Latvijas Gaze

Annual Report • Feb 26, 2016

UNAUDITED CONDENSED FINANCIAL STATEMENTS 2015

Prepared in compliance with the International Financial Reporting Standards approved in the European Union

Riga, 2016

CONTENTS

MANAGEMENT REPORT 3
Description of operation environment 3
Operational results of segments 4
Description of regulatory environment 4
Shares and shareholders 5
STATEMENT OF BOARD RESPONSIBILITY 5
FINANCIAL STATEMENTS 6
PROFIT OR LOSS STATEMENT 6
STATEMENT OF COMPREHENSIVE INCOME 6
BALANCE SHEET 7

FINANCIAL CALENDAR

Audited accounts 2015	April 29, 2016
3 months 2016	May 27, 2016
6 months 2016	August 26, 2016
9 months 2016	November 25, 2016

INVESTOR RELATIONS

20 Vagonu Street, Riga, Latvia, LV-1009 E-mail: IR@lg.lv

STATEMENT ON CHANGES IN EQUITY 8
CASH FLOW STATEMENT 9
APPENDIX TO THE FINANCIAL STATEMENT 10
Information on segments 10
Profit or loss statement 11
Balance sheet 13
Other information 16
Related person transactions 17
Key principles of accounting and evaluation 18
Post balance sheet events 20

MANAGEMENT REPORT

The Joint Stock Company "Latvijas Gāze" (hereinafter – the Company) is a vertically integrated natural gas transmission, storage, distribution and sale operator in Latvia. The Company ensures natural gas supply to 443.6 thousand customers in Latvia and during heating season also to Estonia, the Northwestern part of Russia, and Lithuania from the Inčukalns Underground Gas Storage Facility.

The Company's main goal in 2015 was to ensure a safe and continuous natural gas supply to the existing customers in the volume and quality stipulated in the contracts. The main tasks – the supervision and implementation of capital investments – were successfully accomplished.

Description of operation environment

• The year 2015 saw a substantial price drop in the global oil markets, with influence on both the average natural gas purchase price and the annual income of Latvijas Gāze.
• The sales volume was 2% higher than in 2014 reaching 1.3 billion m³ .
• Despite the decrease in income caused by the price drop, the EBITDA will remain at the previous year's level – 68.1 million EUR.

Key performance figures (mio m3 unless specified otherwise)	2015	2014
Natural gas sales in Latvia	1 318	1 294
Gas volume injected into IUGS1	1 550	1 907
Number of customers (addresses), thousand	444	443
Number of employees, average	1 264	1 255
Length of distribution lines, km	5 044	4 967
Length of transmission lines, km	1 193	1 242

Key financial figures (thous. EUR)	2015	2014
Net turnover	444,686	503,076
EBITDA2	68,077	68,582
Net profit	30,517	30,069
Total assets	750,015	747,970
Equity	611,403	610,182
Profit per share, EUR	0.765	0.754

THE OIL PRICE DROP ENABLES TO CHARGE

LOWER PRICES TO

CUSTOMERS

1 IUGS - Inčukalns Underground Gas Storage

² EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortisation

Operational results of segments

The Company has four operating segments: gas transmission (includes the transmission of natural gas through highpressure pipelines to deliver it to a distribution system or directly to consumers), gas storage (the storage of natural gas at the Inčukalns Underground Gas Storage Facility), gas distribution (includes the transmission of natural gas through high-, mid- and low-pressure pipelines) and gas trade (includes the purchase of natural gas for sale and the sale of natural gas to consumers). The information included in the operating segments corresponds to the information used by the person in charge of making operational decisions.

Although in 2015 the EBITDA remained at the previous year's level of 68.1 million EUR, a decrease in turnover enabled a increase in the EBITDA margin to 15.3% compared to 13.6% in previous year.

In terms of amount of assets, the largest operating segment is that of distribution, with its assets comprising 34% of the total assets of the Company. Distribution is also the segment with the largest number of people employed, as its staff comprises 53% of the Company's employees. In 2015 the EBITDA of the distribution segment were 23.7 million EUR constituting the highest EBITDA proportion in the Company – 35% of the Company's total EBITDA of 2015. The distribution segment's turnover and profitability is affected by the volume of natural gas sold in Latvia and the spread of customers across consumption tiers.

The transmission segment earns income from both natural gas consumption in Latvia and international natural gas deliveries, as well as from natural gas movement upon injection into or withdrawal from the Inčukalns Underground Gas Storage. In 2015 it was the only segment where a decrease in the EBITDA margin was registered. This occurred because there was less natural gas transmitted in international transactions, including injections into the Inčukalns Underground Gas Storage. The transmission segment's EBITDA of 2015 were 15.7 million EUR accounting for 23% of the Company's total EBITDA. The transmission segment is the second largest in terms of amount of assets. With a worth of 193.6 million EUR, the segment's assets accounted for 26% of the Company's total assets as at the end of 2015.

The storage segment saw a 13% decrease in net turnover against the year 2014 as there was less natural gas injected and withdrawn. Still, the decrease did not undermine the segment's profitability. In 2015 the segment's EBITDA were 15.9 million EUR making it the second largest by this criterion.

The natural gas trade segment is the largest in terms of net turnover. The segment yielded an income of 342.4 million EUR, which makes 77% of the Company's total income. Following a drop in the natural gas sale price, the segment's income fell by 13% against the year 2014. The segment's EBITDA, however, increased by 2.9 million EUR against 2014, mainly due to smaller provisions for doubtful debts and possible liabilities included in the results of 2014.

Description of regulatory environment

Under Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (hereinafter – Directive 2009/73), the EU countries are required to transpose provisions aimed at creating an efficient internal energy market into their national regulatory framework. The key provision stipulates the unbundling of network operations from those of trade and production, including a mandatory unbundling of natural gas transmission networks, and, subject to an objective and provable necessity, also unbundling of the natural gas storage and distribution infrastructure from production and trade operations.

Having regard of the EU regulatory framework, on February 11, 2016 the Saeima passed amendments to the Energy Law stipulating that:

• 1) by April 3, 2017 there shall be a company unbundled from Latvijas Gāze, and it shall own the natural gas transmission and storage infrastructure and not constitute part of Latvijas Gāze as a vertically integrated undertaking;
• 2) by December 31, 2017 it shall be ensured that natural gas transmission and storage operations not be controlled by persons related to natural gas production and trade (divestiture of the natural gas storage and transmission infrastructure);

3) by January 1, 2018 it shall be ensured that the natural gas distribution system infrastructure be unbundled as a separate subsidiary which constitutes part of Latvijas Gāze as a vertically integrated undertaking whilst meeting the statutory independence requirements.

On February 9, 2016, the Cabinet of Ministers passed amendments to the regulations on natural gas trade, effectively enabling Latvian consumers to purchase natural gas from other traders outside Latvia.

Shares and shareholders

The Company's shares have been listed on the NASDAQ OMX Riga stock exchange since February 15, 1999, and its ticker code has been GZE1R since August 1, 2004. The total number of securities has not changed since 1999.

LV0000100899
GZE1R
Second list
1.40 EUR
39,900,000
25,328,520
None

The Company's shares are included in the baskets of the following indexes: OMXBBGI, OMXBBCAPGI, OMXBGI, OMXRGI.

OMX Baltic is a Baltic-level index of all shares. Its basket consists of the shares of the Official and Second list of Baltic exchanges. The index reflects the current situation and changes at NASDAQ OMX Riga.

The Company's capitalisation value in 12 months of 2015 reached EUR 389.4 million – EUR 24.7 million more than in 12 months of the previous reporting period. In terms of stock market capitalisation the Company ranked number two among companies listed on Nasdaq Riga and number six among companies listed on Nasdaq Baltic.

STATEMENT OF BOARD RESPONSIBILITY

The management of the Joint Stock Company "Latvijas Gāze" (hereinafter – the Company) is responsible for the preparation of the Company's unaudited interim condensed financial statements.

The unaudited condensed financial statements 2015, including the management report, have been prepared in compliance with the International Financial Reporting Standards approved in the European Union and provide a true and fair view of the Company's financial position, operational results and cash flows in all key aspects.

The unaudited condensed financial statements 2015 of the Joint Stock Company "Latvijas Gāze" were approved by the Board on February 23, 2016.

The statements were approved by the Board of the JSC "Latvijas Gāze" on February 23, 2016 and they are signed on behalf of the Board by:

Aigars Kalvītis Chairman of the Board

Zane Kotāne Member of the Board

FINANCIAL STATEMENTS

PROFIT OR LOSS STATEMENT

	Appendix	2015	2014
		EUR'000	EUR'000
Income from principal activity	2	444,686	503,076
Other income	3	3,319	3,602
Costs of materials	4	(334,552)	(391,929)
Personnel costs	5	(29,215)	(27,151)
Depreciation, amortisation and impairment of fixed assets		(33,756)	(33,832)
Other operating costs	6	(16,161)	(19,016)
Gross profit		34,321	34,750
Financial income, costs, net		535	684
Write-down of value of financial fixed assets and short-term securities		(65)	(112)
Profit or loss before taxes		34,791	35,322
Corporate income tax	7	(4,274)	(5,253)
Net profit		30,517	30,069
		EUR	EUR
Profit per share		0.765	0.754

STATEMENT OF COMPREHENSIVE INCOME

	Appendix	2015	2014
		EUR'000	EUR'000
Net profit		30,517	30,069
Revaluation of fixed assets		197	239
Deferred tax liability from revaluation of fixed assets		(30)	(36)
Revaluation of post-employment benefits		(735)	(80)
Other adjustments		-	(3)
Net income or expenses recognised directly in equity		(568)	120
Total comprehensive income for the year		29,949	30,189

The appendices to the financial statement are an integral part of this statement.

The statements were approved by the Board of the JSC "Latvijas Gāze" on February 23, 2016 and they are signed on behalf of the Board by:

Aigars Kalvītis Chairman of the Board

Zane Kotāne Member of the Board

JOINT STOCK COMPANY "LATVIJAS GĀZE" UNAUDITED CONDENSED FINANCIAL STATEMENTS 2015

BALANCE SHEET

	Appendix	31.12.2015	31.12.2014
		EUR'000	EUR'000
ASSETS
Non-current assets
Fixed assets	10	557,450	561,675
Intangible assets	9	2,282	2,229
Other receivables	12	8	8
Total non-current assets:		559,740	563,912
Current assets
Inventories	11	80,747	80,253
Accounts receivable	12	27,873	51,659
Other current assets	13	2,448	1,022
Cash		79,207	51,124
Total current assets:		190,275	184,058
TOTAL ASSETS:		750,015	747,970
LIABILITIES
Equity:
Share capital	17	55,860	55,860
Share premium		20,376	20,376
Reserves		478,059	491,944
Retained earnings of previous years		26,591	11,933
Retained earnings of reporting year		30,517	30,069
Total equity:		611,403	610,182
Non-current liabilities
Deferred income	14	27,948	28,339
Provisions for post-employment benefit liabilities	16	5,233	4,486
Deferred tax liabilities	8	52,398	54,644
Total non-current liabilities:		85,579	87,469
Current liabilities
Trade payables		11,794	3,785
Deferred income	14	1,213	1,187
Other liabilities	15	40,026	45,347
Total current liabilities:		53,033	50,319
TOTAL LIABILITIES:		750,015	747,970

The appendices to the financial statement are an integral part of this statement.

The statements were approved by the Board of the JSC "Latvijas Gāze" on February 23, 2016 and they are signed on behalf of the Board by:

Aigars Kalvītis Chairman of the Board

Zane Kotāne Member of the Board

STATEMENT ON CHANGES IN EQUITY

	Share capital	Share premium	Reserves	Retained earnings	Total
	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000
December 31, 2013	56,773	20,376	491,990	39,582	608,721
Dividends	-	-	-	(28,728)	(28,728)
Share capital conversion to EUR	(913)	-	913	-	-
Transfers to reserves	-	-	876	(876)	-
Fixed assets disposed	-	-	(2,304)	2,304	-
Deferred tax for fixed assets disposed	-	-	346	(346)	-
Comprehensive income	-	-	123	(3)	120
Profit or loss for the year	-	-	-	30,069	30,069
December 31, 2014	55,860	20,376	491,944	42,002	610,182
Dividends	-	-	-	(28,728)	(28,728)
Transfers to reserves	-	-	828	(828)	-
Adjustment between items	-	-	(11,350)	11,350	-
Fixed assets disposed	-	-	(3,288)	3,288	-
Deferred tax for fixed assets disposed	-	-	493	(493)	-
Comprehensive income	-	-	(568)	-	(568)
Profit or loss for the year	-	-	-	30,517	30,517
December 31, 2015	55,860	20,376	478,059	57,108	611,403

The appendices to the financial statement are an integral part of this statement.

CASH FLOW STATEMENT

	Appendix	31.12.2015	31.12.2014
		EUR'000	EUR'000
Cash flow from operating activities
Profit before corporate income tax		34,791	35,322
Adjustments:
- impairment of fixed assets		32,685	32,464
- impairment of intangible assets		1,071	1,379
- provisioning (except provisions for doubtful debts)		(1,354)	1,792
- foreign currency rate fluctuations		1	(13)
- income from participating interests		(1,191)	(1,169)
- losses on sale of fixed assets		2,460	1,148
Adjustments:
- to accounts receivable		23,852	(12,213)
- to inventories		(477)	104,927
- to accounts payable		4,836	(120,760)
Corporate income tax paid	18	(7,544)	(5,528)
Net cash flow from operating activities		89,130	37,349
Cash flow from investing activities
Purchase of fixed assets		(31,296)	(29,153)
Cash received from sale of fixed assets		102	47
Purchase of intangible assets		(1,124)	(861)
Co-financing received from EC		-	3
Term deposits withdrawn		-	38,900
Net cash flow from investing activities		(32,318)	8,936
Cash flow from financial activities
Dividends paid		(28,728)	(28,728)
Net cash flow from financial activities		(28,728)	(28,728)
Result of foreign currency rate fluctuations		(1)	13
Net cash flow		28,083	17,570
Cash and cash equivalents at the beginning of reporting year		51,124	33,554
Cash and cash equivalents at the end of reporting period		79,207	51,124

The appendices to the financial statement are an integral part of this statement.

APPENDIX TO THE FINANCIAL STATEMENT

Information on segments

The Company has four operating segments: gas transmission (includes the transmission of natural gas through high-pressure pipelines to deliver it to a distribution system or directly to consumers), gas storage (the storage of natural gas at the Inčukalns Underground Gas Storage Facility), gas distribution (includes the transmission of natural gas through high-, mid- and low-pressure pipelines) and gas trade (includes the purchase of natural gas for sale and the sale of natural gas to consumers). The information included in the operating segments corresponds to the information used by the person in charge of making operational decisions.

1. Information on segments

31.12.2015	Gas transmission	Gas storage	Gas distribution	Gas sale	TOTAL
	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000
Net turnover from sale to external customers	4,620	13,363	1,029	425,674	444,686
Internal income/expenses	21,392	14,422	47,466	(83,280)	-
Profit before taxes	1,437	8,750	12,208	12,396	34,791
Assets	193,643	149,515	261,704	145,153	750,015
Depreciation and amortisation	14,163	7,195	11,823	575	33,756
Purchase of fixed and intangible assets	11,691	13,619	6,377	733	32,420

31.12.2014	Gas transmission	Gas storage	Gas distribution	Gas sale	TOTAL
	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000
Net turnover from sale to external customers	5,594	17,610	911	478,961	503,076
Internal income/expenses	20,825	14,179	48,570	(83,574)	-
Profit before taxes	3,187	10,515	12,395	9,225	35,322
Assets	199,995	143,037	254,124	150,814	747,970
Depreciation and amortisation	13,952	7,396	11,633	851	33,832
Purchase of fixed and intangible assets	14,858	8,016	6,499	641	30,014

Profit or loss statement

2. Income

Income from principal activity	2015	2014
	EUR'000	EUR'000
Natural gas trade	425,632	478,915
Natural gas storage	18,025	23,250
Other income from principal activity	1,029	911
	444,686	503,076

3. Costs of materials

Costs of materials	2015	2014
	EUR'000	EUR'000
Natural gas purchase	323,760	376,515
Costs of materials, spare parts and fuel	7,557	10,134
Natural gas for technological purposes	3,235	5,280
	334,552	391,929

6. Other operating costs

Other operating costs	2015	2014
	EUR'000	EUR'000
Costs of maintenance of premises and other services	4,705	4,582
Other costs	3,420	5,603
Donations, financial support	2,309	3,136
Taxes and duties	2,200	2,170
Office and other administrative costs	1,295	1,222
Sale and advertising costs	1,221	1,035
Costs of IT system maintenance, communications and transport	1,011	987
Provisions for bad debts, net*	-	281
	16,161	19,016

* In 2015 the net provisions for bad debts in the amount of 438 thousand EUR were included under other income as income from disposal of assets.

Other income

Other income	2015	2014
	EUR'000	EUR'000
Income from construction of service lines	1,196	1,169
Fines	930	1,241
Income from disposal of assets	829	851
Other income	364	341
	3,319	3,602

4. Personnel costs

Personnel costs	2015	2014
	EUR'000	EUR'000
Salary	22,612	21,149
State social security contributions	4,749	4,346
Life, health and pension insurance	1,405	1,306
Other personnel costs	449	350
	29,215	27,151
including Board and Council remuneration
	2,982	2,279
Annual average number of employees	1,264	1,255

7. Corporate income tax

Corporate income tax	2015	2014
	EUR'000	EUR'000
Corporate income tax	6,057	6,746
Deferred tax	(1,783)	(1,493)
	4,274	5,253

8. Deferred corporate income tax

Deferred tax estimate	2015	2014
	EUR'000	EUR'000
Profit before taxes	34,791	35,322
Tax theoretically calculated with 15% rate	5,219	5,298
Influence of taxes:
Costs not eligible for reduction of taxable income, net	243	1210
Tax reduction on donations	(1,188)	(1,255)
Tax expense	(4,274)	(5,253)

Deferred tax calculation	2015	2014
	EUR'000	EUR'000
Deferred tax liabilities at the beginning of reporting year	54,644	56,447
Increase in deferred tax liabilities from revaluation of fixed assets (against equity)	30	36
Decrease in deferred tax liabilities (included in profit or loss statement)	(1,783)	(1,493)
Deferred tax for revaluated fixed assets disposed (against equity)	(493)	(346)
Deferred tax liabilities at the end of reporting year	52,398	54 644
Temporary differences in deferred tax:
Difference in depreciation of fixed assets (will level out in 12 months)	1,020	2,318
Difference in depreciation of fixed assets (will level out longer than 12 months)	55,381	56,145
Difference in provisions for impairment of bad and doubtful debts (will level out in 12 months)*	(1,528)	(1,128)
Difference in costs accrued for unused leaves and bonuses (will level out in 12 months)	(1,015)	(1,213)
Difference in provisions for post-employment benefits and other liabilities towards employees (will level out longer than 12 months)	(663)	(673)
Difference in other accrued liabilities (will level out in 12 months)	(734)	(739)
Difference in provisions for impairment of slow-movement and outdated inventory (will level out in 12 months)	(63)	(66)
Deferred tax liabilities, net	52,398	54,644

* The calculation includes provisions for the impairment of those bad and doubtful debts which will be eligible for reduction for corporate income tax purposes in near future. The said debtors are at the stage of liquidation.

Balance sheet

9. Intangible assets

Intangible assets	2015	2014
	EUR'000	EUR'000
Initial value
As at the beginning of period	13,346	12,616
Purchased	1,124	860
Written down	(124)	(67)
Adjustment	-	(63)
As at the end of period	14,346	13,346
Amortisation
As at the beginning of period	11,117	9,826
Amortisation over reporting year	1,071	1,379
For write-down	(124)	(25)
Adjustment	-	(63)
As at the end of period	12,064	11,117
Residual value as at December 31	2,282	2,229

The intangible assets include fully depreciated intangible assets witha total intiial value of EUR 7,407 thousand (on 31.12.2014: EUR 7,407 thousand).

10. Fixed assets

Fixed assets	Land	Cushion gas	Buildings, constructions	Marchinery and equipment	Other fixed assets	Costs of items under construction	TOTAL
	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000
31.12.2014	2,584	9,377	1,054,386	133,904	20,956	16,739	1,237,946
Purchased	-	-	-	-	-	31,543	31,543
Reclassified	-	-	32,069	2,507	1,212	(35,788)	-
Revaluated	-	-	195	2	-	-	197
Written down	-	-	(9,117)	(1,390)	(659)	(9)	(11,175)
Adjustment	-	-	1	(5)	(548)	(3)	(555)
31.12.2015	2,584	9,377	1,077,534	135,018	20,961	12,482	1,257,956
Depreciation
31.12.2014	-	-	589,655	71,954	14,662	-	676,271
Calculated	-	-	24,205	6,655	1,837	-	32,697
Written down	-	-	(5,980)	(1,281)	(646)	-	(7,907)
Adjustment	-	-	-	(9)	(546)	-	(555)
31.12.2015	-	-	607,880	77,319	15,307	-	700,506
Residual book value as at 31.12.2015	2,584	9,377	469,654	57,699	5,654	12,482	557,450
Residual book value as at 31.12.2014	2,584	9,377	464,731	61,950	6,294	16,739	561,675

Fixed assets	Land	Cushion gas	Buildings, constructions	Machinery and equipment	Other fixed assets	Costs of items under construction	TOTAL
	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000
31.12.2013	2,584	9,377	1,042,126	131,556	20,770	8,723	1,215,136
Purchased	-	-	-	-	-	29,504	29,504
Reclassified	-	-	15,562	4,812	1,048	(21,422)	-
Revaluated	-	-	239	-	-	-	239
Written down	-	-	(3,541)	(2,464)	(862)	(66)	(6,933)
31.12.2014	2,584	9,377	1,054,386	133,904	20,956	16,739	1,237,946
Depreciation
31.12.2013	-	-	568,164	67,337	13,527	-	649,028
Calculated	-	-	23,679	6,803	1,982	-	32,464
Written down	-	-	(2,188)	(2,186)	(847)	-	(5,221)
31.12.2014	-	-	589,655	71,954	14,662	-	676,271
Residual book value as at 31.12.2014	2,584	9,377	464,731	61,950	6,294	16,739	561,675
Residual book value as at 31.12.2013	2,584	9,377	473,962	64,219	7,243	8,723	566,108

Real estate value according to State Land Service	2015	2014
	EUR'000	EUR'000
Engineering buildings	61,335	59,128
Constructions	10,064	10,038
Land	4,578	4,616

The fixed assets include fully depreciated fixed assets with a total initial value of EUR 18,141 thousand (on 31.12.2014: EUR 13,242 thousand).

11. Inventories

Inventories		31.12.2015 31.12.2014
	EUR'000	EUR'000
Natural gas and fuel (purchase value)	52,592	74,277
Advance payments for natural gas	24,122	-
Materials and spare parts	4,348	6,351
Advance payments for materials	106	63
Provisions for slow-movement inventory	(421)	(438)
	80,747	80,253

Provisions for impairment of slow movement and outdated inventory	2015	2014
	EUR'000	EUR'000
Provisions at the beginning of year	438	461
Costs included in profit or loss statement	3	9
Income included in profit or loss statement	(11)	(30)
Written down	(9)	(2)
Provisions at the end of year	421	438

12. Trade receivables

Trade receivables	31.12.2015	31.12.2014
	EUR'000	EUR'000
Long-term receivables at book value	12	12
Provisions for impairment of long-term receivables	(4)	(4)
	8	8
Short-term receivables at book value	38,059	62,279
Provisions for impairment of short-term receivables	(10,186)	(10,620)

Provisions for impairment of bad and doubtful receivables	2015	2014
	EUR'000	EUR'000
Provisions at the beginning of year	10,722	10,514
Costs included in profit or loss statement	1,708	2,175
Income included in profit or loss statement	(2,145)	(1,894)
Net changes included in profit or loss statement	(437)	281
Bad debts written down	(95)	(73)
Provisions at the end of year	10,190	10,722

14. Deferred income

Deferred income	31.12.2015	31.12.2014
	EUR'000	EUR'000
Income from residential and corporate customers'
contributions to construction of gas pipelines:
Long-term part	19,344	19,468
Short-term part	946	919
	20,290	20,387
Balance at the beginning of	20,387	20,517
year
Received from residential
and corporate customers	827	769
during reporting year
Included in income of
reporting year	(924)	(899)
Transferred to next years	20,290	20,387
Income from EC co-financing:
Long-term part	8,603	8,871
Short-term part	268	268
	8,871	9,139

The provisions for debts were made on the basis of an assessment of financial position and business activity of certain customer tiers. The final losses may differ from those currently estimated because the particular amounts are periodically revised and changes are reflected in the profit or loss statement.

13. Other current assets

Other current assets	2015	2014
	EUR'000	EUR'000
Advance CIT	1,956	469
Prepayments and deferred charges	391	405
Other receivables	193	246
	2,540	1,120
Provisions for impairment of bad and doubtful debts	(92)	(98)
	2,448	1,022

Movement of deferred income:

Balance at the beginning of year	9,139	9,407
EC financing recognised in reporting year	-	2
Included in income of reporting year	(268)	(270)
Transferred to next years	8,871	9,139
Total transfer to next years	29,161	29,526

Under the EC resolution C(2010)5554 dated August 13, 2008 on financial aid to gas and electricity interconnections in the field of Regulation (EC) No.663/2009, the Company was granted financing in the amount of 50% but not exceeding EUR 10 million for the actions No.EEPR-2009-INTg-RF-LV-LT SI2.566527 "Reconstruction of 15 wells at the Inčukalns Underground Gas Storage Facility" and SI2.566531 "Reconstruction of underwater passage across Daugava River and construction of new pipeline service plant". The objects were commissioned in 2011. The unspent portion of financing was used for the reconstruction of two other wells. The last payment from the EC was received in 2013.

15. Other liabilities

Other liabilities	2015	2014
	EUR'000	EUR'000
Prepayments received	12,153	12,111
Value added tax received	9,066	12,789
Other current liabilities	6,897	6,886
Accrued costs for annual performance bonus	5,565	6,850
Excise tax	2,519	2,740
Accrued costs for unused leave	1,245	1,318
Social security contributions	888	848
Salaries	781	752
Individual income tax	554	585
Accrued costs for other expenses	312	403
Natural resource tax	29	65
Real estate tax	17	-
	40,026	45,347

16. Provisions for employment and postemployment benefits

Provisions for employment and post-employment benefits	2015	2014
	EUR'000	EUR'000
Provisions at the beginning of	4,486	5,812
reporting year
Provisions made	159	(1,206)
Paid	(147)	(200)
Interest costs	10	(24)
Revaluations due to changes in	725	104
actuarial assumptions
Provisions at the end of	5,233	4,486
reporting year

Other information

17. Shares and shareholders

Equity	31.12.2015 % of total share capital	31.12.2015 Number of shares	31.12.2014 % of total share capital	31.12.2014 Number of shares
Equity
Registered (closed issue) shares	36.52	14,571,480	36.52	14,571,480
Beared (public issue) shares	63.48	25,328,520	63.48	25,328,520
	100.00	39,900,000	100.00	39,900,000
Shareholders
Uniper Ruhrgas International GmbH (including registered (closed issue) shares 7,285,740)	47.23	18,846,385	47.23	18,846,385
Itera Latvija LLC	16.00	6,384,001	16.00	6,384,001
PJSC "Gazprom" (including registered (closed issue) shares 7,285,740)	34.00	13,566,701	34.00	13,566,701
State-owned shares*	0.00	117	0.00	117
Bearer (public issue) shares	2.77	1,102,796	2.77	1,102,796
	100.00	39,900,000	100.00	39,900,000

*The state-owned shares are held by the Ministry of Economy of the Republic of Latvia.

As at December 31, 2015, the registered, signed and paid share capital consists of 39,900,000 ordinary shares with a par value of EUR 1.40 each. All shares have equal voting rights and rights to dividends.

18. Taxes

Tax movement	Liabilities 31.12.2014	Overpayment 31.12.2014	Calculated 2015	Paid 2015	Liabilities 31.12.2015.	Overpayment 31.12.2015.
	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000	EUR'000
Value added tax	12,789	-	86,805	(90,528)	9,066	-
Excise tax	2,740	-	20,317	(20,538)	2,519	-
Social security contributions	848	-	7,249	(7,209)	888	-
Corporate income tax	-	469	6,057	(7,544)	-	1,956
Individual income tax	585	-	4,606	(4,637)	554	-
Real estate tax	-	-	1,205	(1,188)	17	-
Natural resource tax	65	-	296	(332)	29	-
Retentions from non-residents	4	-	-	(4)	-	-
	17,031	469	126,535	(131,980)	13,073	1,956

Related person transactions

19. Claims and liabilities with related persons

Transactions with related persons	2015	2014
	EUR'000	EUR'000
Income from provision of services
PJSC "Gazprom"	15,140	21,207
Expenses on natural gas purchase
PJSC "Gazprom"	289,422	265,122
Expenses on purchase of services from companies controlled by related companies
Companies controlled by PJSC "Gazprom"	6,523	4,273
E.ON Global Commodities SE	-	25
	6,523	4,298

Claims and liabilities with related persons	31.12.2015	31.12.2014
	EUR'000	EUR'000
Debts to related companies for natural gas and services*
PJSC "Gazprom"	7,893	470
Companies controlled by PJSC "Gazprom"	1,390	402
	9,283	872
Debts of related companies for natural gas transit**
PJSC "Gazprom"	35	2,364
Advance payment to related company for services
PJSC "Gazprom"	24,122	-
Companies controlled by PJSC "Gazprom"	460	1,052
	24,582	1,052

Key principles of accounting and evaluation

These financial statements are based on the accounting and evaluations principles below. The principles have been used in previous years unless stated otherwise. When drawing up the unaudited condensed financial statements of 2015, adjustments have been made to the comparative figures of 2014 to make sure that the respective statements be comparable.

Fixed assets

Buildings, gas transmission and distribution system and equipment are stated at fair value as determined under the policy of revaluation of fixed assets approved by the Board, less accumulated depreciation and impairment charge. Revaluation shall be made with sufficient regularity to ensure the carrying amount not differ materially from that which would be determined using fair value at the end of the reporting period. Revaluation is performed every 5 years using the depreciated replacement cost method. All other fixed assets (including land and cushion gas) are stated at historical cost, less accumulated depreciation and impairment charge. Historical cost includes expenditure directly attributable to the acquisition of the items.

Assets purchased, but not yet ready for the intended use or under installation process are classified under Assets under construction. Subsequent costs are included in the asset's carrying amount or recognised as separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit or loss statement for the financial period wheh they are incurred.

Upon revaluation of fixed assets, the accumulated depreciation is changed in proportion to changes in the gross value of the fixed assets revaluated. Increases in the carrying amount arising on revaluation of buildings, gas transmission and distribution system and equipment are credited to Revaluation reserve in shareholders' equity. Decreases that offset previous increases of the same asset are charged against revaluation reserve directly in equity; any further decreases are charged to the profit or loss statement. The revaluation surplus is transferred to retained earnings on the retirement or disposal of the asset.

Land, cushion gas, advances and assets under construction are not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revaluated amounts to their residual values over their estimated useful lives, as follows:

	years
Buildings	60 - 100
Gas transmission and distribution system	40 - 50
Machinery and technical equipment	5 - 20
Furniture and fittings	5 - 10
Computers and equipment	3.33

The Company's policy is to capitalise fixed assets with cost exceeding EUR 250 and useful life exceeding 1 year. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Costs of borrowing to finance assets under construction and other direct charges related to the particular asset under construction are capitalised during the time that is required to complete and prepare the asset for its intended use, as part of the cost of the asset. Capitalisation of the borrowing costs is suspended during extended periods in which active developments are interrupted.

Gains or losses on disposals are determined by comparing carrying amount with proceeds and are charged to the profit or loss statement during the period when they are incurred. When the revaluated assets are sold, the amounts included in Revaluation reserve are transferred to retained earnings.

Inventories

The cost of natural gas in the Inčukalns UGS and in gas transmission pipelines is determined separately using the firstin first-out (FIFO) method based on the total natural gas movement. The cost of natural gas is composed of the gas purchase cost. The cost of materials, spare parts, gas meters and other inventories is determined using the weighted average method. Direct labour costs attributable to manufacturing costs and other direct costs are attributed by the principle of accruals in the period when incurred.

Inventories are recorded at the lowest between cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less completion and selling expenses. The value of outdated, slow-movement or damaged inventories has been provisioned for.

Trade receivables

Trade receivables are recognised initially at fair value and subsequently carried at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of trade receivables. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivables are impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. Changes in the provisions are included in the profit or loss statement.

If, in the subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as improvement of the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the profit or loss statement.

Accrued unused annual leave expenses

The amount of accrual for unused annual leave is determined by multiplying the average daily wage of employees for the last six months of the reporting year by the amount of accrued but unused annual leave at the end of the reporting year.

Employee benefits

Bonus plans

The Company recognises a liability and expense for bonuses, based on a formula that takes into consideration the profit attributable to the Company's shareholders after certain adjustments. The Company recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

Social security and pension contributions

The Company pays social security contributions for state pension insurance to the state funded pension scheme in compliance with the Latvian legislation. The state funded pension scheme is a fixed-contribution pension plan whereby the Company gas to make payments in an amount specified by law. The Company also pays contributions to an external fixed-contribution private pension plan. The Company does not incur legal or constructive obligations to pay further contributions if the state funded pension scheme or private pension plan is unable to meet its liabilities towards employees. The social security and pension contributions are recognised as an expense on an accrual basis and are included within staff costs.

Post-employment and other employee benefits

Under the Collective Agreement, the Company provides certain benefits upon termination of employment and over the rest of life to employees whose employment conditions meet certain criteria. The amount of benefit liability is calculated based on the current salary level and the number of employees who are entitled or may become entitled to receive those payments, as well as based on actuarial assumptions. The benefit obligation is calculated once per year.

The present value of the benefit obligation is determined by discounting the estimated future cash outflows using the market rates on government bonds. Actuarial gains and losses arisen from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.

Revenue recognition

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

Income from sale of natural gas

Sales are recognised upon delivery of gas, net of value added tax and discounts, excise tax. Sales of natural gas to residential customers are recorded on the basis of meter readings reported by customers. Where relevant, this includes an estimate of the sales volume of gas supplied between the date of the last meter reading and the year-end. Natural gas sales to corporate customers are recognised based on invoice issued according to meter reading of customers.

Income from transmission and storage of natural gas

Income from the rendering of services is recognised upon performance of services, net of value added tax and discounts, but including excise tax. Income on natural gas transmission and storage is recognised based on the actual amount of transmitted and stored gas, which are determined by meter readings.

The applicable natural gas selling price is calculated based on the latest available data. The exchange rate for EUR/USD set by the ECB in the last day of the previous month, the actual gross calorific value of gas in the previous month as well as the planned volume of received and delivered gas are used in the calculation. The actual purchase costs of natural gas are calculated based on methodology approved by the PUC`s Council, taking into account the exchange rate of EUR/USD on the last day of the month when gas is delivered, the actual gas gross calorific value as well as the actual volume of gas purchased from suppliers.

Interest income

Interest income is recognised according to the principle of time proportion using the effective interest rate. Interest income on term deposits is classified as Other income and interest on cash balances is classified as Finance income. The accrual of interest income is ceased, if its recoverability is uncertain.

Penalties income

Contractual penalties, incl. periodic penalties for late payments for natural gas supplied, are recognised when it is certain that the economic benefits associated with the transaction will flow to the Company and the amount of the

Post balance sheet events

During the period since the last day of the annual accounts till the signing of the accounts there have been no events of substantial influence upon the accounts of 2015.

revenue can be measured reliably. Hence, recognition usually coincides with the receipt of penalty.

Income from residents' and enterprises' contribution to financing of construction works

The income from residents' and enterprises' contribution to financing of construction works of gas pipelines is accounted for as deferred income and gradually included in the profit or loss statement over the useful life of the fixed assets, 30 to 40 years on average.

Other income

Income from the rendering of services are recognised when rendered.