ANNUAL REPORT FOR THE YEAR 2010 TAURON POLSKA ENERGIA S.A.

Transcription

1 ANNUAL REPORT FOR THE YEAR 2010 TAURON POLSKA ENERGIA S.A. KATOWICE, 15 MARCH 2011

2 Ladies and Gentlemen, I have the pleasure of presenting to you the Annual Report of TAURON Polska Energia for the year It is an exceptional report as it is the very first time it has been published by TAURON operating as a public company. To the Company and the entire TAURON Group, last year was exceptional it was a period of intense work and preparations to float on the Warsaw Stock Exchange. In June 2010, TAURON debuted on the Warsaw floor. Total value of the shares sold as part of the initial public offering amounted to over PLN 4.2 billion. It is worth emphasising that with respect to the value, TAURON s offering was the second largest offering in the industry in Europe and the seventh largest offering among all the companies debuting in Europe in The offering enjoyed enormous interest, which translated into a very high number of institutional investors, both Polish and foreign, and 231 thousand individual investors, which puts our offering among the largest IPOs realised in Poland to date. In December 2010, Company shares became part of the flag WIG20 Index, which confirms that we belong to the most important companies listed on the Warsaw trading floor. The year 2010 was the second complete year of execution of the TAURON Group s corporate strategy the overall objective of which is a systematic increase of value. The Group s target business model provides for the establishment of one company within every business area. We have already established one supply company, TAURON Sprzeda (Supply), and an entity handling the clients, TAURON Obs³uga Klienta (Customer Service). In 2011, we plan to establish one company within the Distribution Area and to integrate companies within the Generation Area and the Heat Area. Last year, we either commenced or continued works on a series of investment projects the objective of which is development of new generation capacities or modernisation of the existing ones, among others in Jaworzno, Stalowa Wola, Bielsko-Bia³a or Tychy. We also continued works on projects regarding renewable energy generation and distribution. By 2020, we intend to launch wind farms of total capacity of 440 MW. We were also active within the Mining Area. In April 2010, TAURON and Kompania Wêglowa signed a contract pertaining to framework conditions of acquisition by TAURON of the Boles³aw Œmia³y mine in aziska and of the stock of Po³udniowy Koncern Wêglowy owned by Kompania Wêglowa. Finalisation of the project, which will contribute to a significant increase of safety of fuel supplies to the Group s power plants and to an increase of coal output by 1.6 million tons annually, ought to take place by the end of Financial results generated by the Company in 2010 provide reasons for optimism. Revenues from supply amounted to approximately PLN 7.2 billion (an increase by 2.9% as compared to 2009) while the Company s net income amounted to PLN million, which means an increase by 3.2% as compared to Good results are primarily a result of the increased volume of electricity supply. In 2010, the Company maintained its high capability of balancing its liabilities, which is reflected by safe values of financial liquidity indicators. In 2010, within the Group we implemented a cash pooling mechanism the primary objective of which is to ensure financial liquidity while limiting the costs of short-term external funding and maximising financial revenues from the excess cash held. In December 2010, the Company issued bonds of the value of PLN 850 million, resources from which were allocated to the restructuring of a part of the debt of the subsidiary companies. At the same time, as part of a central model of management of the TAURON Group finances, we launched a programme of issue of internal bonds, in accordance with which cash resources are managed in the medium- and long-term perspective. With reference to general corporate issues, worth emphasising is the fact that since the date of admission of the shares to trade on the regulated market we have been applying corporate governance principles arising from the document entitled Best Practice for WSE-Listed Companies. We want TAURON to stand out with respect to transparency and quality of relations with investors. Moreover, last year we also implemented the Code of TAURON Group which governs matters related to the establishment, organisation and operation of TAURON Group and ensures realisation of corporate objectives. In 2010, we continued the process of concentration of operational functions within the TAURON Polska Energia Corporate Centre; in particular, we had completed the process of centralisation of wholesale trade in electricity. Last year, TAURON supplied 35.6 TWh of electricity, which constitutes an increase by 6.9% as compared to the supplies realised in In May 2010, the Company obtained the status of a member of the EPEX Spot SE in Paris, and in September 2010, via our subsidiary TAURON Czech Energy s.r.o., it became a member of the Prague-based Power Exchange Central Europe (PXE). Plans related to the development of TAURON Group on the Czech market include growth of wholesale trade in electricity and supply of electricity to end customers. Due to the dynamic growth of markets in Central and Eastern Europe, we are considering further development of the Group s activities conducted abroad. On behalf of the Management Board of TAURON Polska Energia, I wish to cordially thank both the employees of the TAURON Group for their involvement in the development of the Group s market position and all the Company shareholders for their confidence in our activities. I am convinced that we shall jointly develop a modern and dynamic power group, and that the development strategy pursued will contribute to the increase of the Group s market value. Dariusz Lubera President of the Management Board

3 Selected financial information of TAURON Polska Energia S.A. Selected financial information 2010 period from to in thousands PLN 2009 period from to period from to in thousands EUR 2009 period from to Income on sales Operating profit Profit before taxation Net profit Total comprehensive income Earnings per share (in PLN/EUR) (basic and diluted) 0,12 0,12 0,03 0,03 Weighted average number of shares (in items) (basic and diluted) Net cash flows from operations ( ) (55 619) Net cash flows from investments ( ) ( ) Net cash flows from financial activity ( ) (43 747) Net change of cash and cash equivalents ( ) (31 922) As of As of As of As of Fixed assets Current assets Total assets Primary capital Total equity Long-term liabilities Short-term liabilities Total liabilities The aforementioned financial information for 2010 and 2009 has been calculated into EUR in accordance with the following rules: particular items of the statement of financial situation in accordance with the average NBP exchange rate announced as of 31 December PLN/EUR (as of 31 December PLN/EUR), particular items of the statement of comprehensive income and statement of cash flows in accordance with the exchange rate which constitutes an arithmetic mean of average NBP exchange rates announced on the last day of each month of the financial period from 1 January 2010 to 31 December PLN/EUR (for the period from 1 January 2009 to 31 December PLN/EUR).

4 The Polish original should be referred to in matters of interpretation. Translation of auditors report originally issued in Polish. INDEPENDENT AUDITORS OPINION To the General Shareholders Meeting and the Supervisory Board of TAURON Polska Energia S.A. 1. We have audited the attached financial statements for the year ended 31 December 2010 of TAURON Polska Energia S.A. ( the Company ) located in Katowice at Lwowska Street 23, containing statement of financial position as at 31 December 2010, the statement of comprehensive income, the statement of changes in equity, the statement of cash flow for the period from 1 January 2010 to 31 December 2010 and the summary of significant accounting policies and other explanatory notes ( the attached financial statements ). 2. The truth and fairness 1 of the attached financial statements, the preparation of the attached financial statements in accordance with the required applicable accounting policies and the proper maintenance of the accounting records are the responsibility of the Company s Management Board. In addition, the Company s Management Board and Members of the Supervisory Board are required to ensure that the attached financial statements and the Directors Report meet the requirements of the Accounting Act dated 29 September 1994 (2009 Journal of Laws No. 152 item 1223 with subsequent amendments the Accounting Act ). Our responsibility was to audit the attached financial statements and to express an opinion on whether, based on our audit, these financial statements comply, in all material respects, with the required applicable accounting policies, whether they truly and fairly 2 reflect, in all material respects, the financial position and results of the operations of the Company and whether the accounting records that form the basis for their preparation are, in all material respects, properly maintained. 3. We conducted our audit of the attached financial statements in accordance with: chapter 7 of the Accounting Act, national auditing standards issued by the National Council of Statutory Auditors, in order to obtain reasonable assurance whether these financial statements are free of material misstatement. In particular, the audit included examining, to a large extent on a test basis, documentation supporting the amounts and disclosures in the attached financial statements. The audit also included assessing the accounting principles adopted and used and significant estimates made by the Management Board, as well as evaluating the overall presentation of the attached financial statements. We believe our audit has provided a reasonable basis to express our opinion on the attached financial statements treated as a whole. 1 Translation of the following expression in Polish: rzetelność i jasność 2 Translation of the following expression in Polish: rzetelnie i jasno

5 The Polish original should be referred to in matters of interpretation. Translation of auditors report originally issued in Polish. 4. In our opinion, the attached financial statements, in all material respects: present truly and fairly all information material for the assessment of the results of the Company s operations for the period from 1 January 2010 to 31 December 2010, as well as its financial position 3 as at 31 December 2010; have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and based on properly maintained accounting records; are in respect of the form and content, in accordance with legal regulations governing the preparation of financial statements and the Company s Articles of Association. 5. We have read the Directors Report for the period from 1 January 2010 to 31 December 2010 and the rules of preparation of annual statements ( the Directors Report ) and concluded that the information derived from the attached financial statements reconciles with these financial statements. The information included in the Directors Report corresponds with the relevant regulations of the Decree of the Minister of Finance dated 19 February 2009 on current and periodic information published by issuers of securities and conditions for recognition as equivalent the information required by laws of non-eu member states (Journal of Laws No. 33, item 259). on behalf of: Ernst & Young Audit sp. z o.o. Rondo ONZ 1, Warsaw Reg. No 130 Key certified auditor Artur Żwak Certified auditor No Warsaw, 1 March Translation of the following expression in Polish: sytuacja majątkowa i finansowa 2/2

6 TAURON POLSKA ENERGIA S.A. LONG-FORM AUDITORS REPORT ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010

7 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) I. GENERAL NOTES 1. Background TAURON Polska Energia S.A. (hereinafter the Company ) was incorporated on the basis of a Notarial Deed dated 6 December 2006 under the name Energetyka Południe S.A. Change of the name into TAURON Polska Energia S.A. was registered by the District Court on 16 November The Company s registered office is located in Katowice at Lwowska Street 23. On 8 January 2007 the Company was entered in the Register of Entrepreneurs of the National Court Register maintained by the Katowice Wschód District Court in Katowice VIII Commercial Department of the National Court Register, Entry No. KRS The Company was issued with tax identification number (NIP) on 13 March 2007 and statistical number (REGON) on 11 December The Company is the holding company of the TAURON Polska Energia S.A. capital group. Details of transactions with affiliated entities and the list of companies in which the Company holds at least 20% of shares in the share capital or in the total number of votes in the company s governing body are included in Notes 33 and 8 of the explanatory notes ( the additional notes ) to the audited financial statements for the year ended 31 December The principal activities of the Company are as follows: activities of head offices and holdings, electricity trade. As at 31 December 2010, the Company s issued share capital amounted to 15,772,945 thousand zlotys. Equity as at that date amounted to 16,523,681 thousand zlotys. In accordance with the information included in Note 22 of the additional notes to the accompanying financial statements as at 31 December 2010, the ownership structure of the Company s issued share capital was as follows: Number of shares Number of votes Par value of shares % of issued share capital State Treasury 735,361, ,361,897 6,618, % KGHM Polska Miedź S.A. 81,822,499 81,822, , % Other shareholders 935,364, ,364,998 8,418, % Total 1,752,549,394 1,752,549,394 15,772, % =========== =========== ========= ======= This is a translation of a document originally issued in the Polish language. 2/13

8 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) According to information obtained from the Company, the following changes took place in the structure of the Company s issued share capital during the period from 1 January 2010 to 31 December Number of shares Par value of shares Balance as at 1 January ,986,283,558 13,986,284 Issuance of the shares related to merger 318,665, ,665 Balance before the share consolidation 14,304,948,858 14,304, Reverse split (the share consolidation ) -12,715,510,096 - Balance after share consolidation 1,589,438,762 14,304, Issuance of shares covered by contribution in kind 163,110,632 1,467, Balance as at 31 December ,752,549,394 15,772,945 =========== ========= On 10 June 2010, the Company merged with its subsidiaries ENION Zarządzanie Aktywami sp. z o.o. and Energomix Servis sp. z o.o. As a result of the merger, the Company issued 318,665 thousand shares with a total nominal value of 318,665 thousand zlotys. In June 2010, the Company conducted a share consolidation process pursuant to which the nominal value per share increased from 1 to 9 Polish zlotys, what has reduced the number of shares from 14,304,948,858 to 1,589,438,762. As a result of the share consolidation the share capital has not changed. On 30 June 2010, the State Treasury carried out a public offering of the shares of TAURON Polska Energia S.A. as a result of which individual and institutional investors acquired 51.6% of the Company s shares. On 9 September 2010, the Company and the State Treasury concluded an agreement for acquisition of the Company s shares by the State Treasury, by way of a private subscription, under which, the State Treasury acquired 163,110,632 ordinary shares with a total nominal value of 1,467,996 thousand zlotys. On 10 November 2010, based on the resolution of the Extraordinary General Shareholders Meeting of TAURON Polska Energia S.A., the share capital was decreased by way of decreasing the nominal value of shares. The share capital was decreased by 7,010,198 thousand zlotys, from 15,772,945 thousand zlotys to 8,762,747 thousand zlotys, by decreasing the nominal value of each share by 4 zlotys, from 9 zlotys to 5 zlotys. Following the completion of the convocation proceedings on 25 February 2011, on 28 February 2011 an application was filed with the Katowice Wschód District Court in Katowice for registration of the share capital decrease with the National Court Register. As of the date of this report the share capital decrease has not been registered. There were no movements in the share capital during the period from the balance sheet date to the date of the opinion. This is a translation of a document originally issued in the Polish language. 3/13

9 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) As at 1 March 2011, the Company s Management Board was composed of: Dariusz Lubera Joanna Schmid Dariusz Stolarczyk Krzysztof Zamasz Krzysztof Zawadzki - President - Vice President - Vice President - Vice President - Vice President The following changes took place in the Company s Management Board composition during the reporting period: on 31 August 2010 Mr. Stanislaw Tokarski resigned from the position of Vice President, with effect from 1 October 2010 Mrs. Joanna Schmid was appointed to the Management Board for the position of Vice President. On 24 February 2011 the Supervisory Board appointed the current Management Board to the third term. This is a translation of a document originally issued in the Polish language. 4/13

10 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) 2. Financial Statements On 7 June 2010 the Extraordinary General Shareholders Meeting decided on preparation of the financial statements in accordance with International Financial Reporting Standards as adopted by the EU. 2.1 Auditors opinion and audit of financial statements Ernst & Young Audit sp. z o.o. with its registered office in Warsaw, at Rondo ONZ 1, is registered on the list of entities authorised to audit financial statements under no Ernst & Young Audit sp. z o.o. was appointed by the Supervisory Board on 29 October 2010 to audit the Company s financial statements. Ernst & Young Audit sp. z o.o. and the key certified auditor meet the conditions required to express an impartial and independent opinion on the financial statements, as defined in Art and 56.4 of the Act on statutory auditors and their self-governance, audit firms authorized to audit financial statements and public oversight, dated 7 May 2009 (Journal of Laws 2009, No. 77, item 649). Under the contract executed on 19 November 2010 with the Company s Management Board, we have audited the financial statements for the year ended 31 December Our responsibility was to express an opinion on the financial statements based on our audit. The auditing procedures applied to the financial statements were designed to enable us to express an opinion on the financial statements taken as a whole. Our procedures did not extend to supplementary information that does not have an impact on the financial statements taken as a whole. Based on our audit, we issued an unqualified auditors opinion dated 1 March 2011, stating the following: To the General Shareholders Meeting and the Supervisory Board of TAURON Polska Energia S.A. 1. We have audited the attached financial statements for the year ended 31 December 2010 of TAURON Polska Energia S.A. ( the Company ) located in Katowice at Lwowska Street 23, containing statement of financial position as at 31 December 2010, the statement of comprehensive income, the statement of changes in equity, the statement of cash flow for the period from 1 January 2010 to 31 December 2010 and the summary of significant accounting policies and other explanatory notes ( the attached financial statements ). This is a translation of a document originally issued in the Polish language. 5/13

11 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) 2. The truth and fairness 1 of the attached financial statements, the preparation of the attached financial statements in accordance with the required applicable accounting policies and the proper maintenance of the accounting records are the responsibility of the Company s Management Board. In addition, the Company s Management Board and Members of the Supervisory Board are required to ensure that the attached financial statements and the Directors Report meet the requirements of the Accounting Act dated 29 September 1994 (2009 Journal of Laws No. 152 item 1223 with subsequent amendments the Accounting Act ). Our responsibility was to audit the attached financial statements and to express an opinion on whether, based on our audit, these financial statements comply, in all material respects, with the required applicable accounting policies, whether they truly and fairly 2 reflect, in all material respects, the financial position and results of the operations of the Company and whether the accounting records that form the basis for their preparation are, in all material respects, properly maintained. 3. We conducted our audit of the attached financial statements in accordance with: chapter 7 of the Accounting Act, national auditing standards issued by the National Council of Statutory Auditors, in order to obtain reasonable assurance whether these financial statements are free of material misstatement. In particular, the audit included examining, to a large extent on a test basis, documentation supporting the amounts and disclosures in the attached financial statements. The audit also included assessing the accounting principles adopted and used and significant estimates made by the Management Board, as well as evaluating the overall presentation of the attached financial statements. We believe our audit has provided a reasonable basis to express our opinion on the attached financial statements treated as a whole. 4. In our opinion, the attached financial statements, in all material respects: present truly and fairly all information material for the assessment of the results of the Company s operations for the period from 1 January 2010 to 31 December 2010, as well as its financial position3 as at 31 December 2010; have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and based on properly maintained accounting records; are in respect of the form and content, in accordance with legal regulations governing the preparation of financial statements and the Company s Articles of Association. 1 Translation of the following expression in Polish: rzetelność i jasność 2 Translation of the following expression in Polish: rzetelnie i jasno 3 Translation of the following expression in Polish: sytuacja majątkowa i finansowa This is a translation of a document originally issued in the Polish language. 6/13

12 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) 5. We have read the Directors Report for the period from 1 January 2010 to 31 December 2010 and the rules of preparation of annual statements ( the Directors Report ) and concluded that the information derived from the attached financial statements reconciles with these financial statements. The information included in the Directors Report corresponds with the relevant regulations of the Decree of the Minister of Finance dated 19 February 2009 on current and periodic information published by issuers of securities and conditions for recognition as equivalent the information required by laws of non-eu member states (Journal of Laws No. 33, item 259). We conducted the audit of the Company s financial statements during the period from 29 November 2010 to 1 March We were present at the Company s head office from 29 November to 3 December 2010 and from 31 January to 4 February Representations provided and data availability The Management Board confirmed its responsibility for the truth and fairness 4 of the financial statements and the preparation of the financial statements in accordance with the required applicable accounting policies, and stated that it had provided us with all financial information, accounting records and other required documents as well as all necessary explanations. The Management Board also provided a letter of representations dated 1 March 2011, confirming that: the information included in the books of account was complete, all contingent liabilities had been disclosed in the financial statements, and all material events from the balance sheet date to the date of the representation letter had been disclosed in the financial statements. In the representation letter there was confirmed that the information provided to us was true and fair to the best of the Management Board s knowledge and belief, and included all events that could have had an effect on the financial statements. 4 Translation of the following expression in Polish: rzetelność i jasność This is a translation of a document originally issued in the Polish language. 7/13

13 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) 2.3 Financial statements for prior financial year The Company s financial statements (prepared in accordance with Polish Accounting Regulations) for the year ended 31 December 2009 were audited by Artur Żwak, key certified auditor no. 9894, acting on behalf of Ernst & Young Audit sp. z o.o. with its seats in Warsaw, Rondo ONZ 1, registered on the list of entities authorized to audit financial statements under no The key certified auditor issued an opinion on the financial statements for the year ended 31 December 2009 with emphasis of matter considering preparation of consolidated financial statements. The Company s financial statements for the year ended 31 December 2009 were approved by the General Shareholders Meeting on 4 March 2010, and the shareholders resolved to appropriate the 2009 net profit in the amount of 184,535 thousand zlotys as follows: reserve capital 176,159 payment of the profit to State Treasury 8, ,535 ======== The financial statements for the financial year ended 31 December 2009, together with the auditors opinion, a copy of the resolution approving the financial statements, a copy of the resolution on the appropriation of profit and the Directors Report, were filed on 8 March 2010 with the National Court Register. The balance sheet as at 31 December 2009, the profit and loss account, statement of changes in equity and cash flow statement for the year ended 31 December 2009, together with the auditors opinion, a copy of the resolution approving the financial statements and a copy of the resolution on the appropriation of profit were published in Monitor Polski B No. 850 on 24 May This is a translation of a document originally issued in the Polish language. 8/13

14 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) 3. Analytical Review 3.1 Basic data and financial ratios Presented below are selected financial ratios indicating the economic or financial performance of the Company for the years The ratios were calculated on the basis of financial information included in the financial statements for the year ended 31 December The selected financial information and data for 2008 were not presented as the Company has changed in 2010 the accounting policies to International Financial Reporting Standards as adopted by the EU and the comparable data for earlier periods are not available Total assets 18,445,185 14,755,018 Shareholders equity 16,523,681 14,226,493 Net profit/ loss Return on assets (%) 1.03% 1.25% Net profit x 100 Total assets Return on equity (%) 1.15% 1.30% Net profit x 100 Shareholders equity Profit margin (%) 2.7% 2.6% Net profit x 100 Sales of finished goods, goods for resale and raw materials Liquidity I Current assets Short-term creditors Liquidity III Cash and cash equivalents Short-term creditors Debtors days 31 days 17 days Trade debtors x 365 Sales of finished goods, goods for resale and raw materials This is a translation of a document originally issued in the Polish language. 9/13

15 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) Creditors days 28 days 27 days Trade creditors x 365 Costs of finished goods, goods for resale and raw materials sold Stability of financing (%) 94.2% 96.4% (Equity + long-term provisions and liabilities) x 100 Total liabilities, provisions and equity Debt ratio (%) 10.4% 3.6% (Total liabilities and provisions) x 100 Total assets Rate of inflation: yearly average 2.60% 3.50% December to December 3.10% 3.50% 3.2 Comments The following trends may be observed based on the above financial ratios: The return on assets ratio for the year 2010 was 1.03% and was lower in comparison to 2009, when it reached 1.25%. The return on equity ratio for the year 2010 was 1.15% and was lower in comparison to the year 2009, when it reached 1.30%. Profit margin ratio for the year 2010 was 2.7% and was slightly higher in comparison to the year 2009, when it reached 2.6%. The liquidity I ratio increased as at 31 December 2010 to the level of 1.13 in comparison to 1.09 as at 31 December The liquidity ratio III increased as at 31 December 2010 to the level of 0.49 in comparison to the level of 0.41 as at 31 December Debtors days ratio increased in 2010 to 31 days in comparison to 17 days in Creditors days ratio in 2010 reached 28 days and was slightly higher in comparison to the year In the analyzed period, the Company has preserved a very high level of stability of financing ratio and inconsiderable debt ratio. This is a translation of a document originally issued in the Polish language. 10/13

16 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) 3.3 Going concern Nothing came to our attention during the audit that caused us to believe that the Company is unable to continue as a going concern for at least twelve months subsequent to 31 December 2010 as a result of an intended or compulsory withdrawal from or a substantial limitation in its current operations. In Note 2 of the additional notes to the audited financial statements for the year ended 31 December 2010, the Management Board has stated that the financial statements were prepared on the assumption that the Company will continue as a going concern for a period of at least twelve months subsequent to 31 December 2010 and that there are no circumstances that would indicate a threat to its continued activity. This is a translation of a document originally issued in the Polish language. 11/13

17 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) II. DETAILED REPORT 1. Accounting System The Company s accounts are kept using the IFS Finance computer system at the Company s head office. The Company has up-to-date documentation, as required under Article 10 of the Accounting Act dated 29 September 1994 (2009 Journal of Laws No. 152 item 1223 with subsequent amendments the Accounting Act ), including a chart of accounts approved by the Company s Management Board. During our audit no material irregularities were noted in the books of account which could have a material effect on the audited financial statements and which were not subsequently adjusted. These would include matters related to: the reasonableness and consistency of the applied accounting policies; the reliability of the accounting records, the absence of errors in the accounting records and the trail of entries in the accounting records; whether business transactions are supported by documents; the correctness of opening balances based on approved prior year figures; consistency between the accounting entries, the underlying documentation and the financial statements; fulfillment of the requirements for safeguarding accounting documents and storing accounting records and financial statements. 2. Assets, Liabilities and Equity, Profit and Loss Account Details of the Company s assets, liabilities and equity and profit and loss account are presented in the audited financial statements for the year ended 31 December Verification of assets and liabilities was performed in accordance with the Accounting Act. Any differences were adjusted in the books of account for the year Additional Notes The additional notes to the financial statements for the year ended 31 December 2010 were prepared, in all material respects, in accordance with International Financial Reporting Standards as adopted by the EU. This is a translation of a document originally issued in the Polish language. 12/13

18 Long-form auditors report for the year ended 31 December 2010 (in thousand zlotys) 4. Directors' Report We have read the Directors report on the Company s activities in the period from 1 January 2010 to 31 December 2010 and the basis for preparation of annual financial statements ( Directors Report ) and concluded that the information derived from the attached financial statements reconciles with these financial statements. The information included in the Directors Report corresponds with the relevant provisions of the Decree of the Minister of Finance dated 19 February 2009 on current and periodic information published by issuers of securities and conditions for recognition as equivalent the information required by laws of non-eu member states (Journal of Laws No. 33, item 259). 5. Conformity with Law and Regulations We have obtained a letter of representations from the Management Board confirming that no laws, regulations or provisions of the Company s Articles of Association were breached during the financial year. on behalf of: Ernst & Young Audit sp. z o.o. Rondo ONZ Warsaw Reg. No. 130 Key certified auditor Artur Żwak Certified auditor No Warsaw, 1 March 2011 This is a translation of a document originally issued in the Polish language. 13/13

19 STATEMENTS OF THE MANAGEMENT BOARD OF TAURON POLSKA ENERGIA S.A.

20 STATEMENT of the Management Board of TAURON Polska Energia S.A. on the compliance of the financial report prepared in accordance with International Financial Reporting Standards for the year ended 31 December 2010 and the Management Board s report on the activities of TAURON Polska Energia S.A. for the year of 2010 I, the undersigned, represent that, to my best knowledge, the financial report of TAURON Polska Energia S.A., prepared in accordance with International Financial Reporting Standards, for the year ended 31 December 2010 and comparable figures have been prepared in accordance with applicable accounting rules and give the true and fair picture of the assets, financial standing and performance of TAURON Polska Energia S.A. and TAURON Polska Energia S.A. Capital Group. I also certify that the report on the activities of TAURON Polska Energia S.A. gives the true picture of the development, achievements and situation of TAURON Polska Energia S.A. Capital Group, including the description of key risks and threats. The Management Board Members: Dariusz Lubera President of the Management Board... Joanna Schmid Vice-President of the Management Board... Dariusz Stolarczyk Vice-President of the Management Board... Krzysztof Zamasz Vice-President of the Management Board... Krzysztof Zawadzki Vice-President of the Management Board... 1 March 2011 date

21 STATEMENT of the Management Board of TAURON Polska Energia S.A. on the appointment of an entity authorised to audit financial reports (the financial report prepared in accordance with International Financial Reporting Standards for the year ended 31 December 2010) I, the undersigned, represent that an entity authorised to audit financial reports and review the financial reports of TAURON Polska Energia S.A., prepared in accordance with International Financial Reporting Standards, for the year ended 31 December 2010 was appointed in accordance with legal regulations, and this entity and auditors examining the reports met conditions for developing an impartial and independent report on the review of the audited annual financial report in accordance with applicable regulations and professional standards. The Management Board Members: Dariusz Lubera President of the Management Board... Joanna Schmid Vice-President of the Management Board... Dariusz Stolarczyk Vice-President of the Management Board... Krzysztof Zamasz Vice-President of the Management Board... Krzysztof Zawadzki Vice-President of the Management Board... 1 March 2011 date

22 Financial statements prepared according to the International Financial Reporting Standards for the year ended 31 December 2010 including the independent auditor s report

23 Financial statements for the year ended 31 December 2010 (in PLN thousands) TABLE OF CONTENTS: STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER STATEMENTOFFINANCIALPOSITIONASAT31DECEMBER2010 continued... 7 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER EXPLANATORYNOTES General information Basis of preparation of financial statements New standards and interpretations issued but not yet effective Summary of significant accounting policies Foreigncurrencytranslation Businesscombinations Property,plantandequipment Intangibleassets Impairmentofnon-financiallong-termassets Borrowingcosts Financialassets Impairmentoffinancialassets Sharesinsubsidiaries,associatesandjointventures Derivative financial instruments Othernon-financialassets Inventories Trade and other receivables Cashandcashequivalents Issuedcapital Provisions Appropriationofprofitforemployeepurposesandspecialfunds Loans,borrowingsanddebtsecurities Tradeandotherpayables Othernon-financialliabilities SocialFund Leases Taxes Revenue Costs Otheroperatingincomeandexpenses Financeincomeandfinancecosts Earningspershare Statement of cash flows Significant judgments and estimates Changes in estimates First-timeadoptionofIFRSs Sharesinunlistedandlistedrelatedentities CompositionoftheBoardofDirectors

24 Financial statements for the year ended 31 December 2010 (in PLN thousands) 10. Seasonalityofoperations Segment information Operatingsegment Operationsbygeographicalareas Revenuesandexpenses Financeincome Financecosts Costsbytype Depreciation/amortization expense and impairment losses recognized in the statement of comprehensive income Employeebenefitsexpenses Incometax Tax expense in the statement of comprehensive income Reconciliation of the effective income tax rate Deferredincometax Socialassets,SocialFundliabilities Dividendspaidandproposed Intangibleassets Sharesinunlistedandlistedcompanies Inventories Trade and other receivables Cashandcashequivalents Othercurrentnon-financialassets Issuedcapitalandotheritemsofequity Issuedcapital Shareholderswithsignificantinterest Reservecapital Retainedearningsandrestrictionsondistribution Earningspershare Employeebenefits Provisions Leases Operatingleasecommitments Financeleaseandhirepurchasecommitments Interest-bearingloansandborrowings,includingissueddebentures Capitalcommitments Contingentliabilities Othernon-financialliabilities Deferredincomeandgovernmentgrants Businesscombinations Relatedpartydisclosures Transactions with related companies and State Treasury companies Compensationofkeymanagementpersonnel Financialinstruments Carryingamountsandfairvaluesofthecategoriesandclassesoffinancialinstruments Items of income, expense, gains and losses recognized in the statement of comprehensive income, by category of financialinstruments Detailsofsignificantitemswithintheindividualcategoriesoffinancialinstruments Financialriskmanagementobjectivesandpolicies Interestraterisk Currencyrisk

25 Financial statements for the year ended 31 December 2010 (in PLN thousands) Commoditypricerisk Creditrisk Liquidityrisk Marketrisk sensitivityanalysis Currencyrisksensitivityanalysis Interestraterisksensitivityanalysis Capitalmanagement Employmentstructure Auditor s fees Eventsafterthebalancesheetdate

26 Financial statements for the year ended 31 December 2010 (in PLN thousands) STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2010 Note Year ended 31 December 2010 Year ended 31 December 2009 Continuing operations Sale of goods for resale, finished goods and materials Rendering of services Other income Sales revenue Cost of sales ( ) ( ) Gross profit Other operating income Selling and distribution expenses (12 493) (4 859) Administrative expenses (95 789) (58 965) Other operating expenses (652) (315) Operating profit Finance income Finance costs (6 476) (4 733) Profit before tax Income tax expense 13 (8 321) (31 772) Net profit from continuing operations Net profit for the period Other comprehensive income: Total comprehensive income for the period Earnings per share (in PLN) 23 basic, for profit for the period 0,12 0,12 basic, for profit from continuing operations for the period 0,12 0,12 diluted, for profit for the period 0,12 0,12 diluted, for profit from continuing operations for the period 0,12 0,12 Explanatory notes are an integral part of these financial statements. This is a translation of the financial statements originally issued in Polish. 5

27 Financial statements for the year ended 31 December 2010 (in PLN thousands) STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010 ASSETS Note As at 31 December 2010 As at 31 December 2009 As at 1 January 2009 Non-current assets Property, plant and equipment Intangible assets Shares in unlisted and listed companies Bonds, T-bills and other debt securities Other long-term non-financial assets Deferred tax asset Current assets Inventories Corporate income tax receivables Trade and other receivables 19, Bonds, T-bills and other debt securities Other financial assets Other current non-financial assets Cash and cash equivalents Non-current assets classified as held for sale TOTAL ASSETS Explanatory notes are an integral part of these financial statements. This is a translation of the financial statements originally issued in Polish. 6

28 Financial statements for the year ended 31 December 2010 (in PLN thousands) STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010 continued Note As at 31 December 2010 As at 31 December 2009 As at 1 January 2009 EQUITY AND LIABILITIES Equity Issued capital Reserve capital Retained earnings/accumulated losses Total equity Non-current liabilities Interest-bearing loans and borrowings 27, Finance lease and hire purchase commitments 26.2., Long-term provisions and employee benefits Current liabilities Trade and other payables Current portion of interest-bearing loans and borrowings 27, Current portion of finance lease and hire purchase commitments 26.2., Other current liabilities Accruals and government grants Short-term provisions and employee benefits 24, Total liabilities TOTAL EQUITY AND LIABILITIES Explanatory notes are an integral part of these financial statements. This is a translation of the financial statements originally issued in Polish. 7

29 Financial statements for the year ended 31 December 2010 (in PLN thousands) STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2010 Note Issued capital Reserve capital Retained earnings/ Accumulated losses Total equity As at 1 January Profit for the period Other comprehensive income Total comprehensive income for the period Appropriation of prior year profits 15, ( ) Issue of shares Payment from profit Dividends 15 Surplus of the value of shares contributed over thenominalvalueofissuedcapital Accounting for merger with subsidiaries 22.4., As at 31 December STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009 Note Issued capital Reserve capital Retained earnings/ Accumulated losses Total equity As at 1 January Profit for the period Other comprehensive income Total comprehensive income for the period Appropriation of prior year profits 15, (4 449) Issue of shares Payment from profit (8 376) (8 376) Dividends 15 (51 167) (51 167) Redemption of treasury shares (245) (245) As at 31 December Explanatory notes are an integral part of these financial statements. This is a translation of the financial statements originally issued in Polish. 8

30 Financial statements for the year ended 31 December 2010 (in PLN thousands) STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2010 Note Year ended 31 December 2010 Year ended 31 December 2009 Cash flows from operating activities Profit/(loss) before taxation Adjustments for: Depreciation and amortization (Gain)/loss on foreign exchange differences 44 (31) Interest and dividends, net ( ) ( ) (Gain)/loss on investing activities (259) 67 (Increase)/decrease in receivables ( ) ( ) (Increase)/decrease in inventories (9 129) (109) Increase/(decrease) in payables excluding loans and borrowings Change in other non-current and current assets (37 960) (6 272) Change in deferred income, government grants and accruals Change in provisions Income tax paid (7 206) (43 265) Other 37 Net cash from (used in) operating activities ( ) Cash flows from investing activities Proceeds from sale of property, plant and equipment and intangible assets 11 2 Purchase of property, plant and equipment and intangible assets (6 970) (7 281) Proceeds from sale of bonds, T-bills and other debt securities Purchase of bonds, T-bills and other debt securities ( ) (12 226) Purchase of shares in related entities (80 711) (4 223) Dividends received Interest received 192 Other Net cash from (used in) investing activities ( ) Cash flows from financing activities Acquisition of treasury shares (245) Payment of finance lease liabilities (811) (548) Issue of debt securities Redemption of debt securities ( ) Dividends paid (51 167) Interest paid (178) (4 039) Other disbursments to owners (8 376) Other (1 700) (760) Net cash from (used in) financing activities ( ) Net increase/(decrease) in cash and cash equivalents ( ) Net foreign exchange difference (44) 31 Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period, of which: restricted cash Explanatory notes are an integral part of these financial statements. This is a translation of the financial statements originally issued in Polish. 9