JSC "KAUNO ENERGIJA"

CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008

JSC "KAUNO ENERGIJA" CONSOLIDATED ANNUAL REPORT FOR THE YEAR 2008

1.	Period under review for which consolidated annual report is prepared	$\mathfrak{Z}$
2.	Companies composing the group of companies and their contact data	$\sqrt{3}$
3.	The nature of the main activity of the companies composing the group of companies	$\mathfrak{Z}$
4.	The agreements of Issuer with finance broker companies and (or) credit institutions	4
5.	Trade in securities of the companies, forming the group of companies, in regulated markets (the name of
	regulated market, the amount of securities included into trade)	4
6.	Objective review of companies group state, activity and development, characterization of main risk types
	and indetermination with which there is confrontation	4
7.	The analysis of the companies group financial and non-financial activity results, information related to the
	environment and personnel issues	7
8.	References and additional explanations on the data presented in the annual financial report	10
9.	Important events after the end of the previous financial year	10
	10. The plans and forecasts of the activity of the companies group	10
	11. Information on the companies group research and development activity	12
	12. Information on Issuer acquired and own shares	12
	13. Information on financial risk management aims, used insurance measures for main groups of foreseen
	agreements for which accounting of insurance agreements is applied and scope of price risk, credit risk,
	liquidity risk and money flows risk of group of companies when group of companies uses financial means
	and when it is important in evaluation of the property, own capital, obligations, financial state and activity
	results of the group of companies	12
	14. Information on Issuer subsidiary and secondary enterprises	12
	15. The share capital structure of the Issuer	13
	16. Data on issues of the shares of the Issuer	13
	17. Information about the shareholders of the Issuer	15
	18. Employees	16
	19. Order of changes of Regulations of the Issuer	18
	20. Issuer bodies	18
	21. Members of the collegiate bodies, the manager of the company, chief accountant	19
	22. All important agreements of which Issuer is a part and which would come into force, would change or
	end in case of the change of Issuers control as well as their influence with the exception of cases when
	because of the nature of agreements their revealing would cause damage to the Issuer	21
	23. All agreements of the Issuer and members of its bodies or employees which would involve compensation
	in case of their resignation or firing without grounding or if their work would end due to the changes in
	Issuers control	21
	24. Information about major related party transactions	22
	25. Information on the observance of the Governance code of the companies	22
	26. Data about publicly declared information	22
	27. JSC "Kauno energija" report on the compliance with the Governance Code for the companies listed on the
	Stock Exchange NASDAQ OMX Vilnius	24

1. Period under review for which consolidated annual report is prepared

JSC "Kauno energija" consolidated annual report is prepared for the year 2008.

2. Companies composing the group of companies and their contact data

JSC "Kauno energija" (hereinafter – the Company or Issuer) prepares both the Company's and the consolidated financial accountability. The group (hereinafter $-$ the Group) consists of the Company and daughter company $$ closed-end company "Pastatu priežiūros paslaugos" in which the Company directly controls 100 % of the managed shares.

The main data about the Company:

Name of the company:	Joint stock company "Kauno energija"
Legal-organizational form:	Joint stock company
Address:	Raudondvario rd. 84, 47179 Kaunas - 21
Code of the legal person:	235014830
Telephone number:	$(+37037)305650$
$E$ mail:	$info@$ kaunoenergija.lt
Webpage:	www.kaunoenergija.lt
Fax number:	$(+37037)305622$
Registration date and place:	22 August 1997, Kaunas, Order No. 513
Register manager:	Kaunas branch of State enterprise Register Centre
VAT payer code:	LT350148314

On 17 December 2008 the registered authorized capital is LTL 119,510,292 (one hundred nineteen millions five hundred ten thousands two hundred ninety two) and is divided into 19,918,382 (nineteen millions nine hundred eighteen thousand three hundred eighty two) ordinary registered shares of LTL 6 nominal value. 100 thousand units ordinary registered shares on $31$ December 2008 are not paid.

Main data about the daughter company:

Name of the company:	Closed-end company "Pastatų priežiūros paslaugos"
Legal - organizational form:	Closed-end company
Address:	Savanorių ave. 347, 49423, Kaunas - 43
Telephone number:	$(+37037)305959$
E-mail:	$info@$ kaunoenergija.lt
Webpage:	www.p-p-p.lt
Fax number:	$(+37037)311877$
Registration date and place:	1 July, 2006, Kaunas
Code of the legal person:	300580563
Register manager:	Kaunas branch of State enterprise Register Centre
VAT payer code:	LT100002506015

Authorized capital amounts to LTL 6,518,000 and is divided into 65,180 ordinary registered shares of LTL 100 nominal value

3. The nature of the main activity of the companies composing the group of companies

The nature of the main activity of the Group – production and services. Company is the parent company of the Group. The Company produces and sells heat energy to consumers in Kaunas and Jurbarkas cities and in part of Kaunas and Marijampolė administrative districts. Also in small amount it produces electric energy in Kaunas city and Kaunas district. The Group and the Company carries out supervision of lodging heat and hot water supply systems, heating points equipment, carries out the supervision of building constructions and elements, cold water supply, leakage elimination and drainage systems, electricity supply system and performs maintenance works, provides services for natural and legal persons in the supervision of heat economy. The Group and the Company performs licensed activity in accordance with licenses held.

4. The agreements of Issuer with finance broker companies and (or) credit institutions

On 1 April 2003 the Issuer signed service agreement with joint stock company SEB Bankas (company code 1202123, Gedimino ave. 12, Vilnius), represented by the Finance markets department.

5. Trade in securities of the companies, forming the group of companies, in regulated markets (the name of regulated market, the amount of securities included into trade)

The nominal value of Issuer's 19,718,382 units ordinary registered shares (VP ISIN code LT0000123010) is $-$ LTL 118,310,292. They are included into NASDAQ OMX Vilnius Stock Exchange Baltic secondary trade list.

6. Objective review of companies group state, activity and development, characterization of main risk types and indetermination with which there is confrontation

At the end of 2008 the Group covered about 90 % of district heating market in Kaunas city, 95 % in Jurbarkas city and about 15 % of lodging heating and hot water supply systems and heat points equipment supervision market in Kaunas city. To the Company's heat supply integrated and local network were connected 2,333 enterprises, organizations and 115,939 thousand units residents.

Distribution of the Company's heat consumers according to the groups is provided in Picture 1.

In 2008 the Group incurred LTL 4,235 thousand loss, the Company - LTL 4,343 thousand. The Group's income from the main activity amounted to LTL 205,974 thousand, the Company's - LTL 205,233 thousand. The major part of income was received from the sold heat energy: the Group's - 97.95 %, the Company's -98.32 %.

In 2008 the Company's income from heat sale reached LTL 201,79 million and compared with 2007 increased, but this was determined by increased price. Data are provided in Chart 1.

Already today it can be stated that the Group's investments into the newest technologies (the automation of isolated network boiler houses, automated accounting of consumers system, distant data transfer and processing system, modern client servicing system - 'One call' principle), renewal and development of heat supply pipeline helps the Company to quickly adapt to the changes in the market and to become advanced company of heat energy supply and exploitation of engineering systems of buildings in Kaunas region.

In 2008 the Company invested LTL 27,401 thousand (from which LTL 8,592 thousand – funds from other resources – commercial banks), from which LTL 2,627 thousand is allocated to connect 43 new consumers to the centralized heat supply networks, which sum capacity is 11,82 MW. In 2008 from investments funds 1.861 km new heat supply networks were laid and reconstruction and repair of 5.068 km heat supply networks was made. Company's investments are provided in Chart 2.

Investments of the Company in the period 2007-2008

1. Total investments (funds from other financial resources in $2008 LTL$ 8,592 thousand, in $2007 -$ LTL 10,883 thousand);
1. New construction and reconstruction of heat supply networks (funds from other financial resources in 2008) $-LTL$ 6.155 thousand LTL, in 2007 – LTL 9,900 thousand);
1. Liquidation of group heat points (funds from other financial resources in 2008 LTL 3,964 thousand, in 2007 - LTL 3,994 thousand);
1. Production equipments (funds from other financial resources in 2008 LTL 1,199 thousand);
Subsidiary "Jurbarko šilumos tinklai" (funds from other financial resources in 2008 LTL 1,200 thousand, 5. in 2007 - LTL 982 thousand);

Chart 2

Connection of new consumers (funds from other financial resources in 2008 – LTL 2,122 thousand, in 2007 $-LTL$ 1,793 thousand).

The mission of the Company – profitable and competitive Kaunas region energy production, supply and distribution company with which its consumer will have no problems. The vision of the Company – modern, effective and friendly to the environment technology and management, positive public image of the Company.

The strategic aim of the Group is to maintain current position in the market and to expand it. Special attention to the consumer, high work quality are the main values and aims on which the activities of all the Group's employees are based. In order to remain competitive in the market and to offer high quality services for the consumers it is required to constantly to improve quality and efficiency of services of heat supply and maintenance of buildings' engineering systems, to improve reliability of heat supply and to increase efficiency of energy generation.

External risk factors influencing the main activity of the Group are inflation, economical crisis, unfavourable governmental laws and orders, local self-government decisions, price policy.

Economic factors. The Company covers the main heat supplier position in the Kaunas region. In order to maintain it, it is important to adapt to the changing energy supply conditions, to further implement modern and efficient technologies, to provide quality service to the consumers.

The Company's sales depend on heat energy consumption, which directly depends on heat need, which is determined by average outdoor temperature of heating season, on consumers investments into heat saving and rational consumption and on the speed of heat market development. The dynamics of consumers' connections and disconnections is provided in Table 1.

Capacity, MW	2004	2005	2006	2007	2008	таріє т 2004-2008
Consumers disconnections		5,09	2,457	,46	,94	18,73
Consumers connections	9,41 _________	8,4	22 Z ∠∠.	1.58	1.82	73,91

During the connection of new consumers, attention is paid to heat supply development possibilities. The reconstruction of buildings and their insulation reduce buildings heat needs and consumers for the rational heat consumption by controlling lodgings temperature can reduce heat consumption. Now economical situation determined the reduction of residents buying capacity, slowing of commercial and services sector development. Bigger worsening of economical situation would make influence on consumers' solvency and on general heat supply and buildings' supervision services activity results.

Natural gas is main fuel used for generation of energy. Increasing prices of the fuel influence the heat and electricity energy production cost and purchase price of heat energy purchased from the closed-end company Kauno termofikacijos elektrinė (Kaunas Power Plant).

The competition between other gas and electricity supply companies and the Group and the Company is displayed by the disconnections of the consumers from the district heating system (during $2008 - 1.94$ MW) and choosing alternative heat sources (gas, electricity or other fuel). The choice of the fuel kind is regulated by the Kaunas city council decision 'Order of the heat consumers equipment reconnections from the heat supply system and lodgings or change of building heating'.

The Group's and the Company's management structure was changed in 2004.

The activity of the Group and the Company is cyclic. During heating season (October - April) the biggest income is rendered; during non-heating season the production facilities of the Group and the Company are used partially and during this period income is the lowest, but during it the Group and the Company have to prepare for the heating season (reconstruction and maintenance works are being implemented in the heat supply networks and boiler-houses, engineering systems of the buildings).

Political factors. Kaunas city municipality has the controlling package of the Company's shares and, in accordance with the laws of the Republic of Lithuania, can set certain obligatory works, heat energy supply conditions and orders to the main activity of the Group and the Company. According to the heat energy price

$T_{\alpha}LI_{\alpha}$ 1

calculation project provided by the Company the base price of the Company's supplied heat energy is determined by the State Prices and Energy Control Commission. The base price can be recalculated twice per calendar vear according to the activity efficiency increase index set for particular supplier and to the correction coefficients set by the Commission: inflation, fuel prices changes, change in sold heat and other factors. If the recalculated heat price does not differ from the valid heat prices by more than 1 % then it is possible not to change the valid price. The main shareholder is responsible for the election of the members of the Supervisory Board, which controls the management of the Company.

Social factors. The activity of the Group is significant to many residents and companies of the Kaunas region. The Group gets claims mostly for sum of payment billed for the provided services, low quality of services, insufficient attention to the customers.

Technical-technological factors. The most important inside risk is caused by the heat supply systems and their current condition. Insufficient automation level in the heat production infrastructure causes greater need of handwork. Heat supply systems maintained by the Company are reconstructed using the most advanced technologies (poliurethane-foam isolated pipes, for which there is no need for ferro-concrete channels, simpler drainage system) and equipments aiming to increase the efficiency of those systems.

The Country's valid standards and acts which are coordinated with the European Union standards and acts in the field of regulation of qualitative and technical data of heat supply systems oblige the Company to make large investments into modernization of Company's asset. The economical status of the Group and the Company still condition insufficient investments into reconstruction of heat supply networks, renovation and rehabilitation of the equipment and development of the Group and the Company.

Ecological factors. The Group and the Company follow the requirements of the Helsinki Commission (HELCOM) and the Helsinki Convention for environmental limitations for the emissions of combustion products. The main pollution sources are the pollution of the atmosphere – organic fuel burning, water pollution. The Group and the Company pays taxes for the atmosphere and water pollution every quarter. According to the Lithuanian Republic laws fines are paid if the allowable norms of permitted pollutions and vearly limits have been exceeded. The main aims of the Group and the Company for the reduction of pollutants emission are the reduction of the heat transfer losses through the installation of pipes with the poliurethanefoam insulation, implementation of the new technological equipment and improvement of existing ones, the use of more environmental friendly fuel and constant monitoring of the pollution (in the balance of the fuel natural gas dominates – 88 %, heavy fuel oil – 0.1 %, peat – 7 %, biogas – 3 %, wood residues – 2 %).

The repayment of the bank loans: Detailed information is presented in Company's consolidated and the Company's financial statements for the year 2008, Note 12 in the explanatory notes. The Company repays loans in the determined time.

Trials: There are no trials influencing the activity of the Company.

7. The analysis of the companies group financial and non-financial activity results, information related to the environment and personnel issues

In 2008 the Company did not implement activity program because the changes of the planned activity results for the year 2008 were influenced by the decrease of sales amount caused by the decreased heat demand, which was conditioned by the higher heating season average outdoor temperature. Larger costs were conditioned by higher than forecast heat purchase price from independent producer closed-end company Kauno termofikacijos elektrinė.

The comparison of financial rates for the year 2008 with 2007 and 2006 is presented in Table 2.

No.	Index title	Company 's 2006	Group's 2006	Company $\frac{1}{5}$ 2007	Group's 2007	Company $\frac{1}{2}$ \$ 2008	$1$ uvie $2$ Group's 2008
	Net profitability, % (net profit) /sales and services)*100		3.21	$-5.1$	$-5.03$	$-2.1$
	Return on tangible asset, % (net profit/average value of tangible asset $)*100$	4.5	29	$-4.0$

$\overline{7}$

$T₁$ $T₂$ $T₃$

$\overline{3}$	Debt coefficient (liability /asset)	0.35	0.35	0.41	0.41	0.52	0.53
$\overline{4}$	Debt - ownership coefficient
	(liability/ownership of the owners)
	General liquidity coefficient (short	0.54	0.55	0.68	0.70	1.1	1.12
5	term asset /short term liability)	$1.0*$	1.0	0.85	0.85	0.91	0.91
6	The turnover of the asset (sales and
	services /asset	0.87	0.89	0.77	0.79	0.84	0.86
	ETBITA (profit before interest,
$\overline{7}$	profit tax, depreciation and
	amortization) LTL thousand General profitability (general	29,055	25,073	12,055	12,239	16,825	16,987
8	profit/sales and services)*100	0.8	1.1	$-6.1$	$-6.0$	$-1.1$	$-1.4$
	Profitability from main activity
	(activity profit/ sales and
9	services)*100	0.8	1.1	$-6.1$	$-6.0$	$-1.1$	$-1.4$
	Ownership change (ROE) percent
10	(net profit/average ownership of owners)*100	6.8	4.4	$-6.6$
	Asset change (ROA) percent (net				$-6.8$	$-3.7$	$-3.7$
11	profit/average asset)*100	4.4	2.9	$-3.9$	$-4.0$	$-1.9$	$-1.9$
	Urgent payment coefficient ((short
	term asset-storages)/short term
12	liabilities)	0.8	0.8	0.75	0.75	0.84	0.84
	Payment in cash index (cash in account and cash/short term
13	liabilities)	0.1	0.09	0.08	0.08	0.04	0.04
	Net profit per share (net
	profit/average weighted number
14	of the shares in turnover)	0.47	0.30	$-0.43$	$-0.43$	$-0.22$	$-0.21$
15	Net profit, LTL thousand	9,360	5,907	$-8,621$	$-8,626$	$-4,343$	$-4,235$
16	Asset, LTL thousand	211,350	207,154**	219,198	215,227**	244,782	240,520
	The owners' ownership, LTL
17	thousand	129,633	126,180	119,770	116,312	116,627	113,277
	The owners' ownership per share,
18	LTL P/E (last market price of year	7.0	6.8	6.6	6.4	5.9	5.7
	share/(net profit/number of shares
	at the end of the year) price-
19	earnings ratio	9.06	14.4	$-8.01$	$-8.0$	$-9.17$	$-9.41$
20	Sales and services, LTL thousand	183,224	183,734	168,003	169,528	205,233	205,974
20.1	Heat energy	166,172	166,172	162,017	162,017	201,793	201,760
20.2	Electric energy	2,005	2,005	2,694	2,694	506	506
	The supervision of building heating
	and hot water supply systems,
20.3	heating points equipment	6,893	7,403	3,277	4,802	2,934	3,708
21	Share capital, LTL thousand	118,310	118,310	118,310	118,310	119,510	119,510
22	Relation of share capital and asset	0.56	0.57	0.54	0.55	0.49	0.50

$\ast$ decrease was stipulated by the increased financial liability for the current year.

** the asset of the Group is less than that of the Company because of the elimination of LTL 4.5 million asset revaluation for the asset contribution to the subsidiary.

The comparison of non-financial data for the year 2008 with the year 2007 and 2006 is presented in Table 3.

								Taple 5
No.	Index name	Index characterisatio Company' $\mathbf n$	s 2006	2006	Group's Company' s 2007	2007	Group's Company s 2008	Group's 2008
1.	Produced and purchased energy: from it supplied to network	thousand MWh	1,821.1	1,821.1	1,710.1	1,710.1	1,631.2	1,631.2
1.1.	Heat energy supplied to the network	thousand MWh	1,804	1,804	1,692.3	1,692.3	1,607.1	1,607.1
1.2.	Electricity energy	thousand MWh	17.1	17.1	17.8	17.8	2.3	2.3
2.	Sold energy	thousand MWh	1,438.3	1,437.9	1,340.3	1,340.1	1,280.7	1,280.5
2.1.	Heat energy	thousand MWh	1,423	1,422.6	1,324.4	1,324.2	1,278.4	1,278.2
2.2.	Electricity energy	thousand MWh	15.3	15.3	15.9	15.9	2.3	2.3
3.	Reconstructed heat supply route	m	5,499	5,499	3,793	3,793	5,068	5,068
4.	New laid heat supply route	m	3,275	3,275	2,090	2,090	1,861	1,861

The influence of the environment on the activity. The Company's activity result can be influenced by the decrease in sales caused by decrease in heat demand, which is stipulated by the higher heating season average outdoor temperature, changes of fuel prices, heat purchase price from independent producers.

After the increase of fuel prices the costs of the Group and the Company fuel technology (used for the heat generation in production sources belonging to the Group and the Company by the right of ownership) for the sold 1 kWh of heat energy in 2007, compared with 2006, increased 0.26 ct (22.8 %) and amounts to 1.40 ct, in 2008, compared with 2007, increased 0.72 ct (51.4 %) and amounts 2.12 ct. Average price of purchased heat energy in 2008, compared with 2007, increased 1.51 ct (24 %) and amounts to 7.79 ct.

Information related to environment issues: JSC "Kauno energija" in the implementation of it's activity seeks to use nature resources economically, to implement environment friendly technologies based on the requirements of legal acts regulating environmental issues and to use prevention mains, by reducing negative impact on the environment.

Waste management. In the company was organized in it's activity forming waste gathering, sorting and transfer to the waste managers – to the companies having waste management licences. In the year 2008 to the recycling there were transferred 344 tones of mixed communal waste, 0,114 tones of quicksilver lamps, 0,86 tones of electricity and electronic equipment waste, 13,5 tones of fuel oil and diesel fuel waste, 29,8 tones of scrapmetal, 0,220 tones of lead accumulators, 2,140 tones of used tires.

Rainfall management. JSC "Kauno energija" according to the coordinated graphic with Kaunas RAAD constantly observes that from the stationary pollution sources falling rainfall would correspond to the permissible norms, determined in the permissions on pollutant integrated prevention and control.

Air pollution. JSC "Kauno energija" stationary environment air pollutant sources metering laboratory, having permission, given by Environment security agency according to the coordinated graphic with Kaunas RAAD constantly observes that from the stationary pollutant sources thrown out pollutants into the atmosphere would correspond to the permissible norms, determined in the permissions on pollutant integrated prevention and control. In the Ežerėlis, Girioniai and Noreikiškės boiler houses biofuel is burned, so reducing pollution of the atmosphere. In the table, provided below, is the comparison of the amount of the JSC "Kauno energiia" stationary environment air pollution sources into the atmosphere air thrown out pollutant of the year 2008 with the year 2007.

$T₁$

Name of contaminant	Solid parts	Nitrogen oxides	Coal monoxide	Surplur dioxide	Hydrocarbon	Vanadium pentoxide	Other contaminants
Thrown out in the year 2008, t	12,959	67,094	209,778	12,404	27,607	0,007	0.440
Thrown out in the year 2007, t	12,314	75,937	218,854	22,692	28,335	0,053	0,440

For the smoke cleaning from solid parts in Ežerelis and Girioniai boiler houses there are installed cyclones, their work efficiency is controlled annually. Company participates in the trade system of greenhouse effect rising gas emmissions, into this system falls Petrašiūnai power plant, "Pergalė" boiler house, "Šilko" boiler house, Garliavos boiler house, Noreikiškės boiler house with coogeneration power plant, subsidiary "Jurbarko šilumos tinklai".

Information related to personnel issues: The management pays large attention to the increase of efficiency of work and improvement of the consumer service. The level of qualification of the management and specialists correspond their current duties and the length of service of other employees and the knowledge of subject practice permits their work in the current positions. The change of the employees is not a significant problem in the Group and the Company but some need for the qualified specialists can be identified.

8. References and additional explanations on the data presented in the annual financial report and main features on companies group internal control and risk management systems, related to the consolidated financial reports composition

All main financial data is presented in the collection of financial statements for the year 2008 and its explanatory notes.

Internal control of consolidated reports. Composing consolidated financial reports, company units it's and daughter company's financial reports rows consequently adding asset, liabilities, ownership, incomes and costs articles. Further eliminates: company's investments into daughter company's balance value and company's ownership part in daughter company, remains of group's internal balance, transactions, incomes and costs. For this aim evolvent of all transactions, incomes and costs coordinated among them for the period is being prepared, depreciation difference of property input, which is evaluated based on market value, comparing with it's balance value.

For the composition of consolidated group's reports, company's and daughter company's reports are composed the same day. It is being controlled if company's and it's daughter company's finance politics is the same for the similar transactions.

Daughter company's incomes and costs are included into consolidated reports from the acquisition day.

9. Important events after the end of the previous financial year

Since 2006, the audit of the Company is prepared by the independent audit company. In the general shareholders meeting on 28 April, 2006 closed-end company "Ernst & Young Baltic" (audit company certificate No. 0001335, Subačiaus str. 7, LT - 01008 Vilnius) has been chosen for the preparation of the audit of financial activity audit of the Company for the period of 2006–2008.

Audit was completed on 3 March, 2009. It was carried out by the auditor Jonas Akelis (auditor's licence No 000003). Audited financial statements for the year 2008 and independent auditor's report are presented together with this annual report of the Company.

There were no other important events from the end of the previous financial year until the annual report confirmation.

10. The plans and forecasts of the activity of the companies group

In the future the Group in its activity plans to increase the efficiency of activity and to improve consumer service. According to the conclusions of the work "JSC "Kauno energija" technical-economical state

evaluation", prepared by closed-end company "Energetikos linijos" and recommendations provided by closedend company "Savvin" in work "JSC "Kauno energija" financial state and structure evaluation and further development recommendations", prepared in 2008 for the development of Company's activity in 2009 it is foreseen to optimize and to make the Company's activity more efficient by changing its management structure. In addition, the Group plans to implement supervision of buildings heating and hot water supply systems, heat points supervision and exploitation of underground collectors.

Investments create a strong potential for the business development and profitability. The aim of the Group's investment programme for the year 2009 is to further develop the Company's heat production, transmission and supply through increase of heat supply reliability, development engineering systems supervision services and improvement of services quality.

In 2009 for investments it is planned to allot LTL 46.446 million (the Company plans to invest LTL 17.056 million from its own funds and LTL 29.39 million it plans to borrow from commercial banks or to receive grant from EU structural funds). The largest investments in 2009 are planned to allot to the reconstruction and repair of the heat supply networks, laying of new networks, closing of the group heating substations. For the receiving of grants from structural funds, these projects are prepared: (i) The renewal of Kaunas city heat supply networks by implementation of modern technologies (Reconstruction of heat supply networks V. Kreves ave. 82 A., 118 H, Kaunas) unique No. 1997-2035-2018. Total investments sum LTL 15.46 million (excluding VAT), foreseen EU grant of LTL 6 million; (ii) The development of centralized heat supply by building new heat track (heat supply networks from A. Juozapavičiaus ave. 23A up to A. Juozapavičiaus ave. 90). Total investments amount to LTL 6.54 million (excluding VAT), foreseen EU grant of LTL 3.140 million; (iii) "Kaunas city main heat supply networks 6T (unique No.1998-4014-3019) in Kuršių str. 49C, Jonavos str. between NA-7 and NA-9 and networks over bridge through Neris in auto-highway Vilnius – Klaipėda above Kaunas, complex reconstruction for the increase of reliability by implementing modern technologies". Total investments amount to LTL 5.08 million (excluding VAT), foreseen EU grant of LTL 2.384 million; (iv) Reconstruction of Kaunas city integrated network Centre main (4T). Project value amounts to LTL 14.18 million (excluding VAT), foreseen EU grant of LTL 6 million; (v) Reconstruction of Kaunas city integrated network Žaliakalnis main (4Ž). Project value amounts to LTL 9.92 million (excluding VAT), foreseen EU grant of LTL 4.8 million.

In addition, it is foreseen to develop project, Distant data gathering equipment implementation works for the current and new consumers", in 2009 by implementing investment plans it is foreseen to finish heat metering equipment and pressure sensing elements distant data gathering systems installing and implementation, which was carried out in 2008 and further to develop these systems by installing in heat points and also to implement the modernization of boilers, condensate economizer installation in the Company's subsidiary "Jurbarko šilumos tinklai", the changing of heat metering equipments and other important works.

Implementation of these measures will allow to reduce heat production and supply losses and to perform optimization of heat supply to the consumers.

Index title	Company's thousand LTL	Daughter company's thousand LTL	Group's thousand LTL
Total profit (loss)	13,358	$-605$	12,753
Sales income	312,608	2,260	312,903
Cost	299,250	2,865	300,150
Other activity result	315	120	435
Income	1,251	120	1,347
Cost	936	$\Omega$	912
Financial investment activity result	$-2,786$	-8	$-2,794$
Income	1,200	$\theta$	1,200
Cost	3,986	8	3,994
Total profit (loss)	10,887	$-493$	10,394

Planned activity indexes for 2009 are presented in Table 4.

$T_0 h l_2$ $\Lambda$

11. Information on the companies group research and development activity

In 2007 the Company signed an agreement with Kaunas University of Technology for the preparation of the feasibility study "Communal waste burning in Kaunas". Data used in this study used have been in accordance with work "Waste burning feasibility project documentation preparation" performed by the Ministry of Environment and Environment Projects Management Agency. It is strategically important for the Company to find similar new heat source, also there emerges the opportunity in Kaunas city to use alternative fuel (communal waste) and to implement the conversion of used fuel. In March 2008 additional report of the research work "Communal waste burning possibilities project's documentation preparation" was prepared.

Also by the order of the Company Lithuanian energy institute has finished scientific work "JSC "Kauno energija" heat supply system development strategy for the period 2007–2020". According to the technical tasks prepared by the Company it was evaluated technical, economical and financial state of the Company. Mentioned state evaluations are presented in work "Evaluation of JSC "Kauno energija" technical-economical state" prepared by closed-end company "Energetikos linijos" and work "JSC "Kauno energija" financial state and structure evaluation and recommendations for further development" prepared by closed-end company "SAVVIN".

12. Information on Issuer acquired and own shares

(number and nominal value of the patronized company shares, belonging to the company, its subsidiaries or by their assignment, but by their name acting persons)

The Company did not acquire its own shares. Daughter company also did not acquire the Company shares. The Company and it's daughter company during the reporting period did not buy or sell their shares.

Information on financial risk management aims, used insurance measures for main groups of foreseen agreements for which accounting of insurance agreements is applied and scope of price risk, credit risk, liquidity risk and money flows risk of group of companies when group of companies uses financial means and when it is important in evaluation of the property, own capital, obligations, financial state and activity results of the group of companies

All the information on this issue is presented in Notes 2.7, 2.8, 22, 25 of the explanatory notes to the financial statements

14. Information on Issuer subsidiary and secondary enterprises

By the decision of the Company's management the subsidiary of the Company "Jurbarko šilumos tinklai" was established and registered on 9 September 1997, address V. Kudirkos str. 11, 4430 Jurbarkas. In the branch of the Company heat energy is produced and sold to the Jurbarkas city consumers.

On 17 October 2007 JSC "Lietuvos dujos" implemented agreement signed in 2006 by the JSC "Lietuvos" dujos", Jurbarkas district municipality and the Company for the Jurbarkas city gasification and the Company's subsidiary "Jurbarko šilumos tinklai" boiler-house adaptation for the burning of natural gas was finished, heat production and supply reliability was increased and heat production costs were reduced. The Company avoided the need to burn heavy fuel oil with high content of sulphur at the same time avoiding excess of permitted pollution of the atmosphere. In 2008 the construction of new boiler, burned by gas, was completed in the subsidiary of the Company "Jurbarko šilumos tinklai".

At the end of 2008 there were 39 employees working in the Company's subsidiary "Jurbarko šilumos tinklai".

On 1 July, 2006 daughter company of the Company closed-end company "Pastatų priežiūros paslaugos" was established. Address of the daughter company is Savanoriu ave. 347, 49423 Kaunas - 43, company code 300580563. Its share capital amounts to LTL 6,518,000 and is divided into 65,180 ordinary registered shares of LTL 100 par value each. Company owns 65,180 units of closed-end company "Pastatu priežiūros paslaugos" ordinary registered shares.

Daugher company of JSC "Kauno energija" closed-end company "Pastaty priežiūros paslaugos" has no directly or indirectly managed shares packages in other companies.

The activity of closed-end company "Pastatų priežiūros paslaugos" is maintenance of heat and domestic hot water supply systems and equipment of heating substations, maintenance and service of constructional elements, cold water supply, drainage, electricity supply systems in the buildings.

At the end of the year 2008 there were 56 employees working in the daughter company of the Company.

15. The share capital structure of the Issuer

In the Enterprises register of the Republic of Lithuania the registered share capital of the Company is LTL 119,510,292.

The share capital structure of the Company according to the type of shares is presented in Table 5.

Type of shares	Number of shares, units	Par value, LTL	Total nominal value, LTL	Municipalities portion in the share capital, %	l able 5 Private shareholders portion in the share capital, %
Ordinary registered shares	19,918,382		119,510,292	96.42	3.58
Total the property of the control of the control of	$19,918,382*$		119.510.292	96.42	3.58

* 100 thousand units of ordinary shares were not paid for as of 31 December, 2008.

16. Data on issues of the shares of the Issuer

On 17 December 2008 the registered authorized capital is LTL 119,510,292 (one hundred nineteen millions five hundred ten thousands two hundred ninety two) and is divided into 19,918,382 (nineteen millions nine hundred eighteen thousand three hundred eighty two) ordinary registered shares of LTL 6 nominal value. 100 thousand units of ordinary registered shares are not paid for as of 31 December, 2008.

There are no restrictions for transfer of securities.

16.1. Basic characteristics of shares issued into public circulation of securities

No. of registration of stock	A01031430
Number of shares	19,718,382 ORS
Nominal value	LTL $6$
Total nominal value of shares	LTL 118,310,292

The Company's security trading history is presented in Table 6.

					Lavie v
PRICE	2005	2006	2007	2008	2009
Open	1.96	4.18	4.58	3.50	2.00
High	6.30	4.67	4.95	3.80	2.00
Low	2.01	3.05	3.10	1.70	1.41
Last	4.18	4.30	3.50	2.00	1.41
Traded, units	870,151	183,008	138,163	82,775	8,203
Turnover, million	4.19	0.70	0.55	0.26	0.01
Capitalisation, million	79.29	81.56	66.39	37.94	27.80

$T_l$ , $l_l$ , $l_l$

Share prices and turnover history is presented in Chart 2.

Chart 2

$14$

Comparison of JSC "Kauno energija" share price with it's section rate and OMX Vilnius index

Chart 3

17. Information about the shareholders of the Issuer

As of 31 December, 2008 total number of Company's shareholders is 353 shareholders.

Shareholders of the Issuer, who owned more than 5 % of authorized Company's capital (19,918,382 ORS), registered on 17 December, 2008, as of 31 December, 2008 are presented in Table 7. $T_{\alpha}$ _N $\alpha$ 7

	The number of ordinary registered shares		The portion of votes given by	t apie, The portion of votes belonging to the
The name of shareholder, surname (name of the company, type, address, code)	belonging to the shareholder, units	The portion of authorized capital, %	the ownership right belonging shares, %	shareholder together with operating persons, %
Kaunas city municipality Laisvės Ave. 96, 44251 Kaunas Company code 111106319	16,954,892	85.12	85.12
Kaunas district municipality Savanorių Ave. 371, 49500 Kaunas Company code 111100622	1,606,168	8.07	8.07
Other shareholders	713,512	3.58	3.58
Jurbarkas district municipality Dariaus ir Girėno Str. 96, 74187 Jurbarkas Company code 111106276	643,810	3.23	3.23
Total	19,918,382	100	100

17.1. Shareholders who on 31 December 2008 owned more than 5 % of shares of the Company (18,968,382 ORS) released into public circulation of securities (registration No. A01031430) are presented in Table 8.

No shareholders of the Issuer have any special control rights. Rights of all shareholders are equal, which are determined in 4 clause of Law on joint stock companies of the Republic of Lithuania. Number of shares, which grant votes during general meeting of shareholders of the Company, is 19,918,382 units.

The Company is not informed about voting rights limitation and about any shareholders mutual agreements for which could be limited the transfer of securities and (or) voting rights.

Since the establishment of the Issuer there were no dividends allotted to pay.

The name	Type of shares	Number of shares, units	Total value of shares, LTL	Amount of shares $(\% )$ from total number of released into public circulation	Share of authorized capital (%)
Kaunas city municipality Laisvės ave. 96, 44251 Kaunas Company code 111106319	Ordinary registere d shares	16 954 892	101729 352	85,98	85,12
Kaunas district municipality Savanorių ave. 371, 49500 Kaunas Company code 111100622	Ordinary registere d shares	1606 168	9637008	8,15	8,07
Other shareholders	Ordinary registere d shares	713 512	4 281 072	3,62	3,58
Jurbarkas district municipality Dariaus ir Girėno str. 96, 74187 Jurbarkas Company code 111106276	Ordinary registere d shares	443 810	2 662 860	2,25	3,23
		19 718 382	118 310 292	100	100

* Number of shares of the Company released to public circulation and part of share capital in percent differs from the number of shares of the Issuer registered in the Enterprises Register centre and from the part of shares, issued to public circulation, because on 17 December, 2008 100 thousand units of ordinary shares of the Company's from 200 thousand units registered ordinary shares are not paid.

18. Employees

According to the data as of 31 December, 2008, there were 654 employees in the Group. The change of the employees' number in 2008 is presented in Table 9.

						Table 9
Listed number of employees	Company's 31-12-2006	Group's $31 - 12 - 2006$	Company's 31-12-2007	Group's 31-12-2007	Company ⁶ 31-12-2008	Group's $31 - 12 - 2008$
Total	630	735	615	705	598	654
Here: managers		10
specialists	284	308	294	319	295	314
workers	342	417	317	377	299	334

$T_2L_2$ 0

Educational level	Company's 31-12-2006	Group's 31-12-2006	Company ⁶ 31-12-2007	Group's 31-12-2007	Company' 31-12-2008	Table 10 Group's 31-12-2008
Not finished			24	30	2 ³	27
secondary
Secondary	273	321	253	290	241	270
College	17	132	14	135	105	110
Higher	213	241	224	250	229	247
Total	630	735	615	705	598	654

The education of employees of the Company at the end of the period

Average conditional number of employees and average monthly salary (including taxes at the end of $2008$ )

			Table 1.
No.	Employees	Company	Group
1.1.	Average conditional number of managers
1.2.	Average monthly salary of managers	9,461.9	6,741.8
2.1.	Average conditional number of specialists	280	303
2.2.	Average monthly salary of specialists	2,731.9	2,691.5
3.1.	Average conditional number of workers	292	338
3.2.	Average monthly salary of workers	1,964.1	.937.8

Salary of Issuer employees consists of constant salary part, variable salary part, extra pay and bonuses paid according to Work code of the Republic of Lithuania and other laws. Bonuses are paid from net profit if the general shareholders meeting allots profit part to pay bonuses to the Company's employees. Until 2009 the general shareholders meeting has not allotted profit part to pay bonuses to the Issuer employees.

Special rights and duties of employees of the Issuer or their part as laid in collective agreements

According to collective agreement currently effective in the Company:

1. For continuous record of service in the Company employees are granted with additional paid vacations:
. for worked 5 years 1 calendar day:
2 calendar days: $\cdot$ from 6 till 10 years
for more than 10 years 3 calendar days;
fore each further 5 years 1 calendar day;
Record of service is treated as continuous (additional vacation days are granted) in case of employees who have been working in the companies of Lithuanian energy system and transferred into Company on the basis of employers' agreement, i.e. when transfer happened with Work Law Code or Work Contract Law in effect.
1. Employees have a right to receive additional paid vacation days:
· in case of marriage 3 calendar days;
in case of the death of close person (one of the parents or one of the parents of husband or wife, husband or wife, brother, sister, daughter, son or legal foster-child) -3 calendar days:
. in case of childbirth by the wife - 1 calendar day:
in case of marriage of employee's daughter, sun or legal foster-child 3 calendar days.
1. Employer is obliged:
to assure conditions for preventive checking of health of employees and in case of the need arisen rehabilitation treatment, to provide free services in health centre of the Company;
in case of employee to pay grant of two last month average salaries size, free transport or to cover expenses for the transport. The grant is to be paid for the person who was responsible for the burial;
in case of the death of close person of employee (father, mother or husband or wife), to pay grant of one last month average Company's or branch salary size, free transport or to cover expenses for the transport;
. in case of one or more children to pay grant for employee of 50 % last month average Company or branch salary size for each child born;
. in case of marriage of employee to pay grant for employee of 50 % last month average Company or branch salary size:
for employees who are raising three or more children younger than 16 years, widower (widow) or lonely parents who are raising one or more children till 19 years old (if they are attending secondary school) or 21

year old (if they are full-time students of high school) or are caring for other members of the family with heavy or medium level of disability or lower than 55 % level of working capacity or family members of oldage pension age who have, according to the laws, appointed large or average special demand level, to pay once a vear grant for employee of 50% last month average Company or branch salary size according to the date of appeal presentation;

$\cdot$ for employees who reached 50, 60 (in case of women even 55) years and taking into account their continuous record of service in the Company, to pay gift of last month average Company or branch salary size: for those with record of service from 1 to 10 years $-25$ %, from 10 to 15 years $-37.5$ %, from 15 to 20 years 50%, and for more than 20 years $-75\%$ ;
. in all other cases when material support is required (due to experienced casualties from natural disasters or from other reasons independent on the employee) to pay grant up to LTL 2,000 on the agreement of the sides who signed Collective agreement;
. in case of heavy sickness of employee or in case of heavy disaster, to pay grant of five last month average Company's or branch salaries size on the agreement of the sides who signed Collective agreement.

19. Order of changes of Regulations of the Issuer

The Regulations of the Company foresee that general meeting of shareholders of the Company has special right to change Regulations of the Company with exceptions set in Law on stock corporations of the Republic of Lithuania. When making decision on changes of the Regulations 2/3 of votes of shareholders participating in general meeting of shareholders are required.

20. Issuer bodies

According to the Regulations of the Company, the management bodies of the Company are General Meeting of Shareholders, collegiate supervisory body - Supervisory Board, collegiate management body -Management Board and individual management body - General Manager.

The decisions of the shareholders meeting made on the shareholders meeting's competence issues foreseen in the Regulations of the Company are obligatory to the shareholders, Supervisory Board, Management Board and General Manager and for other employees of the Company.

In the General Meeting of Shareholders or repeated General Meeting of Shareholders persons who at the end of the accountability day were Company's shareholders, personally, except exception foreseen in the laws or their authorized persons with whom the agreement of voting right transfer are made have the right to participate and to vote. The registration day of the Company's meeting is the fifth workday before the General Meeting of Shareholders or fifth workday till repeated General Meeting of Shareholders. Person participating in the shareholders meeting and having the right to vote has to provide document testifying the identity of person. Person who is not shareholder together with document testifying the identity of person has to provide the document confirming the right to vote in the shareholders meeting.

The collegiate supervisory body – the Supervisory Board is elected by the General Meeting of Shareholders in compliance with the order foreseen in the Law on stock corporations. The Supervisory Board consists of 7 (seven) Supervisory Board members. Supervisory Board members are elected for the 4 (four) year period. Supervisory Board elects the Chairman of the Supervisory Board from its members. The General Meeting of Shareholders can recall all Supervisory Board or its members before their term of office expires. If the individual members of the Supervisory Board are elected they are elected only for the current Supervisory Board term of office.

Supervisory Board elects and recalls from their duties the members of the Management Board, supervises the activity of the Management Board and General Manager, presents opinions and suggestions for the General Meeting of Shareholders on the Company's activity strategy, annual financial accountability, profit allocation project and Company's annual report, also on the activity of the Management Board and General Manager, provides suggestions for the Management Board and the General Manager to recall their decisions which contradict with the laws and other legal acts, Company's Regulations or decisions of the General Meeting of Shareholders, decides on other issues which are ascribed by the General Meeting of Shareholders to the competence of Supervisory Board, Company's and its Management Bodies activity supervision issues. Supervisory Board has no right to charge or transfer its functions foreseen in the Law on stock corporations to other bodies of the Company.

Management Board is collegiate company's management body, which consists of 7 Management Board members. The Management Board for the 4 (four) years period is elected by the Supervisory Board. Supervisory Board can recall all Management Board or individual its members before their term of office expires. If the individual members are elected, they are elected only for the current Management Board term of office. The Management Board elects the Chairman of the Board from its members.

The Management Board elects and recalls the General Manager of the Company, determines his salary, other work conditions, confirms duty regulations, motivates or assigns penalties.

General Manager is the manager of the Company. The Manager of the Company is individual management body of the Company who organizes the activity of the Company. The authority of the Company's administration members and their responsibility is determined by the order of the General Manager.

21. Members of the collegiate bodies, the manager of the company, chief accountant

(duties, names and surnames, data about participation in the issuer authorized capital, term of office beginning and end of every person, information about calculated money sums of issuer per period under review, other transferred asset and provided guarantees for these persons, total and average amounts for one member of collegiate body, manager of the company, chief accountant)

21.1. Data about the members of the Company's supervisory board:

21.1.1. The members of the Company's supervisory board who's term of office begins on 30-07-2007 ends on $30 - 04 - 2011$

Jonas Koryzna. Doctor of Technical sciences. Member of Kaunas city Municipality Council. Member of City Committees of Economy and Energy, Chairman of Privatization Commision. Chairman of the Company's Supervisory Board. Vice-president of Kaunas Hall of Commerce, Industry and Craft, member of Kaunas Rotary club. Has no shares of the Company. Has shares of FMI "Kapitalo srautai" and FMI "Baltijos vertybiniai popieriai".

Bronislovas Kučinskas. Member of Kaunas city Municipality Council, Member of City Committees of Economy, Energy and Control. Deputy Chairman of the Company's Supervisory Board. Director of Vilnius University's public institution "Regioniniu Projektu Valdymo Centras" (Regional projects management centre). Has no shares of the Company. Does not participate in the capital of other companies.

Jadzė Bartašienė. Teacher-expert of physics in J. Urbšys secondary school, independent expert of Ministry of Education and Science. Has no shares of the Company. Does not participate in the capital of other companies. Pranas Paškevičius. Member of Kaunas city Municipality Council. Member of Committee of Culture, Development of Communities and Self-governance. Member of Committee of Control. Deputy Director of closed-end company "Neogena". Responsible secretary of Lithuanian Movement "Černobilis". Has no shares of the Company. Has no shares of the Company. Has shares of closed-end companies "Siroma", "Neogena", "Nida"

Rimas Antanas Ručys. Member of Kaunas city Municipality Council, member of collegue. Deputy Chairman of Commitee of City Economy and Energy. Director of closed-end company "Ručenta". Has no shares of the Company. Has shares of closed-end company "Ručenta", joint stock company "Stumbras" and joint stock company "Biofuture".

Stasys Žirgulis. Member of Kaunas city Municipality Council. Chairman of Commission for Names Conception and Memory Memorialization. Member of Anti-corruption Commission. Member of Committee of Culture, Development of Communities and Self-governance. Teacher at Vilnius Art Academy's Kaunas Faculty. Member of Lithuanian Union of Paminters, member of Lithuanian association of Art. Has no shares of the Company. Does not participate in the capital of other companies.

Gediminas Žukauskas. Member of Kaunas city Municipality Council, Chairman of Committee of City Economy and Energy. Chief-engineer in closed-end company "Kauno vandenys". Chairman of Panemune Community Center. Has no shares of the Company. Does not participate in the capital of other companies.

During the reporting period there were no count in of money sums, transfers of other assets and no guarantees given for the members of the Supervisory Board.

21.2. Data about the members of the management board

Data about the members of the management board:

Vytautas Mikaila. Doctor of Technical sciences. Director of closed-end company "MVE group". From 16 December, 2008 Chairman of the Company's management board. From 02-02-2009 Consultant of General Manager on Strategy at Company. Has no shares of the Company. Has 55 % of closed-end company "MVE group" shares.