tax are reported in the Group's and the Company's the statement of Profit (loss) and other comprehensive income.

The recorded income tax for the year can be reconciled with the theoretical calculated income tax, which is computed by applying the standard income tax rate to profit before taxes as follows:

	Group		Company
	2019	2018	2019	2018
Profit before tax, before the accumulation of employee benefit liability	1,043	4,567	794	5,016
Profit (loss) from the accumulation of employee benefit liability	(181)	(34)	(179)	(32)
Corporate income tax (expenses) calculated at statutory rate from profit (loss) before the accumulation of employee benefit liability	(156)	(685)	(119)	(752)
Corporate icome tax (expenses) calculated at statutory rate from profit (loss) of the accumulation of employee benefit liability	(27)	(5)	(27)	(5)
Influence of permanent and temporary differences	523	322	528	396
Change of unrecognized deferred tax asset	(250)	(221)	(250)	(228)
Adjustments to income tax of prior periods	(19)	19	-	19
Corporate income tax (expenses) reported in the statement of comprehensive income	71	(570)	132	(570)
Effective rate of income tax ( percent)	-6.81	12.48	-16.62	11.36

20. Corporate income tax (cont'd)

As of 31 December deferred income tax consists of:

	Group		Company
	2019	2018	2019	2018
Components of the corporate income tax expense
Current income tax for the reporting year	(19)	19	-	19
Deferred tax income (expenses)	90	(589)	132	(589)
Corporate income tax (expenses) recorded in the statement of comprehensive income	71	(570)	132	(570)

All changes in deferred tax are reported in the Group's and the Company's the statement of Profit (loss) and Other Comprehensive Income. As of 31 December, the deferred income tax consists of:

	Group		Company
	2019	2018	2019	2018
Deferred tax asset
Tax losses	2,883	2,567	2,868	2,510
Accruals	119	140	115	136
The change in value of financial assets	19	19	19	19
Deferred tax asset	3,021	2,726	3,002	2,665
Deferred tax liability
Differences of depreciation	(8,368)	(8,162)	(8,368)	(8,162)
Investment relief	(21)	(22)	(21)	(22)
Revaluation of the assets transferred to subsidiary	-	-	(174)	(174)
Deferred tax liabilities	(8,389)	(8,184)	(8,563)	(8,358)
Deferred tax, net	(5,368)	(5,458)	(5,561)	(5,693)

Deferred income tax assets on tax losses carried forward have been recognized in full amount as the Group's and the Company's management believes it will be realized in the foreseeable future, based on taxable profit forecasts.

At 31 December unrecognized deferred tax assets of the Group and the Company consisted of:

	Group		Company
	2019	2018	2019	2018
Credit losses expected from trade receivables	1,033	1,282	1,033	1,282
Property, plant and equipment depreciation	44	44	44	44
ECL allowance for other accounts receivable	44	43	50	49
Impairment for the investment into subsidiary	-	-	122	122
Accruals	92	94	92	94
Unrecognized deferred tax asset, net	1,213	1,463	1,341	1,591

21. Basic and diluted earnings (loss) per share

Calculations of the basic and diluted earnings per share of the Group are presented below:

	Group		Company
	2019	2018	2019	2018
Net profit (loss) of the reporting period	1,141	4,002	953	4,451
Number of shares (thousand), opening balance	42,802	42,802	42,802	42,802
Number of shares (thousand), closing balance	42,802	42,802	42,802	42,802
Average number of shares (thousand)	42,802	42,802	42,802	42,802
Basic and diluted earnings per share (EUR)	0.03	0.09	0.02	0.10

22. Financial assets and liabilities and risk management

Credit risk

The Group and the Company do not have any credit concentration risk because they work with a large number of customers.

Customers		Group		Company
		31.12.2019	31.12.2018	31.12.2019	31.12.2018
Private persons		115,434	114,965	115,434	114,965
Other legal entities		2,037	2,438	2,038	2,439
Legal entities financed municipalities' and state budget	from	617	658	617	658
		118,088	118,061	118,089	118,062

Trade receivables of the Group and the Company by the customer groups:

		Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Private persons	6,723	8,025	6,723	8,025
Other legal entities	1,042	1,288	1,042	1,288
Legal entities financed from municipalities' and state budget	751	875	751	875
	8,516	10,188	8,516	10,188

Considering trade and other accounts receivables, the terms of which is still not expired and their impairment as of date of financial statements is not determined, according to Management opinion there is no indications that debtors will not fulfil their payment liabilities, because a balance of receivables are controlled constantly. The Group and the Company considers that maximum risk is equal to the sum of receivables from buyers and other receivables, less recognized impairment losses as of the date of balance sheet (note 7).

22. Financial assets and liabilities and risk management (cont'd)

Cash and cash equivalents in banks, which were evaluated in accordance with long-term borrowing ratings*:

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
AA-	1,822	7,161	1,543	7,073
A+	194	1,174	194	1,174
A	1	249	1	249
Bank with no rating attributed	54	23	54	23
	2,071	8,607	1,792	8,519

*- external credit ratings set by Standart & Poor's agency.

With respect to credit risk arising from the other financial assets of the Group and the Company, which comprise cash and cash equivalents and available-for-sale financial investments, the Group's and the Company's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

Interest rate risk

All of the borrowings of the Group and the Company, except those loans signed with Ministry of Finance of the Republic of Lithuania, are at variable interest rates(1, 3, 6 and 12 month EURIBOR). Therefore the Group and the Company faces an interest rate risk. As of 31 December 2019 and as of 31 December 2018 the Group had valid interest rate swap agreement to Luminor Bank AB credit EUR thousand 3,403 of 22 August 2012 in order to manage variable rate risk, described in Note 14.

In order to increase liquidity the Group and the Company implemented the following action plan:

• Considering the current situation the Group and the Company started to reduce its expenses;
• The Company increased heat production in its own effective production sources;
• The new measures of reducing losses in production and supply were implemented;
• The Company seeks to shorten money cycle increasing turnover of purchaser's debts and reducing turnover of debts to suppliers.

Trade payables

Trade payables of the Group and the Company by supplier groups:

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
For heat purchased	3,689	4,072	4,121	4,528
To contractors	1,311	201	1,311	201
To other suppliers	1,993	3,379	1,770	3,024
	6,993	7,652	7,202	7,753

30 day settlement period is set with independent heat producers for purchased heat energy, 90–180 day settlement period – with contractors, 5–30 day settlement period – with other suppliers.

22. Financial assets and liabilities and risk management (cont'd)

Foreign currency risk

All sales and purchases transactions as well as the financial debt portfolio of the Group and the Company are denominated in EUR, therefore, material foreign currency risk is not incurred.

Capital management

The primary objectives of the Group's and the Company's capital management are to ensure that the Group and the Company comply with externally imposed capital requirements and that the Group and the Company maintains healthy capital ratios in order to support its business and to maximise shareholders' value.

The Group and the Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. To maintain or adjust the capital structure, the Group and the Company may issue new shares, and return capital to shareholders. No changes were made in the objectives, policies or processes of capital management as of 31 December 2019 and as of 31 December 2018.

The Group and the Company is obliged to upkeep its equity of not less than 50 percent of its share capital, as imposed by the Law on Companies of Republic of Lithuania. The Group and the Company complies with equity requirements imposed by the Law on Companies of Republic of Lithuania. There were no other externally imposed capital requirements on the Group and the Company.

The Group and the Company monitor capital using debt to equity ratio. Capital includes ordinary shares, reserves, earnings retained attributable to the equity holders of the parent. There is no specific debt to equity ratio target set out by the Group's and the Company's management, however current ratios presented below are treated as sustainable performance indicators: as satisfactory performance indicators and as creditable performance indicators:

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Non-current liabilities (including deferred tax and grants and subsidies)	50,374	43,737	48,403	41,295
Current liabilities	13,897	14,562	13,416	14,008
Liabilities	64,271	58,299	61,819	55,303
Equity	89,825	89,967	89,776	90,099
Debt* to equity ratio ( percent)	71.55	64.80	68.86	61.38

* Debt contains all non-current (including deferred income tax liability and grants (deferred revenues)) and current liabilities.

Market risk

External risk factors that make influence to the Group's and the Company's main activity: increase in fuel prices, unfavourable law and legal acts of Government and other institutions, decisions of local municipality, decrease of number of consumers, the cycle of activity, environmental requirements.

23. Commitments and contingencies

On June 22, 2019, the Company placed a claim for the Kaunas Clinics (Kauno Klinikos) of the Lithuanian University of Health Sciences (hereinafter referred to as Kaunas Clinics) to pay compensation in amount of EUR 5,120,680 for heat reserve capacity ensured by the Company to Kaunas clinics starting from the year 2010 until May 2019. Kaunas Clinics did not agree with the claim. The company has placed a lawsuit against Kaunas Clinics regarding judgement of unpaid compensation for heat reserve power. The case is pending at first instance.

The Company has placed a claim to the Lithuanian branch of AAS BTA Baltic Insurance Company seeking payment of the insurance surety amount. The amount of the claim was EUR 30,000. The case involved a settlement approved by the court whereby the defendant agreed to pay EUR 27,000 compensation. The Company has already received this amount.

Leasing and construction work purchase arrangements

Future liabilities of the Group and the Company under valid purchase arrangements as of 31 December 2019 amounted to EUR 34,692 thousand.

On 20 December 2010 the Company entered into the lease arrangements with UAB ENG for the real estate. Under this lease arrangement the Company leases to UAB ENG Garliava boiler-house for building of heat production equipment. The Company undertakes obligations to procure heat produced in this equipment. The term of lease is 20 years.

Guarantees

On November 28, 2016 the Company provided guarantee in amount of EUR 3,913 thousand to Luminor bank AB regarding liabilities of subsidiary UAB Petrašiūnų Katilinė to this bank according to credit agreement concluded on August 22, 2012 for the amount of EUR 3,403 thousand. On November 28, 2016 the Company provided guarantee in amount of EUR 95 thousand to Nordea Bank AB (publ) regarding liabilities of subsidiary UAB Petrašiūnų Katilinė to this bank according to transaction of derivative financial instruments, described in Note 14. Carrying amount of the loan mount to EUR 1,701 thousand.

24. Related parties transactions

The parties are considered related when one party has the possibility to control the other or have significant influence over the other party in making financial and operating decisions.

As of 31 December 2019, the Group's and the Company's allowance for overdue receivables from entities financed and controlled by municipalities amounted to 257 thousand EUR (as of 31 December 2018 – EUR 265 thousand). The amounts outstanding are unsecured and will be settled in cash. No guarantees on receivables have been received.

In 2019 and 2018 the Group and the Company did not have any significant transactions with the other companies controlled by Kaunas city municipality except for the purchases or sales of the utility services. The services provided to the Kaunas city municipality and the entities controlled by the Kaunas city municipality were executed at market prices. The Kaunas City Municipality related party list can be found here: http://www.kaunas.lt/administracija/struktura-ir-kontaktai/pavaldzios-imones-ir-istaigos/.

24. Related parties transactions (cont'd)

In 2019 and 2018 the Group's and the Company's transactions with Jurbarkas city municipality, Kaunas city municipality and the entities, financed and controlled by Kaunas city municipality and amounts of receivables from and liabilities to them at the end of the year were as follows:

31 December 2019	Purchases	Sales	Receivables	Payables
Kaunas city municipality and entities financed and controlled by Kaunas city municipality	1,225	4,111	695	225
Jurbarkas city municipality	14	266	6	1
31 December 2018	Purchases	Sales	Receivables	Payables
Kaunas city municipality and entities financed and controlled by Kaunas city municipality	1,228	5,520	951	237

Sales include amounts of compensations for deprived people for housing heating costs, cold and hot water and also wastewater costs.

Jurbarkas city municipality - 465 40 2

As at 31 December 2019 and as at 31 December 2018 the Company's transactions with the subsidiaries and the balances at the end of the year were as follows:

UAB Petrašiūnų Katilinė	Purchases	Sales	Receivables	Payables
31 December 2019	2,398	5	443	432
31 December 2018	1,957	5	443	456

UAB Kauno Energija NT	Purchases	Sales	Receivables	Payables
31 December 2019	6	9	58	-
31 December 2018	5	11	64	-

Receivables from UAB Petrašiūnų Katilinė comprise a loan granted. There was no provision established for expected credit losses on the loan granted.

As at 31 December 2019 the Company has formed a value decrease in amount of EUR 58 thousand (as at 31 December 2018 in amount of EUR 64 thousand) for the receivables from subsidiaries.

Remuneration of the management and other payments

As at 31 December 2019 the Group's and the Company's management team comprised 3 and 1 persons respectively (as at 31 December 2018 – 3 and 1).

	Group		Company
	31.12.2019	31.12.2018	31.12.2019	31.12.2018
Key to management remuneration	66	169	40	128
Calculated post-employment benefits to management	1	3	-	1

In the year 2019 and 2018 the management of the Group and the Company did not receive any loans or guarantees; no other payments or property transfers were made or accrued.

25. Post balance sheet events

On January 8, 2020 AB Kauno Energija and UAB Fortum Heat Lietuva concluded an agreement regarding purchase of Palemonas district heating economy in Kaunas, according to which AB Kauno Energija purchases a boiler-house and heat supply network along with related equipment from UAB Fortum Heat Lietuva and starts heat supply activities in this neighbourhood from February 1, 2020.

The Company is currently assessing the potential negative consequences of the COVID-19 crisis, envisaging provisioning, reviewing the investment program and preparing a cost reduction plan for Q2 and Q3.

There were no other events after the reporting date that could materially impact or be disclosed in the financial statements.

***

CONTENTS

1.	Reporting period of the consolidated annual report65
2.	Companies composing the group of companies and their contact details65
3.	Nature of core activities of the companies composing the group of companies65
4.	Issuer's agreements with credit institutions66
5.	Trade in securities of companies composing the group of companies in regulated markets 67
6.	Overview of the condition, performance and development of the group of companies 67
6.1.	Overview of the condition, performance and development of the company 67
6.2.	Description of exposure to key risks and uncertainties we confront with and their impact on company's results 72
7.	Analysis of financial and non-financial performance results, information related to environmental issues75
8.	References and additional explanations82
9.	Significant events after the end of the year 201982
10.	Plans and forecasts of activities of the group of companies83
11.	Information on research and development activities of the group of companies83
12.	Information on own shares acquired and held by the issuer 84
13.	Information on the aims of financial risk management, hedging instruments in use84
14.	Information on the issuer's branch office and subsidiary undertakings84
15.	Structure of authorized capital 86
16.	Data on shares issued by the issuer86
17.	Information on the issuer's shareholders 88
18.	Employees90
19.	Procedure for amending the issuer's articles of association92
20.	Issuer's management bodies 92
20.1.	Data on the committees in the company 94
20.2.	Information about the members of the company's supervisory board94
20.3.	Information on the members of the company's management board 96
20.4.	Information on the general manager and chief accountant of the company98
21.	Information on significant agreements98
22.	Information on agreements of the issuer and its managerial body members or employees99
23.	Information on major transactions with related parties99
24.	Information on harmful transactions concluded on behalf of the issuer during the reporting period 99
25.	Information on compliance with the governance code of companies and the company's corporate social initiatives and policies99
26.	Data on publicised information99
	Annex 1 – Company's report on the compliance with the Governance Code for the companies listed on the Stock Exchange Nasdaq Vilnius………………………………………………………………………….……… 101
	Annex 2 – AB Kauno Energija Corporate Social Responsibility Report 121

LIST OF TABLES

Table 1	Comparison of financial indicators of the Group of the year 2019 with the indicators of the years 2015–2018	76
Table 2	Comparison of financial indicators of the Company of the year 2019 with the indicators of the years 2015–2018	77
Table 3	Comparison of non-financial indicators of the Company of the year 2019 with the indicators of the years 2015–2018	78
Table 4	Comparison of the Company's pollutions to the atmosphere from stationary air pollution sources in 2019 with the amount in 20154-2018	82
Table 5	Structure of authorized share capital by types of shares	86
Table 6	History of trade in Company's securities in 2015–2019	86
Table 7	Information on Shareholders of the Issuer who owned as at 31 December 2019 more than 5 per cent of the authorised capital of the Company	88
Table 8	Repartition of shareholders in accordance with groups at the end of the reporting period	88
Table 9	The shareholders, who owned more than 5 per cent of the shares issued for public trading	89
Table 10	The shareholders, who owned more than 5 per cent of the shares issued for non-public
	trading	89
Table 11	Changes in the number of employees of the Group in 2015–2019	90
Table 12	Changes in the number of employees of the Company in 2015–2019	90
Table 13	Education of employees of the Group at the end of the reporting period	90
Table 14	Education of employees of the Company at the end of the reporting period	91

LIST OF CHARTS

Chart 1	Fuel structure	68
Chart 2	Heat purchase and production	68
Chart 3	Repartition of Company's heat consumers by groups	69
Chart 4	Implementation of investments by funding sources	71
Chart 5	Average monthly air temperature	71
Chart 6	Heat supplied to the network	79
Chart 7	Price of heat, supplied by of Company's	79
Chart 8	Structural constituents of heat price	80
Chart 9	Heat price constant constituent	80
Chart 10	Heat price variable constituent in December 2019	81
Chart 11	Activity results of UAB Kauno Energija NT	85
Chart 12	Activity results of UAB Petrašiūnų katilinė	85
Chart 13	Historical data on share prices (in euro) and turnovers in 2015–2019	87
Chart 14	Comparison of Company's share price	87
Chart 15	Structure of shareholders as at 31 December 2019	88

1. Reporting period of the Consolidated Annual Report

Reporting period, for which the Consolidated Report of the Issuer was prepared, is the year 2019.

2. Companies composing the Group of companies and their contact details

The Issuer prepares both the Company's and the consolidated financial statements. The group of companies (hereinafter referred to as the Group) consists of PLLC Kauno Energija and its subsidiaries – LLC Kauno Energija NT and LLC Petrašiūnų Katilinė, in which the Issuer directly controls 100 per cent of the shares.

Main details of the Company:

Name of the Company:	Public Limited Liability Company Kauno Energija
Legal-organizational form:	Public Limited Liability Company
Headquarters address	Raudondvario pl. 84, 47179 Kaunas
Code of legal entity:	235014830
Telephone	(8 37) 305 650
Fax	(8 37) 305 622
E-mail:	info@kaunoenergija.lt
Webpage	www.kaunoenergija.lt
Registration date and place	22 August 1997, Kaunas, Order No 513
Register manager	Kaunas Branch of State Enterprise Centre of Registers
VAT payer code	LT350148314

Main information about the subsidiaries:

Company name	Limited Liability Company Petrašiūnų Katilinė
Legal-organizational form	Private Limited Liability Company
Headquarters address	R. Kalantos str. 49, 52303 Kaunas
Code of legal entity	304217723
Telephone	+370 687 48413
Registration date and place	1 April 2016, Kaunas
Register manager	Kaunas Branch of State Enterprise Centre of Registers
Company name	Limited Liability Company Kauno Energija NT
Legal-organizational form	Private Limited Liability Company
Headquarters address	Savanorių pr. 347, 49423 Kaunas
Code of legal entity	303042623
Telephone	(8 37) 305 693
E-mail	kent@kaunoenergija.lt
Registration date and place	16 April 2013, Kaunas
Register manager	Kaunas Branch of State Enterprise Centre of Registers

3. Nature of core activities of the companies composing the Group of companies

The nature of core activities of the Group is manufacture and rendering of services. The Company is the parent company of the Group. The Company generates and supplies heat to consumers (for the purposes of heating and hot water production) in the cities of Kaunas and Jurbarkas and in Kaunas district (Akademija town, Ežerėlis town, Domeikava village, Garliava town, Girionys village, Neveronys village, Raudondvaris village), (hereinafter referred to as Kaunas district).

Also, following provisions of the Law on Heat Sector, the Company supplies hot water (is engaged in hot domestic water supplier activities) from 1 May 2010 for consumers in the cities of Kaunas and Jurbarkas and Kaunas district (hereinafter the supplies of heat and hot domestic water without cold water are referred to as

heat, with the exception of information provided in Tables 7 and 8), who chose the Company as a hot water supplier. As at December 31, 2019 the Company supplied hot water to 702 residential buildings in Kaunas city, Kaunas district and in Jurbarkas. Income from hot water supplies amounts to approximately 6 per cent of all of Company's sales revenue.

In addition, the Company maintains engineering structures (collectors – manifolds) and operates heat and electricity production facilities. The Group and the Company carries out a supervision of indoor heat and hot water supply systems, maintenance of heat unit equipment, repairs of heat units and other heating equipment, provides premises rental services under agreements. The Group and the Company are engaged in licensed activity in accordance with the licenses held. On February 26, 2004 the National Commission for Energy Control and Prices (hereinafter – NCC) issued a heat supplier licence to the Company. The licence is valid indefinitely. Maintenance of indoor heat and hot water supply systems is pursued following the provisions of Article 20 of The Law on Heat Sector of the Republic of Lithuania.

The vision of the Group and the Company is to be an innovative, competitive, and added value for shareholders creating Company engaged in heat and cooling generation and their centralized supply, maintenance of indoor heating and hot water systems.

Values of the Group and the Company:

• More than 50 years of experience in heat production and supply;
• Responsibility towards consumers for reliable heat and hot water supply;
• High qualifications of employees allowing to reach the highest efficiency indicators;
• Ability to apply innovative solutions in everyday activities.

Strategic goals of the Group and the Company are as follows: PLLC Kauno Energija is the most advanced and innovative DH company in Lithuania.

Principled guidelines of Company's heat economy strategy are as follows:

Increase in effectiveness and development of heat economy – Kaunas city needs at least one more than 100 MW capacity modern, up-to-date production facility – cogeneration power-plant, using renewable energy sources (hereinafter – RES) and / or waste, and / or natural gas. New power-plant should ensure tankage / use of reserved fuel, reservation of heat production facilities, stable hydraulic mode of centralized heat supply, flexible reaction to network peak demand changes, should have an emergency replenishment system and should be economically "balanced";

Increase of safety and reliability of heat supply – the Company intends to formulate an expert assessment of safety / vulnerability of heat supply system, to implement update and modernization of system of parameters data transfer, collection and evaluation, to implement optimization of the network hydraulic mode and increase of speed of parameters reaction / change, to reconstruct and optimize sections of thermofication pipelines and elements (average age of pipelines of district heating network (hereinafter – DHN) reaches approximately 38 years), to implement update and development of the system of DHN water reserve – emergency replenishment, to implement technical solutions and / or use a good practice increasing reliability and safety, ensuring stability of thermofication mode;

to actively participate in formation of policy of Kaunas city supply with heat and in increase of Company's desirability and in expansion of district heating market;

formation of good practice and its publicizing;

4. Issuer's agreements with credit institutions

On September 13, 2018 the Issuer Service Agreement with AB SEB Bankas (company code 112021238, Gedimino pr. 12, Vilnius), represented by the Finance Markets Department was concluded.

5. Trade in securities of companies composing the Group of companies in regulated markets

20,031,977 (twenty million thirty one thousand nine hundred seventy seven) of the Issuer's ordinary registered shares (VP ISIN code LT0000123010) with the total nominal value equal to EUR 34,855,639.98 (thirty four million eight hundred fifty five thousand six hundred thirty nine euro and 98 cents) as at December 31, 2019 were listed in the secondary trade list of Nasdaq Vilnius Baltic stock exchange. The beginning of listing of the Company's shares is December 28, 1998.

6. Overview of the condition, performance and development of the Group of companies

6.1. Overview of the condition, performance and development of the Company

During the year 2019 the Company performed its activities with a focus on development of capacities of production facilities and increase of reliability of DH network, considering Strategic guidelines of centralized heat supplies of Kaunas city.

When planning its activities, the Company also considers the PLLC Kauno Energija Strategy for the Heating System Development for the years 2007–2020 developed in 2016 by the Lithuanian Energy Institute under initiative of the Company. The main provisions and guidelines for heat supply to the city until 2021, reaching to ensure technical, economical and management effectiveness of the system of centralized heat supply and reliability of heat supply, without prejudice environmental requirements and considering provisions of Lithuanian legislation and obligatory aspirations of European Union (hereinafter – EU) directives are determined in the strategy.

On February 7, 2019, The Supervisory Board of the Company approved the "Adjustment report of AB Kauno Energija Strategy, implementing the directions of the development of the energy sector until 2021".

The Company covers a major part of heat production and supply market in the cities of Kaunas and Jurbarkas and Kaunas district. Group's generation capacities consist of Company's boiler-houses capacities and subsidiary's UAB Petrašiūnų Katilinė capacities in Kaunas city. Company's generation capacities consist of Petrašiūnai power plant, 4 boiler-houses in Kaunas integrated network, 7 district boiler-houses in Kaunas district, 1 boiler-house in Jurbarkas city, 13 boiler-houses of isolated networks and 26 local gas burning boiler-houses in Kaunas city (25 of them are gas burned and 1 of them – burned with pellets), also 8 local water heating boilerhouses in Sargėnai neighbourhood. Total installed heat generation capacities of the Group consist of approx. 672 MW, and total energy generation capacity of the whole Group is approx. 681 MW (including 47 MW capacities of condensational economizers). Total installed heat production capacity of the Company consists of approx. 653 MW (including 47 MW capacities of condensational economizers), electricity generation capacities – 8.75 MW. 314.6 MW of heat generation capacities (including 17.8 MW capacities of condensational economizers) and 8 MW of electricity production capacities of them are in Petrašiūnai power plant. 34.8 MW of heat generation capacities (including 2.8 MW capacities of condensational economizer) are installed in Jurbarkas city. Total Company's power generation capacity consists of 662 MW (including 47 MW of condensational economizers' capacities).

Almost 38 per cent of heat supplied to consumers in the year 2019 was produced in Company's heat production facilities. The rest of required quantity of heat was purchased from independent heat producers (hereinafter – IHP) in monthly auctions, according to legal acts. Starting from May 2018 an electronic heat purchasing auctions are arranged by the Energy Stock Exchange operator UAB Baltpool. Electronic auctions are carried out in accordance with the Regulations of the Heat Auctions approved by the National Energy Regulatory Council. The Schedule of the Procedure and Conditions for the Purchase of Heat from Independent Heat Producers, the Methodology for Determining Heat Prices, the Rules for the Provision of Information on Energy, Drinking Water Supply and Wastewater Treatment, Sewage and Surface Water Treatment Companies, a Summary of Conditions of Usage of Heat Transfer Networks, and a schedule of the Procedure for Publicly Disclosed Information were changed respectively.

Chart 1

In the year 2019, the Company purchased heat from 11 IHP in Kaunas and Kaunas district: from LLC Kauno Termofikacijos Elektrinė, LLC Idex Taika, LLC Idex Taika Elektrinė, LLC Lorizon Energy, LLC Ekoresursai, LLC Petrašiūnų Katilinė, LLC Aldec General, LLC ENG, LLC Idex Biruliškių, LLC Ekopartneris and LLC Foksita. Total purchases consisted of 847.6 thousand MWh of heat, i.e. 62.4 per cent of heat supplied to the network (in the year 2018 – 60,8 per cent). Amounts of heat purchased from IHP and produced with Company's equipment during the period of the years 2015–2019 are presented in chart 2, thousand MWh:

Chart 2

Heat purchase and production, thous. MWh

As at December 31, 2019 the Company supplied this produced and purchased heat with integrated and local heat supply networks to 3,571 businesses and organizations as well as to 116,444 households, in total – to 120,015 consumers (objects by addresses).

Chart 3

Repartition of Company's heat consumers by groups

Investments

Company's investments in latest technologies (the reconstruction of heat generation facilities installing economizers, new biofuel burned boilers, automation of boiler-houses of integrated network, systems of electronic services, system of remote reading of heat meters and data transmission, customer service using "one stop" principle, etc.) help the Company to reduce the price of heat sold. Reconstruction of heat supply networks reduces Company's heat supply losses. All these investments help the Company to adapt to market changes and to be an advanced company of heat and hot water supply, also of maintenance of heat production facilities in Kaunas and Jurbarkas cities and Kaunas district.

Investments are made in accordance with Company's revised investment plan for the year 2019, which was approved by decision No T-63 of Kaunas City Municipality Council of February 26, 2019 "Regarding investment plans of PLLC Kauno Energija for the year 2019 and 2017–2020 and their financing" (hereinafter – Investment plan).

The Company implements trunk pipeline replacement projects co-financed by the European Union structural funds, it also optimizes pipeline diameters, connects new objects to the DHN and modernises heat production facilities according to Investment plan.

Amendments to the Law on Heat Sector of the Republic of Lithuania and changes in NCC's regulation allowed favourable conditions to invest to construction and reconstruction of heat production facilities, thus increasing competition in heat production sector and effectively reducing heat price for consumers.

In 2020 the Company will accomplish two projects, i.e. "Modernization of the main pipeline 6T of integrated network of Kaunas City" (code 04.3.2-LVPA-K-102-01-0010) and "Modernization of the main pipeline 1T of integrated network of Kaunas City" (code 04.3.2-LVPA-K-102-01-0024) according to the financial support agreements signed with the Lithuanian Business Support Agency (hereinafter – LBSA) in December 2016. The value of the projects amounts to EUR 2.3 million, i. e. EUR 1.15 million is financial support from European Union.

On March 9, 2018 the Company signed a support agreement with LBSA for the financing of the project "Installation of up to 1 MW capacity biofuel boiler in Noreikiškės boiler-house" (code 04.1.1-LVPA-K-109-01- 0006). The value of the project is EUR 0.25 million, i. e. EUR 0.15 million is European Union structural support.

The project is focused to the increase of efficiency of heat generation facilities and the reduction of greenhouse gas emissions. The new boiler will replace the natural gas used for heat production to biofuel.

On May 23, 2018 the Company signed 7 agreements with LBSA under the Measure No. 4 of the Priority 4 "Promotion of Energy Efficiency and Renewable Energy Production" of the EU Funds Investment Action Program for 2014–2020 No. 04.3.2-LVPA-K-102 "Modernization and development of heat supply networks":

• "Reconstruction of the main pipeline 1T of Kaunas city" (code 04.3.2-LVPA-K-102-02-0028);
• "Reconstruction of the main pipelines 1Ž and 7Ž of Kaunas city" (code 04.3.2-LVPA-K-102-02-0029);
• "Reconstruction of the main pipeline 4T of Kaunas city" (code 04.3.2-LVPA-K-102-02-0030);
• "Reconstruction of the main pipeline 5T of Kaunas city" (code 04.3.2-LVPA-K-102-02-0031);
• "Reconstruction of the main pipeline 8K of Kaunas city" (code 04.3.2-LVPA-K-102-02-0032);
• "Reconstruction of the main pipelines 8H and 9Ž of Kaunas city" (04.3.2-LVPA-K-102-02-0034);
• "Reconstruction of district heating networks in Chemijos and Medvėgalio streets of Kaunas city" (code 04.3.2-LVPA-K-102-02-0035).

These projects are anticipated to be accomplished in 2019–2020. The value of the projects is EUR 19.7 million, i.e. EUR 9.86 million of EU Structural support.

On November 16, 2018 the Company signed a contract with the LBSA for the financing of the project "Development of Kaunas city district heating network in the Aleksotas neighbourhood" (code 04.3.2-LVPA-K-102-04-0001) under the Measure No. 04.3.2-LVPA-K-102 "Modernization and development of heat supply networks" of Priority 4 "Promotion of Energy Efficiency and Renewable Energy Production" of the EU Funds Investment Action Program for 2014–2020. The value of the project amounts to EUR 3.8 million, incl. EUR 1.9 million of EU Structural support.

On November 16, 2018 the Company signed two contracts with the LBSA regarding partial financing of the projects "Biofuel Boiler Installation in Raudondvaris Boiler House" and "Biofuel Boiler Installation in Jurbarkas Boiler House". A 1.5 MW capacity biofuel-burned boiler will be installed in Raudondvaris. The value of the project amounts to EUR 0.5 million, incl. EUR 0.3 million of European Union Structural support. A 4.6 MW capacity biofuel-burned boiler will be installed in Jurbarkas. The value of the project amounts to EUR 0.8 million, incl. EUR 0.5 million of European Union Structural support.

All these projects are being implemented in 2019 and will be accomplished in 2020.

On March 2019 the Company submitted 10 applications under the 6th call of the measure 04.3.2-LVPA-K-102 "Modernization and Development of Heat Supply Networks" of 2014-2020 European Union Funds Investment Operational Program. 10 agreements under all these applications were concluded with LBSA in August and December 2019:

• "Reconstruction of the main pipeline 1Ž of Kaunas city" (code 04.3.2-LVPA-K-102-06-0012);
• "Reconstruction of the main pipeline 2T of Kaunas city" (code 04.3.2-LVPA-K-102-06-0014);
• "Reconstruction of the main pipeline 4K of Kaunas city" (code 04.3.2-LVPA-K-102-06-0015);
• "Reconstruction of junction of the main pipelines 4Ž and 1T of Kaunas city" (code 04.3.2-LVPA-K-102-06-0016);
• "Reconstruction of the main pipeline 4Ž of Kaunas city" (code 04.3.2-LVPA-K-102-06-0017);
• "Reconstruction of junction of the main pipelines 5T and 6T of Kaunas city" (code 04.3.2-LVPA-K-102-06-0018);
• "Reconstruction of the main pipeline 7Ž of Kaunas city" (code 04.3.2-LVPA-K-102-06-0019);
• "Reconstruction of the main pipeline 2P of Kaunas city" (code 04.3.2-LVPA-K-102-06-0013);
• "Reconstruction of the main pipeline 9K of Kaunas city" (code 04.3.2-LVPA-K-102-06-0020);
• "Construction of heat supply network to Kaunas FEZ" (code 04.3.2-LVPA-K-102-05-0007).

Al these projects are anticipated to be implemented in 2020 – 2021. The value of the projects amounts to EUR 18.7 million, incl. EUR 9.4 million of European Union Structural support.

The dynamics of consumer's connections to Company's DHN and disconnections in 2015–2019 is shown in Chart 4.

Chart 4

Dynamics of consumer's connections and disconnections

A total installed capacity of objects disconnected from DHN in 2019, was approx. 0.31 MW. Disconnection of heat equipment from centralized heat supply networks and the change of heating method is pursued following the order determined by the Civil Code of the Republic of Lithuania, the Law on Heat Sector of the Republic of Lithuania, the Law on Construction of the Republic of Lithuania and sub statutory legal acts implementing these Laws.

A major part of Company's investments in 2019 was assigned for modernization of heat supply networks and renewal of heat production boilers. A part of funds was allocated to the connection of new objects with total consumption capacity of 14,63 MW to the DHN. Company's investments by funding sources of the years 2015– 2019 are presented in Chart 5.

Chart 5

Implementation of investments by funding sources, million euro

6.2. Description of exposure to key risks and uncertainties the Company confront with and their impact on activity results

External risk factors affecting the Company's core business:

• Increase in competition between heat producers in Kaunas;
• Increase in final (i.e. including all expenditures) price of natural gas and biofuel;
• Ever-changing legal environment;
• Heat production pricing policies.

Competition environment risk factors

In order to operate effectively and reliably in creation the added value for shareholders, the Company is facing threats specific to the sphere of its activity, but also takes advantage of opportunities to work efficiently and effectively by exploiting the available potential. One of the biggest threats that the Company may face is a relatively high price for heat purchased from IHP, who are ranked as private business units committed to profit generation. Purchase of heat is pursued following valid law and the Description of procedure for purchase of heat from independent suppliers of heat approved by NCC. In turn, the Company invests extensively in modernization and construction of its own manufacturing facilities, to reduce the comparative costs of heat production. Thus, it takes advantage of the regulatory environment and reduces the energy purchase price.

Together with coming of new IHP the Company faced additional technical, economical, legal and other issues that need to solve: management of heat supply network and balancing of power of these producers in case of emergency stop of them, retaining of optimum working parameters of the network, regulation, change and applying of heat purchase from IHP order.

Commercial risk factors

The Company is a major supplier of the heat produced centrally to the city of Kaunas, part of Kaunas district and the city of Jurbarkas. In order to retain this market, it is necessary to implement modern and efficient heat production technologies in own production facilities and to focus on production at the lowest cost, benefiting from private differences of different types of fuel.

Company's heat sales are directly dependent on heat demand, i.e. heat consumption, which is mostly affected by the average outdoor air temperature, the amount of investment of consumers in energy-saving and rational use of heat and the pace of development of the heat sales.

Changes in fuel prices and the price of heat, produced by IHP have an impact on cost of Company's heat and electricity production.

Company's performance is affected by the decline in sales due to reduced and further reducing heat demand (in pursuance of residential buildings renovation and by installing a heat saving equipment), due to consumer's disconnections from DHN (due to the various reasons). Risks can be mitigated by Company current and further investments in heat and electricity production facilities, using renewable energy sources, reducing heat production expenditures and the price heat, purchased from IHP as well as the price of heat supplied for consumers, and continually reasonably informing customers on the benefits of DHN systems (safety, reliability, correlation with one sort of fuel, fuel conversion, local pollution sources in residential areas, total environmental pollution, etc.) in comparison with autonomous heating.

The effects of other competing companies, propagating the only usage of natural gas, irrespective of approved special heating supplies plan, supplies reliability, affection to the only source of fuel, not yet regulated local pollution, in the heat supply sector with the Company are disconnections of consumers from DHN system. Heating equipment disconnection from the DHN and heating mode changes are carried out in accordance with the procedures specified in the "Rules on heat supply and consumption" approved by order No 1-297 of October 25, 2010 of the Minister of Energy of the Republic of Lithuania (and their further amendments) and the Description of procedure for disconnection of the building or heating facilities of premises from heat supply networks at the initiative of consumers approved by order No A 1830 of the director of administration of Kaunas City Municipality of 14 May 2012. Kaunas City Municipality has approved a special heat supply plan, which provides a way to separate the heat supply in different urban areas. Disconnection of buildings in the district

heating area from the DH network is only possible with the appropriate permit of Kaunas City Municipality. A special heat supply plan of Kaunas District Municipality was approved by the decision of Kaunas District Municipality No TS-43 of January 26, 2012. A special heat supply plan of Jurbarkas City and District was approved by the decision of Jurbarkas District Municipality No T2-67 of March 10, 2005.

Operational risk

Limited consumers' solvency and the debts. Risks can be mitigated by the factoring of debts and applying more stringent debt collection techniques / methods. Other possible operational risk – changes in interest rates in the banking market.

Detailed information on risk management policy and credit, exchange rate, interest rate, liquidity risk is provided in Note 22 of explanatory notes to the Financial Statements of PLLC Kauno Energija Consolidated and Company's Report of the year 2019.

During the year 2019 heat consumers' debts decreased by approx. 16 % in comparison with the year 2018 and consisted of EUR 8.087 million in 2019. During the year 2018 heat consumers' debts decreased by approx. 14 % in comparison with the year 2017 and consisted of EUR 9.609 million. Decrease was affected by application of effective methods of debts administration.

To recover these debts as soon as possible, the Company actively uses a variety of legal debt management measures, such as pre-trial actions, judicial recovery and cooperation with law Company. In addition, when a debt becomes big, a restriction of heat supplies is applied as a prevention measure (if there are technical possibilities and according to the law).

In all cases, the consumer is informed regarding his indebtedness first. When debtors respond to warnings, the options of debt settlement are discussed and the documents ensuring repayment of debt are signed. If the debtor does not respond to warnings and if pre-trial measures are not effective, the judicial recovery begins. The Company then applies to the court and after a decision accompanied with receiving-order – to bailiff. In such case the debtor must pay not only the debt but also the court and execution expenditures. In the year 2019 a lot of debt prevention actions and pre-trial recovery measures were carried out. Number of debt management actions performed: 22,069 written warnings, 2,881 telephone warnings, 207 accepted bills, 54 written settlements, 164,172 warnings in monthly bills.

On January 2, 2018 the Kaunas Unified Service Center "Mano Kaunas" started its operations in Statybininkų str. 3, Kaunas, at the premises of LLC Kauno Švara. Here residents can get immediate information / consultation about Kaunas city services provided by municipality owned companies – PLLC Kauno Energija, LLC Kauno Švara, LLC Kauno Autobusai, LLC Kauno Butų ūkis, LLC Kauno Gatvių Apšvietimas and LLC Kauno Vandenys, as well as conclude contracts, pay invoices, requests, certificates, etc.

Activities of the Company are cyclical. During the heating season (October – April) a major operating income is earned. During the non-heating season, the Company's revenues are at their lowest since only heat for hot water is used. In addition, during the non-heating season, the Company incurs more costs because it must prepare for the upcoming heating season, i.e. to carry out the repairs and reconstruction of heat supply networks and heat production facilities.

Legal conformity risk

Energy activities are governed by the Law on Heat Sector, the Law on Energy, the Law on Electricity, the Law on Natural Gas, the Law on Drinking Water Supply and Wastewater Management, Government resolutions, Heat supply and consumption rules, Methodology of heat prices and payments for heat of NCC and other legislation. Their amendments affect the heating industry.

With new amendments of articles 2, 3, 20, 22, 28, 31, and 32 of the Law on Heat Sector No XI-1608 of the Republic of Lithuania that came in affect from November 1, 2011, in accordance with Article 7, the heat and hot water prices may not include any costs related with the indoor building heating (including heat units), and hot water systems. In implementing the legislation, from November 1, 2011, all these costs directly reduce the profit of the Company.

Legal conformity risk is a risk of increase in losses and (or) loss of prestige, an (or) decrease in confidence, which can be determined by the external environment factors (for example, violation of external legal acts, noncompliance of requirements of supervising institutions, etc.) or internal factors (for example, violation of internal legal acts and ethical standards, cases of employee's abuse, etc.).

Social factors

consumers' disconnections from the system of centralized heat supply can have a negative impact on Company's operations. Consumers with total consumption capacity of 0.31 MW were disconnected in 2019; also limited purchasing power of consumers and slow growth of it, unemployment and exceptionally negative opinion about district heating supplier in the public domain have also a negative impact on Company's activities.

However, an increased number of consumers from 119,490 in the year 2018 to 120,015 in the year 2019 had a positive impact on Company's activities. Total installed heat consumption capacities of new consumer's amount to 14.63 MW (mostly business organizations owning big, i.e. heated areas).

Social risk

Company's activities are socially sensitive to many Kaunas region residents and businesses due to the conditionally high costs for heating and hot water. These costs constitute a significant part of expenses for households. But as the price of heat sold is decreasing, number of complaints regarding big bills also decrease. This decrease was determined by the latest Company's investments in production facilities that allowed reducing the prices of heat and hot water significantly. As measured in terms of Lithuania, the Company's heat price in the year 2019 was near an average heat price of all heat supply companies.

This risk is mitigated by reasonably informing consumers on Company's activities. Articles on Company's activities are coherently published in Company's website and in national or local media. The Company analyses consumer's complaints, provides written responses, consumers are advised verbally (in Company's premises as well as in "Mano Kaunas" consumers centre), by the telephone or e-mail. Heat consumers are periodically invited to meet Company's specialists and discuss consumer issues related to the Company's activities. Thus, an image of modern and socially responsible company is being created.

Technical and process factors

Greatest process risks are so shaded with the condition of heating systems. Company's trunk pipelines are an average about 40 years old. Modernization rate of them is determined by lack of funds – it is necessary to reconstruct more than 13.5 km of pipelines per year to condition of age of heat supply system and the minimum investments should consist of approximately 6 million euros. Hydraulic testing identifies their weakest points. Every year, about 200 points where cracks occur are identified during the tests. Upon discovery of defects, pipes are exposed and promptly repaired.

Main pipelines of heating networks in the most worn out places are reconstructed using support from the EU Structural Funds. New industrially (polyurethane foam insulation in polyethylene shell) insulated pipes not requiring concrete channels are mounted in the reconstructed sections of the heat supply network. Heat loss is very low in reconstructed sections (process level), while the pipelines no longer pose a threat of rupture and ensure reliable heat supply to consumers.

One of the technical risk factors for heat generation facilities is their age. Some of heat generation facilities are already renewed. Every year boiler repairs and preventive work is carried out during the non-heating season. They are necessary to make secure heat supplies and reliability, i.e. securing of heat production facilities and fuel reserves.

More detailed information on Company's investments and modernization of production facilities is provided in chapters 6.1 and 7.

Technological risk can be mitigated by reconstructing heat production facilities and supply pipelines, utilizing the latest and advanced technologies and thereby increasing the efficiency of the thermal system, capacity of own heat production facilities necessary for secure of reliability. In addition, significant investments in the modernization of the Company's assets must be made according to the country standards and regulations in line

with European Union standards and normative acts regulating qualitative and technical indicators of heat supply systems.

Ecological factors

In terms of the Company they may be divided into those affecting the Company and influenced by the Company's operations.

In order not to adversely impact the environment and comply with the pollution limits, vibration and noise values, the Company is guided by the requirements of the Kyoto Protocol, the Helsinki Commission (HELCOM) and environmental constraints of Helsinki Convention, as well as the European Parliament and Council Directive 2001/80/EB of regulating energy emissions and Lithuanian environmental normative document LAND 43-2013 for the use of natural resources, and releases and emissions of air pollutants to the environment in its activities. Main sources of pollution of the Company: burning fossil fuel in the Company's heat sources, production of heat and waste water, are used in the industrial processes.

The Company pays taxes for atmospheric and water pollution. If allowable emission rate limits or annual limits are exceeded, the Company must pay the fines under the applicable laws of the Republic of Lithuania. The Company was not imposed any penalties in the year 2019.

Main Company's emission reduction measures: modernization of heat generation sources, heat transfer loss reduction by replacing the existing pipes to the pipes with polyurethane foam insulation, installation of new technology and improvement of existing facilities, use of less polluting fuels, and continuous emission monitoring (in the year 2019, the fuel balance was dominated by solid biofuel – 75,84.0%, natural gas – 23.91%, other fuels – 0.25 %).

7. Analysis of financial and non-financial performance results, information related to environmental issues

Company's sales revenue of the year 2019 was EUR 54,659 thousand and in comparison, with the year 2018 decreased by 10.87 per cent (in the year 2018 it consisted of EUR 61,328 thousand). Sales revenue of the Group of the year 2019 was EUR 54,649 thousand (in the year 2018 it consisted of EUR 61,316 thousand).

This alteration was mainly affected by a decrease in heat price, the main part of which consist of fuel and purchased heat constituents, as well as decreased amount of heat sold. The amount of heat sold in the year 2019 was at 5.32 per cent less in comparison with the year 2018. The average price of heat sold decreased by 8.42 percent in the year 2019 (in 2019 the heat price was 4.57 ct/kWh, and in 2018 - 4.99 ct/kWh).

The comprehensive income of the Group amounted to EUR 933 thousand in the year 2019, and the Company's – to EUR 747 thousand. Comprehensive income of the year 2019 decreased by EUR 3,031 and 3,667 respectively in comparison with the year 2018.

Starting from December 2018 to December 2019 heat price has been reduced by the additional contribution in amount of 0.29 ct/kWh (0.32 ct/kWh from December 2019) by the decision of the Board of the Company in order to reimburse to consumers an additional income earned in 2015–2016. EUR 3.32 million were reimbursed to consumers during the year 2019.

The Group and the Company accounts impairment loss in doubtful receivables. Change in impairment loss in doubtful receivables in 2019 is included in the article of expenses of the change in the carrying amount of receivables of the Group's and the Company's Statement of Profit (Loss) and Other Comprehensive Income and was amounted to EUR -1,017 thousand and EUR -1,021 thousand respectively in 2019, i.e. expenses decreased and profit increased because of that (in 2018 – EUR -770 thousand and EUR -787 thousand). In 2019, the Group and the Company wrote of an amount of EUR 636 thousand and EUR 636 thousand of bad debts respectively (in 2018 these sums amounted to EUR 696 thousand and EUR 696 thousand respectively).

No	Indicator of the Group	2015	2016	2017	2018	2019
1	Revenue from sales, thousand euros	60,725	61,178	59,680	61,316	54,649
1.1	Including: Heat energy	57,396	58,004	56,084	57,387	49,711
1.2	Electric energy	253	38	0	0	0
1.3	Maintenance of indoor heating and hot water supply systems, heating substation facilities	21	10	10	11	12
1.4	Income from the maintenance of collectors	226	227	250	250	251
1.5	Hot water supply including cold water price	2,569	2,611	2,981	3,260	3,228
1.6	Income from maintenance of hot water meters	260	288	355	408	422
1.7	Income from the trading of emission allowances	-	-	-	-	1,025
2	Profit, thousand euros	4,509	6,957	6,861	3,963	933
3	EBITDA (earnings before interest, taxes, depreciation and amortization), thousand euros	12,083	14,787	15,861	12,417	8,816
4	Profitability of core business, per cent (operating profit / sales and services)* 100	9.1	10.0	11.7	6.4	1.2
5	Net profitability, per cent (net profit / sales and services)*100	7.4	11.4	11.5	6.5	1.7
6	Assets, thousand euros	134,442	145,073	149,158	148,266	154,096
7	Equity, thousand euros	81,860	87,019	89,343	89,967	89,829
8	Return on equity (ROE), per cent (net profit / average equity)*100	5.7	8.5	8.2	4.7	1.1
9	Return on assets (ROA), per cent (net profit / average assets)*100	3.2	5.0	4.8	2.8	0.6
10	Asset turnover ratio (sales and services / assets)	0.45	0.42	0.40	0.41	0.36
11	Return on tangible assets, per cent (net profit / average value of tangible assets)*100	3.7	5.6	5.4	3.2	0.7
12	Debt ratio (liabilities /assets)	0.39	0.40	0.40	0.39	0.42
13	Debt-to-equity ratio (liabilities / equity)	0.6	0.7	0.7	0.6	0.7
14	General liquidity ratio (short-term assets / short-term liabilities)	1.10	1.18	1.22	1.58	1.03
15	Quick ratio ((short-term assets inventory) / short-term liabilities)	1.07	1.14	1.13	1.47	0.92
16	Cash ratio (cash in hand and at bank / short-term liabilities)	0.21	0.49	0.42	0.60	0.16
17	Net earnings per share (net profit / average weighted number of shares in issue)	0.11	0.18	0.16	0.09	0.02
18	Equity per share, euros	1.9	2.0	2.09	2.1	2.1

Comparison of financial indicators of the Group of the year 2019 with the indicators of the years 2015–2018 is presented in Table 1.

Table 1

No	Indicator of the Group	2015	2016	2017	2018	2019
19	Last share market price of the year /net profit /number of shares at year-end (P / E ratio)	4.36	3.45	7.36	10.80	45.97
20	Share capital, thousand euros	74,476	74,476	74,476	74,476	74,476
21	Share capital-to-assets ratio	0.55	0.51	0.5	0.5	0.49
22	Return on equity (capital), per cent (net profit / capital and reserves)*100	5.8	8.7	8.8	4.9	1.1
23	Dividend payment ratio	0.38	0.66	0.49	0.28

Comparison of financial indicators of the Company of the year 2019 with the indicators of the years 2015–2018 is presented in Table 2.

No	Indicator of the Company	2015	2016	2017	2018	2019
1	Revenue from sales, thousand euros	60,733	61,188	59,692	61,328	54,659
1.1	Including: Heat energy	57,404	58,013	56,096	57,399	49,721
1.2	Electric energy	253	38	0	0	0
1.3	Maintenance of indoor heating and hot water supply systems, heating substation facilities	21	10	10	11	12
1.4	Income from the maintenance of collectors	226	227	250	250	251
1.5	Hot water supply including cold water price	2,569	2,611	2,981	3,260	3,228
1.6	Income from maintenance of hot water meters	260	288	355	408	422
1.7	Income from the trading of emission allowances	-	-	-	-	1,025
2	Profit, thousand euros	4,528	6,901	6,046	4,414	747
3	EBITDA (earnings before interest, taxes, depreciation and amortization), thousand euros	12,085	14,631	14,391	12,227	7,946
4	Profitability of core business, per cent (operating profit / sales and services)* 100	9.2	9.9	12.2	6.8	0.7
5	Net profitability, per cent (net profit / sales and services)*100	7.5	11.3	10.13	7.2	1.4
6	Assets, thousand euros	135,173	141,071	145,002	145,402	151,595
7	Equity, thousand euros	82,412	87,515	89,024	90,099	89,776
8	Return on equity (ROE), per cent (net profit / average equity)*100	5.6	8.1	7.05	5.12	0.87
9	Return on assets (ROA), per cent (net profit / average assets)*100	3.2	5.0	4.32	3.1	0.5
10	Asset turnover ratio (sales and services / assets)	0.45	0.43	0.41	0.42	0.36
11	Return on tangible assets, per cent (net profit / average value of tangible assets)*100	3.7	5.7	4.9	3.7	0.6
12	Debt ratio (liabilities /assets)	0.39	0.38	0.39	0.38	0.41

Table 2

No	Indicator of the Company	2015	2016	2017	2018	2019
13	Debt-to-equity ratio (liabilities / equity)	0.6	0.6	0.6	0.6	0.7
14	General liquidity ratio (short-term assets / short-term liabilities)	1.10	1.48	1.48	1.65	1.07
15	Quick ratio ((short-term assets- inventory) / short-term liabilities)	1.07	1.44	1.38	1.54	0.95
16	Cash ratio (cash in hand and at bank / short-term liabilities)	0.21	0.51	0.51	0.62	0.14
17	Net earnings per share (net profit / average weighted number of shares in issue)	0.11	0.17	0.14	0.10	0.02
18	Equity per share, euros	1.9	2.0	2.08	2.11	2.1
19	Last share market price of the year /net profit /number of shares at year-end (P / E ratio)	4.34	3.47	8.35	9.70	57.3
20	Share capital, thousand euros	74,476	74,476	74,476	74,476	74,476
21	Share capital-to-assets ratio	0.55	0.53	0.51	0.51	0.49
22	Return on equity (capital), per cent (net profit / capital and reserves)*100	5.8	8.6	7.8	5.4	0.9
23	Dividend payment ratio	0.38	0.66	0.56	0.25

The more detailed analysis of financial indicators of the Group and the Company is provided in notes to Consolidated and Company's financial statements for the year 2019.

Comparison of non-financial indicators of the Company of the year 2019 with the indicators of the years 2015– 2018 is provided in Table 3.

Table 3

No	Denomination of Indicator	2015	2016	2017	2018	2019
1.	Energy produced, purchased and supplied to the network, thous. MWh	1,326.3	1,428.1	1,447.1	1,436.2	1,358.1
1.1.	thermal energy	1,323.0	1,427.6	1,447.1	1,436.2	1,358.1
1.2.	electric energy	3.3	0.5	0	0	0
2.	Energy sold thous. MWh	1,098.6	1,188.0	1,201.7	1,192.4	1,129.0
2.1.	thermal energy	1,095.3	1,187.5	1,201.7	1,192.4	1,129.0
2.2.	electric energy	3.3	0.5	0	0	0

Chart 6

Heat supplied to the network, thous. MWh

Environmental impact on operations

The Company's performance can be affected by changes in sales turnovers caused by changed heat demand, which can be caused by consumer investments in the renovation of buildings, heat saving and rational consumption, average higher of lower outdoor temperature during the heating season, changes in fuel prices, heat purchase price from IHP.

Company's reconstructed heat production facilities changing fossil fuel to biofuel will make a serious competition with their costs of production to IHP, operating in Kaunas. With modernization of its own production facilities the Company reduced heat price for its consumers by more than 15 per cent during the last 5 years.

The dynamics of average price of heat of the Company in 2015–2019 is provided in Chart 7.

Chart 7

Average price of heat, supplied by AB Kauno energija, ct/kWh

Components of Company's heat price structure in 2015–2019 are provided in Chart 8.

Chart 8

The prices for heat and hot water are calculated and approved in accordance with the Methodology for the determination of heat prices, approved by the Resolution No. O3-96 of NERC of July 8, 2009. The base heat price constituent is determined for a period of 3-5 years. In the case of pricing of regulated services (products), the mechanism of long-term prices applies to heat pricing, i.e. the base heat price (price constituents) is determined for the base period, and it is adjusted in the second and subsequent years by setting the recalculated heat price (price constituents).

Management Board of PLLC Kauno Energija determined by its decision of October 24, 2018 No. 2018-26-2 the heat price constituents for the first year of validity of basic heat price, which were agreed by NERC decision of November 16, 2018 No. O3E-390. The constant heat price constituent, which was valid until November 30, 2018 was amounted to 1.95 ct/kWh (incl. profit), and the new constant constituent, valid from December 1, 2018 amounts to 1.81 ct/kWh (incl. profit) (decrease of constant constituent was determined by the decrease in reserve capacity assurance expenditures from 0.26 ct/kWh to 0.15 ct/kWh). Details of constant heat price constituent are provided in Chart 9.

Chart 9

The Company recalculates values of heat price variable constituents and final heat prices every month, considering changes in prices of fuel and purchased heat. The additional constituent has been determined by the decision of the Management Board of the Company, to compensate the difference between actual price and prices of fuel and heat purchase included in heat price. This additional constituent reduces the price for consumers by 0.32 ct/kWh. Details of variable heat price constituent, valid on December 2019 are provided in Chart 10.

Chart 10

Heat price variable constituent in December 2019, per cent

Information related to environmental issues

In carrying out their activities, the Group and the Company seek to prudently use natural resources, install less polluting technologies, and follow the environmental legislation and apply preventive measures to minimize the negative impact on the environment.

Waste management

The Group and the Company have organized the waste collection, sorting and disposal to waste managers, i.e. to licensed waste management businesses. In the year 2019, the Group and the Company disposed for recycling 41.5 tons (bottom ash, slag and boiler's dust, of packages that contains hazardous chemicals or that are contaminated with them, absorbents, filter materials (including non-redefined oil filters), dust cloths, protective clothing; mixed municipal waste, used tyres, tons of laboratory chemicals, including mixtures of laboratory chemicals, consisting of or containing hazardous materials; of insulation materials containing asbestos, of paper and carton, of fluorescent lamps, concrete, of bricks, tiles and ceramic composites, of bituminous mixes).

Wastewater management

In accordance with the schedule agreed with the Environmental Protection Agency (EPA), the Group and the Company constantly monitor that the effluent discharges from stationary sources are within the permissible limits set out in the integrated pollution prevention and control permits.

Air pollution

The measurement laboratory of stationary air pollution sources of the Group and the Company, in possession with the permit issued by the EPA and following the schedule agreed with EPA, continuously monitors the emissions to the atmosphere from stationary sources to would not exceed the permissible limits established in integrated pollution prevention and control permits. Company's Šilkas, Ežerėlis, Girionys and Noreikiškės boiler-houses, and starting from 2015 – Inkaras boiler-house and Petrašiūnai power-plant use biofuel, thus

Period	Particulates, t	Nitrogen oxides, t	Carbon monoxide, t	Sulphur dioxide, t	Hydrocarbons, t	Other pollutants, t
2019	86.0888	25.44433	1,090.2436	0.2746	1.1978	0.4313
2018	48.7984	283.0412	1,082.9366	31.6210	1.1982	0.1509
2017	79.7242	285.6461	1,236.7667	145.0571	1.1982	0.4297
2016	53.7542	265.0797	1,155.3349	231.4719	4.2871	0.2818
2015	43.5783	203.6775	904.8513	193.3228	20.1586	0.2818

reducing atmospheric pollution. Below in Table 4 you can find the comparison of the Company's pollutions to the atmosphere from stationary air pollution sources in 2019, with the amount in 2015–2018.

Cyclones for smoke cleaning from particulates are installed in Šilkas, Ežerėlis, Girionys, Noreikiškės, Inkaras boiler-houses and Petrašiūnai power-plant. Their working efficiency is checked every year. The Company is involved in the greenhouse gas emissions trading system. This system includes emission allowances (EA) allocated to Petrašiūnai power-plant, Šilkas, Pergalė, Garliava, Jurbarkas boiler-houses and Noreikiškės boilerhouse with a cogeneration power-plant.

8. References and additional explanations

Main financial data of the Group and the Company are provided in the explanatory notes to the consolidated and Company's financial statements for the year 2019.

Internal control over consolidated statements

When preparing its consolidated financial statements, the Company combines the itemised financial statements of the Company and its subsidiaries, by summing up the items of assets, liabilities, equity, revenue and expenses. Afterwards, it eliminates the book value of the Company's investment in the subsidiary and Company's share of equity in the subsidiary; amounts on balance sheets, transactions, income and expenses inside the Group (for this purpose, it prepares a reconciled report of all transactions, income and expenses for the period); difference in depreciation of contribution in kind measured at market value as compared to its book value.

For composing of the consolidated financial statements of the Group, the financial statements of the Company and subsidiaries are composed for the same date.

It's controlled if the accounting policy of the company and its subsidiaries for accounting of similar transactions is the same. The subsidiaries' income and expenses are included into the consolidated financial statements as of the date of acquisition.

9. Significant events after the end of financial year

On February 26, 2020 Mr. Visvaldas Matijošaitis, Mr. Andrius Palionis, Mr. Visvaldas Varžinskas and Mrs. Ramunė Bičkauskienė resigned from the members of the Supervisory Board of the Company.

On March 30, 2020 the audit of financial statements for the year 2019 was completed. It was performed by the supplier group LLC Auditas and LLC Nexia JK. A nomination of the Company's audit company, which is auditing the financial statements for the year 2019, was proposed by the Board to the General Meeting of Shareholders following the results of a public procurement. This Annual Report of the Company is presented together with the Audited Financial Statements for the year 2019 and with the independent auditor's conclusion.

The Management Board of the Company elected Tomas Garasimavičius on March 27, 2020 as the General Manager of the company for the 5 (five) years of the term of office starting from March 30, 2020.

Table 4

10. Plans and forecasts of activities of the group of companies

Inasmuch investments allow continual business development and profitability, the aims of the Group's and the Company's investment program for the year 2020 is further increase in volumes of heat production and effectiveness, expansion of heat selling market, through increase of use of biofuel for heat production, development of heat transmission and distribution increasing safety and reliability, developing services of maintenance of engineering systems and further improvement of consumers services quality.

In compliance with the provisions of the plan for the facilities on the implementation of the National Renewable Energy Development Strategy, in order to implement the Company's key business objectives and the provisions of the National Energy Independence Strategy related to the assurance of technical requirements for reliability of heat facilities and heat supply networks, to guarantee the quality keeps apply to consumers, Kaunas city municipality decided to approve Company's investment plans with the decision No. T-63 "Regarding Investment Plans Of PLLC Kauno Energija For The Year 2019 And For The Years 2017–2020 And Their Financing" on February 26, 2019.

The main investment goals of the Company for the regulation period of the years 2017–2020 are as follows: use of renewable energy sources, increase in reliability of heat supply to consumers in Kaunas and Jurbarkas cities an Kaunas district, and anticipated reception of EU Structural support under the 4 priority "Promoting energy efficiency and production and use of renewable energy" of Operational Programme for the European Union Funds' Investments in 2014–2020.

In 2020 the implementation of Company's investment program will involve further modernization of boilerhouses owned by the Company automating the production process and installing condensational economizers; reconstruction of heat networks; replacement of heat meters. Implementation of these measures will allow to reduce losses of heat transmission and to perform optimization of heat supply to the consumers and to ensure heat supplies reliability.

It is planned that in 2020 in comparison with 2019, the Group's sales turnover will remain in similar level as in 2019. The greatest impact on the Group's and the Company's income and expenses will be made by fuel and purchased heat price changes, as the price of heat is recalculated every month under the requirements of the law. A significant impact on the price of purchased heat is provided by the procedures established by the NERC (for example, a description of the procedure and conditions for the purchase of heat from independent heat producers), the conditions of competition between the heat supplier and the IHP. The Group's profit in comparison with 2019 is planned to be in the similar level. The results planned may be adjusted by change in heat demand, i.e. consumption, which is mainly affected by the average outdoor air temperature, the amount of user investments in housing renovation, energy-saving and its rational use, decisions of NERC regarding issues of heat pricing, as well as changes in the economic situation in Lithuania.

11. Information on research and development activities

It's indicated in EU Directive of renewable sources and in Lithuanian national legal acts, that a part of renewable sources in total end energy consumption must consist not less, than 23 per cent until the year 2020, and the part falling on heating – up to 40 per cent. Meanwhile in Kaunas this indicator exceeds 80 per cent already.

Company's representatives are constantly invited to work in committees of preparation of Energy Engineering studies programs of Kaunas University of Technology and in groups of external and self-evaluation. Working in these groups and committees Company's representatives analyse aims of programs and goals of studies, composition of training plans, appropriateness of staff, material basis, process and evaluation of studies, as well as program management. Performing external and self-evaluation, committees apply recommendations for improvement of program structures and implementation process, to satisfy the needs of employers and to meet the requirements of national and European legal acts in the field of higher education.

Company's representatives took part as every year in national conference "Heat energetics and technologies" organized by Kaunas University of Technology at the end of January.

The Company along with Lithuanian Energy Institute takes part in READY project ("Resource efficient cities implementing advanced smart city solutions") supported by European Commission. 23 companies from

Denmark, Sweden, Austria, France and Lithuania take part in it. Project will be pursued until the year 2022 by applying the latest measures of effective energy consumption in Kaunas city.

Starting from 2018 the Company together with 9 more European companies and research institutions and with the Innovation and Network Program Institution (INEA), which manages infrastructure and research programs in the EU transport, energy and telecommunications sectors, takes part in the international research project "Flexible combined heat and power generation from renewable energy sources" (FLEXCHX). The essence of the project is to ensure biomass power-plants to work in a full load the whole year. The goal of the project is to create a flexible energy production process, which could be used in various Europe's energy production facilities in the future, using high effectiveness at the minimal expenditures.

On January 15, 2019 the European Commission has proposed EUR 1.66 million support for project No. 847056 "Residential Building Energy Renovations with On-Bill Financing" (Ren-on-Bill). The application for financing of the project was submitted under the Horizon 2020 program. The Company takes part in the project as a partner with 8 other companies from Lithuania, Italy, Germany, Belgium and Spain. The project will be coordinated by Creara Consultores SL (Spain). EUR 71.5 thousand of EU support is allocated for the Company. The aim of the Ren-on-Bill project is to increase investment in residential renovation by promoting the use of OBF (On-Bill Financing) utility schemes based on cooperation between energy suppliers and financial institutions.

On May 16, 2019 another new electric car charging point was launched in Kaunas. It is located at Raudondvario Road 84 near the Company's administrative building. This is not the first public electric car charging point in Kaunas, but it is exceptional. Part of the electricity consumed at this point is generated from renewable energy solar energy. This energy is "collected" right here by a solar power plant installed on the Company's administrative building. Even though this share of renewable energy is still small, it is already a breakthrough in

the use of renewable energy sources. The point was installed by the Company to take another step towards the use of advanced future technologies.

On October 24, 2019 the Company was awarded a global award for the modernization of the big city's heat sector at the Global District Energy Climate Awards ceremony, that took place in Reykjavik, Iceland. The Company was awarded in the category Modernisation for modernization of Kaunas city heat sector, which has had the most positive impact on efficiency and the reduction of carbon dioxide (CO2) emissions. It was emphasized that during the last few years the use of natural gas for heat production in Kaunas decreased from 95% to 10%, while the use of renewable resources increased from 3% to 90%. CO² emissions from the Company's heat production facilities decreased by 27.7% from 29 055 tonnes in 2012 to 21,008 tons in 2018.

Furthermore, the Company takes part in programmes "Green Light" and "Motor Challenge", supported by European Commission, the aim of whose is effective energy consumption in lighting and pumps operation systems.

12. Information on own shares acquired and held by the Issuer

The Company does not hold the shares of its own. The Company's subsidiaries have not purchased any of the Company's shares. Neither the Company nor its subsidiaries purchased or sold own shares during the reporting period.

13. Information on the aims of financial risk management, hedging instruments in use

All relevant information on this issue is provided in notes 2.11, 14, 22 of the Explanatory Notes to the Consolidated Financial Statements for the year 2019 of PLLC Kauno Energija.

14. Information on the Issuer's subsidiary undertakings

The authorised capital of LLC Kauno Energija NT registered in the Register of Legal Entities on December 31, 2019 amounts to 1,329,872 euros and it is divided into 45,921 ordinary registered shares with par value of 28.96 euros each.

LLC Kauno Energija NT has no holdings directly or indirectly managed in other companies.

Activities of LLC Kauno Energija NT include the real estate development, management, leases, purchase and sale.

As at December 31, 2019 LLC Kauno Energija NT had 5 employees.

Comparison of financial indicators of LLC Kauno Energija NT of the year 2019 with the indicators of the years 2015–2018 is provided in Chart 11.

Chart 11

Activity results of UAB Kauno Energija NT, thous. euros

Authorized capital of LLC Petrašiūnų Katilinė registered at the Register of Legal Entities on December 31, 2019 amounts to EUR 231,696 and it is divided into 800 ordinary registered shares at par value of EUR 289.62 each.

LLC Petrašiūnų katilinė has no holdings directly or indirectly managed in other companies.

Activities of LLC Petrašiūnų Katilinė include production of heat.

LLC Petrašiūnų Katilinė had 10 employees as at December 31, 2019.

Comparison of financial indicators of LLC Petrašiūnų Katilinė of the year 2019 with the indicators of the years 2016–2018 is provided in Chart 12.

Chart 12

Activity results of UAB Petrašiūnų katilinė, thous. euros

15. Structure of authorized capital

The authorised capital of the Company registered in the Register of Legal Entities of the Republic of Lithuania as at December 31, 2019 amounts to EUR 74,475,728.82 (seventy-four million four hundred seventy-five thousand seven hundred twenty-eight euros and 82 cents).

Structure of authorized share capital of the Issuer by types of shares is specified in Table 5.

Table 5

Type of shares	Number of shares, units	Nominal value, euros	Total nominal value, euros	Municipal share in the authorised capital, per cent	Share of private shareholders in the authorised capital, per cent
Ordinary nominal shares	42,802,143	1.74	74,475,728.82	98.33	1.67

16. Data on shares issued by the Issuer

The authorised capital of AB Kauno Energija was registered on May 18, 2015 by the decision of General Meeting of Shareholders held on April 28, 2015 and amounts to EUR 74,475,728.82 (seventy four million four hundred seventy five thousand seven hundred twenty eight euros and 82 cents) and it is divided into 42,802,143 (forty two million eight hundred and two thousand one hundred forty three) ordinary shares of par value of 1.74 euros each.

There are no limitations on the transfer of securities.

16.1. Main characteristics of shares released into free circulation of securities (as at December 31, 2019).

Securities registration No	A01031430
ISON code of securities	LT0000123010
Number of shares	20 031 977 ordinary nominal shares
Nominal value	EUR 1.74
Total nominal value of shares	EUR 34,855,639.98

16.2. Main characteristics of shares issued and registered for non-public trading (as at December 31, 2019).

ISON code of securities	LT0000128407
Number of shares	22,770,166 ordinary nominal shares
Nominal value	EUR 1.74
Total nominal value of shares	EUR 39,620,088.84

History of trade in Company's securities in the years 2015–2019 is provided in Table 6.

Table 6
---------	--

Indicator	2015	2016	2017	2018	2019
Opening price, euro	0.486	0.459	0.592	1.18	1.01
Highest price, euro	0.479	0.600	1.180	1.24	1.32
Lowest price, euro	0.400	0.401	0.571	1	0.905
Last price, euro	0.459	0.560	1.180	1	0.98
Circulation, units	41,193	190,801	229,220	147,516	40,868
Circulation, million euro	0.02	0.10	0.19	0.16	0.04
Capitalisation, million euro	9.19	11.22	23.64	20.03	19.63

Historical data on share prices (in euro) and turnovers in 2015–2019 are provided in Chart 13.

Chart 13

Comparison of Company's share price with the index of own sector (utility services) and OMX Vilnius index is given in Chart 14.

17. Information on the Issuer's shareholders

The total number of Company's shareholders (accounting securities of clients of other account managers (not of SEB bank) as one shareholder) as at December 31, 2019 was 387.

Information on Shareholders of the Issuer who as at December 31, 2019 owned more than 5 per cent of the authorised capital of the Company registered on May 18, 2015 (42,802,143 ordinary nominal shares), is provided in Table 7 and Chart 15.

Full name of shareholder (company name, type, headquartered dress, code)	Number of ordinary nominal shares owned by the shareholder, units	Owned share in the authorised capital, per cent	Share of votes carried by owned shares. per cent	Share of votes owned by the shareholder together with acting entities, per cent
Kaunas City Municipality Laisvės al. 96, 44251 Kaunas Code 111106319	39,736,058	92.84	92.84	-
Other shareholders	3,066,085	7.16	7.16	-
Total:	42,802,143	100	100	-

Chart 15

Structure of shareholders as at 31 December 2019

Repartition of shareholders of the Company in accordance with groups at the end of the reporting period is provided in table 8.

		Table 8
The name of the Group	Number of shares owned by the Group, pcs.	Own part of share capital, per cent from all the shares
Local authorities	42,088,631	98.33
Households	305,955	1.08

The name of the Group	Number of shares owned by the Group, pcs.	Own part of share capital, per cent from all the shares
Securities of other accounts keepers clients	324,869	0.12
Private non-financial enterprises	53,508	0.37
Other financial brokers, except insurance companies and pension funds and other auxiliary enterprises	29,180	0.10
Other shareholders (non-financial enterprises controlled from abroad, financial auxiliary enterprises, companies holing deposits, except central bank	0	0
Total	42,802,143	100

17.1. The shareholders, who owned more than 5 per cent of the shares (20,031,977 ORS) issued for public trading (reg. No. A01031430, VP ISIN code – LT0000123010) as at December 31, 2019 are listed in Table 9.

					Table 9
Name	Type of shares	Number of shares, units	Total nominal value of shares, euros	Percentage of shares from those released into the public circulation	Share of the authorise d capital (%)
Kaunas City Municipality Laisvės al. 96, 44251 Kaunas Code 111106319	Ordinary registered shares	16,965,892	29,520,652	84.69	39.64
Kaunas District Municipality Savanorių pr. 371, 49500 Kaunas, Code 111100622	Ordinary registered shares	1,606,168	2,794,732	8.02	3.75
Other shareholders	Ordinary registered shares	1,459,917	2,540,256	7.29	3.41
Total:		20,031,977	34,855,640	100	46.80

17.2. The shareholders, who owned more than 5 per cent of the shares (22,770,166 ORS) issued for non-public trading (VP ISIN code – LT0000128407) as at December 31, 2019 are listed in Table 10.

Table 10

Name	Type of shares	Number of shares, units	Total nominal value of shares, Euro	Percentage of shares from those released into the public circulation	Share of the authorise d capital (%)
Kaunas City Municipality Laisvės al. 96, 44251 Kaunas Code 111106319	Ordinary registered shares	22,770,166	39,620,089	100	53.20

None of the shareholders of the Issuer holds any special rights of control. The rights of all shareholders are the same; they are specified in article 4 of the Law on Companies of the Republic of Lithuania. The number of shares carrying votes at the General Meeting of Shareholders of the Company is 42,802,143 units.

The Company has not been notified on the limitations of voting rights or any other mutual agreements of shareholders which may limit the transfer of securities and / or voting rights.

In 2015, the dividends from the profit of the year 2014 were allocated and paid to the shareholders of the Issuer. Dividend per share was 0.003 euro, in total – 0.129 million euro. The profit was allocated to the statutory reserve, other reserves. A total of 0.2 million euros was allocated for sponsorship and charity.

In 2016, the dividends from the profit of the year 2015 were allocated and paid to the shareholders of the Issuer. Dividend per share was 0.042 euro, in total – 1.798 million euro. The profit was allocated to the statutory reserve, other reserves, bonuses for the members of the Management Board and bonuses for employees. A total of 0.05 million euros was allocated for sponsorship.

In 2017, the dividends from the profit of the year 2016 were allocated and paid to the shareholders of the Issuer. Dividend per share was 0.106 euro, in total – 4.537 million euro. The profit was allocated to the statutory reserve, other reserves and bonuses for employees. A total of 0.1 million euros was allocated for sponsorship.

In 2018, the dividends from the profit of the year 2017 were allocated and paid to the shareholders of the Issuer. Dividend per share was 0.078 euro, in total – 3.339 million euro. The profit was allocated to the statutory reserve, other reserves and bonuses for employees. A total of 0.1 million euros was allocated for sponsorship.

In 2019, the dividends from the profit of the year 2018 were allocated and paid to the shareholders of the Issuer. Dividend per share was 0.025 euro, in total – 1.070 million euro. The profit was allocated to the statutory reserve, other reserves and bonuses for employees. A total of 0.1 million euros was allocated for sponsorship.

18. Employees

A total of 402 employees were employed in the Group as at December 31, 2019. Changes in the number of employees of the Group in 2015–2019 are provided in Table 11.

Actual number of	Group	Group	Group	Group	Group
employees	31/12/2015	31/12/2016	31/12/2017	31/12/2018	31/12/2019
Total:	526	521	513	441	402
including: management	4	6	6	3	3
specialists	279	284	272	238	214
workers	243	231	235	200	185

Changes in number of employees of the Company in 2015–2019 are provided in Table 12.

					Table 12
Actual number of employees	Company 31/12/2015	Company 31/12/2016	Company 31/12/2017	Company 31/12/2018	Company 31/12/2019
Total:	523	508	501	427	389
including: management	3	4	4	1	1
specialists	278	280	269	234	210
workers	242	224	228	192	178

Education of employees of the Group as at the end of the reporting period.

						Table 13
No	Education	Group 31/12/2015	Group 31/12/2016	Group 31/12/2017	Group 31/12/2018	Group 31/12/2019
1	Secondary incomplete	7	5	5	3	3
2	Secondary	195	187	185	156	139
3	College	72	73	75	62	59
4	Higher	252	256	248	220	201
	Total:	526	521	513	441	402

Table 11

No	Education	Company 31/12/2015	Company 31/12/2016	Company 31/12/2017	Company 31/12/2018	Company 31/12/2019
1	Secondary incomplete	7	5	5	3	3
2	Secondary	194	183	181	151	135
3	College	72	71	73	60	57
4	Higher	250	249	242	213	194
	Total:	523	508	501	427	389

Education of employees of the Company as at the end of the reporting period.

Company's management pays a lot of attention on increase in work efficiency, working conditions improvement, supply with latest working tools, professional development, planning of internal activities and control implementation, also for improvement of consumer service quality. Executive and professional qualification levels suit their positions, and work experience and practical knowledge of subject of other employees makes them possible to work in their positions. Staff turnover in the Group and the Company is inconsiderable.

In order to increase work efficiency, the Company conducts an annual work performance evaluation of structural units managers, the main goal of which is to evaluate the employee's qualifications and abilities of functions performance assigned in job regulations, to properly evaluate employees' activities, provide feedback on the goals execution in order to increase employee loyalty, satisfaction with conducted work, encouraging them to improve. The result of this process is information allowing better coordination of the Company's activities and for encouraging employees to improve their working activities.

The company actively cooperates with educational institutions and enables high school students to apply theoretical knowledge and gain practical skills. 6 students performed their internship in the Company in 2019. With demand for new workers, the most active and best students are provided with access to employment in the Company.

The salary of employees of the Issuer consists of the constant part of salary, variable part of salary, benefits and allocations paid according to the Labour Code of the Republic of Lithuania and other laws, Collective agreement of the Company, and bonuses. Bonuses are paid from net profit, if the General Meeting of Shareholders allocates part of the profit for the bonuses of the Company employees. From 1998 till 2014, the General Meeting of Shareholders has never allocated any part of the profit for the bonuses of the Issuer's employees. In the year 2019 the General Meeting of shareholders allocated EUR 470 thousand from the profit of the year 2018 as bonuses to employees.

The Collective agreement provides the special rights and responsibilities of the Issuer's employees or part of them. The Collective agreement that became effective in the Company on January 1, 2019 covers special rights as follows:

1. For continuous employment within the Company employees are granted additional paid leave.

2. The record of service of employees who worked in Lithuanian energy system companies and who were redeployed to the Company according to the corporate employer agreement, i.e. when the transfer was carried out according to the Labour Code or the Law on Employment Contract, is considered uninterrupted and those employees are granted an additional paid leave for an uninterrupted record of service within the Company.

3. At the agreement of the employer and employee, the employee may be granted unpaid leave for family related issues and other important reasons.

4. Company's employees are entitled to additional paid leave.

The employer obligates:

1. To ensure the conditions of preventive health check and, if necessary, rehabilitation treatment of employees, to provide free health services at the Company's occupational health unit;

Table 14

1. In case of death of an employee, the Company pays an allowance in the amount of two monthly average salaries of the last year of the Company gives free transport or covers transport costs. The allowance is granted to the burying person;

2. In case of death of a close relative of the employee (father (adoptive father), mother (adoptive mother), child (adoptee), or spouse), the employee is granted the allowance of the average salary of the previous year of the Company, given free transport or transport costs are covered;

3. In case of birth of one or more children, employees are granted 50 per cent of the of the average salary of the previous year of the Company for each child;

4. In case of wedding, employees are granted 50 per cent of the of the average salary of the previous year of the Company;

5. Employees who are growing up three or more children under the age of 16, widows (widowers) and unmarried persons who grow up one child or children (adoptees) alone, if they are studying at secondary schools until the age of 19, and while studying at higher schools or colleges full-time till the age of 21, or if they are caring for other family members with heavy or moderate disability level or lower than 55 per cent working ability level, or family members who have reached the retirement age, which according to the laws are established a major or moderate level of special needs, once a year (in 12 months) are granted 50 per cent of the of the average salary of the previous year of the Company according to the date of request;

6. For the 40th, 50th and 60th anniversary, as proposed by the head of the division, for excellent performance of employees having the 15 and 20 years of continuous employment with the Company are granted a monetary gift of 25 per cent, and having over 20 years of continuous work experience – a monetary gift of 50 per cent of the average salary of the previous year of the Company;

7. In other cases, where the material support is needed (loss due to natural disasters or other reasons beyond the employee's control), employees are granted the allowance of up to 3 the average salaries of the previous year of the Company;

8. In case of a serious illness or accident of the employee, he is granted an allowance of up to 5 average salaries of the previous year of the Company. Illness allowance is granted once a year (in 12 months);

9. For the occasions of the Lithuanian Energy Day and jubilees of the Company deserving employees are granted a monetary gift of up to 150 euros.

19. Procedure for amending the Issuer's Statutes

The Statutes of the Issuer say that the General Meeting of Shareholders of the Company has the exceptional right to amend the Statutes other than the exceptions provided in the Law on Companies of the Republic of Lithuania. The resolution on the amendment of the Company's Statutes 2/3 qualified majority of votes of the members participating in the meeting of shareholders is needed.

The Statutes of the Company were amended on September 10, 2019 by the decision of the General Meeting of Shareholders. The new wording of the Statutes was registered on October 1, 2019 in the Register of Legal Entities of the Republic of Lithuania. It can be found on Company's website at www.kaunoenergija.lt.

20. Issuer's management bodies

According to the Statutes of the Company, the management bodies of the Company include the General Meeting of Shareholders, a collegial management body – the Supervisory Board, a collegial management body – the Management Board, and a sole management body – General Manager.

Decisions of the General Meeting of Shareholders made on the issues within the competence of the General Meeting of Shareholders provided for in the Statutes of the Company are binding to its shareholders, the Supervisory Board, the Management Board and the General Manager, and to other employees of the Company.

All persons who are the shareholders of the Company on the date of the General Meeting of Shareholders have the right to attend the Company's General Meeting of Shareholders personally or by proxy or be represented by persons with whom they had entered into the agreement on the transfer of the voting right. The record date of the meeting of the Company is the fifth working day before the General Meeting of Shareholders or the fifth working day before the repeat General Meeting of Shareholders. A person attending the General Meeting and entitled to vote shall provide a document which is a proof of his personal identity and sign the registration list of the Meeting of Shareholders. A person who is not a shareholder shall additionally provide a document attesting to his right to vote at the General Meeting of Shareholders.

2 (two) General Meetings of Shareholders were convoked in the year 2019. Company's General Manager and the Chief Finance Officer attended them. Issuers' shareholders can ask questions and to get answers or explanations from Company's managers and speakers.

The collegial management body – Supervisory Board is elected by the General Meeting of Shareholders according to the procedure specified in the Law on Companies of the Republic of Lithuania. The Supervisory Board consists of 7 (seven) members. The Supervisory Board is elected for a term of 4 (four) years. The Supervisory Board elects the chairman of the Supervisory Board from among its members. The General Meeting of shareholders may remove from office the entire Supervisory Board or its individual members before the expiry of the term of office of the Supervisory Board. Where individual members of the Supervisory Board are elected, they shall be elected only until the expiry of the term of office of the current Supervisory Board.

The Supervisory Board elects and dismisses the Management Board members and supervises the activities of the Board and the General manager of the Company; submits its comments and proposals to the General Meeting of Shareholders on the Company's operating strategy, set of annual financial statements, draft of profit / loss allocation and the annual report of the Company as well as the activities of the Board and the General manager of the Company; submits proposals to the Board and the General manager of the Company to revoke their decisions which are in conflict with laws and other legal acts, the statutes of the Company or decisions of the General Meeting of Shareholders; addresses other issues assigned to the scope of powers of the Supervisory Board by decisions of the General Meeting of Shareholders regarding the supervision of the activities of the Company and its management bodies. The Supervisory Board shall not be entitled to assign or delegate the functions assigned to the scope of its powers by the Law on Companies of the Republic of Lithuania and the statutes of the Company to other bodies of the Company.

The Supervisory Board, following resolution No 1K-18 of August 21, 2008 of the Securities Commission of the Republic of Lithuania "On the requirement for Audit Committees", "Guidelines for the application of requirements for Audit Committees", approved in the decision of November 28, 2008 of the Securities Commission, approves the internal rules of procedure for forming the Audit Committee, and electing the Audit Committee members.

The Supervisory Board of the Company approved a new wording of the internal rules of procedure of the Audit Committee of the Company on May 21, 2019.

The Management Board is a collegial management body of the Company. The Management Board is comprised of 5 (five) members. The Management Board is elected for the period of 4 (four) years by the Supervisory Board. The Supervisory Board can remove from office the entire Management Board incorpore or its individual members before the expiry of their term. If individual members of the Management Board are elected, they shall

serve only until the expiry of the term of office of the current Management Board. The Management Board elects the chairman of the management Board from among its members.

The General Manager is the manager of the Company. The manager of the Company is a sole person management body of the Company organising its activities. Powers and responsibilities of the administration members of the Company are established in the order of the General Manager.

20.1. Data on the committees in the Company

On May 21, 2019 the Supervisory Board appointed by the decision No. 2019-4 members of the Audit Committee:

Full name	Position	Beginning of term	End of term*
Mrs Ramunė Bičkauskienė	Independent member of Audit Committee	May 21, 2019	February 26, 2020
Mr Mindaugas Šimkus	Independent member of Audit Committee	May 21, 2019	April 26, 2023
Mr Artūras Aladaitis	Member of Audit Committee	December 6, 2019	April 26, 2023

* The term of office of the Audit Committee coincides with the term of office of the Supervisory Board of the Company.

In carrying out its activities, the Audit Committee follows the internal rules of procedure of the Company's Audit Committee approved by decision No 2019-4 of May 21, 2019 of the meeting of the Supervisory Board of the Company. The Audit Committee performs its functions provided for in article 52 of the Law on Audit of the Republic of Lithuania. The Audit Committee performed the monitoring of the process of financial statements audit performed by independent auditor and had one session in the year 2019. Financial statements of the Company of the year 2018 were reviewed during the session. Considering the completion of the independent auditor's contract in 2019, the options for new independent auditors operating in the market were discussed. Requirements and recommendations for a new independent auditor have been formulated.

20.2. Information on the members of the Company's Supervisory Board

Members of the Supervisory Board of the Company as at December 31, 2019:

Full name	Position	Beginning of term	End of term
Mr. Visvaldas Matijošaitis	Chairman of the Supervisory Board	April 26, 2019	February 26, 2020
Mrs. Ramunė Bičkauskienė	Member of the Supervisory Board	April 26, 2019	February 26, 2020
Mr. Antanas Etneris	Member of the Supervisory Board	April 26, 2019	April 26, 2023
Mr. Konstantinas Pesenka	Member of the Supervisory Board	April 26, 2019	April 26, 2023
Mr. Mindaugas Šimkus	Member of the Supervisory Board	April 26, 2019	April 26, 2023
Mr. Visvaldas Varžinskas	Member of the Supervisory Board	April 26, 2019	February 26, 2020
Mr. Andrius Palionis	Member of the Supervisory Board	April 26, 2019	February 26, 2020

Company's Supervisory Board comprised of seven dependant members, who are also the members of the Kaunas City Municipality Council, as they partially represent the controlling shareholder, i.e. Kaunas City Municipality, holding 92.84 per cent of the Company's voting shares.

5 sessions of the Supervisory Board were held during the year 2019. More than ½ of members of the Supervisory Board attended the session.

Mr. Visvaldas Matijošaitis, a Mayor of Kaunas city (code 111106319, Laisvės av. 96, LT-44251 Kaunas), Member of the Kaunas City Municipality Council. Founder, leader and Chairman of the board of public election committee Vieningas Kaunas (United Kaunas), Chairman of the board of association Mentor Lietuva, President of association Žalgirio Fondas (Žalgiris Fund).

Mr. Visvaldas Matijošaitis holds no shares of the Company. Mr. V. Matijošaitis holds the shares of Vičiūnai Group of companies.

Resigned from the Company's Supervisory Board on February 26, 2020.

Dr. Visvaldas Varžinskas, a member of the Kaunas City Municipality Council, Chairman of Committee of Sustainable Development and Investments (code 111106319, Laisvės av. 96, LT-44251 Kaunas), Docent of Environmental Engineering Institute of Kaunas University of Technology, Head of Centre of Packaging Innovations and research of Kaunas University of Technology, member of the Committee on Circular Economy Policy Formation of the European Commission for the Urban Agenda for the EU; expert of Technical Committee TK 42 of Lithuanian Standards Board (LSB), member of the board of public election committee Vieningas Kaunas, member of council of National Cluster of Renewable Energy of Baltic Littoral.

Mr. Visvaldas Varžinskas holds no shares of the Company. No interest in the capital of other Lithuanian companies.

Resigned from the Company's Supervisory Board on February 26, 2020.

Mrs. Ramunė Bičkauskienė, administrative director of LLC Vičiūnų Grupė (code 303211678, V. Krėvės av. 97, Kaunas); Director of LLC MIR Projektai (code 302836883, Vėjo str. 59, Didvyrių vil., Kaunas distr.), member of the Kaunas City Municipality Council, chairwoman of committee of Economics and Finances (code 111106319, Laisvės av. 96, LT-44251 Kaunas).

Holds no shares of the Company. Holds the shares of the companies LLC MIR Projektai, PLLC Apranga, PLLC Šiaulių bankas, PLLC Vilkyškių Pieninė. Resigned from the Company's Supervisory Board on February 26, 2020.

Mr. Andrius Palionis, Deputy Mayor of Kaunas city (code 111106319, Laisvės av. 96, LT-44251 Kaunas), Member of the Board of public election committee Vieningas Kaunas (United Kaunas), chairman of the Committee of City Maintenance and Services (code 111106319, Laisvės av. 96, LT-44251 Kaunas).

Mr Andrius Palionis holds no shares of the Company. No interest in the capital of other Lithuanian companies.

Resigned from the Company's Supervisory Board on February 26, 2020.

Mr. Konstantinas Pesenka, Member of the Management Board of LLC Windex Group (code 303522864, Draugystės str. 17-1, Kaunas), chairman of the Management Board of LLC Kauno Vandenys.

Holds no shares of the Company. No interest in the capital of other Lithuanian companies.

Mr. Antanas Etneris, Director of LLC Wisewood (code 302527538, Ringuvos str. 74, LT-45245 Kaunas), director of LLC Mana Grupė (code 303991865, Kruonio str. 16, Kaunas), director of LLC Airhotel (code 302598948, Oro Uosto str. 2, Karmėlava, LT-54460 Kaunas distr.), member of the Board of LLC Stoties Turgus, member of the Board of LLC Kauno Vandenys.

Holds no shares of the company. Hodls the shares of the companies LLC Wisewood, LLC Mana Ranga, LLC Mana Grupė, LLC Airhotel, LLC Dramart, LLC Ukrainiečių 4, LLC Vėjo Dukra, LLC Plėtros Fondas, LLC Aguonų Projektai, LLC My Group.

Mr Mindaugas Šimkus, Head of economics of LLC Vičiūnų Grupė (code 303211678, V. Krėvės av. 97, LT-50369 Kaunas), member of the Board of LLC Kauno Švara, member of the Board of LLC Kauno Vandenys.

Holds no shares of the Company. No interest in the capital of other Lithuanian companies.

20.3. Information on the members of the Company's Management Board

Members of Company's Management Board as at December 31, 2019:

Full name	Position	Beginning of term	End of term
Nerijus Mordas	Chairman of the Management Board	May 21, 2019	May 21, 2023
Paulius Keras	Deputy chairman of the Management Board	May 21, 2019	May 21, 2023
Algimantas Stasys Anužis	Member of the Management Board	May 21, 2019	May 21, 2023
Karolis Šiugžda	Member of the Management Board	May 21, 2019	May 21, 2023
Karolis Dekeris	Member of the Management Board	May 21, 2019	May 21, 2023

21 sessions of Company's Management Board were held in the year 2019. More than 2/3 members of the Management Board attended all the sessions.

Mr. Nerijus Mordas, a chief finance officer of LLC Vičiūnų Grupė (code 303211678, V. Krėvės av. 97, LT-50369 Kaunas). Member of Company's Management Board from 1 June 2015.

Mr. Nerijus Mordas holds no shares of the Company. No interest in the capital of other Lithuanian companies.

Mr. Nerijus Mordas charged EUR 15.0 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period.

Mr. Paulius Keras, Deputy Director of Kaunas city municipality (code 111106319, Laisvės av. 96, LT-44251 Kaunas). Member of the Management Board of the Company from May 21, 2019.

Mr. Paulius Keras holds no shares of the Company. No interest in the capital of other Lithuanian companies.

Mr Paulius Keras charged EUR 6.84 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period.

Mr. Algimantas Stasys Anužis, member of the Council of Kaunas Chamber of Commerce, Industry and Crafts, president of Lithuanian Veterans Basketball League.

Member of Company's Management Board from June 1, 2015.

Mr. Algimantas Stasys Anužis holds no shares of the Company. No interest in the capital of other Lithuanian companies.

Mr. Algimantas Stasys Anužis charged EUR 10.44 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period.

Mr. Karolis Šiugžda, lawyer of LLC Vičiūnų Grupė (code 303211678, V. Krėvės av. 97, LT-50369 Kaunas), lawyer of LLC Groward Group (code 302764932, V. Krėvės av. 97, LT-50369 Kaunas).

Member of Company's Management Board from May 21, 2019.

Mr. Karolis Šiugžda holds no shares of the Company. No interest in the capital of other Lithuanian companies.

Mr. Karolis Šiugžda charged EUR 6.84 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period.

Mr. Karolis Dekeris, Marketing Director of LLC Kauno Autobusai (code 133154754, Raudondvario rd. 105, LT-47185 Kaunas).

Member of Company's Management Board from May 21, 2019.

Mr. Karolis Šiugžda holds no shares of the Company. No interest in the capital of other Lithuanian companies.

Mr. Karolis Šiugžda charged EUR 6.84 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period.

Members of Company's Management Board until May 21, 2019:

Mr. Eugenijus Ušpuras, a habilitated doctor, chief of Laboratory of Nuclear Installation Safety (code 111955219, Breslaujos str. 3, LT-44403 Kaunas), Lithuanian Energetic, full member of the Lithuanian Academy of Sciences, professor.

Member of Company's Management Board from June 1, 2015 until May 21, 2019.

Mr. Eugenijus Ušpuras holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Eugenijus Ušpuras charged EUR 3.60 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period.

Mr. Giedrius Bielskus, a director of public institution S. Dariaus ir S. Girėno Sporto Centras (S. Darius and S. Girėnas Sports Centre) (code 133556183, Perkūno av. 5, LT-44221 Kaunas).

Member of Company's Management Board from June 1, 2015 until May 21, 2019.

Mr. Giedrius Bielskus holds no shares of the Company. No interest in the capital of other Lithuanian companies. Mr. Giedrius Bielskus charged EUR 3.60 thousand of remuneration under agreement of activity of member of the Management Board. No bonuses estimated, nor any assets were transferred or guarantees issued during the reporting period.

20.4. Information on the General Manager and Chief accountant of the Company:

Mr. Vaidas Šleivys, Director of Production of the Company, Interim General Director since December 11, 2018. Education – university degree from Kaunas University of Technology in 2001, thermal engineering. Director of the Company's Production Department since April 14, 2014, Project Manager of LLC Nomine Consult (code 304493084, Lvovo str. 25-701, Vilnius) since March 5, 2018.

Holds no shares of the Company. No interest in the capital of other Lithuanian companies.

Mrs. Inga Šliačkuvienė, Company's Chief Accountant since August 1, 2019. University education from Kaunas University of Technology, Faculty of Economics and Management, Bachelor of Economics. Employment during the last 10 years and positions: Senior Accountant of the Company since 2009-08, Deputy Chief Accountant of the Company since 2014-05.

Company's General Manager and the Chief Accountant charged 77.70 thousand euros of remuneration, and the average amount per member is 38.85 thousand euros during the year 2019. No other assets had been transferred, no guarantees granted.

21. Information on significant agreements

There are no significant agreements that would come into force, change or termination in case of change in controls of Issuer (their impact as well, except cases when due to the character of agreements the disclosure of them would make a significant harm).

22. Information on agreements of the Issuer and its managerial body members or employees

There are no agreements of the Issuer or its managerial body members or employees (which provide for compensation in case of their resignation or termination of employment on no grounds or in case their employment is terminated due to changes in controls of the Issuer).

23. Information on major transactions with related parties

There were no larger individual transactions. More detailed information is provided in note 25 to the Explanatory Notes to financial statements.

24. Information on harmful transactions concluded on behalf of the Issuer during the reporting period

There are no harmful transactions concluded on behalf of the Issuer during the reporting period (not complying with the Company's objectives, normal market conditions, detrimental to the interests of shareholders and other interest groups etc.) which were or are likely to have an adverse effect on the Issuer's activities and (or) performance in the future, as well as information on transactions entered into in a conflict of interest between the Issuer's management, controlling shareholders or other related parties' obligations to the Issuer and their private interests and (or) other duties.

25. Information on compliance with the Governance Code of Companies and the Company's corporate social initiatives and policies

Information on compliance with the corporate governance code is provided in Annex 1 to the Annual Report of the year 2019. Annual Reports on the Company's corporate social initiatives and policies are provided in Annex 2 to the Annual Report of the year 2019 named PLLC Kauno Energija Report on Social Responsibility and on the Company's website.

26. Data on publicised information

In performing its obligations under the applicable legislation regulating the securities market, the Issuer has announced the following information starting from January 1, 2019 over the GlobeNewswire news distribution service, in which notices are disseminated within the European Union. This information was also posted on the website of the Issuer. All the information is available on website of Nasdaq Vilnius (http://www.nasdaqbaltic.com/market/?lang=lt) and Issuer's website (http://www.kaunoenergija.lt).

Title	Announcement category	Language	Time
Information on The Election of The General Manager of The	Notification on		27/03/2020
Public Limited Liability Company Kauno Energija	material event	EN, LT	14:15
Convocation of the Extraordinary General Meeting of	General meeting		10/03/2020
Shareholders of PLLC Kauno Energija	of shareholders	EN, LT	16:00
Information on resignation of the members of Supervisory	Notification on		14/02/2020
Board of AB Kauno Energija	material event	EN, LT	16:00
	Interim		31/01/2020
Activity results of 12 months of the year 2019	information	EN, LT	07:45
AB Kauno Energija has signed an agreement on the purchase	Notification on		13/01/2020
of Palemonas heat economy	material event	EN, LT	16:00
	Interim		30/09/2019
Activity results of 9 months of the year 2019	information	EN, LT	16:00
AB Kauno Energija interim reports and unaudited financial	Half-Yearly		26/09/2019
statements for the 1 half of the year 2019	information	EN, LT	09:01

Title	Announcement category	Language	Time
Information on The Election of The General Manager of The	Notification on		27/03/2020
Public Limited Liability Company Kauno Energija	material event	EN, LT	14:15
Resolutions of the Extraordinary General Meeting of	General meeting		10/09/2019
Shareholders of AB Kauno Energija	of shareholders	EN, LT	16:40
Amendment to the agenda of the Extraordinary General	General meeting	EN, LT	26/08/2019
Meeting of Shareholders of PLLC Kauno Energija	of shareholders		15:05
Convocation of the Extraordinary General Meeting of	General meeting	EN, LT	16/08/2019
Shareholders of PLLC Kauno Energija	of shareholders		11:28
Business activity results of the 1 half of the year 2019	Notification on	EN, LT	31/07/2019
	material event		15:00
Information on election of the Chairman of Management	Notification on		03/06/2019
Board and the Deputy Chairman of Management Board of AB	material event	EN, LT	11:59
Kauno Energija
Information on election of managing bodies of AB Kauno	Notification on	EN, LT	22/05/2019
Energija	material event		15:00
Activity results of the 1 quarter of the year 2019	Interim	EN, LT	26/04/2019
	information		11:00
Audited annual information of PLLC Kauno Energija for 2018	Annual	EN, LT	26/04/2019
	information		10:45
Dividend payment ex-date of PLLC Kauno Energija	Notification on	EN, LT	26/04/2019
	material event		10:20
Resolutions of the General Meeting of Shareholders of PLLC	General meeting	EN, LT	26/04/2019
Kauno Energija	of shareholders		10:15
Supplement of the agenda of the General Meeting of	General meeting	EN, LT	11/04/2019
Shareholders of PLLC Kauno Energija	of shareholders		15:00
Convocation of General meeting of shareholders of PLLC	General meeting	EN, LT	29/03/2019
Kauno Energija	of shareholders		15:00
Information on resignation of the member of Supervisory	Notification on	EN, LT	21/02/2019
Board of AB Kauno Energija	material event		12:00
Update: Activity results of 12 months of the year 2018	Interim EN, LT		31/01/2019
	information		09:00
Activity results of 12 months of the year 2018	Interim	EN, LT	30/01/2019
	information		15:49

PLLC KAUNO ENERGIJA, PURSUE THE GOVERNANCE REPORT

PLLC Kauno Energija (hereinafter – the Company), following Article 22 paragraph 3 of the Law on Securities of the Republic of Lithuania and item 24.5 of the Listing Rules of PLLC NASDAQ Vilnius, discloses its compliance with the Corporate Governance Code for the Companies, whose securities are traded on the regulated market, as approved by the NASDAQ Vilnius PLLC, and its specific provisions and recommendations. If any of the provisions or recommendations of the Codex are not respected due to any reasons, the explicable information is provided herein.

Summary of the Corporate Governance Report:

Specifics of the Company's activities:

The Company is listed on the secondary list of the Nasdaq Vilnius Stock Exchange starting from December 28, 1998.

The main activities of the Company are production, rendering of services. The Company is the parent company of the Group consisting of LLC Petrašiūnų Katilinė and LLC Kauno Energija NT. The Company produces and supplies heat to consumers (for heating and hot water preparation purposes) in the cities of Kaunas and Jurbarkas and in the Kaunas district (Akademija, Ežerėlis, Domeikava, Garliavos, Girioniai, Neveronys, Raudondvaris).

Company's governance structure:

• The Company's managing bodies consists of the Management Board, elected for the 4 years term of office, and the General Manager, elected by the Management Board (for further information on the Issuer's governing bodies and the composition of the committees please refer to the Article 20 "Issuer's bodies" of this Consolidated Annual Report). The Management Board's and the manager's activities are concentrated on the fulfilment of the Company's strategic objectives taking count of the shareholders' equity value increase.

• A supervisory body – the Supervisory Board acts in the Company.

The Management Board and the general Manager acts in close cooperation seeking to obtain the maximum benefit for the Company and its shareholders. The Management Board periodically reviews and assesses Company's activity results.

• The Chairman of the Management Board of the Company is not and was not the Head of the Company. The duties he holds or held in the past shall not prevent independent and impartial supervision.

• The members of the Management Board elected by the General Meeting of Shareholders are independent and act for the benefit of the Company and its shareholders.

• The Audit Committee acts in the Company. 2 independent members act in this committee. There are no nomination and remuneration committees in the Company.

Accountability to the Company's shareholders:

• Information on the General Manager, composition of the Supervisory and Management Boards, members education, work experience, competence and participation in activities of other companies is disclosed and constantly updated in Company's periodical reports as well as website.

• The Company discloses all regulated information through PLLC Nasdaq Vilnius news distribution system. This ensures access to the broadest public in the Republic of Lithuania and other EU countries.

The information shall be provided simultaneously in Lithuanian and English. The company publishes the information before or after the trading session of PLLC Nasdaq Vilnius. The Company shall not disclose information that may affect the price of the issued securities in the form of comments, interviews or in any other manner until such information is made public through the news distribution system of PLLC Nasdaq Vilnius.

• All shareholders of the Company have equal access to and participate in the decision-making process important for the Company.

The procedures for convening and conducting general meetings of shareholders shall comply with the provisions of the legal acts and shall provide equal opportunities for shareholders to participate in the meeting, to acquaint themselves in advance with draft resolutions and decision-making materials, as well as to ask.

PRINCIPLES/ RECOMMENDATIONS	YES/NO /NOT APPLICABLE	COMMENTARY
Principle 1: General Meeting of Shareholders, equitable treatment of shareholders, and shareholders' rights
The corporate governance framework should ensure the equitable treatment of all shareholders. The corporate governance framework should protect the rights of shareholders.
1.1. All shareholders should be provided with access to the information and/or documents established in the legal acts on equal terms. All shareholders should be furnished with equal opportunity to participate in the decision-making process where significant corporate matters are discussed.	Yes	All shareholders have equal access to the information and / or documents provided for in legal acts and participate in making important decisions for the Company. The Company provides information through the Nasdaq Vilnius Stock Exchange Central Regulated Information Base in Lithuanian and English simultaneously. The information is published immediately at once, thus ensuring the simultaneous provision of information to all.
1.2. It is recommended that the Company's capital should consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all of their holders.	Yes	The authorized capital of the Company consists of ordinary registered shares, which grant equal voting, ownership, dividend and other rights to all shareholders of the Company.
1.3. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares.	Yes	The Company enables investors to familiarize themselves with the rights granted by the new or already issued shares well in advance.
1.4. Exclusive transactions that are particularly important to the Company, such as transfer of all or almost all assets of the Company which in principle would mean the transfer of the Company, should be subject to approval of the General Meeting of shareholders.	Yes	According to the Statutes of the Company, important transactions, such as decisions on the execution, assignment, lease, pledge and mortgage of long-term assets the book value of which exceeds EUR 3 million, an approval of General Meeting of Shareholders or Supervisory Board must be received Due to extremely important transactions, such as the transfer of all or almost all the Company's assets, the Company would be guided by the Law on Companies of the Republic of Lithuania and other legal acts establishing requirements for the approval of such transactions.

1.5. Procedures for convening and conducting a General Meeting of Shareholders should provide shareholders with equal opportunities to participate in the General Meeting of Shareholders and should not prejudice the rights and interests of shareholders. The chosen venue, date and time of the General Meeting of Shareholders should not prevent active participation of shareholders at the General Meeting. In the notice of the General Meeting of Shareholders being convened, the Company should specify the last day on which the proposed draft decisions should be submitted at the latest.	Yes	All shareholders of the Company are informed about the date, place and time of the General Meeting of Shareholders in accordance with the established procedure in advance, in accordance with the terms established by legal acts, announcing the General Meeting of Shareholders, agenda, and draft resolutions in the Central Regulated Information Base of PLLC Nasdaq Vilnius Stock Exchange. The Company specifies the date of the General Meeting of Shareholders and may propose draft resolutions in the Notice of the General Meeting of Shareholders to be convened on the Company's website www.kaunoenergija.lt In the notice of the convention of the General Meeting of Shareholders, the Company shall indicate when the shareholders may supplement the agenda of the General Meeting of Shareholders and propose draft resolutions.
1.6. With a view to ensure the right of shareholders living abroad to access the information, it is recommended, where possible, that documents prepared for the General Meeting of Shareholders in advance should be announced publicly not only in Lithuanian language but also in English and/or other foreign languages in advance. It is recommended that the minutes of the General Meeting of Shareholders after the signing thereof and/or adopted decisions should be made available publicly not only in Lithuanian language but also in English and/or other foreign languages. It is recommended that this information should be placed on the website of the Company. Such documents may be published to the extent that their public disclosure is not detrimental to the Company or the Company's commercial secrets are not revealed.	Yes	The documents prepared for General Meeting of Shareholders including draft resolutions of the meeting are available not later than 21 day prior the date of General Meeting of shareholders as required by the Law on Joint stock companies. The documents placed on the website of NASDAQ Vilnius security exchange and the Company website are available in Lithuanian and English languages. Resolutions accepted by the General Meeting of Shareholders including financial reports, the audit report, annual report, amendments of the Statutes etc. are announce in Lithuanian and English languages are announced via the central base of regulated information of NASDAQ Vilnius security exchange and the Company website www.kaunoenergija.lt
1.7. Shareholders who are entitled to vote should be furnished with the opportunity to vote at the General Meeting of Shareholders both in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the General voting ballot.	Yes	The shareholders of the Company have the right to participate in the General Meeting of Shareholders both personally and through a representative, if the person has the appropriate authorization or the contract of transfer of voting rights concluded with him/her in accordance with the procedure established by legal acts, as well as the conditions for the shareholders to vote by filling in the General voting bulletin as provided by the Law on Companies of the Republic of Lithuania.

shareholders' opportunities to participate provisions of this recommendation as effectively at General Meetings of there is no possibility to ensure the Shareholders, it is recommended that security of the information transmitted companies should apply modern and it is not possible to identify the technologies on a wider scale and thus person who participated and voted. provide shareholders with the conditions to participate and vote in General Meetings of Shareholders via electronic means of communication. In such cases the security of transmitted information must be ensured, and it must be possible to identify the participating and voting person. 1.9. It is recommended that the notice on the Yes When announcing the General Meeting draft decisions of the General Meeting of of Shareholders, and if the agenda of the Shareholders being convened should specify General Meeting of Shareholders new candidatures of members of the collegial includes the issue of electing new body, their proposed remuneration and the members of the collegial body or electing proposed audit Company if these issues are the audit firm, it shall disclose in the draft included into the agenda of the General resolutions the nominations of the Meeting of Shareholders. Where it is proposed new members of the collegial proposed to elect a new member of the body and the proposed election collegial body, it is recommended that the Company. information about his/her educational Information about the candidates to the background, work experience and other members of the collegial body shall be managerial positions held (or proposed) provided in advance by publishing this should be provided. information on the Nasdaq Vilnius Stock Exchange website, on the website of PLLC Kauno Energija, www.kaunoenergija.lt, or by publishing it to the shareholders participating in the General Meeting during the meeting if the shareholders, whose shares give at least 1/20 of all votes, propose an additional candidate during the meeting. In its annual and six-month interim report, the Company publicly informs about the positions held by the collegial body, work experience and education. Yes Members of the Company's collegial 1.10. Members of the company's collegial body and heads of administration management body, heads of the participate in the General Meetings of administration1 or other competent persons Shareholders. Proposed nominees for related to the company who can provide members of the collegial body are also information related to the agenda of the present if possible, if the election of new general meeting of shareholders should take members is included on the agenda of the part in the general meeting of shareholders. General Meeting. Proposed candidates to member of the collegial body should also participate in the general meeting of shareholders in case the election of new members is included into the agenda of the general meeting of shareholders.	1.8. With a view to increasing the	No	The Company does not comply with the
Principle 2: Supervisory Board

¹ For the purposes of this Code, heads of the administration are the employees of the company who hold top level management positions.

2.1. Functions and liability of the Supervisory Board

The Supervisory Board of the Company should ensure representation of the interests of the Company and its shareholders, accountability of this body to the shareholders and objective monitoring of the Company's operations and its management bodies as well as constantly provide recommendations to the management bodies of the Company.

The Supervisory Board should ensure the integrity and transparency of the Company's financial accounting and control system.

2.1.1. Members of the Supervisory Board should act in good faith, with care and responsibility for the benefit and in the interests of the Company and its shareholders and represent their interests, having regard to the interests of employees and public welfare.	Yes	According to the knowledge of the Company all the members of the Supervisory Board are acting in good faith in the interests of the Company following the Company's but not the own interests or interests of the third persons.
2.1.2. Where decisions of the Supervisory Board may have a different effect on the interests of the Company's shareholders, the Supervisory Board should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed about the Company's strategy, risk management and control, and resolution of conflicts of interest.	Yes	The Company's Supervisory Board in its work aim to behave honestly and impartially with all the Company's shareholders and by the knowledge of the Company, there was no such kind of the contrary case. The Chairman of the Company's Supervisory Board and the Chairman of the Management Board harmonizes and coordinates interaction with Company's General Manager and in the name of Supervisory and Management Boards communicates with shareholders, informs the shareholders about the Company's strategy, activity and other essential questions.
2.1.3. The Supervisory Board should be impartial in passing decisions that are significant for the Company's operations and strategy. Members of the Supervisory Board should act and pass decisions without an external influence from the persons who elected them.	Yes	The Supervisory Board of the Company acts impartially when taking decisions that are significant for the Company's activities and strategy.
2.1.4. Members of the supervisory board should clearly voice their objections in case they believe that a decision of the supervisory board is against the interests of the company. Independent2 members of the supervisory board should: a) maintain independence of their analysis and decision-making; b) not seek or accept any unjustified privileges that might compromise their independence.	Yes	According to the information available to the Company, all members of the Supervisory Board act in the best interests of the Company and shareholders, are guided by the interests of the Company and not by themselves or by third parties, trying to maintain their independence in decision making.
2.1.5. The Supervisory Board should oversee that the Company's tax planning strategies are designed and implemented in accordance with the legal acts in order to avoid faulty practice that is not related to the longterm	Yes	In exercising its competence to supervise the activities of the Company's management bodies, the Supervisory Council performs the duties specified in

² For the purposes of this Code, the criteria of independence of members of the supervisory board are interpreted as the criteria of unrelated parties defined in Article 31(7) and (8) of the Law on Companies of the Republic of Lithuania.

interests of the Company and its shareholders, which may give rise to reputational, legal or other risks.		the recommendation and submits its opinion on tax planning issues.
2.1.6. The Company should ensure that the Supervisory Board is provided with sufficient resources (including financial ones) to discharge their duties, including the right to obtain all the necessary information or to seek independent professional advice from external legal, accounting or other experts on matters pertaining to the competence of the Supervisory Board and its committees.	Yes	Based on the Company's opinion, the Supervisory Board are provided with sufficient resources, including their right to get all the necessary information, especially from the employees of the Company.
2.2. Formation of the Supervisory Board
The procedure of the formation of the Supervisory conflicts of interest and effective and fair corporate governance.	Board	should ensure proper resolution of
2.2.1. The members of the Supervisory Board elected by the General Meeting of Shareholders should collectively ensure the diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance between the qualifications of the members of the Supervisory Board, it should be ensured that members of the Supervisory Board, as a whole, should have diverse knowledge, opinions and experience to duly perform their tasks.	Yes	Pursuant to the Law on Companies of the Republic of Lithuania, the Supervisory Board is elected, and the qualification of its members is assessed at the General Meeting of Shareholders.
2.2.2. Members of the Supervisory Board should be appointed for a specific term, subject to individual reelection for a new term in office in order to ensure necessary development of professional experience.	Yes	The Supervisory Board is elected for the term of 4 (four) years. The term of office of members on the Supervisory Board is the maximum term of office prescribed by the Lithuanian Law on Companies. A General Meeting of Shareholders may remove from office both the entire Supervisory Board and individual members thereof before the end of their term of office.
2.2.3. Chair of the Supervisory Board should be a person whose current or past positions constituted no obstacle to carry out impartial activities. A former manager or Management Board member of the Company should not be immediately appointed as chair of the Supervisory Board either. Where the Company decides to depart from these recommendations, it should provide information on the measures taken to ensure impartiality of the supervision.	Yes	The Chairman of the Company's Supervisory Board and the CEO of the Company is not the same person. The members of the Supervisory Board and the Chairman have not been members of the Management Board of the Company or the CEO of the Company.
2.2.4. Each member should devote enough time and attention to perform his duties as a member of the Supervisory Board. Each member of the Supervisory Board should undertake to limit his other professional	Yes	Members of the Supervisory Board are active participants of the meetings of the collegial body and devote enough time to perform their duties as members of the collegial body. In 2019 there were 5

obligations (particularly the managing positions in other companies) so that they would not interfere with the proper performance of the duties of a member of the Supervisory Board. Should a member of the Supervisory Board attend less than a half of the meetings of the Supervisory Board throughout the financial year of the Company, the shareholders of the Company should be notified thereof.		(five) Supervisory Board's meetings, and all of them were attended by more than 2/3 of all the members of the Supervisory Board.
2.2.5. When it is proposed to appoint a member of the Supervisory Board, it should be announced which members of the Supervisory Board are deemed to be independent. The Supervisory Board may decide that, even though a particular member meets all the criteria of independence, he/she cannot be considered independent due to special personal or Company related circumstances.	Yes	Information on the candidates to the Company's Supervisory Board members (as well as information on the candidate's compliance with the independence requirements) is provided to the General Meeting of Shareholders in accordance with the Law on Companies of the Republic of Lithuania (see commentary on recommendation 1.9).
2.2.6. The amount of remuneration to members of the Supervisory Board for their activity and participation in meetings of the Supervisory Board should be approved by the General Meeting of Shareholders.	Not applicable	The members of the Supervisory Board are not remunerated from the Company's funds. So, this provision is not relevant for the Company.
2.2.7. Every year the Supervisory Board should carry out an assessment of its activities. It should include evaluation of the structure of the Supervisory Board, its work organization and ability to act as a group, evaluation of the competence and work efficiency of each member of the Supervisory Board, and evaluation whether the Supervisory Board has achieved its objectives. The Supervisory Board should, at least once a year, make public respective information about its internal structure and working procedures.	No	There was no practice of assessment of the activity of Supervisory Board at the Company and of informing shareholders about that up to now because the controlling shareholder who proposes candidates to the Supervisory Board exhaustively knows the experiences and competences of each candidate.

Principle 3: Management Board

3.1. Functions and liability of the Management Board

The Management Board should ensure the implementation of the Company's strategy and good corporate governance with due regard to the interests of its shareholders, employees and other interest groups.

3.1.1. The Management Board should ensure	Yes	The Company's Management Board
the implementation of the Company's		carries out the duty of implementation of
strategy approved by the Supervisory Board		the Company's strategy approved by the
if the latter has been formed at the Company.		Company's Supervisory Board.
In such cases where the Supervisory Board is
not formed, the Management Board is also
responsible for the approval of the
Company's strategy.
3.1.2. As a collegial management body of the	Yes	As the Supervisory Board is formed in
Company, the Management Board performs		the Company, the Management Board
the functions assigned to it by the Law and in		performs the functions of the Company's
the Statutes of the Company, and in such		collegial management body. The

cases where the Supervisory Board is not formed in the Company, it performs inter alia the Supervisory functions established in the Law. By performing the functions assigned to it, the Management Board should consider the needs of the Company's shareholders, employees and other interest groups by respectively striving to achieve sustainable business development		obligation to consider the Company, the shareholders, the employees and other interest groups is established in the agreement on performance of the Management Board signed by each member of the Management Board.
3.1.3. The Management Board should ensure compliance with the laws and the internal policy of the Company applicable to the Company or a group of companies to which this Company belongs. It should also establish the respective risk management and control measures aimed at ensuring regular and direct liability of managers.	Yes	The Management Board ensures that the laws and Company internal policies applicable to the Company and its entire group are respected. The Company also operates a risk management and control program. Risk management is carried out by the management of the Company.
3.1.4. Moreover, the management board should ensure that the measures included into the OECD Good Practice Guidance3 on Internal Controls, Ethics and Compliance are applied at the company in order to ensure adherence to the applicable laws, rules and standards.	Yes	The Company has a policy of internal control and business ethics. The Company has adopted a Business Ethics Policy that clearly and publicly declares a negative attitude towards bribery and corruption. The provisions of this policy apply to all employees, agents, intermediaries, suppliers and subcontractors of the Company.
3.1.5. When appointing the manager of the Company, the Management Board should consider the appropriate balance between the candidate's qualifications, experience and competence.	Yes	When appointing the CEO of the Company the Management Board considers the balance of his/her qualifications, experience and competence as well as the opinion of the Company's Supervisory Board.
3.2. Formation of the Management Board
3.2.1. The members of the Management Board, elected by the Supervisory Board or, if the Supervisory Board is not formed, by the General Meeting of Shareholders should collectively ensure the required diversity of qualifications, professional experience and competences and seek for gender equality. With a view to maintain a proper balance in terms of the current qualifications possessed by the members of the Management Board, it should be ensured that the members of the Management Board would have, as a whole, diverse knowledge, opinions and experience to duly perform their tasks.	Yes	The members of the Management Board are elected by the Supervisory Board of the Company. The members of the Management Board of the Company are qualified and competent to perform their functions, having a long experience in management.
3.2.2. Names and surnames of the candidates to become members of the Management Board, information on their educational background, qualifications, professional experience, current positions, other important professional obligations and	Yes	Information about candidates to the Company's Management Board is provided to the shareholders together with the documents of the shareholders' meeting following the requirements of the Law on Public Limited Liability

³ Link to the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance: https://www.oecd.org/daf/antibribery/44884389.pdf

potential conflicts of interest should be disclosed without violating the requirements of the legal acts regulating the handling of personal data at the meeting of the Supervisory Board in which the Management Board or individual members of the Management Board are elected. If the Supervisory Board is not formed, the information specified in this paragraph should be submitted to the General Meeting of Shareholders. The Management Board should, on yearly basis, collect data provided in this paragraph on its members and disclose it in the Company's annual report.		Companies of the Republic of Lithuania. Shareholders may see the documents prior the meeting. Information about the members of the Management Board (names, education, qualifications, professional experience, participation in the activities of other companies, other important professional obligations) is provided in the periodical reports.
3.2.3. All new members of the Management Board should be familiarized with their duties and the structure and operations of the Company.	Yes	All new members of the Management Board are familiarized with their duties, Company structure and activities.
3.2.4. Members of the Management Board should be appointed for a specific term, subject to individual re-election for a new term in office in order to ensure necessary development of professional experience and sufficiently frequent reconfirmation of their status.	Yes	The members of the Management Board are elected for a 4-year term. The number of terms is unlimited. Members of the Management Board are elected by the General Meeting of Shareholders. Shareholders who nominate and vote for the Management Board follow their own approach, which candidates are best to represent the interests of the shareholders.
3.2.5. Chair of the Management Board should be a person whose current or past positions constitute no obstacle to carry out impartial activity. Where the Supervisory Board is not formed, the former manager of the Company should not be immediately appointed as chair of the Management Board. When a Company decides to depart from these recommendations, it should furnish information on the measures it has taken to ensure the impartiality of supervision.	Yes	The Chairman of the Company's Management Board hasn't been the General Manager of the Company. His current or past position is not an obstacle for independent and impartial supervision.
3.2.6. Each member should devote enough time and attention to perform his duties as a member of the Management Board. Should a member of the Management Board attend less than a half of the meetings of the Management Board throughout the financial year of the Company, the Supervisory Board of the Company or, if the Supervisory Board is not formed at the Company, the General Meeting of Shareholders should be notified thereof.	Yes	Each member of the collegial body fulfils his/her functions properly: actively participates at the meetings of collegial body and devotes enough time to perform his / her duties as a member of the collegial body. The quorum of each meeting was regulated so the Management Board would be enabled to accept decisions constructively. In 2019, 21 meeting of the Management Board had been held. All the meetings were attended by more, than 2/3 members of the Management Board.
3.2.7. In the event that the management board is elected in the cases established by the Law where the supervisory board is not formed at the company, and some of its members will	Yes	Al the members of the Management Board are independent.

Management Board 4.1. The Management Board and the Supervisory Board, if the latter is formed at	Yes	Legal acts, Statutes and rules of procedure governing activities of the
The rules of procedure of the Supervisory Board, if it is formed at the Company, and of the should ensure efficient operation and decision-making of these bodies and promote active cooperation between the Company's management bodies.
Principle 4: Rules of procedure of the Supervisory Company	Board	and the Management Board of the
personal data.
legal acts regulating the processing of
working procedures in observance of the
information about its internal structure and
at least once a year, make public respective
objectives. The Management Board should,
the Management Board has achieved its
efficiency of each member of the Management Board, and evaluation whether		exhaustively knows the experiences and competences of each candidate.
evaluation of the competence and work		candidates to the Management Board
organization and ability to act as a group,		controlling shareholder who proposes
structure of the Management Board, its work		about that up to now because the
activities. It should include evaluation of the		Company and of informing shareholders
should carry out an assessment of its		the activity of Management Board at the
3.2.10. Every year the Management Board	No	There was no practice of assessment of
violation of the Company's interests.		compromise their independence.
related to the Company's operations in		any unjustified privileges that would
use the business information or opportunities		decision-making, and they do not accept
noncompete agreements and they should not		to maintain their independence in
personal interest; they should be subject to		not their own or any third parties seeking
decisions, they should not act in their		guided by the Company's interests but
regard to other stakeholders. When adopting		Company and its shareholders. They are
responsibility for the benefit and the interests of the Company and itsshareholders with due		in good faith, with care and responsibility for the benefit and in the interests of the
Board should act in good faith, with care and		Management Board members should act
3.2.9. The members of the Management	Yes	By the Company's information, all
		the meetings.
		for their performance and participation in
		Management Board are not remunerated
Management Board.		Lithuania. The members of the
participation in the meetings of the		on Companies of the Republic of
Management Board for their activity and		Shareholders in accordance with the Law
of remuneration to the members of the		decision of the General Meeting of
of the Company should approve the amount		Management Board to its members, by
3.2.8. The General Meeting of Shareholders	Yes	Remuneration is paid for the work on the
circumstances.
special personal or company-related
independence established by the Law, he/she cannot be considered independent due to
particular member meets all the criteria of
board may decide that, despite the fact that a
deemed as independent. The management
which members of the management board are
be independent4 , it should be announced

⁴ For the purposes of this Code, the criteria of independence of the members of the board are interpreted as the criteria of unrelated persons defined in Article 33(7) of the Law on Companies of the Republic of Lithuania.

in order to attain benefit for the Company and its shareholders. Good corporate governance requires an open discussion between the Management Board and the Supervisory Board. The Management Board should regularly and, where necessary, immediately inform the Supervisory Board about any matters significant for the Company that are related to planning, business development, risk management and control, and compliance with the obligations at the Company. The Management Board should inform he Supervisory Board about any derogations in its business development from the previously formulated plans and objectives by specifying the reasons for this.		management bodies lay down the principles and procedure of cooperation between Supervisory and management bodies of the Company and ensure that management and Supervisory bodies cooperate to attain the greatest possible benefit to the Company and its shareholders.
4.2. It is recommended that meetings of the Company's collegial bodies should be held at the respective intervals, according to the pre approved schedule. Each Company is free to decide how often meetings of the collegial bodies should be convened but it is recommended that these meetings should be convened at such intervals that uninterruptable resolution of essential corporate governance issues would be ensured. Meetings of the Company's collegial bodies should be convened at least once per quarter.	Yes	The Company follows the order foreseen in the work regulations of the Supervisory Board and the Management Board and the information about the convened meeting is presented in advance together with an agenda and all the necessary information and documents related to the meeting agenda. The Supervisory Board and the Management Board meeting agenda may be changed or added during the meeting, in the presence of all members of the collegial body, or when there is an urgent need to deal with Company's certain key issues.
4.3. Members of a collegial body should be notified of the meeting being convened in advance so that they would have enough time for proper preparation for the issues to be considered at the meeting and a fruitful discussion could be held and appropriate decisions could be adopted. Along with the notice of the meeting being convened all materials relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body present at the meeting agree with such change or supplement to the agenda, or certain issues that are important to the Company require immediate resolution.	Yes	According to the Company's Statutes and the working procedure regulations of the Supervisory Board and the Management Board, the members of the collegial body and persons that are invited to such meetings, are informed of them in advance. They are also provided with all the information and materials, needed to examine the questions, presented in the agenda.
4.4. In order to coordinate the activities of the Company's collegial bodies and ensure effective decision-making process, the chairs of the Company's collegial supervision and management bodies should mutually agree on the dates and agendas of the meetings and close cooperate in resolving other matters related to corporate governance. Meetings of	Yes	The chairmen of Company's Supervisory and management bodies coordinate dates of the meetings, their agendas and cooperate in solving other issues of corporate governance. The Chairman of the Management Board and members of the Management Board are invited to the

the Company's Supervisory Board should be	meetings of the Supervisory Board of the
open to members of the Management Board,	Company.
particularly in such cases where issues
concerning the removal of the Management
Board members, their responsibility or
remuneration are discussed.

Principle 5: Nomination, remuneration and audit committees

5.1. Purpose and formation of committees

The committees formed at the Company should increase the work efficiency of the Supervisory Board or, where the Supervisory Board is not formed, of the Management Board which performs the Supervisory functions by ensuring that decisions are based on due consideration and help organise its work in such a way that the decisions it takes would be free of material conflicts of interest.

Committees should exercise independent judgment and integrity when performing their functions and provide the collegial body with recommendations concerning the decisions of the collegial body. However, the final decision should be adopted by the collegial body.

5.1.1. Taking due account of the company related circumstances and the chosen corporate governance structure, the supervisory board of the company or, in cases where the supervisory board is not formed, the management board which performs the supervisory functions, establishes committees. It is recommended that the collegial body should form the nomination, remuneration and audit committees5	Yes/No	The Audit Committee is formed by the Supervisory Board from March 31, 2009 and the term of office of this committee coincides with the term of office of the Company's Supervisory Board.
5.1.2. Companies may decide to set up less than three committees. In such case companies should explain in detail why they have chosen the alternative approach, and how the chosen approach corresponds with the objectives set for the three different committees.	Yes/No	The Audit Committee is an independent, and objective committee carrying out the functions of supervision, analysing, evaluation and consultation in order to improve General organization and create value added. The main function of the Committee is systematic and versatile evaluation, as well as encouragement of better risk management, and enough control and maintenance procedures resulting in submission of recommendations to the Management Board and management regarding implementation of the objectives and tasks, risk management procedure and internal control functioning. The nomination and remuneration committees are not formed at the Company. As the Management Board of the Company is composed of competent members and they perform their activities efficiently, the Company does

⁵ The legal acts may provide for the obligation to form a respective committee. For example, the Law on the Audit of Financial Statements of the Republic of Lithuania provides that public-interest entities (including but not limited to public limited liability companies whose securities are traded on a regulated market of the Republic of Lithuania and/or of any other Member State) are under the obligation to set up an audit committee (the legal acts provide for the exemptions where the functions of the audit committee may be carried out by the collegial body performing the supervisory functions).

		not currently see the need for other committees.
5.1.3. In the cases established by the legal acts the functions assigned to the committees formed at companies may be performed by the collegial body itself. In such case the provisions of this Code pertaining to the committees (particularly those related to their role, operation and transparency) should apply, where relevant, to the collegial body as a whole.	Not applicable	The Management Board of the Company does not perform the functions assigned to the Audit Committee.
5.1.4. Committees established by the collegial body should normally be composed of at least three members. Subject to the requirements of the legal acts, committees could be comprised only of two members as well. Members of each committee should be selected on the basis of their competences by giving priority to independent members of the collegial body. The chair of the Management Board should not serve as the chair of committees.	Yes	The Audit Committee consists of 3 members, two of whom are independent, with at least 5 years of experience in accounting, with relevant experience in finance and accounting in listed companies. The Chairman of the Management Board is not a member of the Committee.
5.1.5. The authority of each committee formed should be determined by the collegial body itself. Committees should perform their duties according to the authority delegated to them and regularly inform the collegial body about their activities and performance on a regular basis. The authority of each committee defining its role and specifying its rights and duties should be made public at least once a year (as part of the information disclosed by the Company on its governance structure and practice on an annual basis). In compliance with the legal acts regulating the processing of personal data, companies should also include in their annual reports the statements of the existing committees on their composition, the number of meetings and attendance over the year as well as the main directions of their activities and performance.	Yes	The Audit Committee follows the regulations of the Committee approved by the Supervisory Board. These Regulations establish the rules defining the rights and duties of the Audit Committee, the size of the Audit Committee, the period of membership of the Audit Committee, the requirements for the education, professional experience and independence principles of the members of the Audit Committee. The Audit Committee annually submits an annual activity report to the General Meeting of Shareholders, announcing the composition of the Committee, the number of meetings and the attendance of the members, describing the work performed and presenting the results.
5.1.6. With a view to ensure the independence and impartiality of the committees, the members of the collegial body who are not members of the committees should normally have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or request that certain employees of the Company or experts would participate in the meeting. Chair of each committee should have the possibility to maintain direct communication with the shareholders. Cases where such practice is to be applied should be specified in the rules regulating the activities of the committee.	Yes	The members of the collegial body take decisions at the meetings of their members, but in certain cases the committee invites the head of the Company and the responsible employees of the Company to attend its meetings, who are responsible for the areas of activity of the issues under discussion. The Chairman of the Audit Committee is also provided with the opportunity to communicate with the shareholders.

5.2. Nomination committee 5.2.1. The key functions of the nomination committee should be the following: 1) to select candidates to fill vacancies in the membership of Supervisory and management bodies and the administration and recommend the collegial body to approve them. The nomination committee should evaluate the balance of skills, knowledge and experience in the management body, prepare a description of the functions and capabilities required to assume a particular position and assess the time commitment expected; 2) assess, on a regular basis, the structure, size and composition of the Supervisory and management bodies as well as the skills, knowledge and activity of its members, and provide the collegial body with recommendations on how the required changes should be sought; 3) devote the attention necessary to ensure succession planning. No The Nomination Committee is not formed in the Company. 5.2.2. When dealing with issues related to members of the collegial body who have employment relationships with the Company and the heads of the administration, the manager of the Company should be consulted by granting him/her the right to submit proposals to the Nomination Committee. No See article 5.5.1 5.3. Remuneration committee The main functions of the remuneration committee should be as follows: 1) submit to the collegial body proposals on the remuneration policy applied to members of the Supervisory and management bodies and the heads of the administration for approval. Such policy should include all forms of remuneration, including the fixed rate remuneration, performance-based remuneration, financial incentive schemes, pension arrangements and termination payments as well as conditions which would allow the Company to recover the amounts or suspend the payments by specifying the circumstances under which it would be expedient to do so; 2) submit to the collegial body proposals regarding individual remuneration for members of the collegial bodies and the heads of the administration in order to ensure that they would be consistent with the Company's remuneration policy and the evaluation of the performance of the persons concerned; No There is no Remuneration Committee in the Company. The Company has implemented a remuneration policy that includes all forms of remuneration, including fixed salary, performance-based benefits and severance payments. The Company is approved by the Company's management in coordination with the Trade Union Committee operating in the Company.

3) review, on a regular basis, the
remuneration policy and its implementation.
5.4. Audit committee
5.4.1. The key functions of the audit committee are defined in the legal acts regulating the activities of the audit committee6	Yes	The Audit Committee follows the regulations of the Audit Committee approved by the Supervisory Board of the Company. The Audit Committee carries out independent, objective monitoring, investigation, evaluation and advisory activities to improve the Company's performance and create added value.
5.4.2. All members of the committee should be provided with detailed information on specific issues of the Company's accounting system, finances and operations. The heads of the Company's administration should inform the audit committee about the methods of accounting for significant and unusual transactions where the accounting may be subject to different approaches.	Yes	All members of the Committee are provided with detailed information on the specific accounting, financial and operational characteristics of the Company and, upon request, information on the execution of important transactions.
5.4.3. The audit committee should decide whether the participation of the chair of the Management Board, the manager of the Company, the chief finance officer (or senior employees responsible for finance and accounting), the internal and external auditors in its meetings is required (and, if required, when). The committee should be entitled, when needed, to meet the relevant persons without members of the management bodies present.	Yes	The Audit Committee decides on the participation of other persons in its meetings and, if necessary, the Audit Committee invites the head of the Company and the responsible employees of the Company to its meetings, who are responsible for the areas of activity of the issues under consideration. The Chairman of the Audit Committee is also provided with the opportunity to communicate with the shareholders.
5.4.4. The audit committee should be informed about the internal auditor's work program and should be furnished with internal audit reports or periodic summaries. The audit committee should also be informed about the work program of external auditors and should receive from the audit firm a report describing all relationships between the independent audit firm and the Company and its group.	Yes	The Audit Committee is informed about the work performed by the Internal Auditor and receives conclusions about the research performed. Each year, the Audit Committee receives reports from external auditors describing all relationships between the independent auditor and the Company and its group.
5.4.5. The audit committee should examine whether the Company complies with the applicable provisions regulating the possibility of lodging a complaint or reporting anonymously his/her suspicions of potential violations committed at the Company and should also ensure that there is a procedure in place for proportionate and independent investigation of such issues and appropriate follow-up actions.	Yes	The Company has provided employees with the opportunity to submit complaints or anonymous reports about violations committed in the Company, however the Company has not received such complaints or reports during the reporting period.

⁶ Issues related to the activities of audit committees are regulated by Regulation No. 537/2014 of the European Parliament and the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities, the Law on the Audit of Financial Statements of the Republic of Lithuania, and the Rules Regulating the Activities of Audit Committees approved by the Bank of Lithuania.

5.4.6. The audit committee should submit to	Yes	The Audit Committee analyses and
the Supervisory Board or, where the		evaluates the Company's annual and
Supervisory Board is not formed, to the		semi-annual financial statements, makes
Management Board its activity report at least		recommendations to the Management
once in every six months, at the time that		Board for their approval, together with its
annual and half-yearly reports are approved.		activity reports for that period.

Principle 6: Prevention and disclosure of conflicts of interest

The corporate governance framework should encourage members of the Company's supervisory and management bodies to avoid conflicts of interest and ensure a transparent and effective mechanism of disclosure of conflicts of interest related to members of the supervisory and management bodies.

Any member of the Company's Supervisory	Yes	Members of the Company's management
and management body should avoid a		bodies behave in such a way that there is
situation where his/her personal interests are		no conflict of interest with the Company.
or may be in conflict with the Company's		During the reporting period, there is no
interests. In case such a situation did occur, a		known conflict of interest between the
member of the Company's Supervisory or		Company and the member of its
management body should, within a		management body.
reasonable period of time, notify other
members of the same body or the body of the
Company which elected him/her or the
Company's shareholders of such situation of
a conflict of interest, indicate the nature of
interests and, where possible, their value.

Principle 7: Remuneration policy of the Company

The remuneration policy and the procedure for review and disclosure of such policy established at the Company should prevent potential conflicts of interest and abuse in determining remuneration of members of the collegial bodies and heads of the administration, in addition it should ensure the publicity and transparency of the Company's remuneration policy and its long-term strategy.

7.1. The Company should approve and post	Yes/no	The Company has implemented and
the remuneration policy on the website of the		operates a remuneration policy approved
Company, such policy should be reviewed on		by the Company's management, but it is
a regular basis and be consistent with the		not published on the Company's website.
Company's long-term strategy.		The Company will follow the
		recommendations of Principle 7 when the
		respective laws and other legal acts of the
		Republic of Lithuania are adopted.
7.2. The remuneration policy should include	Yes	The Company has implemented a
all forms of remuneration, including the		remuneration policy that includes all
fixed-rate remuneration, performance-based		forms of remuneration, including fixed
remuneration, financial incentive schemes,		salary, performance-based benefits and
pension arrangements and termination		severance payments. This procedure is
payments as well as the conditions specifying		approved by the management of the
the cases where the Company can recover the		Company in agreement with the Trade
disbursed amounts or suspend the payments.		Union Committee.
7.3. With a view to avoid potential conflicts	Yes	See article 3.2.8
of interest, the remuneration policy should
provide that members of the collegial bodies
which perform the Supervisory functions
should not receive remuneration based on the
Company's performance.
7.4. The remuneration policy should provide	Yes	Termination benefits shall be granted in
enough information on the policy regarding		accordance with the provisions of
termination payments. Termination		Chapter 5 of the Labour Code of the

payments should not exceed a fixed amount or a fixed number of annual wages and in General should not be higher than the non variable component of remuneration for two years or the equivalent thereof. Termination payments should not be paid if the contract is terminated due to inadequate performance.		Republic of Lithuania and the provisions of the Collective Agreement in the Company.
7.5. If the financial incentive scheme is applied at the Company, the remuneration policy should contain enough information about the retention of shares after the award thereof. Where remuneration is based on the award of shares, shares should not be vested at least for three years after the award thereof. After vesting, members of the collegial bodies and heads of the administration should retain a certain number of shares until the end of their term in office, subject to the need to compensate for any costs related to the acquisition of shares.	No	The Company does not apply a system of financial incentives.
7.6. The Company should publish information about the implementation of the remuneration policy on its website, with a key focus on the remuneration policy in respect of the collegial bodies and managers in the next and, where relevant, subsequent financial years. It should also contain a review of how the remuneration policy was implemented during the previous financial year. The information of such nature should not include any details having a commercial value. Particular attention should be paid on the major changes in the Company's remuneration policy, compared to the previous financial year.	No	See article 7.1.
7.7. It is recommended that the remuneration policy or any major change of the policy should be included on the agenda of the General Meeting of Shareholders. The schemes under which members and employees of a collegial body receive remuneration in shares or share options should be approved by the General Meeting of Shareholders. Principle 8: Role of stakeholders in corporate governance The corporate governance framework should recognize the rights of stakeholders entrenched in the laws or mutual agreements and encourage active cooperation between companies and stakeholders in creating the Company value, jobs and financial sustainability. concept "stakeholders" includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interests in the Company	No	See article 7.1. In the context of this principle the concerned.
8.1. The corporate governance framework should ensure that the rights and lawful interests of stakeholders are protected. 8.2. The corporate governance framework	Yes	The corporate governance framework assures the rights of stakeholders that are protected by law are respected. The Company applies a Corporate Contract

should create conditions for stakeholders to

participate in corporate governance in the		with employees, and the contract is
manner prescribed by law. Examples of		signed by the CEO and Trade Union.
participation by stakeholders in corporate		The Company pursues the maximum
governance include the participation of	possible	transparency in its relations with
employees or their representatives in the		all stakeholders and the compliance with
adoption of decisions that are important for		the highest ethical requirements and
the Company, consultations with employees		principles – in its activities, because
or their representatives on corporate		honest and open business activities are
governance and other important matters,		one of the key elements of impeccable
participation of employees in the Company's	business	reputation.
authorized capital, involvement of creditors		The Company takes into account the
in corporate governance in the cases of the		changing customer needs, constantly
Company's insolvency, etc.		improving its operational processes,
8.3. Where stakeholders participate in the		empowering employees, taking care of
corporate governance process, they should		the safety and health of its employees,
have access to relevant information.		seeking to maintain a close relationship
	with	investors and ensure information
8.4. Stakeholders should be provided with the		accessible to all, continuously updating
possibility of reporting confidentially any		the information and posting it in the
illegal or unethical practices to the collegial		"Investors" section of its website.
body performing the Supervisory function.

Principle 9: Disclosure of information

The corporate governance framework should ensure the timely and accurate disclosure of all material corporate issues, including the financial situation, operations and governance of the Company.

9.1. In accordance with the Company's procedure on confidential information and commercial secrets and the legal acts regulating the processing of personal data, the information publicly disclosed by the Company should include but not be limited to the following: 9.1.1. operating and financial results of the Company; 9.1.2. objectives and non-financial information of the Company; 9.1.3. persons holding a stake in the Company or controlling it directly and/or indirectly and/or together with related persons as well as the structure of the group of companies and their relationships by specifying the final beneficiary; 9.1.4. members of the Company's Supervisory and management bodies who are deemed independent, the manager of the Company, the shares or votes held by them at the Company, participation in corporate governance of other companies, their competence and remuneration; 9.1.5. reports of the existing committees on	Yes	The information contained in this recommendation shall be disclosed in the annual and semi-annual reports of the Company in accordance with the requirements of legal acts regulating data processing and confidential information procedures. This information is published on the website of PLLC Nasdaq Vilnius. Stock Exchange and on the Company's website.
their composition, number of meetings and
attendance of members during the last year as
well as the main directions and results of their
activities;

9.1.6. potential key risk factors, the
Company's risk management and
supervision policy;
9.1.7. the Company's transactions with
related parties;
9.1.8. main issues related to employees and
other stakeholders (for instance, human
resource policy, participation of employees
in corporate governance, award of the
Company's shares or share options as
incentives, relationships with creditors,
suppliers, local community, etc.);
9.1.9. structure and strategy of corporate
governance;
9.1.10. initiatives and measures of social
responsibility policy and anti-corruption
fight, significant current or planned
investment projects.
This list is deemed minimum and companies
are encouraged not to restrict themselves to
the disclosure of information included into
this list. This principle of the Code does not
exempt companies from their obligation to
disclose information as provided for in the
applicable legal acts.
9.2. When disclosing the information	Yes	The Company discloses information on
specified in paragraph 9.1.1 of		the Company's and the Group's
recommendation 9.1, it is recommended that		consolidated results. The information is
the Company which is a parent Company in		disclosed in the consolidated annual
respect of other companies should disclose		report and consolidated financial
information about the consolidated results of		statements.
the whole group of companies.
9.3. When disclosing the information	Yes	The information specified in the
specified in paragraph 9.1.4 of		recommendation is presented in the
recommendation 9.1, it is recommended that		Company's annual and semi-annual
the information on the professional		reports. The Company will implement
experience and qualifications of members of		the recommendations of Principle 7 once
the Company's Supervisory and		the legislation governing is adopted.
management bodies and the manager of the
Company as well as potential conflicts of
interest which could affect their decisions
should be provided. It is further
recommended that the remuneration or other
income of members of the Company's
Supervisory and management bodies and the
manager of the Company should be
disclosed, as provided for in greater detail in
Principle 7.
9.4. Information should be disclosed in	Yes	The Company discloses all regulated
such manner that no shareholders or investors		information through the news
are discriminated in terms of the method of		distribution system of PLLC Nasdaq
receipt and scope of information. Information		Vilnius. This ensures that it is accessible
should be disclosed to all parties concerned		to the widest possible public. The
at the same time.		information is simultaneously available
		in Lithuanian and English. In addition,
		the Company publishes information
		before or after the Nasdaq Vilnius trading

session so that all shareholders and
investors of the Company have equal
access to information and make
appropriate investment decisions. The
Company shall not disclose information
that may affect the price of the securities
issued by it in the comments, interviews
or other ways until such information is
made public through the Central
Regulatory Information base.

Principle 10: Selection of the Company's audit firm

The Company's audit firm selection mechanism should ensure the independence of the report and opinion of the audit firm.

10.1. With a view to obtain an objective opinion on the Company's financial condition and financial results, the Company's annual financial statements and the financial information provided in its annual report should be audited by an independent audit firm.	Yes	An independent audit Company performs auditing of the Company's and its subsidiaries individual and consolidated (the group) annual financial reports in accordance with International Accounting Standards applicable in the EU. An independent auditing Company also evaluates conformity of annual report to the audited financial statements.
10.2. It is recommended that the audit firm would be proposed to the General Meeting of Shareholders by the Supervisory Board or, if the Supervisory Board is not formed at the Company, by the Management Board of the Company.	Yes	The Management Board proposes an audit Company to the General Meeting of Shareholders.
10.3. If the audit firm has received remuneration from the Company for the non audit services provided, the Company should disclose this publicly. This information should also be available to the Supervisory Board or, if the Supervisory Board is not formed at the Company, by the Management Board of the Company when considering which audit firm should be proposed to the General Meeting of Shareholders.	Yes	Information on remuneration to the audit Company is made public in the decisions of the General Meeting of Shareholders. The audit firm provides non-audit services only with the approval of the Audit Committee. In 2019, the audit firm did not receive any remuneration for the non-audit services provided.

CONSOLIDATED SUSTAINABILITY REPORT IN ACCORDANCE WITH GRI STANDARDS 2019

This GRI Standards Report forms part of the Kaunas Energy "Social Responsibility Report", which is produced annually and published in conjunction with the company's consolidated annual report and financial statement.

The report has been prepared in accordance with GRI Standards: Core option - providing the minimum information required in order to understand the nature of the company and how it manages its material topics and related economic, environmental, and social impacts. Only those that are required for Core option are listed and reported on.

GRI Standards are separated into three distinct sections: General Disclosures (GRI 102); Management Approach (GRI 103) which reports on each of the topic specific standards; and Topic Specific Standards (GRI 200, 300, and 400).

Within the set of Topic Specific Standards, only those material topics with significance (as defined by guidance in GRI 101: clause 1.3) are reported on in full. In the few cases where a disclosure requires additional supporting information, an external reference with a specific publicly available location may be included. These additional external references may refer to other materials produced by the company such as its annual report and full financial statements. For some material topics it is not possible to provide a full disclosure. This is allowed under GRI 101: clause 3.2 'Reasons for Omission' and the reason for omission will be given.

The material topics chosen for this report are as follows:

GRI 204 Procurement Practices (2016) GRI 205 Anticorruption (2016)

GRI 302 Energy (2016) GRI 305 Emissions (2016) GRI 307 Environmental Compliance (2016)

GRI 403 Occupational Health and Safety (2016) GRI 404 Training and Education (2016) GRI 405 Diversity and Equal Opportunity (2016) GRI 406 Non-discrimination (2016) GRI 407 Freedom of Association and Collective Bargaining (2016) GRI 408 Child Labour (2016) GRI 409 Forced or Compulsory Labour (2016) GRI 415 Public Policy (2016) GRI 416 Customer Health and Safety (2016)

With this report Kaunas Energy seeks to provide non-financial corporate responsibility information to its stakeholders: clients (users), shareholders, investors, employees, suppliers, business and social partners and the public. This sustainability report is produced as a stand-alone report in accordance with GRI Standards.

GRI 102: General Disclosures (2016) Organisational profile

102-1	Name of the organisation	AB "Kauno energija" (EN Public Company Kaunas Energy).
102-2	Acti vities , brands , prod ucts , and ser vices	Provider of energy services to clients and customers in regions within Lithuania.
102-3	Location of head quarters	Raudondvario pl. 84, Kaunas, LT- 47179, LIETUVA
102-4	Location of operations	Lithuania – specifically Kaunas, Kaunas District and Jurbarkas.
102-5	Ownership and legal for m	Information presented in the annual report - section 2.
102-6	Markets ser ved	Information presented in the annual report - section 3.
102-7	Scale of the organisation	Information relating to the total number of employees and the total number of operations, net revenues, and quantity of products / services provided is all presented in the annual report in sections 5, 6, 7, 14 & 18. Information in this disclosure asking for total capitalisation broken down in terms of debt and equity is only for private sector organisations and is therefore not applicable here.

102-8 Infor	mation on emplo yees and	Figures shown are for the full year ending 31 December 2019. Total Number of Employees by Employment Contract and Gender
	other workers	Total Number	Fixed-term employment contracts				Open-ended contracts
			Total	Women	Men	Total	Women	Men
		402	5	1	4	397	120	277
		Jurbarkas region.		All employees are employed in and within the Kaunas and
				Total Number of Employees by Employment Type and Gender
		Total		Full-time Employees			Part-time Employees
		Number	Total	Women	Men	Total	Women	Men
		402	377	107	270	25	14	11
		The major parts of the company's activities are carried out by company employees. Although there are external service contractors employed on projects (selected and employed through public procurement in accordance with Lithuanian law), the percentage of work they perform is not monitored. Since the last reporting period, there has been a reduction in staff numbers of approx. 6%. All employee data is compiled and processed by the company's personnel administration department.
102-9	Suppl y chain	The company supplies heat to 3,500 businesses and organizations as well as to 115,990 households, in total – to 119,490 consumers. The main suppliers in terms of bulk services bought are the independent heat producers of which, in accordance with legislation, the company buys heat from 11 major suppliers in Kaunas and the Kaunas area, and in 2019, these 11 major suppliers were: 1. Kauno termofikacijos elektrinė; 2. U AB "Ekoresursai"; 3. U AB "ENG"; 4. U AB "Idex Taika"; 5. U AB "Idex Taika elektrinė"; 6. U AB "Lorizon energy"; 7. U AB "Petrašiūnų katilinė"; 8. U AB "Aldec General"; 9. U AB "Idex Biruliškių"; 10. UAB "Ekopartneris"; 11. UAB "Foksita". In 2019, the company engaged with 768 other suppliers who provided various volumes of services to the company. Of these, 755 were Lithuanian and 13 were non-Lithuanian suppliers. Local suppliers are defined as operating in Lithuania.
102-10	Significant changes to the organisation and its suppl y chain			There were some significant changes to the structure of the company. All the changes to the company structure in terms of services and governance, departing and new members to the Management Board, and statutes relating to competences and structure of Supervisory Board and Management Board; are all detailed in the annual report – section 1.

GRI 102: General Disclosures (2016)

102-11	Preca utionar y principle or approach	The EU policy on the environment states that it shall "aim at a high level of protection taking into account the diversity of situations in the various regions of the Union. It shall be based on the precautionary principle and on the principles that preventive action should be taken, that environmental damage should as a priority be rectified at source and that the polluter should pay". Within this understanding, the company applies where practical the same precautionary principle in seeking not to generate significant environmental impact, and where there is impact of any nature the company seeks to address this quickly and clearly.
102-12	External initiati ves	The most impressive initiative during the year was the company winning the prestigious 6th Euroheat & Power 'Global District Energy Climate Award for Modernisation', with the awards ceremony in Reykjavik, Iceland on October 23-25. This biennial event rewards systems or projects that illustrate the importance of district energy resource efficiency and heat delivery. Kaunas Energy was judged by an international panel of experts to have made the most impressive impact on efficiency and reduction of CO2 emissions through its transition from fossil fuels to renewable sources. (LT - www.kaunoenergija.lt/ naujienos/ab-kauno-energija-pelne-pasaulini-apdovanojima-uz kauno-silumos-ukio-modernizavima-ir-co2-emisiju-mazinima/; ENG - www.euroheat.org/news/6th-global-district-energy-climate awards-revealed/). Further highlights from the year include: April - May: Following some pipeline drainage works carried out by the company near to the historic Kaunas Fortress, some accidental flooding occurred. This flooding was quite substantial and had threatened the cancellation of a large outdoor public event. However, the company took the initiative to clean up the site with around 20 employees helping to ensure that the public event could go ahead as planned.The clean-up was a substantial amount of work that included the removal of long accumulated sludge soil, and various debris. Because the site was a national heritage site, the works were monitored by the representatives of Kaunas Fortress Association and the Department of Cultural Heritage who praised the results and achievements of the company's employees. May: The company joined the campaign "Workplace - Open to the Family", organized by Kaunas Family Council and Kaunas Region Industrialists and Employers Association to commemorate International Family Day. The essence of this campaign is to introduce a parent's workplace to family members. Approximately 30 people, including the children of 12 employees, took part in an excursion around the company, during which they were invited to ask questions, take photos and share them on social networks. June: In partnership with "Laisvės TV" and Kaunas University of Technology (KTU) the company created a promotional video for the TV show 'Antanas Wants to Be…' about the profession of a Thermal Engineer. This was widely promoted by KTU, and as of December 2019 there had been almost 20,000 hits for this video. (www.youtube.com/ watch?time_continue=3&v=bYGK4JfX_pw&feature=emb_logo). November: Twelve students and a professor from Vytautas Magnus University Faculty of Economics and Management selected Kaunas Energy for an educational excursion to study more about how it operates. The company was chosen because of its high level of socially responsible activities and regular and transparent public reporting. The educational tour included heat production and supply methods, calculation of cost and environmental benefits for the consumers (including emission controls in place), and network management. (www.kaunoenergija.lt/naujienos/vdu-ekonomikos-ir-vadybos fakulteto-studentai-domejosi-kauno-energijos-veiklos-organizavimu/). Throughout the year, the trade union organised a number of activities including inviting company employees to take part in the 'Employees of Lithuanian Industry' family sports games 2019. In addition, the trade union and a number of internal departments organised canoeing activities in the summer. As part of Christmas celebrations, the children of employees received presents as well as free tickets to puppet theatre performances.

		GRI 102: General Disclosures (2016)
102-13	Membership of associations	The company is a member of the following associations: • Responsible Business Association of Lithuania • Lithuanian District Heating Association • Lithuanian Electricity Association • Kaunas Region Industrialists and Employers Association • Lithuanian Thermal Technology Engineers Association In addition, the company is a member of the United Nations Global Compact.

Strategy

102-14	State ment fro m senior decision maker	The year 2019 was one of change as we revised and updated our company strategy to set new development goals. In order to achieve these new goals, the structure of our company changed. During this process, new structural units were created, and some were removed meaning that the number of our employees decreased slightly. The introduction of new technologies and services for consumers, further digitalisation of processes, the reduction of heat transfer costs and the creation of better working conditions for employees are all areas in which we will seek to continue to improve upon. The company compensated consumers for the additional return on investment earned in 2013-2017. In total in 2019, consumers were compensated in the form of lower heat prices; this was equal to as much as 3.3 million of this additional investment return. With the support of European Union Structural Funds, the company reconstructed a record 15 km of heat supply pipelines. In addition we built a new biofuel boiler in the city district of Noreikiškės, and carried out a high number of modernisation works. All of this has resulted in even greater resource savings, which in turn lowered the cost of heat to consumers and helped towards reducing environmental pollution. In October 2019, and in recognition of our progress to date, the company was awarded the Euroheat & Power 6th Global District Energy Climate Award for its efficient system modernization and pollution reduction. To further reduce our environmental impact, the company installed an electric car charging point near the main office building, where part of the electricity consumed is generated by a solar power plant installed on the same building. Electric vehicles can be charged at this point by employees or members of the public for free. This overall company commitment to continual improvement is reflected in this GRI Standards report – our fourth in succession.
102-15	Key impacts , risks , and opport unities	Not required for Core reporting

Ethics and Integrity

102-16	Val ues , principles , standards , and nor ms of beha viour	Full information is provided on the company website under mission and vision, and values and strategic objectives: www.kaunoenergija.lt/ bendroves-veikla/apie-bendrove/misija-ir-vertybes/. The Code of Ethics is publicly disclosed within the company and is applicable to all employees, agents, brokers, contractors, subcontractors or suppliers of the Company. A copy of this can be found on the company website: www.kaunoenergija.lt/bendroves-veikla/etikos-kodeksas/.
102-17	Mechanis ms for ad vice and concerns abo ut ethics	Not required for Core reporting

Governance

102-18	Governance str uct ure	The company governance structure changed in 2019. Information about the new governance and management structure is published on the company website: www.kaunoenergija.lt/bendroves-veikla/ bendroves-valdymas/. Committees responsible for decision-making on economic, environmental, and social topics include: • Audit Committee: made up from a minimum of three members, at least one of which is independent. There are currently three members: two external and independent, and one from among the company's employees. During 2019 the Audit Committee had one session in which it monitored the financial statements for 2019 and the audit process performed by an independent auditor. • Technical Board: established by order of General Director, which examines adopted resolutions and makes recommendations to the company's General Manager on a range of economic, social and environmental topics. During 2019, the board met 20 times to discuss issues concerning the connection of new consumers to the district heating system. • Occupational Health & Safety Committee: established in 2017 and with no issues to deal with in 2019, it had no reason to meet.
102-19 to 102-39	Governance	Not required for Core reporting

Stakeholder Engagement

102-40	List of stake holder gro ups	The following stakeholders are those individuals or groups to whom the company considers itself accountable and those expected to be affected by the company's activities or provision of services: • The company's shareholders (among them the city of Kaunas, and Kaunas and Jurbarkas District Municipality). A full list of the 300 or so individual shareholders is held by our financial partner SEB Bank • The company's managers and employees, and workers trade union • Non-employee workers (connected to key service providers for the company), and service customers • Business partners - including suppliers of goods, service providers, contractors, independent heat producers
102-41	Collecti ve bargaining agree ments	The company has a 'Collective Agreement' established and in operation. It is posted on the company intranet site and updated periodically. It applies not only to workers' trade union members, but also to all employees of the company (100%).
102-42	Identif ying and selecting stakeholders	All stakeholders and interest groups are identified through their direct connection to the company and the company activities. Any other interested individuals or groups are encouraged to be involved in our engagement activities or events. With regard to suppliers of goods, service providers and works contractors, these are selected through public procurement in accordance with Lithuanian and/or EU law.
102-43	Approach to stakeholder engage ment	The company's shareholders receive periodical activity reports, annual reports, CSR reports, and reports on coordinated investment projects. The company's managers and employees communicate daily through departmental and inter-departmental communication. Customers with queries about their service provision are dealt with by the customer service staff at the centralised municipality service centre 'Mano Kaunas' via telephone, e-mail, and postal mail. Information is also available to consumers and the media through the company and through Kaunas city municipality websites. In 2019, the company held two face-to-face meetings with approx. 20 customer representatives at the company premises. These meetings were organised to respond to relevant new developments in the company services. Members of the management were available to answer questions from participants. In addition, once a year the company carries out customer quality service surveys. The purpose of the company's interaction with stakeholders is to ensure that the company remains an open and transparent company, constantly seeking to improve its performance and service delivery standards and as such, our engagement with stakeholders continues to help to improve our preparation of this report.

102-44 Key topics and concerns raised Topics and concerns raised by customer representatives (including buildings administrators and systems supervisors), are related mainly to costs and technical issues. These are usually addressed on a wider basis by placing information articles, explaining some generic issues, in the local newspapers. Any other issues that might be raised by the main shareholder - Kaunas City Municipality - as well as the National Energy Regulatory Council (formerly the National Commission for Energy Control and Prices), are all controlled and responded to through the company's internal Sales Accounting department in partnership with the relevant technical and management leaders within the company.

Reporting Practice

102-45	Entities incl uded in the consolidated financial state ments	a) A list of all entities is included in the company's consolidated financial statements or equivalent documents: please see annual report section 4 to 14. b) The company's consolidated financial statements or related documents cover the activities of AB Kauno Energija and its subsidiaries – UAB Kauno Energija NT and UAB Petrašiūnų Katilinė. Within this report so far and hereinafter, 'the company' refers to this group of three companies.
102-46	Defining report content and topic bo undaries	Now in our fourth year of reporting under the GRI Standards, the company have chosen those material topics that have the biggest bearing on its day-to-day activities; those that constitute the biggest part of our economic, social and environmental impact; and those which we are able to effectively monitor and report on.
102-47	List of material topics (and publication year )	GRI 204: Procurement Practices (2016) GRI 205: Anti-Corruption (2016) GRI 302: Energy (2016) GRI 305: Emissions (2016) GRI 307: Environmental Compliance (2016) GRI 403: Occupational Health and Safety (2016) GRI 404: Training and Education (2016) GRI 405: Diversity and Equal Opportunities (2016) GRI 406: Non-Discrimination (2016) GRI 407: Freedom of Association and Collective Bargaining (2016) GRI 408: Child Labour (2016) GRI 409: Forced or Compulsory Labour (2016) GRI 415: Public Policy (2016) GRI 416: Customer Health and Safety (2016)

GRI 102: General Disclosures (2016)

102-48	Restate ments of infor mation	There are no reasons for restatements of information during the reporting period of 2019.
102-49	Changes in reporting	None this year.
102-50	Reporting period	January 1st to December 31st 2019.
102-51	Date of most recent report	This is the fourth report produced under GRI Standards with the last report being for 2018.
102-52	Reporting cycle	Annual.
102-53	Contact point for questions regarding the report	Mr. Ūdrys Staselka Communications and Public Relations Manager AB "Kauno energija" Tel. +370 37 30 58 85 / Mob. +370 650 96883 Email: u.staselka@kaunoenergija.lt / www.kaunoenergija.lt
102-54	Clai ms of reporting in accordance with GRI Standards	This report has been prepared in accordance with the GRI Standards: Core option.
102-55	GRI content inde x	This report constitutes the GRI context index in full and in doing so fulfils the reporting requirements in accordance with disclosure 102-54.
102-56	External ass urance	This report has been prepared by an externally appointed organisation, procured through an open tender call for services. The preparation of the report takes information prepared for the audited accounts and annual report. The assurance of the quality of this GRI Standards Report is limited to following the guidelines of the GRI Standards only. However, the completed audited accounts and annual report (upon which this GRI Standards report is based) have been passed and assured by the company board as part of its normal quality control of all information that is prepared for shareholders.

GRI 103: Management Approach (2016) The GRI 103: Management Approach applied to GRI 204: Procurement Practices

103-1	Explanation of the material topic and its bo undar y	The monthly procurement of heating services from independent heat producers represents the main services procurement for the company, and is a substantial amount representing approx. 62% of consumers heat demand. The boundary is with all of the business and residential customers who receive heating using these sources, and it is here where any potential impacts will be felt. The company seeks to minimise boundary impacts through close management and quality control of these relationships on a regular basis. If serious impacts are likely to occur, we can correct through improved procurement procedure month by month if necessary.
103-2	The manage ment approach and its co mponents	The company's procurement policy expired as the Law on Procurement of Contracting Entities in the Field of Water Management, Energy, Transport or Postal Services came into force. Now, the company needs only to follow the provisions of this law, according to which, the company provides a Description of The Procedure For Low Value Purchases, which is publicly available on the company's website: www.kaunoenergija.lt/bendroves veikla/viesieji-pirkimai/mazos-vertes-pirkimu-tvarkos-aprasas/. The company also approved its Gift Policy in 2019, which is publicly available on its website: www.kaunoenergija.lt/bendroves-veikla/apie bendrove/dovanu-politika/ and its Anticorruption Policy which is available here: www.kaunoenergija.lt/bendroves-veikla/korupcijos-prevencija/. Also, the company publicises on its website a Notice of Restrictive Practices, issued by The Competition Council of the Republic of Lithuania: www.kaunoenergija.lt/bendroves-veikla/apie-bendrove/atmintine-apie konkurencijos-ribojima/.

GRI 103: Management Approach (2016)

Company goals and targets for procurement practices are defined in law as we are obliged to provide for the lowest price. All heat providers have technical measurements made of their service delivery to make sure it satisfies the conditions of the procurement contract. The company's procurement procedures are organised by the Procurement Commission constituted by the order of General Manager or Procurement Organiser, subject to the procurement amount. All announcements and winning contracts are published on the national central procurement portal: https://cvpp.eviesiejipirkimai.lt/.

A large majority of the company's procurement consists of the purchase of heat from independent heat producers. As such, the amendments to the Law on the Energy Resources Market (which came into force in May 2018) had a bearing on how the company procures its heat. The Operator of the Energy Exchange 'UAB Baltpool' was now entrusted with organising heat auctions in accordance with the procedure established by the law on heat, and the company started to purchase all of its heat through these electronic auctions. For all heat providers in Lithuania, procurement procedures are governed by national regulations based on legislation.

103-3 Evaluation of the management approach

Evaluation of the management approach is not formally carried out. However, the management approach is systematically linked to the procurement process and adjustments can be made through employee or client feedback.

The GRI: 103 Management Approach applied to GRI 205: Anti-Corruption

103-1 Explanation of the material topic and its boundary

The company and its subsidiaries are guided by our anticorruption policy which identifies the main principles and requirements for the prevention of corruption in the company and its subsidiaries. The policy includes guidelines for ensuring compliance and for implementation. This anticorruption policy is in harmony with the laws of the Republic of Lithuania, and the company constantly works hard to minimize any risk of corruption through a range of management and quality control measures.

103-2	The manage ment approach and its co mponents	The Corruption Prevention Policy is approved by the company and publicised on the company's website: www.kaunoenergija.lt/bendroves veikla/korupcijos-prevencija/. To prevent corruption, a system has been created within the company in which named or anonymous cases of abusive or corrupt practices can be reported. This system encourages all company employees, suppliers, and customers to report on any incidents that they feel are abusive or corrupt, such as personal gain in working relationships, exceeding powers granted, assimilating or disposing of company assets, disclosing official or commercial secrets, and any acts of bribery or bribe-taking. The information can be submitted by e-mail: pasitikejimo.linija@ kaunoenergija.lt or by filling out the notification form published on the company website (www.kaunoenergija.lt/korupcijos-prevencijos kontaktu-forma). Full confidentiality and assurance of anonymity of the data is guaranteed (although, applicants are invited but not forced to provide contact information). Compliance with corruption prevention requirements and standards is an integral part of the company's business ethics, and the Corruption Prevention Policy is applicable to all company representatives, subsidiaries, contractors, subcontractors, suppliers and intermediaries.
103-3	Eval uation of the manage ment approach	Evaluation of the management approach is not formally carried out, but improvements are considered whenever issues are raised by users of this process. For this category of 103-3 disclosure reporting, the company remains committed to developing a more effective method of encouraging and collecting evaluation feedback.

The GRI: 103 Management Approach applied to GRI 302: Energy; GRI 305: Emissions; and GRI 307: Environmental Compliance.

103-1 Explanation of the material topic and its boundary

Three GRI 300 Environmental material topics have been combined for this disclosure (as per GRI 103 general guidance clause 1.1).

Due to the particularity of activities the company uses a lot of electricity and water and has high emissions into the air. The saving of energy and its resources is very important for the company's economic performance. Environmental compliance is crucial if the company wants to maintain its commitment to the environment, to stay compliant, and to continue its high level of transparency in reporting such actions.

GRI 103: Management Approach (2016)

Emissions and environmental compliance have an impact wider than local company sites. Therefore, the boundary for impacts for these material topics is within all company sites as well as throughout the whole country.

103-2 The management

approach and its

components

Although the company does a good job of managing the environmental material topic within the company, it could still improve its management approach in relationships with clients / service providers outside the company.

Internally the management systems in place to record and report on environmental impact are very strong. There is a special certified environmental laboratory installed to manage, collect, and process all relevant environmental data on company activities. Links to all decision making for these material topics are referred to in disclosure 102-18 (Governance Structure) and all links to the principles that make up the company policies are in disclosure 102-16 (Values, Principles, Standards and Norms of Behaviour). For targets and issues related to emissions, the company is guided by the following:

• Kyoto Protocol

• Helsinki Commission (HELCOM) and environmental constraints of Helsinki Convention

• European Parliament and Council Directive 2001/80/EB of regulating energy emissions

• Lithuanian environmental normative document LAND 43-2013 for the use of natural resources, and emissions from air pollutants into the environment

• Lithuanian special requirements for large combustion plants
• Lithuanian emissions rates from average combustion plants

The company pays taxes for atmospheric and water pollution and if allowable emission rate limits or annual limits are exceeded, the company must pay the relevant fines under Lithuanian laws.

The company's laboratory for measurement of its stationary air pollution sources has a permit issued by the Lithuanian Environmental Protection Agency. This allows the laboratory, on behalf of the company and its group subsidiaries, to continuously monitor emissions into the atmosphere from stationary sources, and to make sure they do not exceed the permissible limits established within the integrated pollution prevention and control permits. Six of our suppliers' boiler-houses use biofuels which contributes towards reducing atmospheric pollution.

Small internal improvements, such as using recycled or environmentally friendly paper to print the company's annual report and financial statement on, are easy to implement. The company chooses to not print its sustainability report and instead, encourages e-downloads (unless events we attend require handout copies for participants). Improvements to our relationships with larger technical service providers, whose contracts are regulated based on national guidelines, are more difficult to make.

103-3 Evaluation of the management approach

Evaluation of the management approach is not formally carried out. However, the management approach is systematically linked to the company's commitment to non-financial reporting. The company does encourage feedback and suggestions through employee or client feedback. For this category of 103-3 disclosure reporting, the company remains committed to developing a more effective method of encouraging and collecting evaluation feedback.

The GRI: 103 Management Approach applied to all nine GRI 400: Social material topics.

103-1 Explanation of

the material topic and its boundary

Nine GRI 400: Social material topics (see 102-47 above) have been combined for this disclosure (as per GRI 103 general guidance clause 1.1).

The company is strong on employee relations and wants to provide regular reports on progress made in the health and safety issues for the company and its employees. Qualification and technical improvement of employee skills is equally important to the company, and in support of this, the company promotes and supports an annual programme of different types of courses and trainings, seminars and conferences for employees to participate in.

The company respects the principles of gender equality, nondiscrimination, and freedom of association and collective bargaining agreements are automatically part of company policy (as is the outlawing of child labour and forced labour in the company).

Public policy is important because we provide a public service and are part of the city municipality services offered to the public, and therefore our public policies need to reflect our public profile. The company follows a strict regime of compliance to health and safety regulations because it is tantamount to the services we provide, the people who provide them, and those who use them.

The boundary for impacts remains mainly focused on local and regional sites, along with all stakeholders within these areas.

The manage ment Internally the company has a strong management approach for social and health and safety issues related to employees. This includes a approach and its collective agreement for all employees, an employee's health and safety co mponents service, a Health and Safety Committee and established procedures for employees to voice their concerns, suggestions, or grievances. Links to all decision making for these material topics are referred to in disclosure 102-18 (Governance Structure) and all links to the principles that make up the company policies are in disclosure 102-16 (Values, Principles, Standards and Norms of Behaviour). The Work Safety Department has three staff: two for safety issues and one for medical issues. They follow and implement regulations as laid down by national state institutions and there are regular articles and campaign notices related to health and safety issues posted on the company intranet and notice boards for employees. Regular workplace inspections are carried out on company sites where employees are working, as well as company sites where non-employees are working. New employees are provided with instructions on basic health and safety company policies. Those working in manual roles are provided with a safety supervisor during the initial employment starting period. Special emphasis is paid to improving the qualifications of employees through their placement on specialist work-related training programmes run by either government institutions or professional associations and these take place annually. A trade union operates in the company and there were 130 members as of 31 December 2019. Both the trade union and individual employees are free to enter associations and negotiate collectively for better working conditions or pay. In 2019 and in previous years, the company did not record any violation of the principles of gender equality and non-discrimination. There were no cases of child or forced labour in 2019 nor the previous years in the company. With our policy on this issue, we can be sure of not having any cases in future reports. Eval uation Evaluation of the management approach is not formally carried out. However, the management approach is systematically linked to the of the company's commitment to non-financial reporting. The company does manage ment encourage feedback and suggestions through employee or client feedback. For this category of 103-3 disclosure reporting, the company remains approach committed to developing a more effective method of encouraging and collecting evaluation feedback.		GRI 103: Management Approach (2016)
	103-2
	103-3

CONSOLIDATED SUSTAINABILITY REPORT IN ACCORDANCE WITH GRI STANDARDS 2019 17

Topic Specific Standards: GRI 200 Economic GRI 204: Procurement Practices (2016)

204-1 Proportion of spending on local suppliers

risks related to

corruption

The percentage of procurement budget that is spent on suppliers local to operations (such as percentage of products and services purchased locally) is 100%. Local is defined as being within Lithuania, and our definition of 'significant locations of operation' is within Kaunas, Kaunas District and Jurbarkas.

GRI 205: Anti-corruption (2016)

205-1 Operations assessed for

Omission of full disclosure as allowed under GRI Standard 101: clause 3.2. Although the company has a proven anticorruption policy that includes a mechanism for assessing corruption risk factors, defining all types of corruption, responsibilities and roles, the specific number and percentage of corruption-related risk factors has not been assessed so far. As no specific corruption risk assessment has been carried out so far, no significant dangers related to corruption have been identified. The company is working to define a clear corruption risk assessment procedure.

Topic Specific Standards: GRI 200 Economic

205-2 Communication and training about anticorruption policies and procedures

The company has a Corruption Prevention Policy, approved in February 2017 and published on its website: www.kaunoenergija.lt/wpcontent/uploads/AB-Kauno-energija-ir-jos-dukteriniu-imoniu-korupcijosprevencijos-politi.pdf. It also provides a clear statement of its position on corruption and what it is doing to help prevent it happening; this is also on the company website: www.kaunoenergija.lt/bendroves-veikla/korupcijosprevencija.

All 100% of the governance bodies (19 members) have been notified of the organization's anticorruption policies and procedures, as has 100% of the workforce (all 402 employees) across all work categories. In addition, all contractors and suppliers participating in public procurement procedures are made fully aware of the company's anticorruption policy and procedures on a compulsory basis. In total, 100% of our suppliers (11 major suppliers and 757 smaller suppliers - detailed in disclosure 102-9) are informed of the company's anticorruption policy. Compliance with the Corruption Prevention Policy is an integral part of our business ethics, and as such, it is fully applied to representatives (intermediaries) of the company. The regions covered by all of the above are as described in disclosure 102-4.

In 2019 the company adopted a 'Gift Policy' covering the procedure of receiving, giving and dealing with Gifts. It must be respected by all employees of the company, regardless of position. In order to avoid possible conflicts of interest or possible misunderstandings, a description of procedures for receiving, giving and dealing with gifts is provided on the company's website: www.kaunoenergija.lt/bendroves-veikla/apiebendrove/dovanu-politika/.

205-3 Confirmed incidents of corruption and action taken

No cases of corruption were identified in, or reported to, the company during 2019.

Topic Specific Standards: GRI 300 Environmental GRI 302: Energy (2016)

302-1 Energy consumed within the organisation

The company is a producer of heat energy, so the largest part of electricity is consumed for the production and supply of this.

Information on total fuel consumption from renewable and nonrenewable sources is available in full in section 6.1 of the company's annual report. Solid biofuel and natural gas account for 99.75% of fuel consumption.

The company purchased and consumed 13,617,942 kWh of electricity internally in 2019. Total internal energy consumption within the company and its subsidiaries in 2019 was 12,911,916 kWh with the remainder – 706,026 kWh – resold and used under a utilization contract. The electricity consumption internally was distributed as follows:

Internal needs	For heat production and supply
2 107 994 kWh	11 509 948 kWh

In 2019 the company did not produce steam and its cooling sales represent zero kWh and is therefore not included in this report.

Topic Specific Standards: GRI 300 Environmental

• 302-2 Energy consumed outside the organisation
• 302-3 Energy intensity
• 302-4 Reduction of energy consumption
• 302-5 Reductions in energy requirements of products and services

Omission of full disclosure as allowed under GRI Standard 101: clause 3.2. Currently, the company does not have the methodologies, assumptions and/or calculation tools in place to collect and fully report on these disclosures, but it is endeavouring to improve its data collection procedures.

GRI 305: Emissions (2016)

305-1 Direct (Scope 1) GHG emissions CO² emissions for the year 2019 are not totally confirmed, but the figures are likely to be as follows: • Petrašiūnai power plant – 5,947 t of CO² • Pergalė boiler house – 2,038 t of CO² • Šilkas boiler house – 3,227 t of CO² • Garliava boiler house – 112 t of CO² • Jurbarkas boiler house – 1,320 t of CO² As the company itself is a producer of heat energy, it monitors emissions from these sources of production and provides data to public authorities in accordance with the procedures established by law. From this data, we can report that the total direct emissions from the company's heat production sources in 2019 was 12,644 metric tonnes CO² equivalent, with gases included in these calculations being CO² only (the biological emissions of CO² in metric tonnes are not counted in CO² equivalents). The base year of the calculation is applied based on the individual production sources and is chosen due to the higher median of activity data (reports and justifications are available from the Lithuanian Environmental Protection Agency (http://oras.gamta.lt/cms/index). According to the law, only the emissions of boiler houses that are more than 20 MW capacity are calculated. The company owns five boiler houses that are more than 20 MW capacity. The baseline year of calculation of 2005-2008 is used for Petrašiūnai power plant (5,947 tonnes of CO² ), the boiler houses at Pergalė (2,038 tonnes of CO² ) and Garliava (112 tonnes of CO² ). For the boiler houses at Šilkas (3,227 tonnes of CO² ) and Jurbarkas (1,320 tonnes of CO² ), the baseline year of calculation of 2009-2010 is used.

		The source of the emission factors and the reference to the global warming potential (GWP) rates used (as well as standards, methodologies, and calculating tools) are all taken from within the following articles and regulations: • Directive 2003/87 / EC of the European Parliament and of the Council • Commission Regulation No 600/2012 • Commission Regulation No 601/2012 • Standard ISO 14065 Actual total GHG emissions/t CO2 equivalent from the company's heat production facilities from 2013 to 2019 are as follows: Year 2013 2014 2015 2016 2017 2018 2019 GHG Emissions 36 042 32 711 8 607 8 480 8 918 21 008 12 644 Currently, no other scope 1 emissions data is collected by the company.
305-2	Energ y indirect (Scope 2) GHG emissions
305-3	Other indirect (Scope 3) GHG emissions	Omission of full disclosure as allowed under GRI Standard 101: clause 3.2. Currently, the company does not have the methodologies, assumptions and/or calculation tools in place to collect and fully report on these disclosures, but it is endeavouring to improve the necessary procedures.
305-4	GHG emissions intensit y
305-5	Red uction of GHG emissions	Greenhouse gas emissions decreased significantly from 21,008t CO2 in 2018 to 12,644t CO2 in 2019. The reason for this decrease was due mainly to a reduction in demand at the Petrašiūnai power plant, and competition between heat producers. In addition our Jurbarkas boiler-house burned more biofuel instead of natural gas, so it also affected the total emissions figure. The gas included in the calculation is CO2 only. The company's air pollution abatement initiatives involve public awareness campaigns to raise awareness of energy-saving measures. However, if the air temperature drops drastically, the company can do little and must produce more heat. Information on key numbers, standards, methodologies, or computational tools is provided in section 305-1 above.
305-6	Emissions of ozone -depleting substances (ODS)	Omission of full disclosure allowed under GRI Standard 101: clause 3.2. Full disclosure information is not available in the format required for this report. The company remains committed to developing the systems and procedures to allow this data to be monitored, evaluated and recorded.

Topic Specific Standards: GRI 300 Environmental

305-7 Nitrogen oxides (NOX), sulphur oxides (SOX), and other significant air emissions

For 2019 the increase in emissions for some of the reported categories is due to the use of more biofuels as well as the inclusion in calculations of the subsidiary UAB "Petrašiūnų katilinė" power plant. Full reporting of those available and relevant requirements of this disclosure is contained in the company annual report, section 7.

Išmetama per metus, t	Particulates	Nitrogen Oxides	Carbon Monoxide	Sulphur Dioxide	Hydro-carbons	Vanadium Pentoxide	Others
2019	89.0913	280.7396	1 261.2142	0.2746*	1.1978	0.0000	0.4313
2018	48.7984	283.0412	1 082.9366	31.6210	1.1982	0.0000	0.1509
2017	79.7242	285.6461	1 236.7667	145.0571	1.1982	0.0000	0.4297
2016	53.7542	265.0797	1 155.3349	231.4719	4.2871	0.0000	0.2818
2015	43.5783	203.6775	904.8513	193.3228	20.1586	0.0000	0.2818
2014	23.613	154.570	534.443	47.158	16.294	0.0000	0.440
2013	10.5967	101.3197	299.6656	5.0747	14.9647	0.0000	0.770
2012	7.6130	54.3160	135.1510	6.0280	1.2080	0.0000	0.4397

* The huge decrease in SO² indicator in 2019 is due to the changes in calculations. This indicator was no longer counted in 2019 for production sources using biofuels. The calculations shown for 2019 are based on estimated data for the two small boilers using diesel fuel.

GRI 307: Environmental Compliance (2016)

307-1 Non-compliance with environmental laws and

regulations

During this reporting period, the company did not receive any fines or sanctions for serious non-compliance with environmental laws and/or regulations at all, nor were any legal cases brought against the company during this time. However, a minor non-serious incident did occur in which the company was penalised for a discharge of wastewater at Petrašiūnai power plant, where the concentration of pollutants exceeded the permissible norm. The damage to nature was negligible – less than one Euro - with the responsible person being fined 85 Euro.

Topic Specific Standards: GRI 400 Social GRI 403: Occupational Health and Safety (2016)

403-1	Workers representation in for mal joint manage ment – worker health and safet y co mmittees	An occupational health and safety committee operates in the company and it follows the principles, roles and responsibilities as defined by the Occupational Safety and Health Committees of the General Regulations, approved in 2013 by the Lithuanian Ministry of Social Security and Labour Minister. This committee operates at a senior management level within the company, reporting directly to the Company Director / Board, and represents 100% of the workforce employees.
403-2	Types of inj ury and rates of inj ury, occ upational diseases , lost da ys, and absenteeis m, and number of work -related fatalities	All accidents are recorded and investigated if necessary under minor or major categories. Much of this reporting is required and covered by legal requirements and linked to information required by the national Social Insurance organisation (SODRA). In 2019 the company reported the following injuries in the workplace: • One reported accident in the workplace (N1): male (fracture of the heel, partial amputation of two fingers) • Two accidents on the way to work: both women (fracture of left and right hip and elbow bones; strain on the left foot) The company already separates reasons for absence into categories that include types of injuries, so it provides the information on how many days were lost through the above recorded injuries. For the above unfortunate accident (UA) cases, working days lost in 2019 totalled 149 days: • U A at work (1 employee) - 76 working days • U A on the way to work (2 employees) - 73 working days

		Topic Specific Standards: GRI 400 Social
403-3	Workers with high incidence or high risk of diseases related to their occ upation	The company does not have any occupational activities that would put its workers at high incidence rate, or high risk of specific diseases.
403-4	Health and safet y topics co vered in for mal agree ments with trade unions	An occupational health and safety committee operates in the company and it follows the principles, roles and responsibilities as defined by the Occupational Safety and Health Committees of the General Regulations, approved in 2013 by the Lithuanian Ministry of Social Security and Labour Minister. This committee works with the trade union and covers 100% of all health and safety topics within the workplace and broader work environment.

GRI 404: Training and Education (2016)

404-1	Average ho urs of training per year per emplo yee	The company has an annual programme of professional refresher courses and training, including attendance at various seminars and conferences, to help employees update and improve their work skills and knowledge. Once a year, renowned professional thematic experts are invited by the company to deliver lectures to employees on topics such as heat generation and supply. In comparison to last year, the increase in training and education for staff in 2019 is approx. 80% higher. The average duration of training hours per employee is 20 hours, an increase of five hours per employee on last year's figures. The gender split is approx. 484 hours for women and 3,652 hours for men. This disparity between male and female hours is based on the fact that there are a larger number of men working in specialist technical jobs that require specialist technical training. The split of training hours for categories of employees is as follows: 396 hours for managers, 1,328 hours for specialists, and 2,412 hours for workers.

404-2	Progra mmes for upgrading emplo yee skills and transition assistance progra mmes	The company maintains its close relationship with the local Kaunas University of Technology (KTU) to help develop and better tailor some specific technical courses. This helps to strengthen the theoretical knowledge that all potential new employees, recruited after finishing studies at KTU, will have. For current employees there are no special programmes, except for some employees who need to update their existing certificates or professional competences on a regular basis. To date, the company does not record these by gender. Transition programmes for those who are retiring (or being made redundant) do not currently exist within the company.
404-3	Percentage of emplo yees recei ving reg ular perfor mance and career de velop ment re views	Omission of full disclosure allowed under GRI Standard 101: clause 3.2. Full disclosure information is not available in the format required for this report. The company does not currently provide performance reviews as part of its training and education for employees.

GRI 405: Diversity and Equal Opportunity (2016)

405-1	Diversit y of go vernance bodies and	Total number of people on governing bodies and by gender as at December 31, 2019:
	emplo yees	Total Managers	Women	Men
		19	4	15
		There are four female managers but none sit within the ranks of the Senior Management, Board, or Supervisory Board. When evaluating the composition of employees at management level by age, there are two persons under the age of 30, 11 between the ages of 30 and 50, and six over the age of 50. The figures for all the remaining employees totalling 402 (121 women and 281 men) are: 32 under 30, 144 are between 30 and 50, and 226 are over 50. The company does not have any information on persons belonging to minorities or vulnerable groups.
405-2	Ratio of basic salar y and re muneration of wo men to men		The salaries of women and men with the same qualifications and working in the same positions are not different in the company.

Topic Specific Standards: GRI 400 Social

GRI 406: Non-discrimination (2016)

406-1 Incidents of discrimination and corrective actions taken

No cases of discrimination were recorded in the company in 2019.

GRI 407: Freedom of Association and Collective Bargaining (2016)

407-1 Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk

There are no risks to employees' in being able to exercise their rights to freedom of association and collective bargaining. All employees of the company (and extended Group subsidiaries) are free to join any association and negotiate collectively for better working conditions or pay. A trade union operates in the company with 130 members as of December 31, 2019.

A collective agreement operates in the company, which covers all issues related to the employee's working conditions as well as all issues of learning and professional development and social security.

GRI 408: Child Labour (2016)

408-1 Operations and suppliers at significant risk for incidents of child labour

There is no child labour in the company or its subsidiaries. There are also no company operations, or suppliers that the company works with, that can be considered to have significant risk for incidents of child labour.

GRI 409: Forced or Compulsory Labour (2016)

409-1 Operations and suppliers at significant risk for incidents of forced or compulsory labour

There is no forced or compulsory labour in the company or its subsidiaries. There are also no company operations, or suppliers that the company works with, that can be considered to have significant risk for incidents of forced or compulsory labour.

GRI 415: Public Policy (2016)

415-1 Political

contributions

No financial or in-kind political contributions were made directly or indirectly by the company or through its subsidiaries.

GRI 416: Customer Health and Safety (2016)

416-1	Assess ment of the health and safet y impacts of prod uct and ser vice categories	No significant product and service categories for which health and safety impacts are assessed for improvement. Please note however, that in terms of employee assessment, the company has a series of regular and routine health and safety checks and assessments made as part of its statutory legal working practices.
416-2	Incidents of non -co mpliance concerning the health and safet y impacts of prod ucts and ser vices	The company has had no identified or recorded non-compliance with regulations and/or voluntary codes.

Company Contact Information

Name of the company: Address of the company: Telephone: Fax: E-mail: Website address: Public limited liability company "Kauno energija" Raudondvario rd. 84, 47179, Kaunas, Lithuania (8 37) 305 650 (8 37) 305 622 info@kaunoenergija.lt www.kaunoenergija.lt