PUBLIC LIMITED COMPANY "KAUNO ENERGIJA"

LIETUVOS BANKAS Žirmūnų str. 151 09128 Vilnius

2014-04-30 Nr. 20-2348

CONFIRMATION FROM RESPONSIBLE PERSONS

Following the guidelines of 22 article of the Law on Securities Market of the Republic of Lithuania and Lithuanian Securities Commission periodical and additional information preparation and presentation regulations, we General Manager Rimantas Bakas and Chief Accountant Violeta Staškūnienė AB Kauno Energija approve, that according to our knowledge the AB Kauno Energija interim financial reporting of the I quarter of the year 2014 is prepared according to the International Financial Reporting Standards, generally accredited in European Union, satisfies actuality and correctly indicate assets, liabilities, financial state, profit (loss) and cash flows.

Yours respectfully General Manager

Rimantas Bakas

Chief Accountant

Wear

Violeta Staškūnienė

V. Staškūnienė (8 37) 305 841, 8 686 04932, e-mail: [email protected] Office address: Raudondvario pl. 84, LT-47179 Kaunas-21, LITHUANIA Tel. +370 37 305 650, Fax. +370 37 305 622 E. mail.: [email protected]; Internet: www.kaunoenergija.lt

AB KAUNO ENERGIJA

$\sim$

SET OF CONSOLIDATED AND PARENT COMPANY'S FINANCIAL STATEMENTS FOR THE FIRST QUARTER 2014, PREPARED ACCORDING TO INTERNATIONAL FINANCIAL REPORTING STANDARDS, AS ADOPTED BY THE EUROPEAN UNION

Statements of Financial Position

				Company
Notes	As of 31 March 2014	As of 31 December 2013	As of 31 March 2014	As of 31 December 2013


$\mathbf{3}$	196	209	196	209
4
		27,097	25,435	25,798
	325,783	320,178	325,792	320,187
	837	848	893	903
	20,543	18,730	20,537	18,723
	1,542	7,289	1,542	7,289
	375,424	374,142	374,199	372,900
1			3,719	3,719
5	40	40	40	40
6	95	95	95	95
	135	135	3,854	3,854
	375,755	374,486	378,249	376,963

				3,844
				800

				4,644

				57,009
				9,424
	69,057	66,449	69,033	66,433
9,23	3,878	2,155	3,842	2,135
	77,317	73,301	77,219	73,212
	453,072	447,787	455,468	450,175
	$\overline{7}$ 8 23	26,719 3,928 454 4,382 56,503 12,554	Group 3,897 800 4,697 57,021 9,428	3,890 454 4,344 56,498 12,535

(cont'd on the next page)

(all amounts are in LTL thousand unless otherwise stated)

Statements of Financial Position (cont'd)

			Group		Company
		As of 31	As of 31	As of 31	As of 31
	Notes	March	December	March	December
		2014	2013	2014	2013
EQUITY AND LIABILITIES
Equity
Share capital	$\mathbf{1}$	256,813	256,392	256,813	256,392
Legal reserve	10	6,845	6,845	6,845 250	6,845 250
Other reserve	10	250	250
Retained earnings (deficit)		$\blacksquare$ 10,739	٠ 3,019	$\overline{\phantom{a}}$ 10,705	1,858
Profit for the current year		727	(2, 292)	2,552	694
Profit (loss) for the prior year			727	13,257	2,552
Total retained earnings (deficit) Total equity		11,466 275,374	264,214	277,165	266,039
Liabilities
Non-current liabilities
Non-current borrowings	11,23	48,381	38,994	48,381	38,994
Financial lease obligations	12,23	125	125	125	125
Deferred tax liability	21	8,340	8,340	9,004	9,004
Grants (deferred income)	13	28,674	28,987	28,674	28,987
Employee benefit liability	14	2,079	2,079	2,079	2,079
Non-current trade liabilities	23	14	14	14	14
Total non-current liabilities		87,613	78,539	88,277	79,203
Current liabilities
Current portion of non-current borrowings
and financial lease	11,12,23	13,099	20,401	13,099	20,401
Current borrowings	11,23	22,011	16,997	22,011	16,997
Trade payables	23	49,711	61,321	49,694	61,305
Payroll-related liabilities		2,450	1,950	2,416	1,927
Advances received		905	1,444	905	1,444
Taxes payable		163	1,146	165	1,142
Derivative financial instruments	15	27	51	27	51
Current portion of employee benefit	14	812	937	801	879
liability
Other current liabilities		907	787	908	787
Total current liabilities		90,085	105,034	90,026	104,933
Total liabilities		177,698	183,573	178,303	184,136
Total equity and liabilities		453,072	447,787	455,468	450,175

(the end)

General Manager	Rimantas Bakas		23 April 2014
Chief Accountant	Violeta Staškūnienė	necesso	23 April 2014

Statements of Comprehensive Income

		Group
	Notes	2014 I quarter	2014	2013 I quarter	2013	2012
Income
Sales income	16	130,379	130,379	166,898	322,363	369,723
Other operating income	18	484	484	759	3,561	2,091
Total income		130,863	130,863	167,657	325,924	371,814
Expenses Fuel and heat acquired		(97, 202)	(97, 202)	(126, 367)	(257, 154)	(296, 717)
			(5,068)	(5,390)	(21, 631)	(22, 827)
Salaries and social security		(5,068)
Depreciation and amortisation	3,4	(4, 409)	(4, 409)	(4,005)	(15,936)	(15, 879)
Repairs and maintenance		(351)	(351)	(553)	(2,678)	(5,948)
Write-offs and change in allowance for accounts receivable	5,8	(6,058)	(6,058)	(4, 461)	(9,982)	(5,896)
Taxes other than income tax		(1,212)	(1,212)	(1,229)	(5,101)	(5,073)
Electricity		(941)	(941)	(924)	(2,919)	(2,574)
Raw materials and consumables		(447)	(447)	(468)	(1, 876)	(1, 857)
Maintenance of heating and hot water systems		۰	$\overline{\phantom{a}}$		(2)
Water		(731)	(731)	(518)	(2,167)	(1,172)
Change in write-down to net realisable value of inventories	$\overline{7}$	5	5	(111)	(67)	(644)
Other expenses	17	(3,398)	(3,398)	(2,164)	(9,656)	(10, 252)
Other activities expenses	18	(226)	(226)	(296)	(1,753)	(1, 193)
Total expenses		(120, 038)	(120, 038)	(146, 486)	(330, 922)	(370, 032)
Profit		10,825	10,825	21,171	(4,998)	1,782
Finance income	19	316	316	430	10,160	2,463
Finance costs	20	(402)	(402)	(519)	(1, 913)	(1,710)
Finance cost, net		(86)	(86)	(89)	8,247	753
Profit before income tax		10,739	10,739	21,082	3,249	2,535
Income tax	21				(230)	(1, 339)
Net profit		10,739	10,739	21,082	3,019	1,196
Basic and diluted earnings per share (LTL)	22	0.25	0.25	0.49	0.07	0.03
The accompanying notes are an integral part of these financial statements.
Rimantas Bakas General Manager						23 April 2014

Chief Accountant Violeta Staškūnienė						23 April 2014

$\sim$ $\,$

$\overline{\phantom{a}}$

Statements of Comprehensive Income

Company

	Notes	2014 I quarter	2014	2013 I quarter	2013	2012
Income
Sales income	16	130,396	130,396	166,853	322,338	369,462
Other operating income	18	380	380	716	3,358	1,908
Total income		130,776	130,776	167,569	325,696	371,370
Expenses
Fuel and heat acquired		(97, 202)	(97, 202)	(126, 367)	(257, 154)	(296, 717)
Salaries and social security		(5,015)	(5,015)	(5, 124)	(21, 455)	(22,078)
Depreciation and amortisation	3,4	(4, 427)	(4, 427)	(3,996)	(16, 014)	(15, 879)
Repairs and maintenance		(351)	(351)	(553)	(2,678)	(5,948)
Write-offs and change in allowance for accounts receivable	5,8	(6,058)	(6,058)	(4, 529)	(10, 151)	(6,210)
Taxes other than income tax		(1,212)	(1,212)	(1,220)	(5,101)	(5,043)
Electricity		(940)	(940)	(920)	(2,919)	(2, 565)
Raw materials and consumables		(472)	(472)	(430)	(1, 881)	(1,766)
Maintenance of heating and hot water systems		(4)	(4)	(66)	(95)	(388)
Water		(731)	(731)	(517)	(2,167)	(1,170)
Change in write-down to net realisable value of inventories	7	5	5	(111)	(67)	(644)
Other expenses	17	(3,388)	(3,388)	(2,175)	(9,690)	(10,210)
Other activities expenses	18	(190)	(190)	(381)	(1,318)	(723)
Total expenses		(119,985)	(119,985)	(146,389)	(330,690)	(369, 341)
Profit		10,791	10,791	21,180	(4,994)	2,029
Finance income	19	316	316	430	10,160	2,463
Finance costs	20	(402)	(402)	(780)	(3,102)	(2, 297)
Finance cost, net		(86)	(86)	(350)	7,058	166
Profit before income tax		10,705	10,705	20,830	2,064	2,195
Income tax	21	$\blacksquare$	۰		(206)	(1,358)
Net profit		10,705	10,705	20,830	1,858	837
Basic and diluted earnings per share (LTL)	22	0.25	0.25	0.49	0.04	0.02

General Manager	Rimantas Bakas		23 April 2014
Chief Accountant	Violeta Staškūnienė	tececc	23 April 2014

Statements of Changes in Equity

Group	Notes	Share capital	Legal reserve	Other reserve	Retained earnings (accumulated deficit)	Total
Balance as of 31 December 2012		256,392	1,307	2,584	912	261,195
Total comprehensive income					21,082	21,082
Balance as of 31 March 2013		256,392	1,307	2,584	21,994	282,277
Transferred from reserves	10		۰	(2, 584)	2,584
Transferred to reserves	10	$\overline{\phantom{a}}$	5,538	250	(5,788)
Total comprehensive income			۰	$\blacksquare$	(18,063)	(18,063)
Balance as of 31 December 2013		256,392	6,845	250	727	264,214
Increase in share capital		421	-	$\overline{\phantom{0}}$		421
Transferred to reserves	10		-	$\overline{\phantom{a}}$
Total comprehensive income				-	10,739	10,739
Balance as of 31 March 2014		256,813	6,845	250	11,466	275,374

Company	Notes	Share capital	Legal reserve	Other reserve	Retained earnings (accumulated deficit)	Total
Balance as of 31 December 2012		256,392	1,307	2,584	3,898	264,181
Shareholder (contribution) to cover losses	1	٠			(45)	(45)
Total comprehensive income					20,830	20,830
Balance as of 31 March 2013		256,392	1,307	2,584	24,683	284,966
Transferred to reserves	10	۰	5,538	250	(5,788)
Transferred from reserves	10	÷		(2, 584)	2,584
Total comprehensive income					(18, 927)	(18, 927)
Balance as of 31 December 2013		256,392	6,845	250	2,552	266,039
Increase in share capital	1	421		$\qquad \qquad \blacksquare$		421
Total comprehensive income				۰	10,705	10,705
Balance as of 31 March 2014		256,813	6,845	250	13,257	277,165

General Manager	Rimantas Bakas		23 April 2014
Chief Accountant	Violeta Staškūnienė	receive	23 April 2014

(all amounts are in LTL thousand unless otherwise stated)

Statements of Cash Flows

	Group		Company
	2014 I quarter	2013 I quarter	2014 I quarter	2013 I quarter
Cash flows from (to) operating activities
Net profit	10,739	21,082	10,705	20,830
Adjustments for non-cash items:
Depreciation and amortisation	5,115	4,579	5,099	4,629
Write-offs and change in allowance for accounts receivable	6,058	4,464	6,063	4,533
Interest expenses	401	365	401	365
Change in fair value of derivatives	(24)	(45)	(24)	(45)
Loss (profit) from sale and write-off of property, plant and equipment and value of the shares	3	27	$\overline{4}$	28
(Amortisation) of grants (deferred income)	(363)	(320)	(363)	(320)
Change in write-down to net realisable value of inventories	(5)	111	(5)	111
Change employee benefit liability		26		26
Income tax expenses
Change in accruals		(59)		(59)
Impairment of investment in subsidiary				152
Elimination of other financial and investing activity results	(291)	(230)	(291)	(121)
Total adjustments for non-cash items:	10,894	8,918	10,884	9,299
Changes in working capital:
(Increase) in inventories	(25)	231	(40)	108
(Increase) decrease in prepayments	346	92	346	86
(Increase) decrease in trade receivables	(4, 392)	(11,260)	(4, 404)	(11, 297)
(Increase) in other receivables	(4,274)	(5,711)	(4,259)	(5, 726)
(Decrease) increase in other non-current liabilities
Increase in current trade payables and advances received	(12, 149)	(9,318)	(12, 150)	(9, 403)
(Decrease) increase in payroll-related liabilities	375	350	411	492
Increase (decrease) in other liabilities to budget	(983)	(888)	(977)	(866)
Increase (decrease) in other current liabilities	340	28	341	30
Total changes in working capital:	(20, 762)	(26, 476)	(20, 732)	(26, 576)
Net cash flows from operating activities	871	3,524	857	3,553

(cont'd on the next page)

(all amounts are in LTL thousand unless otherwise stated)

	Group		Company
	2014 I quarter	2013 I quarter	2014 I quarter	2013 I quarter
Cash flows from (to) the investing
activities
(Acquisition) of tangible and intangible	(6,021)	(3, 492)	(6,021)	(3,441)
assets Proceeds from sale of tangible assets	84	197	82	196
Interest received for overdue accounts
receivable	291	384	291	384
Penalties received				(1)
Decrease of non-current accounts receivable
Interest received
Net cash (used in) investing activities	(5,646)	(2,911)	(5,648)	(2, 862)

Cash flows from (to) financing activities
Proceeds from loans	9,302	3,754	9,302	3,754
(Repayment) of loans	(2,191)	(2,054)	(2,191)	(2,054)
Interest (paid)	(636)	(612)	(636)	(612)
Financial lease (payments)	(27)	(11)	(27)	(11)
Penalties and fines (paid)		(154)		(153)
Shareholder (contributions) to a subsidiary				(155)
Dividends (paid)
Received grants	50		50
Net cash flows from (used in) financing activities	6,498	923	6,498	769

Net (decrease) increase in cash and cash equivalents	1,723	1,536	1,707	1,460

Cash and cash equivalents at the beginning of the period	2,155	5,332	2,135	5,308
Cash and cash equivalents at the end of the period	3,878	6,868	3,842	6,768

(the end)

General Manager	Rimantas Bakas		23 April 2014
Chief Accountant	Violeta Staškūnienė	Meccecc	23 April 2014

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.

AB Kauno Energija consists of the Company's head office and the branch of Jurbarko Šilumos Tinklai.

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

As of 31 March 2014 and of 31 December 2013 the shareholders of the Company were as follows:

	As of 31 March 2014		As of 31 December 2013
	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	39,665,892	92.82
Kaunas district municipality	1,606,168	3.75	1,606,168	3.76
Jurbarkas district municipality	746,405	1.74	746,405	1.75
Other minor shareholders	713,512	1.67	713,512	1.67
	42,802,143	100.00	42,731,977	100.00

All the shares with a par value of LTL 6 each are ordinary shares. The Company did not hold its own shares in 2014 and 2013.

On 23 July 2009 in the Company's Shareholders Meeting it was decided to increase the share capital by issuing 22,700,000 ordinary shares with the par value LTL 6 each. Priority right to acquire issued shares was granted to Kaunas city municipality. The issue price of shares is equal to their nominal value. For this share the Company received a contribution in-kind comprising manifolds in Kaunas city with the value of LTL 136,200 thousand which was established by the independent property valuators under the replacement cost method.

On 17 February 2010 in the Company's Extraordinary Shareholders Meeting it was decided to increase the share capital by LTL 682 thousand (from LTL 255,710 thousand to LTL 256,392 thousand) issuing 113,595 ordinary shares with the par value LTL 6 each. The issue price of shares is equal to their nominal value. A building of a boiler house located in Kaunas city, owned by Kaunas City Municipality, and engineering networks located in Jurbarkas city, owned by Jurbarkas Region Municipality, were received as a non-monetary contribution in kind for these shares. The value of this non-monetary contribution as of the transfer date was determined by independent valuators under the replacement cost method.

It was decided at the Company's Extraordinary meeting of shareholders held on 6 January 2014 to increase Company's authorised capital with LTL 421 thousand from LTL 256,392 thousand to LTL 256,813 thousand by issuing 70,166 ordinary shares at a nominal value of LTL 6, whose emission price is equal to nominal value of the share, enabling Kaunas city municipality to purchase those shares, seeking that Kaunas city municipality would dispose its own heat supply pipeline - heat network, situated in Karaliaus Mindaugo av. 50. Kaunas. A newly issued Company's Statutes were registered on 20 March 2014 after increase of authorised capital.

All shares were fully paid as of 31 March 2014 and as of 31 December 2013.

(all amounts are in LTL thousand unless otherwise stated)

On 30 April 2012 the Annual General Meeting of Shareholders has made a decision to pay LTL 10,683 thousand, i.e. at 25 cents a share in dividends from the profit of the year 2011. The dividends were started to pay in the end of June 2012, as soon as the permissions under credit agreements from credit institutions were received. The unpaid part of dividends amounting to LTL 9 thousand as of 31 March 2014 (31 December 2013 – LTL 9 thousand) is accounted for in other current liabilities.

The Group and the Company are also involved in maintenance of heating systems. On 1 July 2006 on the basis of Kaunas Energy Services Department the Company established the subsidiary UAB Pastatu Priežiūros Paslaugos (hereinafter - PPP). The main activity of the PPP is exploitation and maintenance of building heating network and heating consumption equipment, internal engineering networks and systems as well as building structures. Starting from July 1, 2006 the Company contracted the PPP for permanent technical maintenance of heating and hot water supply systems of the buildings maintained by the Company. Whereas, according to the changes in the Law on Heat Sector, the PPP is not able to provide heating and hot water supply systems maintenance services starting from 1 July 2012, reorganization of the PPP in the way of separation was approved by the decision of the Company's Management Board of 6 April 2012. On 16 April, 2013 the Company completed procedures of reorganization of PPP in the way of separation. On 16 April, 2013 the new statutes of activity continuing PPP and newly established subsidiary UAB Kauno Energija NT (hereinafter – KENT) were registered in Register of Legal Entities. On 22 April, 2013 the Company announced a tender of sale of PPP. On 19 June, 2013 Company's Management Board decided not to sell block of shares of PPP at the price bid. On 24 September 2013 the Company's Management Board assigned Company's administration by protocol decision to pursue procedures of the end of PPP as of a legal entity in the way chosen by administration. On 25 October, 2013 Company's Board accepted by the protocol decision liquidation of PPP and pursuance of procedures of choosing of liquidator. On 11 December, 2013 the Company's Board decided as filling functions of the only shareholder of PPP to liquidate a subsidiary PPP starting from 16 December, 2013 and to appoint Attorney's Professional Community Magnusson ir Partneriai attorney Aiva Dumčaitienė as a liquidator.

Company	Principal place of business	Share held by the Group	Cost of investment	Writing-off cost of investment reducing the capital	Loss reported after capital reduction and shareholder contribution	Total equity	Main activities
UAB Pastatu Priežiūros Paslaugos*	Savanorių Ave. 347, Kaunas	100 percent	6,518	(1,916)	107	4,709	Maintenance of heating and hot water systems
UAB Pastatu Priežiūros Paslaugos**	Savanorių Ave. 347, Kaunas	100 percent	10		41	49	Maintenance of heating and hot water systems
UAB Kauno energija NT	Savanoriu Ave. 347, Kaunas	100 percent	4,592	(883)	(29)	4,578	Rent

The Group consists of the Company and the Subsidiaries PPP and KENT (hereinafter – the Group):

*The data presented as of 31 March, 2013 – until company's separation;

** The data presented as of 31 March, 2014 – after company's separation.

As of 31 March 2014 accumulated impairment loss on investment in PPP amounted to LTL 2,799 thousand $(31$ December $2013 - LTL$ 2,799 thousand) in the Company's profit or loss in article of financial activity expenses (Note 20).

(all amounts are in LTL thousand unless otherwise stated)

It has been decided by the decision of the meeting of PPP shareholders of 28^th of May, 2012 to reduce authorised capital to LTL 4,915 thousand by adjusting accumulated loss of LTL 1,603 thousand. The new Articles of Association of PPP were registered on 13^th of June, 2012. It has been decided by the decision of the meeting of shareholders of 16^th of November, 2012 to reduce authorised capital to LTL 4,754 thousand by withdrawing accumulated loss of LTL 161 thousand. The new Articles of Association of PPP were registered on 7^th of December, 2012. It has been decided by the decision of the meeting of shareholders of 21 February 2013 to reduce authorised capital to LTL 4,602 thousand by withdrawing accumulated loss of LTL 152 thousand. The new Articles of Association of PPP were registered on 6 March, 2013.

It has been decided by the decision of the meeting of PPP's shareholders of $22^th$ of March, 2013 to transfer to PPP LTL 45 thousand shareholder's contribution in, and LTL 110 thousand targeted shareholder contributions, that were transferred in 22 March 2013

Legal Regulations

Operations of the Company are regulated by the Heating Law No. IX-1565 of 20 May 2003 of the Republic of Lithuania. Starting from 1 January 2008, the Law amending the Heating Law No. X-1329 of 20 November 2007 of the Republic of Lithuania came in to force. On 13 of October, 2011 the change in Heating Law has been announced. It determines that heating and hot water systems as well as heat points of blocks of flats must be supervised by the supervisor unrelated to the supplier of heat and hot water, who must be chosen by inhabitants of this block of flats, without reference to ownership of these heat points. This prohibition, provided by the law, is not applied to the maintenance of heating and hot water systems of buildings which appear in populated localities with less than 50 000 inhabitants according to the data of the Lithuanian Department of Statistics, if the municipal council doesn't make a different decision. This change in the Law on Heat Sector of the Republic of Lithuania No XI-1613 came into force starting November 1, 2011. Any expenses, related to maintenance of the heat points are not included in a heat price since that date.

According to the Heating Law of the Republic of Lithuania, the Company's activities are licensed and regulated by the State Price Regulation Commission of Energy Resources (hereinafter the Commission). On 26 February 2004 the Commission 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 Commission. The Commission also sets price cap for the heat supply. On the 14 December 2012 the Commission determined by its decision No. O3-413 a new basic heat rates force components for the period from 1 January 2013 till 31 December 2016.

Operational Activity

The Company's generation capacity includes a power plant in Petrašiūnai, 4 district boiler-houses in Kaunas integrated network, 7 regional boiler-houses in Kaunas region, 1 regional boiler-house in Jurbarkas city, 13 isolated networks and 31 local gas burning boiler-houses in Kaunas.

Total installed heat generation capacity is 514.259 MW (including 23.5 MW - condensing economizers) and electricity $-8.75$ MW, respectively, out of which 264.8 MW (including 10 MW – condensing economizer) of heat generation and 8 MW of electric capacity are located at the power plant in Petrašiūnai. 29.8 MW of heat generation capacity (including 2.8 MW – condensing economizer) is located in Jurbarkas city. The total Company's power generation capacity is 523.009 MW (including 23.5 MW – condensing economizers).

In the year 2003 the Company sold a part of the assets of the subdivision Kauno Elektrine to UAB Kauno Termofikacijos Elektrinė (hereinafter - KTE) and committed to purchase at least 80 percent of the annual demand of Kaunas integrated heating network from this company. The contract is valid for 15 years from the signing day. It was determined in this contract that heat purchase price from KTE will not increase in 5 years from the day of contract signing. Starting from 1 December 2008 a new basic heat prices for each 4 years period are being approved by the Commission for KTE and for the Company according to valid legal acts.

The Company received an official note on 13^th of April, 2012 confirming the decision of Gazprom OAO to sell its shares to the smaller shareholder "Clement Power Venture Inc.", and the provision, that

(all amounts are in LTL thousand unless otherwise stated)

Gazprom OAO as the main shareholder of KTE must ensure that during the term of agreement, i. e. until 30^th of March, 2018 it will own the main block of shares and adequate (not less than 51 percent) number of votes in General meeting of shareholders, is confirmed in heat purchase agreement signed in 2003 between the Company and KTE, Company's Management Board decided on 10^th of July, 2012 to approve the selling of all the shares of Kauno Termofikacijos Elektrinė UAB owned by Gazprom OAO to Clement Power Venture Inc., regularizing terms of change of contracts agreements signed with Kauno Termofikacijos Elektrine UAB and seeking the best for the Company from this selling On 13 March 2013 KTE adduced to Company an evidence, i.e. an extract from securities account, saying that ownership of the shares of KTE owned by Gazprom OAO is transferred to Clement Power Venture Inc. since 7 March 2013. The changes of Agreement on Investments and of Heat Sales Contract of 31 March 2003 which were signed respectively on 13 August 2012 and 28 September 2012, as well as termination of Contract of Guarantee signed between Company and Gazprom OAO on 13 August 2013 came into force since that date. Following changes of Heat Sales Contract that came into force, Company's obligation to purchase from KTE at least 80 per cent of produced heat, demanded in Kaunas integrated heat supply network was withdrawn. According to changes of Agreement on Investments it was newly agreed and investments objects were intended for a preliminary sum of LTL 350 million as well as detailed schedule of investments implementation for the years $2013 - 2017$ . Herewith KTE took the obligations from these investments to finance Company's investments in Company's infrastructure in amount of LTL 10 million, which will be fulfilled during the period of $2012 - 2016$ . KTE obliged to pay 10 percent forfeit from the value of unfulfilled investments. Notwithstanding agreements reached, on 30 April, 2013 KTE placed a claim to Vilnius Court of Commercial Arbitration. KTE seeks to argue obligations, determined by chapters 2 and 3 of Investments Agreement of 13 August, 2013 by this claim regarding investments in Company heat economy in amount of LTL 10 million and the terms of implementation as well as forfeit (penalties) determined if those investments would not be implemented. The session in this case is appointed on 8 May 2014.

In I quarter of 2014 the average number of employees at the Group was 557 (575 employees in 2013). In I quarter of 2014 the average number of employees at the Company was 551 (565 employees in 2013).

Strategic Decisions

On 6 February, 2014 the Kaunas city council approved Company's investment plans for the years 2012 – 2015, according to which investments in amount of LTL 188,04 million are intended to invest into Company's assets during the period of the years $2012 - 2015$ . The Group and the Company invested LTL 6,051 thousand in the own property during I quarter of 2014 (during $2013 - LTL$ 44,701 thousand and 44,718 thousand).

Estimating conditionally high price of the heat bought from KTE, which owns a main Kaunas heat production source, and seeking to contribute to the international liabilities of Lithuania to increase usage of renewable energy sources in heat production, to reduce Lithuania's dependence from imported fossil fuel and to provide the heat energy at a competitive price, the Company initiated reconstruction projects of existing boiler-houses, fitting them to work on wood fuel (wooden chips, waste of deforestation, sawdust).

In 2013 the projects "Reconstruction of Noreikiškės boiler-house equipping it with biofuel burned 4 MW capacity water heating boiler" (value of the project is LTL 6.6 million, planned amount of produced heat – 16,000 MWh per year) and "Reconstruction of Ežerelis boiler-house equipping it with biofuel burned 3.5 MW capacity water heating boiler" (value of the project is LTL 4.6 million, planned amount of produced heat – 6710 MWh per year) were implemented. Both projects were implemented using financial support from Lithuanian Environmental Investment Fund (LEIF) in amount of LTL 4.09 million.

Biofuel burned 9 MW capacity fully automatized water heating boiler with 1 MW condensational economizer was installed in Silkas boiler-house. Total installed capacity of boiler-house is 10 MW. Planned annual production with new equipment is 89 GWh of heat.

The gas burned 18 MW capacity water heating boiler was installed in Pergale boiler-house.

In 2013. heat production of fuel consumption rate decreased from 90.5 to 89.7 kgn.e. / MWh, which is 0.8 kgn.e. / MWh, total production of 22,433 MWh, saving fuel 17.946 tn.e. or LTL 293 thousand per year.

(all amounts are in LTL thousand unless otherwise stated)

The Company has already started in 2013 and was implemented a reconstruction of water heating boiler PTVM-100 No 2 in Petrašiūnai power plant equipping it with condensational economizer of capacity 10 MW. Total value of the project is LTL 5.4 million in 31 |March of 2014. Indicator of fuel used for heat production decreased from 92.4 to 80.9 kg_ne/MWh.

The Company has already started in 2013 and plans to equip a biofuel burned 8 MW capacity water heating boiler and 4 MW capacity condensational economizer combined for boilers No 5 and No 6 in Šilkas boilerhouse in 2014. The total value of the project with support from LBSA is LTL 8 million.

It is planned to install a new 15 MW capacity gas burned water heating boiler with 1.5 capacity condensational economizer in Šilkas boiler-house in 2014. Value of the project is LTL 2 million.

The Company has already started in 2013 and plans to equip in 2014 in Inkaras boiler-house two biofuel burned 8 MW capacity water heating boilers with furnace and 4 MW capacity condensational economizer. The total value of the project with support from LBSA is LTL 14.994 million.

The Company plans to start a reconstruction of Petrašiūnai power plant in 2014 changing currently used fuel to biofuel. Total heat capacity of new equipment will reach 30 MW. It is planned to produce approximately 244 GWh of heat energy with these new equipment. It is also planned to use approximately 93 thousand tons of wooden fuel for heat production annually. Estimated value of the project with support from LBSA is LTL 25 million.

FIt is planned these projects will be implemented in $2014 - 2015$ and it will possibly have an impact on heat consumer prices reduction.

The Company plans to reconstruct its own mains of integrated heat supply network named 5T, 6Ž, 1Ž, 3Ž and 42. Total estimated value of these projects is LTL 13,889 thousand.

The Company has applications from 21 potential independent heat producers at the moment (with total capacity 526 MW) to connect to Company's integrated heat supply network.

2 independent heat producers, hereinafter – IHP, with total capacity of 30 MW supply heat produced from biofuel for the Company. It is presumable estimating real actions that 3 more IHP, i. e. UAB Pramones Energija with capacity of 20 MW, UAB Okseta with capacity of 57 MW and UAB Aldec General with capacity of 20 MW, whose maximum total capacity of biofuel burned boilers will reach 97 MW will start to produce heat in 2014. However along with coming of IHP the new issues emerged: network management in case of unexpected stop of heat producer equipment, holding of network parameters, regulation of heat purchase procedure and its changes.

2. Accounting principles

2.1. Adoption of new and/or amended IFRS

In the current year, the Company and the Group has adopted all of the new and revised Standards and Interpretations issued by the IASB and the IFRIC of the IASB as adopted by the EU that are relevant to the Company and the Group operations.

2.2. 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).

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.

Items included in the financial statements of the Group and the Company are measured using the currency of the primary economic environment in which they operate (the 'functional currency'). The amounts shown in these financial statements are measured and presented in the local currency of the Republic of Lithuania, litas (LTL) which is a functional and presentation currency of the Company and its subsidiaries and all values are rounded to the nearest thousands, except when otherwise indicated.

Starting from 2 February 2002, Lithuanian litas is pegged to EUR at the rate of 3.4528 LTL for 1 EUR, and the exchange rates in relation to other currencies are set daily by the Bank of Lithuania.

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 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.

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 IFRSs). 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 IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

2.3. 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 profit (loss).

The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group'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 Impairment of Assets 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 recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

2.4. 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-line 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. 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 capitalised and then amortised over useful life $(3 - 4$ years).

Software

The costs of acquisition of new software are capitalised and treated as an intangible asset if these costs are not an integral part of the related hardware. Software is amortised 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 recognised as an expense for the period when the restoration or maintenance work is carried out.

2.5. 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 recognised 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 recognised with a charge to the profit or loss.

2.6. 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-line 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 periods were revised as of 1 September 2008, as further described in Note 2.25.

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

	Years
Buildings	$7 - 50$
Structures and machinery	$5 - 70$
Vehicles	$3 - 10$
Equipment and tools	$2 - 20$
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 LTL 500.

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

(all amounts are in LTL thousand unless otherwise stated)

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 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.

Lease hold improvement expenses related to property under rental and/or operating lease agreements which prolong the estimated useful life of the asset are capitalized and depreciated during the term of rental and/or operating lease agreements.

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.

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

At each statement 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.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

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.

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.

2.8. Financial assets

Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables or available-for-sale financial assets, as appropriate. All purchases and sales of financial assets are recognised on the trade date. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

(all amounts are in LTL thousand unless otherwise stated)

Effective interest rate method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling it in the near term; or
on initial recognition it is part of a portfolio of identified financial instruments that the Group and the Company manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's and the Company's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the 'other gains and losses' line item in the statement of comprehensive income.

Available-for-sale financial assets (AFS financial assets)

Available-for-sale financial assets are non-derivatives that are either designated as AFS or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss.

Listed redeemable notes held by the Group and the Company that are traded in an active market are classified as available-for-sale and are stated at fair value. The Group and the Company also has investments in unlisted shares that are not traded in an active market but that are also classified as available-for-sale financial assets and stated at fair value (because the directors consider that fair value can be reliably measured). Gains and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in the investments revaluation reserve, with the exception of impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets, which are recognized in profit or loss. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group's and the Company's right to receive the dividends is established.

(all amounts are in LTL thousand unless otherwise stated)

The fair value of available-for-sale monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. The foreign exchange gains and losses that are recognized in profit or loss are determined based on the amortized cost of the monetary asset. Other foreign exchange gains and losses are recognized in other comprehensive income.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Gains or losses are recognized in profit or loss when the asset value decreases or it is amortized.

Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, including redeemable notes classified as AFS and finance lease receivables, objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becomes probable that the borrower will enter bankruptcy or financial re-organization; or
the disappearance of an active market for that financial asset because of financial difficulties.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's and the Company's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 30 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

Derecognition of financial assets

The Group and the Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group and the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group and the Company recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group and the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group and the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

2.9. 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 recognised 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 if they do not qualify for hedge accounting.

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

2.10. 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 of completion and 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.

2.11. 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.

2.12. 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 on hand, cash with banks, cash in transit, deposits held at call with banks, and other short-term highly liquid investments.

2.13. 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.

2.14. 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 capitalisation.

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

2.17. Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group and the Company are recognized at the proceeds received, net of direct issue costs.

Financial liabilities

Financial liabilities are classified as either financial liabilities 'at FVTPL' or 'other financial liabilities'.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL.

Other financial liabilities

Other financial liabilities (including borrowings) are subsequently measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

Derecognition of financial liabilities

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

2.18. Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group and the Company as lessor

Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group's and the Company's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group's and the Company's net investment outstanding in respect of the leases.

(all amounts are in LTL thousand unless otherwise stated)

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

The Group and the Company as lessee

Assets held under finance leases are initially recognised as assets of the Group and the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group's and the Company's general policy on borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straightline basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

2.19. Grants (deferred income)

Government grants are not recognised 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 recognised in profit or loss on a systematic basis over the periods in which the Group and the Company recognises 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 recognised as deferred revenue in the statement 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 comprehensive income, a relevant expense account is reduced by the amount of grant amortisation.

Assets received free of charge are initially recognised 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 recognised as used in parts to the extent of the expenses incurred during the reporting period or unearned income to be compensated by that grant.

The benefit of a government loan at a below-market rate of interest is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates.

The balance of unutilised grants is shown in the caption Grants (deferred income) in the balance sheet.

2.20. Income tax

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

Current tax

Income tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. In 2013 the income tax applied to the Group and the Company was 15 percent $(2012 -$ 15 percent).

Deferred tax

Deferred tax is recognised 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.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, 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 recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, 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.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

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 are no instructions reducing earnings per share, there is no difference between the basic and diluted earnings per share.

2.22. Revenue recognition

Revenue is recognised 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 recognised net of VAT and discounts.

Revenue from sales of heat energy is recognised 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 is recognised 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.

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

Dividend revenue from investments is recognised 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 recognised 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 operating leases is described in Note 2.18 below.

2.23. Expense recognition

Expenses are recognised 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 Litas (LTL). All transactions had functional currency other than LTL translated into LTL at the official Bank of Lithuania exchange rate on the date of the transaction, which approximates the prevailing market rates. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Gains and losses arising on exchange are included in profit or loss for the period.

The applicable rates used for principal currencies were as follows:

	As of 31 March 2014		As of 31 December 2013
1 EUR	$= 3.4528$ LTL	1 EUR	$= 3.4528$ LTL
1 USD	$= 2.5139$ T.TT.	1 USD	$= 2.5098$ LTL
1 GBP	$= 4.1798$ LTL	1 GBP	$= 4.1391$ LTL

(all amounts are in LTL thousand unless otherwise stated)

Exchange differences are recognised in profit or loss in the period in which they arise except for:

exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;

exchange differences on transactions entered into in order to hedge certain foreign currency risks; and

exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.

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.

The Group and the Company has considered the actual useful life of property, plant and equipment and increased a depreciation rate for the heating connections from 20 years to 30 years and for the heating stations from 10 years to 15 years respectively starting from 1 September 2008.

Realisable value of inventory

Starting from 2011, the management of the Company forms a 100 per cent adjustment to the net realizable value for inventory bought more than one year ago.

Carrying value of non-current assets received as a contribution in kind

In 2009 a new shares issue was paid by contribution in-kind - manifolds situated in Kaunas city: i.e. market value of assets determined upon their transfer by local qualified valuators using depreciated replacement costs method amounted to LTL 136 million.

In 2010 a new shares issue was paid by contribution in-kind: i.e. building - boiler-house situated in Kaunas city and by networks system situated in Jurbarkas city. Market value of assets estimated upon their transfer by local qualified valuators by using depreciated replacement costs method amounted to LTL 0.616 million.

Following decision of 12 August 2012 of the Commission stated in 2012, the Company performed an additional valuations of contribution in-kind, i. e. manifolds in 2012. It's emphasized in the valuation report, that in this particular case a value of manifolds calculated in the method of income is not correct market value of the asset and the value of the manifolds, determined under the replacement cost method, is considered to be the market value of the assets.

As of 31 March 2014 carrying value of total contribution in-kind amounted to LTL 127,930 thousand, including the manifolds, which amounted to LTL 127,353 thousand (31 December 2013: LTL 128,423 thousand and LTL 127,840 thousand respectively).

(all amounts are in LTL thousand unless otherwise stated)

Allowances for accounts receivable

The Group and the Company makes allowances for doubtful accounts receivable. Significant judgment is used to estimate doubtful accounts. In estimating doubtful accounts historical and anticipated customer performance are considered. Changes in the economy, industry, or specific customer conditions may require adjustments to the allowance for doubtful accounts recorded in the financial statements.

Deferred Tax Asset

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

Litigations

The Group and the Company reviews all legal cases for the end of the reporting period and disclose all relevant information in the Note 24.

2.26. Contingencies

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

A contingent asset is not recognised in the financial statements but disclosed when an inflow of 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 organised in one operating segment therefore further information on segments has not been disclosed in these financial statements

Intangible assets 3.

Amortisation expenses of intangible assets are included in the operating expenses in the statement of comprehensive income.

As of 31 March 2014 part of the non-current intangible assets of the Group and the Company with the acquisition cost of LTL 4,927 thousand (LTL 4,816 thousand as of 31 December 2013) were fully amortised but were still in active use.

Property, plant and equipment 4.

The depreciation charge of the Group's and Company's property, plant and equipment for the half ended as of 31 March 2014 amounts to LTL 5,097 thousand and LTL 5,081 thousand, respectively (as of 31 December 2013: LTL 17,220 thousand and LTL 17,151 thousand respectively). The amounts of LTL 4,734 thousand and LTL 4,718 thousand (as of 31 December 2013: LTL 17,119 thousand and LTL 17,050 thousand respectively) were included into operating expenses (under depreciation and amortisation and other expenses lines) in the Group's and the Company's statement of comprehensive income. The remaining amounts were included into other activity expenses.

As of 31 March 2014 part of the property, plant and equipment of the Group with acquisition cost of LTL 132,181 thousand (LTL 114,753 thousand as of 31 December 2013) and the Company $-$ LTL 132,181 thousand were fully depreciated (LTL 114,724 thousand as of 31 December 2013), but were still in active use.

As of 31 March 2014 and as of 31 December 2013 the major part of the Group's and Company's construction in progress consisted of heat supply networks, boiler-houses reconstruction and repair works.

As of 31 March 2014 the sum of the Group's and the Company's contractual commitments for the acquisition of property, plant and equipment amounted to LTL 23,448 thousand (as of 31 December 2013 -LTL 35,414 thousand).

As of 31 March 2014 property, plant and equipment of the Group and the Company with the net book value of LTL 146,061 thousand (LTL 207,522 thousand as of 31 December 2013) was pledged to banks as a collateral for loans (Note 11).

The sum of Group's and Company's capitalized interest was equal to LTL 30 thousand in 2014 (as of 31 December 2013: LTL 83 thousand). The capitalization rate varied from 1.31 percent to 1.5 percent in 2013 (in $2012 -$ from 1.40 percent to 2.96 percent).

As of 31 March 2014 the Group and the Company accounted for assets, not yet ready for use, amounting to LTL 5,985 thousand in the category Equipment and tools (LTL 3,604 thousand as of 31 December 2013).

5. Non-current accounts receivable

		Group	Company
	2014	As of 31 March As of 31 December 2013	As of 31 March 2014	As of $31$ December 2013
Long-term loans granted to the Company's employees	40	40	40	40

Long-term loans granted to the employees of the Company for the period from 1997 to 2023 are non-interest bearing. These loans are accounted for at discounted value as of 31 March 2014 and as of 31 December 2013 using 3.47 percent interest rate. In 2013 effect of reversed discounting amounted to LTL 1 thousand. The reversal of discounting is accounted in the change of depreciation of realisable value of receivables line in the Group's and Company's statement of comprehensive income

As of 31 March 2014 and as of 31 December 2013 the repayment term of non-current accounts receivable is not yet due and valuation allowance is not determined.

6. Other financial assets

		Group	Company
	As of $31$	As of $31$ March 2014 December 2013	As of $31$	As of $31$ March 2014 December 2013
Available-for-sale financial assets
Fair value of shares	$Q \leq$	95		95

Financial assets held for sale consists of ordinary shares are unquoted.

7. Inventories

	Group		Company
	As of 31 March 2014	As of $31$ December 2013	As of 31 March 2014	As of $31$ December 2013
Technological fuel	3,539	3,502	3,539	3,502
Spare parts	1,138	1,140	1,138	1,140
Materials	1,166	1,175	1,128	1,122
	5,843	5,817	5,805	5,764
Less: write-down to net realisable value of inventory at the end of the period	(1, 915)	(1,920)	(1, 915)	(1,920)
Carrying amount of inventories	3,928	3,897	3,890	3,844

As of 31 March 2014 Group's and Company's amounted to LTL 1,915 thousand (as of 31 December 2013 – LTL 1,920 thousand) write-down to net realisable value of inventories. Changes in the Write-down to net realisable value of inventories for the 2014 and for the year 2013 were included into change in write-down to net realisable value of inventories caption in the Group's and the Company's statement of comprehensive income.

8. Current accounts receivable

	Group		Company
	As of 31 March 2014	As of 31 December 2013	As of 31 March 2014	As of $31$ December 2013
Trade receivables, gross	116,263	111,871	116,440	112,036
Less: impairment of doubtful receivables	(59,760)	(54, 850)	(59, 942)	(55, 027)
	56,503	57,021	56,498	57,009

Of 31 March 2014 Group's and Company's receivables as include the factored receivables amounting to LTL 5.020 thousand under the agreement with AB DNB Bank (as of 31 December 2013 – LTL 2,453 thousand, the factored receivables under the agreement with UAB Swedbank Lizingas.

Change in impairment of doubtful receivables in 2013 and 2012 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 comprehensive income.

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

(all amounts are in LTL thousand unless otherwise stated)

	Group	Company
Balance as of 31 December 2012	47,755	47,877
Additional allowance formed	10,336	10,391
Write-off	(3,241)	(3,241)
Balance as of 31 December 2013	54,850	55,027
Additional allowance formed	4,910	4,915
Write-off
Balance as of 31 March 2014	59,760	59,942

In 2013 the Group and the Company wrote off LTL 3,241 thousand of bad debts. In 2014 the Group and the Company also recovered LTL 5 thousand (2013 - LTL 15 thousand) of doubtful receivables, which were written off in the previous periods.

The ageing analysis of the Group's net value of trade receivables as of 31 March 2014 and 31 December 2013 is as follows:

	Trade receivables neither	Trade receivables past due
	past due nor impaired	60 days	days	days	days	Less than 60 - 150 151 - 240 241 - 360 More than 360 days	Total
2014	39,590	7.422	3.207	551	398	5.335	56,503
2013	44.691	3.295	995	973	1.231	5,836	57,021

The ageing analysis of the Company's net value of trade receivables as of 31 March 2014 and 31 December 2013 is as follows:

		Trade receivables past due
	Trade receivables neither past due nor impaired	60 days	days	days	Less than $60 - 150$ $151 - 240$ $241 - 360$ davs	More than 360 days	Total
2014	39,585	7.422	3.207	551	398	5.335	56,498
2013	44.679	3,295	995	973	1.231	5,836	57,009

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

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

		Group	Company
	As of $31$ March 2014	As of $31$ December 2013	As of $31$ March 2014	As of $31$ December 2013
Taxes Other receivables	5,557 8,373	4,130 5,526	5,557 8,660	4,130 5,828
Less: value impairment of doubtful receivables	(1, 376)	(228)	(1,682)	(534)
	12,554	9,428	12,535	9,424

Movements in the allowance for impairment of the Group's and the Company's other receivables were as follows: $\overline{a}$ $\overline{a}$

	Group	Company
Balance as of 31 December 2012	567	759
Additional allowance formed	(326)	(212)
Write-off	(13)	(13)
Balance as of 31 December 2013	228	534
Additional allowance formed	1.148	1.148
Balance as of 31 March 2014	1.376	1,682

(all amounts are in LTL thousand unless otherwise stated)

As of 31 March 2014 and 31 December 2013 the major part of the Group's and the Company's other receivables consisted of compensations from municipalities for low income families, receivables from sold inventories (metals, heating equipment) and services supplied (maintenance of manifolds and similar services).

The ageing analysis of the Group's net value of other receivables (excluding taxes) as of 31 March 2014 and 31 December 2013 is as follows:

	Other receivables	Other receivables past due but
	neither past due nor impaired	days	davs	days	davs	Less than 60 60 - 150 151 - 240 241 - 360 More than 360 davs	Total
2014	2,938	917	24			3.094	6.997
2013	2.126	32	37		3.071	26	5,298

The ageing analysis of the Company's net value of other receivables (excluding taxes) as of 31 March 2014 and 31 December 2013 is as follows:

	Other receivables	Other receivables past due but
	neither past due nor impaired	days	days	days	davs	Less than 60 60 - 150 151 - 240 241 - 360 More than 360 days	Total
2014	2.919	917	24			3.094	6.978
2013	2.122	32			3.071	26	5,294

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.

9. Cash and cash equivalents

		Group	Company
	As of $31$	As of $31$	As of $31$	As of $31$
	March 2014	December 2013	March 2014	December 2013
Cash in transit	2.094	977	2,094	977
Cash at bank	1,746	1,160	1,710	1,140
Cash on hand	38	18	38	18
	3,878	2,155	3,842	2,135

The Group's and the Company's accounts in banks amounting to LTL 922 thousand as of 31 March 2014 (31) December 2013 – LTL 1,137 thousand) are pledged as collateral for the loans (Note 11).

10. Reserves

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 30 April, 2013 the Company annulled other reserves (LTL 2,584 thousand) by the decision of shareholders, LTL 5,538 thousand transferred from retained earnings to legal reserve and LTL 250 thousand to other reserves. Reserve was formed for investments.

11. Borrowings

		Group	Company
	As of $31$ March 2014	As of $31$ December 2013	As of $31$ March 2014	As of $31$ December 2013
Non-current borrowings	48,366	38,994	48,366	38,994
Current portion of non-current borrowings (except leasing which) is disclosed in Note 12)	13,016	20,291	13,016	20,291
Current borrowings (including credit line)	16,991	14,544	16,991	14,544
Factoring with recourse agreement	5,020	2,453	5,020	2,453
Current borrowings	35,027	37,288	35,027	37,288
	83,393	76,282	83,393	76,282

Terms of repayment of non-current borrowings are as follows:

	Group			Company
	As of 31	As of 31	As of 31	As of 31
	March 2014	December 2013	March 2014	December 2013

2014	13,016	20,291	13,016	20,291
2015	14,081	8,568	14,081	8,568
2016	7,440	7,121	7,440	7,121
2017	5,589	4,993	5,589	4,993
2018	5,191	3,780	5,191	3,780
2019	3,369	2,551	3,369	2,551
2020	2,110	1,432	2,110	1,432
2021	756	754	756	754
2022	757	753	757	753
2023	756	754	756	754
2024	756	753	756	753
2025	756	754	756	754
2026	756	753	756	753
2027	756	754	756	754
2028	756	753	756	753
2029	756	753	756	753
2030	757	754	757	754
2031	756	754	756	754
2032	756	753	756	753
2033	756	754	756	754
2034	756	753	756	753
	61,382	59,285	61,382	59,285

Average of interest rates (in percent) of borrowings weighted outstanding at the year-end were as follows:

		Group	Company
	As of $31$	As of $31$		As of $31$
	March 2014	December 2013	March 2014	December 2013
Current borrowings	.03	0.97	1.03	0.97
Non-current borrowings	2.68	2.59	2.68	2.59

Balance of borrowings (except factoring) at the end of the term in national and foreign currencies was as follows:

		Group	Company
Currency of the loan:	As of $31$ March 2014	As of $31$ December 2013	As of $31$ March 2014	As of $31$ December 2013
EUR	34,885	36,816	34,885	36,816
LTL	43,488	37,013	43,488	37,013
	78,373	73.829	78,373	73,829

Detailed information on loans as of 31 March 2014:

Credit institution	Date of contract	Currency	Currency sum, thousand	Sum LTL thousand	Term of maturity	Balance as of 31.03.2014 LTL thousand	A part of 2014, LTL thousand
1. AB SEB Bank	8/23/2005	EUR	8,776	30,300	12/31/2014	1,875	1,875
2. Nordea*	12/1/2006	LTL	6,090	6,090	12/31/2015	1,423	630
3. AB SEB Bank	12/21/2006	EUR	2,059	7,108	11/30/2016	792	296
4. AB DNB Bank	11/14/2007	EUR	576	1,989	12/31/2016	683	185
5. Danske**	7/31/2008	EUR	984	3,398	12/31/2018	1,648	262
6. Danske**	7/31/2008	EUR	1,158	4,000	9/30/2017	1,806	450
7. Swedbank, AB	12/2/2009	EUR	3,815	9,819	12/2/2016	2,935	902
8. MF Lithuania***	4/9/2010	EUR	2,410	8,323	3/15/2034	6,139	$\overline{\phantom{0}}$
9. Swedbank, AB	6/21/2010	EUR	649	2,240	6/21/2017	498	303
10. Nordea*	9/17/2010	EUR	1,625	5,611	5/31/2016	2,143	742
11. MF Lithuania***	10/26/2010	EUR	807	2,788	3/15/2034	2,526
12. AB SEB Bank	2/11/2011	EUR	1,031	3,560	2/10/2019	2,693	411
13. Nordea*	4/19/2011	EUR	921	3,180	4/30/2019	2,771	409
14. MF Lithuania***	9/2/2011	EUR	1,672	5,773	9/1/2034	5,702	$\omega$
15. AB SEB Bank	10/13/2011	EUR	290	1,000	11/30/2019	413	106
16. AB SEB Bank	5/23/2013	LTL	10,567	10,567	11/30/2014	5,340	5,340
17. AB DNB Bank	6/28/2013	LTL	15,000	15,000	6/27/2014	10,574	10,574
18. AB SEB Bank	8/22/2013	LTL	10,000	10,000	8/22/2014	6,417	6,417
19. AB SEB Bank	9/10/2013	LTL	5,200	5,200	9/30/2020	5,200	217
20. Nordea*	9/27/2013	LTL	1,300	1,300	9/30/2020	407
21. Nordea*	6/3/2013	LTL	9,000	9,000	6/3/2020	1,668	160
22. AB SEB Bank	6/3/2013	LTL	2,760	2,760	6/30/2020	2,405	230
23. AB SEB Bank	6/3/2013	LTL	4,240	4,240	6/30/2020	3,343	353
24. Nordea*	9/27/2013	EUR	655	2,261	9/30/2020	2,261	124
25. Nordea*	11/28/2013	LTL	2,000	2,000	11/27/2020	1,484	21
26. AB DNB Bank	2/28/2014	LTL	5,227	5,227	5/30/2015	5,227
						78,373	30,007

* Nordea Bank Finland Plc. Lithuanian branch;

** Danske Bank A/S Lithuania branch;

*** Ministry of Finance of the Republic of Lithuania.

On 24 October 2012 the Group and the Company signed a factoring with recourse agreement with Swedbank Lizingas, UAB amounted to the limit LTL 8,500 thousand. Factoring advance is 90 percent. The term of validity of agreement is 31 December 2013. Liability of the factoring with recourse, amounting to LTL 2,453 thousand as of 31 December 2013 is accounted within the caption of current borrowings.

(all amounts are in LTL thousand unless otherwise stated)

On 2 January 2014 the Group and the Company signed a factoring with recourse agreement with AB DNB Bank amounted to the limit LTL 8,500 thousand. Factoring advance is 90 percent. Liability of the factoring with recourse, amounting to LTL 5,020 thousand as of 31 March 2014 is accounted within the caption of current borrowings

The immovable property (Note 4), bank accounts (Note 9) and land lease right of the Group and the Company were pledged as collateral for the borrowings.

12. Finance lease obligations

The assets leased by the Group and the Company under finance lease contracts mainly consist of vehicles. The terms of financial lease are 3 years. The finance lease agreement is in EUR.

Future minimal lease payments were:

	Group		Company
	As of 31 March 2014	As of $31$ December 2013	As of 31 March 2014	As of $31$ December 2013
Within one year	89	116	89	116
From one to five years	125	125	125	125
Total financial lease obligations	214	241	214	241
Interest	(8)	(8)	(8)	(8)
Present value of financial lease obligations	206	233	206	233
Financial lease obligations are accounted for as:
- current	83	110	83	110
- non-current	123	123	123	123

13. Grants (deferred income)

	Group			Company
	As of $31$ As of $31$		As of $31$	As of $31$
	March	December	March	December
	2014	2013	2014	2013
Balance at the beginning of the reporting period	28,987	26,546	28,987	26,546
Received during the year	50	3,777	50	3,777
Amortisation	(363)	(1, 336)	(363)	(1, 336)
Balance at the end of the reporting period	28,674	28,987	28,674	28,987

On 15 October 2009 the Group and the Company signed the agreement on the financing and administration of the project "Renovation of Centralised Heat Networks in the Kaunas City by Installing Advanced Technologies (Reconstruction of Heat Supply Networks at V. Krėvės Ave. 82 A, 118 H, Kaunas)", according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 6,000 thousand after terms and conditions of the agreement are fulfilled. The Company received the financial support in the amount of LTL 5,843 thousand by 31 March 2014. The project is completed.

On 15 October 2009 the Group and the Company signed the agreement on the financing and administration of the project "Modernisation of Kaunas City Integrated Network Centre Main (4T)", according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 5,990 thousand after terms and conditions of the agreement are fulfilled. The Company received the financial support in the amount of LTL 4,414 thousand by 31 March 2014. The project is completed.

On 15 October 2009 the Group and the Company signed the agreement on the financing and administration of the project "Kaunas City Main Heat Supply Networks 6T at Kuršių St. 49C, Jonavos St. between NA-7 and NA-9 and Networks under the Bridge through the river Neris in the auto-highway Vilnius–Klaipėda near Kaunas city, Complex Reconstruction for the Increase of Reliability by Installing Advanced Technologies",

(all amounts are in LTL thousand unless otherwise stated)

according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 2,333 thousand after terms and conditions of the agreement are fulfilled. The Company received the financial support in the amount of LTL 1,725 thousand by 31 March 2014. The project is completed.

On 21 July 2010 the Group and the Company signed the agreement on the financing and administration of the project "The development of centralized heat supply by building a new heat supply trace (heat supply network from A. Juozapavičiaus ave. 23A to A. Juozapavičiaus ave. 90)", according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 1,566 thousand after terms and conditions of the agreement are fulfilled. As of 31 March 2014 financing in amount of LTL 1,426 thousand has been received. The project is completed.

On 21 July 2010 the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of Žaliakalnis main of Kaunas integrated network $(4\tilde{Z})$ ", according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 2.788 thousand after terms and conditions of the agreement are fulfilled. As of 31 March 2014 financing in amount of LTL 2,526 thousand has been received. The project is completed.

On 21 July 2011 the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of Dainava area main of Kaunas integrated network (1T)", according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 1,560 thousand after terms and conditions of the agreement are fulfilled As of 31 March 2014 financial support in amount of LTL 1,489 thousand has been received. The project is completed.

On 21 July 2011 the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of Aukštieji Šančiai area main of Kaunas integrated network (2Ž)", according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 1.618 thousand after terms and conditions of the agreement are fulfilled. As of 31 March 2014 financial support in amount of LTL 1,618 thousand has been received. The project is completed.

On 21 July 2011 the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of Vilijampole area heating network of Kaunas integrated network (9K)", according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 595 thousand after terms and conditions of the agreement are fulfilled. As of 31 March 2014 financial support in amount of LTL 595 thousand has been received. The project is completed.

On 21 July 2011 the Group and the Company signed the agreement on the financing and administration of the project "The modernisation of Pramone area main of Kaunas integrated network (1Ž)", according to which the Company will be receiving financing from the European Regional Development Fund in the amount of LTL 2,000 thousand after terms and conditions of the agreement are fulfilled. As of 31 March 2014 financing in amount of LTL 2,000 thousand has been received. The project is completed.

On 16 January 2013 the Group and the Company signed a financing agreement for the project "Reconstruction of Ežerelis boiler-house equipping it with bio-fuel burned 3.5 MW capacity water boiler", according to which the financing in amount of LTL 1,791 thousand is provided for the Company from the funds of LEIF Climate Change Special Program after terms and conditions of the agreement are fulfilled. As of 31 March 2014 financial support in amount of LTL 537 thousand has been received.

On 16 January 2013 the Group and the Company signed a financing agreement for the project "Reconstruction of Noreikiškės boiler-house equipping it with bio-fuel burned 4 MW capacity water boiler", according to which the financing in amount of LTL 2,299 thousand is provided for the Company from the funds of LEIF Climate Change Special Program after terms and conditions of the agreement are fulfilled. As of 31 March 2014 financial support in amount of LTL 690 thousand has been received.

On 8 July 2013 the Group and the Company signed a financing agreement of the project "Reconstruction of Pergale boiler-house equipping it with condensational economizer", under which financing in amount of

LTL 638 thousand is provided for the Company from Lithuanian Environmental Investment Fund after the terms of agreement are fulfilled. As of 31 March 2014 financial support in amount of LTL 383 thousand has been received. The project is completed.

On 28 November 2013 the Group and the Company signed agreement of financing of the project "Reconstruction of Šilkas boiler-house, changing used fuel to biofuel (stage II)" under which a financing in amount of LTL 3,990 thousand is allocated to the Company from Cohesion fund after fulfilling of the terms of agreement.

On 28 November 2013 the Group and the Company signed agreement of financing of the project "Reconstruction of Petrašiūnai power plant, changing used fuel to biofuel (stage I)" under which a financing in amount of LTL 6,000 thousand is allocated to the Company from Cohesion fund after fulfilling of the terms of agreement.

On 28 November 2013 the Group and the Company signed agreement of financing of the project "Reconstruction of Inkaras boiler-house, changing used fuel to biofuel" under which a financing in amount of LTL 6,000 thousand is allocated to the Company from Cohesion fund after fulfilling of the terms of agreement.

On 31 December 2013 the Group and the Company signed agreement of financing and administration of the project "Reconstruction of Kaunas main 12 between heat cameras 12–7 and 12–8 and between heat cameras $1\check{Z}$ –10 and 1ž–12" under which a financing in amount of LTL 2,000 thousand is allocated to the Company from European Regional Development Fund after fulfilling of the terms of agreement.

On 31 December 2013 the Group and the Company signed agreement of financing and administration of the project "Modernization of Kaunas integrated network main 62" under which a financing in amount of LTL 1,033 thousand is allocated to the Company from European Regional Development Fund after fulfilling of the terms of agreement.

On 31 December 2013 the Group and the Company signed agreement of financing and administration of the project "Modernization of Kaunas integrated network main 5T" under which a financing in amount of LTL 1,706 thousand is allocated to the Company from European Regional Development Fund after fulfilling of the terms of agreement.

14. 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 1 - 6 months' salary payment when leaving the job at or after the start of the pension period.

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

	Group		Company
	2014	2013	2014	2013
Employee benefit liability at the beginning of the year	3,016	3,297	2,958	2,999
Paid	(125)	(775)	(78)	(585)
Formed		494		544
Employee benefit liability at the end of the year	2,891	3.016	2,880	2,958
Non-current employee benefit liability	2.079	2.079	2.079	2,079
Current employee benefit liability	812	937	801	879

During the 2014 total amount of the benefit paid to the employees by the Group amounted to LTL 125 thousand (in 2013 - LTL 775 thousand), and by the Company - LTL 78 thousand (in 2013 -LTL 585 thousand) and are included in the caption of salaries and social security expenses in the Group's and the Company's statement of comprehensive income.

(all amounts are in LTL thousand unless otherwise stated)

The principal assumptions used in determining pension benefit obligation for the Group's and the Company's plan is shown below:

	As of 31 March 2014	As of 31 December 2013
Discount rate	4.0 percent	4.0 percent
Employee turnover rate	18.9 percent	18.9 percent
Expected average annual salary increases	3.0 percent	3.0 percent

15. Derivative financial instruments

On 9 April 2009, the Group and the Company concluded an interest rate swap agreement. For the period from 24 August 2009 to 22 August 2014 the Group and the Company set a fixed interest rate at 4.15 percent for a floating interest rate at 6-month EUR LIBOR. The nominal amount of the transaction was EUR 603 thousand (the equivalent of LTL 2,083 thousand) as at 31 March 2014 (EUR 784 thousand (the equivalent of LTL 2,708 thousands as of 31 December 2013) as at 31 December 2013). Market value of swap agreement as of 31 March 2014 amounted to LTL 27 thousand (LTL 51 thousands as of 31 December 2013). This transaction does not have material impact on the future cash flows of the Group and the Company.

16. 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
	2014	2013	2014	2013
Heat supplies	127,205	311,576	127,229	311,632
Hot water supplies	2,654	8,612	2,654	8,612
Maintenance of manifolds	197	779	197	779
Maintenance of heat and hot water systems	44	280	37	199
Electric energy	158	767	158	767
Maintenance of hot water meters	121	349	121	349
	130,379	322,363	130,396	322,338
17. Other expenses
	Group		Company
	2014	2013	2014	2013
Cash collection expenses	494	1,838	494	1,838
Equipment verification and inspection	449	1,657	449	1,657
Maintenance of manifolds	346	1,863	346	1,863
Debts collection expenses	24	198	24	198
Sponsorship	1,002	157	1,002	157
Consulting expenses	51	485	51	485
Customer bills issue and delivery expenses	110	457	112	457
Communication expenses	46	188	46	188
Employees related expenses	104	261	104	261
Insurance	189	261	188	261
Long term assets maintenance and related services	76	212	76	212
Membership fee	52	292	52	292
Transport expenses	26	101	25	100
Advertising expenses	25	170	25	170
Audit expenses	8	36	8	36
Rent of equipment and machinery	4	32	4	32
Other expenses	392	1,448	382	1,483
	3,398	9,656	3,388	9,690

Other activities income and expenses

	Group		Company
	2014	2013	2014	2013
Income from other operating activities
Miscellaneous services	460	3,204	357	3,023
Materials sold		219		201
Gain from sale of non-current assets	24	13	23	13
Other		125		121
	484	3,561	380	3,358
Expenses from other operating activities
Cost of miscellaneous services	(198)	(1,689)	(162)	(1,248)
Cost of materials sold		(1)		(1)
Write off of non-current assets	(9)	(8)	(9)	(14)
Loss from sale of non-current assets	(19)	(32)	(19)	(32)
Other		(23)		(23)
	(226)	(1,753)	(190)	(1,318)
19. Finance income
		Group		Company
	2014	2013	2014	2013
Interest from late payment of accounts receivable	291	2,952	291	2,952
Fines		7,054		7,054
Impairment of non-current financial assets
Change in fair value of derivative financial instruments	24	153	24	153

$\mathbf{1}$ $\mathbf{1}$ $\mathbf{1}$ Bank interest $\mathbf{1}$ Other ÷, $\overline{a}$ 316 316 10,160 10,160 Finance costs

	Group		Company
	2014	2013	2014	2013
Interest on bank loans and overdrafts	(401)	(1, 418)	(401)	(1, 418)
Impairment of non-current financial assets		(338)		(1, 372)
Penalties		(157)		(157)
contributions Shareholder's in subsidiary				(155)
Exchange rate change	(1)		$\left(1\right)$
	(402)	(1, 913)	(402)	(3,102)

20. Income tax

As of 31 March 2014 and 31 December 2013 deferred income tax asset and liability were accounted for by applying 15 percent rate. All changes in deferred tax are reported in the statement of comprehensive income.

22. Basic and diluted earnings (loss) per share

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

	Group		Company
	2014	2013	2014	2013
Net profit	10.739	3,019	10.705	1,858
Number of shares (thousand), opening balance	42,732	42,732	42,732	42,732
Number of shares (thousand), closing balance	42,802	42,732	42,802	42,732
Average number of shares (thousand)	42,767	42,732	42,767	42,732
Basic and diluted earnings per share (LTL)	0.25	0.07	0.25	0.04

(all amounts are in LTL thousand unless otherwise stated)

23. 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.

Number of customers		Group	Company
	As of $31$	As of $31$	As of $31$	As of $31$
	March 2014	December 2013	March 2014	December 2013
Individuals	114,230	114,240	114,229	114,240
Other legal entities	2.098	2,098	2,094	2,082
entities financed Legal
from municipalities' and	335	345	333	336
state budget
	116,663	116,683	116,656	116,658

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

	Group		Company
	As of 31 March 2014	As of $31$ December 2013	As of $31$ March 2014	As of 31 December 2013
Individuals	36,219	39,320	36,217	39,319
Other legal entities	10,452	8,645	10,449	8,638
entities financed from Legal municipalities' and state budget	9,832	9,056	9,832	9,052
	56,503	57,021	56,498	57,009

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 8).

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

	Group		Company
	As of 31	As of $31$	As of 31	As of 31
	March 2014	December 2013	March 2014	December 2013
A	737	322	701	302
$A+$	941	674	941	674
AA-	42	138	42	138
Bank with no rating attributed	26	26	26	26
	1,746	1,160	1,710	1,140

*- external credit ratings set by Fitch Ratings agency.

The Group and the Company do not guarantee obligations of the other parties in 2014 and in 2013.

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, therefore the Group and the Company faces an interest rate risk. In 2014 and 2013 to manage variable rate risk the Company has entered into interest rate swap agreements, in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts as described in Note 15, calculated by the reference to an agreed upon notional principal amount.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates (increase and decrease in basis points was determined based on Lithuanian economic environment and the Group's and the Company's historical experience), with all other variables held constant, of the Group's and the Company's profit before tax (estimating debts with floating interest rate). There is no impact on the Group's and the Company's equity, other than current year profit impact.

Increase/decrease in basis points	Effect on income tax

200	(130)
(200)	130
50	(14)
(50)	14

200	(111)
(200)	111
50	(15)
(50)	15

Liquidity risk

The Group's and the Company's policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of overdrafts and committed credit facilities to meet its commitments at a given date in accordance with its strategic plans. The Group's liquidity (total current assets / total current liabilities) and quick ((total current assets – inventories) / total current liabilities) ratios as of 31 March 2014 were 0.86 and 0.81, respectively (0.70 and 0.66 as of 31 December 2013). The Company's liquidity and quick ratios as of 31 March 2014 were 0.86 and 0.81, respectively (0.70 and 0.66 as of 31 December 2013).

To solve all liquidity issues the Group and the Company implement the following action plan:

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

Unsecured bank overdraft and bank loan facilities:

		Group		Company
	As of $31$ March 2014	As of $31$ December 2013	As of 31 March 2014	As of $31$ December 2013
Amount used	16,991	14,544	16.991	14,544
Amount unused	8.009	10,456	8,009	10,456
	25,000	25,000	25,000	25,000

The table below summarises the maturity profile of the Group's financial liabilities as of 31 March 2014 and as of 31 December 2013 based on contractual undiscounted payments (scheduled payments including interest).

(all amounts are in LTL thousand unless otherwise stated)

	Less than 3 months	From 4 to 12 months	$2$ to 5 years	More than 5 years	Total
Interest bearing loans and borrowings	2,643	28,636	35,808	19,987	87,074
Trade payables	49,692	19	14		49,725
Balance as of 31 March 2014	52,335	28,655	35,822	19,987	136,799
	Less than 3 months	From 4 to 12 months	$2$ to 5 years	More than 5 years	Total
Interest bearing loans and borrowings	5,180	31,174	27,610	18,408	82,372
Trade payables	61,210	111	14		61,335
Balance as of 31 December 2013	66,390	31,285	27,624	18,408	143,707

The table below summarises the maturity profile of the Company's financial liabilities, as of 31 March 2014 and as of 31 December 2013 based on contractual undiscounted payments (scheduled payments including interest).

	Less than 3 months	From 4 to 12 months	$2$ to 5 years	More than 5 years	Total
Interest bearing loans and borrowings	2,643	28,636	35,808	19,987	87,074
Trade payables	49,675	19	14		49,708
Balance as of 31 March 2014	52,318	28,655	35,822	19,987	136,782
	Less than 3 months	From 4 to 12 months	$2$ to 5 years	More than 5 years	Total
Interest bearing loans and borrowings	5,180	31,174	27,610	18,408	82,372
Trade payables	61,194	111	14	۰	61,319
Balance as of 31 December 2013	66,374	31,285	27,624	18,408	143,691

Trade payables

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

		Group	Company
	As of 31 March 2014	As of $31$ December 2013	As of 31 March 2014	As of $31$ December 2013
For heat purchased	27,162	35,826	27,162	35,826
Contractors	10,106	14,904	10,106	14,904
Other suppliers	12,457	10,605	12,440	10,589
	49,725	61,335	49,708	61,319

30 day settlement period is set with KTE for purchased heat energy, 90-180 day settlement period - with contractors, 5-30 day settlement period - with other suppliers,

As of 31 March 2014 the Group and the Company had an LTL 7,351 thousand (31 December 2013 -LTL 2,667 thousand) of overdue trade creditors.

Foreign currency risk

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

Fair value of financial instruments

The Group and the Company's principal financial instruments accounted for at amortised cost are trade and other current and non-current receivables, trade and other payables, long-term and short-term borrowings. The net book value of these amounts is similar to their fair value.

Fair value is defined as the amount at which the instrument could be exchanged between knowledgeable willing parties in an arm's length transaction, other than in forced or liquidation sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models as appropriate.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

The carrying amount of current trade accounts receivable, current trade accounts payable, other receivables and other payables and current borrowings approximate their fair value.

The fair value of trade and other payables, long-term and short-term borrowings is based on the quoted market price for the same or similar issues or on the current rates available for borrowings with the same maturity profile. The fair value of non-current borrowings with variable and fixed interest rates approximates their carrying amounts.

		Group			Company
Financial assets:	As of 31 March 2014	As of $31$ December 2013	As of $31$ December 2012	As of 31 March 2014	As of 31 December 2013	As of 31 December 2012
Cash and bank balances	3,878	2,155	5,332	3,842	2,135	5,308
Loans and receivables	69,097	66,489	88,225	69,073	66,473	88,120
Financial assets	95	95	433		95 95	433
	73,070	68,739	93,990	73,010	68,703	93,861
	As of 31	Group As of $31$			Company
Financial liabilities:	March	December	As of $31$ December	As of 31 March	As of $31$ December	As of 31 December
	2014	2013	2012	2014	2013	2012
Carried at fair value through profit or loss (level 2 in the fair value hierarchy)	27	51	204		51 27	204
Carried at amortised cost	118,996	123,522	142,842	118,978	123,506	142,874

The Group and the Company's categories of financial instruments:

The carrying amounts of financial assets and financial liabilities approximate their fair values.

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, reconsider the dividend payment to

shareholders, and return capital to shareholders. No changes were made in the objectives, policies or processes of capital management as of 31 March 2014 and 31 December 2013.

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
	As of $31$ March 2014	As of 31 December 2013	As of 31 March 2014	As of $31$ December 2013
Non-current liabilities (including)
deferred tax and grants (deferred	87,613	78,539	88,277	79,203
income))
Current liabilities	90,085	105,034	90,026	104,933
Liabilities	177,698	183,573	178,303	184,136
Equity	275,374	264,214	277,165	266,039
Debt* to equity ratio (percent)	64.53	69.48	64.33	69.21

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.

24. Commitments and contingencies

Litigations

On 17 April, 2013 the Company got a message from Vilnius Court of Commercial Arbitration (hereinafter – Arbitration) saying that KTE claim to the Company regarding LTL 1,340 thousand has been received in Arbitration on 12 April, 2013. According to KTE allegation, the debt formed due to the Company's lower neither it was determined by KTE payment for heat amount in December 2012 and January 2013. Considering Company's comparative expenditures of heat production and following provision of chapter 10 of the Law on Heat Sector of the Republic of Lithuania, that in all occasions the heat, purchased from independent heat producers cannot be more expensive than heat supplier's comparative expenditures of heat production, the Company purchased heat from KTE following provision of the law. On 17 May, 2013 the Company placed an objection to the Court regarding the claim. Arbitration rejected a claim of KTE by the decision of 27 January, 2014. KTE did not complain this decision, the case is closed.

On September 2013 the Company has been incorporated as a third party in the civil case under claimant's UAB KTE claim to defendant BAB Ukio Bankas regarding the termination of factoring contract ant regarding the recognizing as a property of UAB KTE a sum of LTL 3,063 thousand, which were transferred by the Company when implementing its liability and which are now on hand of notary deposit account. A session in this case is still not appointed. On September 2013 a preliminary court decision under the specified claim of claimant BAB Ukio Bankas to the Company regarding adjudgement of debt in amount of LTL 3,063 thousand, penalty, process interest and litigation expenses was delivered to the Company. The Company placed an objection to the Court regarding this preliminary decision and regarding rejection of

(all amounts are in LTL thousand unless otherwise stated)

specified claim of claimant BAB Ukio Bankas Both cases were integrated by the decision of Kaunas Regional court of 2 December 2013. The session in this case is appointed on 20 May 2014.

The National Control Commission for Prices and Energy (NCC) brought a decision on 18 July 2013 by which satisfied application of KTE to acknowledge that the Company infringed legal acts regarding heat purchasing from IHP by refusing to purchase a part, i. e. 11,181.5 MWh of heat energy purchased from KTE in July 2013. If this decision of NCC would come into force, KTE would gain a right to ask to make amends (loss of income) for not purchased heat amount. The Company placed a claim to Vilnius Regional court objecting this decision of NCC. The Court rejected a claim of KE by the decision of 20 February, 2014. The Company placed an appeal regarding this decision on 24 March 2014. The investigation in this case is still not appointed in the Court of Appeal of Lithuania.

Leasing and construction work purchase arrangements

On 18 March, 2010 The Company entered into the lease arrangements with KTE for the real estate. Under this lease arrangement the Company leases to KTE the boiler with technological pipelines for heat production, located in Petrašiūnai power plant territory. The term of lease is 5 years.

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.

Future liabilities of Group and the Company under valid purchase arrangements as of 31 March 2014 amounted to LTL 38.399 thousand.

25. 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.

In 2014 and 2013 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.

In 2014 and 2013 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:

2014	Purchases	Sales	Receivables	Payables
Kaunas city municipality and entities financed and controlled by Kaunas city municipality	703	16.180	19.702	557
Jurbarkas city municipality	٠	1.092	905
2013	Purchases	Sales	Receivables	Pavables
Kaunas city municipality and entities financed and controlled by Kaunas city municipality	2.687	37,791	20,705	524
Jurbarkas city municipality	$\overline{4}$	2.535	237	2

The Group's and the Company's as of 31 March 2014 allowance for overdue receivables from entities financed and controlled by municipalities amounted to LTL 12,627 thousand (as of 31 December 2013 -LTL 10,362 thousand). The amounts outstanding are unsecured and will be settled in cash. No guarantees on receivables have been received.

In 2014 and 2013 the Company's transactions with the subsidiaries and the balances at the end of the year were as follows:

Pastatų Priežiūros Paslaugos UAB	Purchases	Sales	Receivables	Payables
2014	62		$\blacksquare$
2013	544	69	$\overline{\phantom{a}}$

	Purchases	Sales	Receivables	Payables
Kauno Energija NT UAB 2014		20	488	-

As of 31 December, 2013 the Company has formed an LTL 488 thousand (as of 31 December 2013 -LTL 483 thousand) of common postponements for the receivables from subsidiaries.

Remuneration of the management and other payments

As at 31 March 2014 the Group's and the Company's management team comprised 6 and 4 persons respectively (as at 31 December $2013 - 7$ and 4).

	Group		Company
	2014	2013	2014	2013
Key management remuneration	103	455		400
Calculated post-employment benefits	104	104	104	104

In the year 2013 and 2012 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.

26. Post balance sheet events

There was not been after balance events.

***

AI Terminal

Kauno Energija

2256_ir_2014-04-30_3facf686-ff1f-42f3-b6ba-a92ae35bbbb5.pdf

PUBLIC LIMITED COMPANY "KAUNO ENERGIJA"

CONFIRMATION FROM RESPONSIBLE PERSONS

AB KAUNO ENERGIJA

Statements of Financial Position

Statements of Financial Position (cont'd)

Statements of Comprehensive Income

Statements of Comprehensive Income

Company

Statements of Cash Flows

Notes to the financial statements

1. General information

Legal Regulations

Operational Activity

Strategic Decisions

2. Accounting principles

2.1. Adoption of new and/or amended IFRS

2.2. Statement of Compliance

Principles of consolidation

Principles of consolidation

Changes in the Group's ownership interests in existing subsidiaries

2.3. Investments in subsidiaries

2.4. Intangible assets

Intangible assets acquired separately

Derecognition of intangible assets

Licenses

Software

2.5. Accounting for emission rights

2.6. Property, plant and equipment

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

2.8. Financial assets

Effective interest rate method

Financial assets at FVTPL

Available-for-sale financial assets (AFS financial assets)

Loans and receivables

Impairment of financial assets

Derecognition of financial assets

2.9. Derivative financial instruments

2.10. Inventories

2.11. Provisions

2.12. Cash and cash equivalents

2.13. Employee benefits

2.14. Borrowing costs

2.17. Financial liabilities and equity instruments

Classification as debt or equity

Equity instruments

Financial liabilities

Financial liabilities at FVTPL

Other financial liabilities

Derecognition of financial liabilities

2.18. Leasing

The Group and the Company as lessor

The Group and the Company as lessee

2.19. Grants (deferred income)

2.20. Income tax

Current tax

Deferred tax

2.21. Basic and diluted earnings per share

2.22. Revenue recognition

2.23. Expense recognition

2.24. Foreign currencies

2.25. Use of estimates in the preparation of financial statements

Estimates and assumptions

Property, plant and equipment - useful life

Realisable value of inventory

Carrying value of non-current assets received as a contribution in kind

Allowances for accounts receivable

Deferred Tax Asset

Litigations

2.26. Contingencies

2.27. Subsequent events

2.28. Offsetting and comparative figures

2.29. Segments

Intangible assets 3.

Property, plant and equipment 4.

5. Non-current accounts receivable

6. Other financial assets

7. Inventories